Certificates working but permitting still a problem -- Italian market on the move

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A requirement for electricity retailers to source a growing portion of their power to renewable resources finally translated into a noticeable boost to the Italian market last year, although continued bureaucratic obstacles and a full-stop halt to wind projects in Sardinia helped to put some market participants in a less than euphoric mood at the onset of 2005.

New wind plant development in Italy last year amounted to 357 MW, bringing cumulative capacity to 1265 MW, reports Italy's Ente Per le Nuove Tecnologie, l'Energia e l'Ambiente (ENEA), the main government agency responsible for promoting alternative energy sources. A small portion of the 357 MW total was still awaiting grid connection at December 31. It represents significantly increased activity from the roughly 100 MW seen in the previous two years.

Project developers are clearly adjusting to the switchover to a market based on trade of green electricity certificates. Electricity retailers buy certificates from green power producers to demonstrate they are meeting the government's renewable energy requirement. "The system has started to function," says Paolo Montanari, of Italian wind consultant company MX Matrix. Initially set at 2% in 2002, the renewables requirement has grown by 0.35% increments to 2.7% in 2005 and will reach 3.05% in 2006. Later this year, the government is expected to set new renewable thresholds for the 2007 to 2009 period to help Italy to meet its Kyoto commitments. The Italian government is aiming at a target of 2500 MW of installed wind power by 2008-2012.

Although the market is settling down, doing wind business in Italy is as frustrating as ever. Industry players are still waiting for the Italian government to approve a number of follow-up decrees to a key renewable energy law that went into effect a year ago, including a measure to drastically streamline the tangled site permitting process and to put into place a more uniform procedure at national level. Instead of numerous local and central authorities deciding separately on permit requests, the aim is for them to all meet at one time, a system that could go a long way to resolving Italy's problems with red tape. Another measure would split up renewable obligations between regions.

"Until these decrees are approved, I don't believe the future is that rosy," says Oreste Vigorito of Italiano Vento Power Corporation (IVPC), the Italian-American venture responsible for half of Italian wind capacity. Vigorito notes that Italy still has a way to go before achieving an annual growth potential he places as high as about 500 MW. IVPC, which to date has used Vestas turbines, foresees it will have another 120 MW up and running this year, but Vigorito notes that only 20 MW of the total was authorised last year, with the remainder dating back to 2003.

trouble spot

Other developers also point to slow going with authorisation of projects in certain regions. Sardinia is a particular trouble spot. Wind development work in there has been blocked after the approval in November of a law to safeguard the island's coastal areas. The Italian government, which had been betting on Sardinia to play a predominant role in provision of wind power, has challenged the regional law in the country's constitutional court. Individual companies have also challenged the government's decision at the administrative court level, but almost no one is betting the situation will be resolved shortly.

"Sardinia is a pathological case and has created great problems for various investors," says Montanari. All the same, after last year's improvement, he remains optimistic. "Big investors are cautious, but if you look at their development plans each has their objective of 50 MW or so." A growing number of smaller developers and the involvement of a number of local utilities also supports the market, while several developers are in the building phase.

For its part, the big Italian utility Enel expects to have an additional 50-80 MW of wind turbines in the ground this year and recently exceeded a total capacity of 200 MW, with an eye at reaching 400 MW in the next two years. Like others, Enel is facing trouble in Sardinia. Vittorio Vagliasindi, the head of Enel's renewable energy operations, says the group has the "near certainty" that two of three wind plant projects currently underway will not go ahead; the third is likely to be salvaged by the fact that installation was already well-advanced. "We're optimistic on our development plans anyway because we have the capacity to do twice as much as our objective. If you want to install ten megawatt you need the capacity to do twenty."

Edison Energie Speciali (Edens), another key player in Italy's wind power business, says that it plans to add another 30 MW to its existing 240 MW by year-end, with the aim of achieving 400 MW by 2007.

spanish debut

One significant feature of the 2004 market was the debut on the Italian wind generation scene of Spanish utility Endesa. It currently operates 20 MW in Sardinia, fortunately through its purchase of an already operational wind station. Endesa Italia is aiming to reach 450 MW within the next four or five years. Of this, 200 MW is expected to come through a three-year framework agreement to acquire wind developments from Gamesa, an accord that also ties Endesa to the use of Gamesa turbines on those deals. In January, Endesa acquired IDAS, the owner of a 90.5 MW wind project development portfolio, from a company controlled by investment firm Babcock & Brown.

Electricité de France, operating with Bolzano-based Italian developer Fri-El Green Power, is also among the foreign utilities that have been attracted to the Italian wind market, as has Belgium's Electrabel.

New developments have also occurred on the supply side. After a trickle of sales last year, Spain's Gamesa charged into the Italian market, putting up 125 MW and challenging Vestas' supremacy (table). But with a score of 170 MW in 2004, the Danish company so far remains the dominant player; its turbines make up around 800 MW of the Italian total so far. That could change. American GE Energy broke into the market in a big way last year, installing a 33 MW plant and sealing contracts with Enel and developer Sistemi Energetici, respectively, for 71 and 42 of its 1.5 kW turbines, a grand total of 170 MW.

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