Emerging markets around Italian hub

The growing economies of countries bordering the eastern and southern shores of the Mediterranean Sea are shaping up to be a huge market for wind power. Somewhere in the region of 54 GW is already being called for by North Africa and countries east of Italy by 2020. On the eve of the first Mediterranean wind event, being held in Rome next month, this special report looks at progress so far in the region and what lies ahead.

Italian wind power, blessed with high purchase prices and a national government that appears intent on creating a thriving market, continues to attract investment from far and wide. Regional governments, however, remain far from convinced they want wind turbines on their territory

The growing economies of countries bordering the eastern and southern shores of the Mediterranean Sea are shaping up to be a huge market for wind power. Somewhere in the region of 54 GW is already being called for by North Africa and countries east of Italy by 2020. On the eve of the first Mediterranean wind event, being held in Rome next month, this special report looks at progress so far in the region and what lies ahead

Italy, one of the Mediterranean rim's most buoyant wind power markets, has just become the eighth country in the world to join the 3 GW club, having hooked up several wind farms in the past two months. With some of the highest prices paid for wind generated electricity anywhere, project developers and investors in Italy appear undeterred by the rising number of regional authorities trying to block or limit wind farm development, the latest being Calabria and Molise. Installed capacity by the end of 2008 will reach 3300-3500 MW, up from 2726 MW at the close of 2007, itself a record year with 603 MW of new wind capacity going online.

Hundreds more megawatts are planned. The government is looking for 12,000 MW of installed wind capacity by 2020, with offshore projects accounting for 2000 MW of that -- a target set by the previous administration. International investors are flooding in.

"While it's true there are municipal planning obstacles in Italy, you also have a very interesting underlying mechanism that is offering interesting prices," says Keith Hays of Emerging Energy Research (EER), an information service. As well as extending the period in which green certificates for renewables power are issued from 12 to 15 years, Italy's 2008 budget set a new reference price of EUR 0.18/kWh for wind power purchases, to be achieved through the combined revenue from the sale of electricity and the sale of certificates (Windpower Monthly, February 2008). The reference price is a guide for market operator Gestore dei Servizi Elettrici, which must set the price for green certificates in its possession should there be a shortage of them in the market.

Temporary glitch

Currently there are more certificates on the market than the law requires, driving their price down and resulting in an overall dip in the combined certificate and electricity wind purchase rates to EUR 0.15/kWh. This lower price, still relatively high compared to that in other countries, is viewed by the industry as a temporary glitch caused by a number of factors, most notably low renewable energy obligations on electricity retailers.

The government's 2008 budget tackled the problem by raising the annual increase in the percentage of green power that electricity retailers are legally required to include in their sales from 0.35% to 0.75%. This means a retailer will need to source 7.55% of its electricity from renewables in 2012, up from 3.8% in 2007.

Simone Togni of Associazione Nazionale Energia del Vento, the Italian wind energy association, says the economy ministry is working on a number of fine-tuning measures to the current incentive scheme. New regulations are planned for this autumn, with one of the key measures expected to be a mechanism to guarantee stability in the price of green certificates. With such positive government action on the cards, very few green certificate transactions are actually taking place at present, says Togni. Those companies that can afford to wait are sitting tight for the moment.

Another factor attracting local and international wind developers alike is that there is less of a utility presence in Italy relative to other markets, says EER's Hays. "That leaves a lot of room for independent power producers," he says. "It is not like you are going up against Iberdrola and Acciona in Spain."

Christof Stork of Garrad Hassan agrees. "Last year we saw International Power move into the market by taking over projects that were originally developed by Italian Vento Power Corporation," he says. "That trend of big international players moving into the market continues." The projects in the deal were 495 MW of operating plant and 67 MW under construction, which were sold by Italian Vento Power Corporation (IVPC) originally to Irish firm Trinergy in 2005 and 2006 (Windpower Monthly, March 2006), before being sold on last year to International Power.

Utilities and independents

The big utilities are far from blind to Italy's prospects, however. Spanish Iberdrola has entered the market, forming a joint venture with the renewable energy arm of Italian oil group API Holding. The venture is developing seven wind farms totalling 350 MW. Construction work on the first three is already underway in southern Italy. Similarly, the renewable energy division of British utility Scottish and Southern Energy, Airtricity, has formed its own venture with Italian developer Entropya, while RWE Innogy Italia, a subsidiary of German utility RWE, has formed a partnership with Fri-el, one of Italy's biggest wind developers.

The other big utility in the frame is Italy's own Enel. The utility previously had only modest aims for wind development at home, but recently signalled a change in attitude, announcing plans to more than quadruple its wind capacity in Italy. It is targeting 1490 MW by 2012, up from 331 MW today.

In the meantime, smaller independents are still in the frame. Danish wind developer Greentech Energy Systems and France's Theolia each secured development portfolios in the country of around 500 MW at the end of last year (Windpower Monthly, January 2008). For its part, IVPC, the undisputed old hand of the Italian wind market, continues to power along. The developer was wresponsible for 28% of all wind capacity installed in Italy by the end of 2007, which includes the assets now owned by International Power. It is also responsible for around 45% of the new capacity added so far this year.

Regional discontent

Italy's southern regions have been the focus for project developers, with Apulia, Sicily, and Campania the three leading regions so far. Along with Calabria these regions are expected to see the most capacity installed over the next two years based on plans already approved. Activity is also starting to slowly pick up in the central Italian region of Lazio while projects are also going forward in those parts of the island of Sardinia where wind farm construction has not been disallowed.

A significant impediment for developers, however, is continued opposition from some regional authorities in these key markets, says Stork. "The market can be defined as generally positive, but with the continuous surprise of new obstacles, mainly the decisions of some regions to make wind energy difficult," he adds.

Calabria's regional government, dealing with a flood of wind power project applications, is the latest to apply the brakes, says Stork. By mid June, 134 MW of wind plant was installed in Calabria, over 100 MW was building, and more permitted projects are on the way. In reaction, the region has placed a moratorium on new project approvals.

Apulia's regional government did the same thing in 2005, but was forced to end its moratorium by the Italian courts. In Sardinia, a moratorium on wind development, was imposed in 2004 and lifted in 2006. A subsequent cap for installed wind capacity of just 550 MW has been lifted, but limitations on where wind plant can be site remain relatively strict. Developers planning projects in Calabria are hoping the region goes the route of Apulia rather than Sardinia.

Offshore ban

Meanwhile, a wind development regulation introduced by the Molise government has outraged Italy's national government so much it has taken legal action against it in the constitutional courts. The outcome could have widespread implications for the wind market in Italy. Molise's regulation imposes a total ban on offshore wind development and sets strict limits on onshore development. As such, it scuppers plans by Milan's Effeventi to develop a 162 MW wind farm off the Molise coast.

The project is Italy's most advanced offshore development to date, having cleared the national government's environmental screening process to get approval from the environment ministry. Until the Molise regulation was introduced, the project only seemed to need approval from the transport ministry, which grants concessions to use Italy's marine territory. In its court action, the national government argues it has sole authority regarding offshore plans, as stated in the 2008 budget, although the budget contained only scant guidelines on offshore wind farms. Molise and some other authorities, including Apulia, insist that for offshore projects regional governments should have the same role they have in authorising onshore plant.

The court's decision could effect projects planned for elsewhere in the country, including a proposed 345-575 MW offshore wind farm off the coast of Sicily being developed by a joint venture comprising Enel and Sicilian developer Moncada Energy Group. "The local municipalities have protested a bit but we are trying to look at compensation with them," says Salvatore Moncada. "In a moment in which local government administrations continue to have fewer financial resources, this [project] can present an opportunity to have some." Sicily, which had 585 MW of installed wind capacity by the end of 2007, is one of the country's leading regions for wind development -- Moncada alone is constructing 250 MW of wind projects there.

In addition to its court action, the national government hopes to ease regional planning difficulties for wind developers with the launch of national guidelines for the siting of wind farms. First mooted in a 2003 renewable energy law, economic development minister Claudio Scajola has pledged they will finally be ready by the end of this year. Scajola has recently come out strongly in favour of nuclear energy, but he has also vowed to eliminate bureaucratic obstacles in order to achieve a greater proportion of renewables in Italy's energy supply mix.

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