High prices in a short term market -- Certificate rate hike

Prices for electricity generated by wind power plants in Italy are set to go up again following an increase in green certificate prices announced by the country's electricity regulator, Gestore dei Servizi Elettrici (GSE). In October, the regulator set the 2006 certificate reference price at EUR 0.12582/kWh, an increase on 2005's EUR 0.10892/kWh and 2004's EUR 0.09739/kWh. The market structure has caused a wind development rush in Italy, which at around 2000 MW of operating plant is vying with Britain for fourth place in Europe in terms of installed capacity.

Wind power generators may sell their certificates on the open market to supplement a wind power purchase price of around EUR 0.065/kWh. The certificates are bought by other power producers or utilities as part of their obligation to source an increasing percentage of their power from renewable energy, currently set at 3.05% for 2006. To date, the certificate prices fetched on the market managed by GSE have matched the reference price, although buyers and sellers may agree on slightly lower prices in bilateral trades.

"When compared with other countries, the tariff for wind energy in Italy is extremely good," says Christof Stork in the Italian office of wind energy consultancy Garrad Hassan.

Until this year, green certificates were only awarded for the first eight years of production, but the period has been extended to 12 years. Repowering projects -- replacement of old wind turbines with new -- are also eligible for certificates. Furthermore, they no longer have to secure new planning permits, says Stork, a considerable saving on cost.

While welcoming the expanded time frame in which green certificates are issued, the Italian industry is concerned about the short term approach taken by the regulator and the government in their insistence on setting prices or targets annually. As a result, investment decisions are taken on a year-by-year basis. Italian wind energy association Associazione Nazionale Energia del Vento has asked GSE to provide long term forecasts for future green certificate prices to provide greater certainty for investors.

More than the pricing system itself, Claudio Casale of electricity sector research group CESI Ricerca sees uncertainty tied to the future level of the requirement for green power on which certificate prices are based. The government has not even set the requirement for 2007, he notes.

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