The 70 MW Rovigo solar plant in northeast Italy Source: Sun Edison

The future of an industry hangs in the balance as Italy’s government is trying to hold back the cost of its rapid growth in renewables, especially PV. Jackie Jones examines whether the Italian solar sector will come crashing down as Rome pulls in its horns.

Jackie Jones

In 2010, Europe’s PV market entered a new dimension, and Italy played a key part in that. Figures released by industry association EPIA this spring indicated that new PV installations across Europe totalled 12.5 GW, for the first time overtaking installations of new wind. PV accounted for 21 per cent of all new power generating capacity. Yet as Italy’s numbers for 2010 continue to be processed, it appears that figure across Europe may need to be updated to something nearer 14 GW.

The solar industry, and Italy, have shown what they can deliver. Yet it’s been clear for many months that Italy’s market incentives had stayed too high to be sustainable. During the past three months, the government has been looking for solutions, some of which have horrified the solar industry, which justifiably fears an abrupt downturn of the kind that Spain experienced. A cap that would have meant the almost immediate end to feed-in tariffs has been avoided, but even though the final details were revealed at the end of April, some of the information trickling out unofficially or in press statements kept the industry in a state of alarm.

Italy’s PV sector is balancing on the edge of a cliff. What’s more, a new support mechanism is unsettling wind power. Biomass support is also under review. It’s a difficult time for investors in Italian renewables.

In recent years, both the solar PV and wind sectors have grown quickly in Italy. Fired up by its green certificate system, Italy installed over a gigawatt of new wind in 2009, and almost a gigawatt in 2010, bringing it to almost 5.8 GW total installations.

It was in 2002 that Italy’s green certificate system was introduced to support wind power, and the installation rate grew steadily, reaching about 1 GW/year for 2006 to 2009. Last year the number was down by about 15 per cent on 2009 – due in part to the financial climate, and in part to the uncertainty about prospective changes to the country’s regulatory framework (in the EU as a whole, new wind slipped 10 per cent from 2009 to 2010). Early this year, the country’s total installed wind was estimated at 5.8 GW – that puts it in third place in Europe (though leaders Germany and Spain are far ahead with over 20 GW each). The target for 2020 is 12.68 GW – although the Italian Wind Energy Association believes that, given improved transmission and simplified administration, 16 GW could be installed by then.

Since the introduction of a feed-in tariff for solar PV in 2005, Italy has also become a leader in solar – installations grew steeply from 60 MW of new PV in 2007 to 6 GW or more (still being counted) of new PV in 2010, way in excess of industry or government expectations.

The government is not alone in having concerns about the affordability of renewables incentives. In February this year, Italy’s energy regulator was reported by newspaper Corriere della Sera as saying renewables incentives could cost as much as €5.7 billion ($8.5 billion) during 2011. The cost of Italy’s FiTs, as in many countries, is passed on to electricity consumers via their regular bills. The government is concerned that consumers cannot be expected to bear the burden of higher-than-planned FiT charges – for if tariffs are set in such a way that the market grows faster than anticipated, then consumers have to start bearing the cost sooner than anticipated, as well. Italy’s PV tariffs have remained high even though technology prices have fallen, and Italy has certainly shot well ahead of its planned growth trajectory.

Barclays Capital PV analyst Vishal Shah wrote in a briefing to investors that it is increasingly likely that Italy will have to pay for 6 GW worth of subsidies at the 2010 FiT rate. This would mean that the subsidy burden would cost Italy €44 billion over the next 20 years – according to Barclays’ calculations, this translates as an increase to Italian consumers from 0.25 euro cents/kWh in 2009 to 1.42 euro cents/kWh in 2010, representing six per cent of the electricity bill. By comparison, he pointed out that Germany’s subsidy burden is €25 billion, while Spain’s stands at €17 billion.

Given that Italy’s electricity market is less than 60 per cent the size of Germany’s – according to IEA figures, Italy consumed 309 317 GWh of electricity in 2008, and Germany 525 549 GWh – and that the output from PV is significantly higher in Italy due to its latitude, the percentage contribution of each kWp PV to the overall electricity consumption is higher in Italy than in Germany. And the higher performance also means that a system owner is going to get a higher rate of return from their investment – IRRs in the range of 20 per cent are apparently not uncommon.

The path to 2020

Given Italy’s rapid growth in wind and PV over the past few years, alongside its existing hydro and geothermal interests, it may be surprising to hear that Italy is one of just two EU Member States that currently expect to fall short – albeit only slightly – of their 2020 binding target for renewable energy production (a target encompassing electric power, heating/cooling and transport).

Italy’s target, set in 2009, is for 17 per cent of total energy consumption to be met by renewables by 2020. But the national renewable energy action plan (NREAP) for 2020, submitted to the European Commission at the end of 2010, anticipates reaching 16.2 per cent. Italy plans to meet the shortfall by co-operating with neighbouring countries.

In formulating its NREAP, Italy has set a much less steep growth curve for renewable electricity than for renewable heating and cooling. Renewable electricity produced 16.9 per cent of electricity consumed in Italy in 2005, and this year’s figure is anticipated at over 19 per cent. By 2020, that’s targeted to rise to 26.4 per cent of the expected electricity consumption. By contrast, Germany is aiming for 38.6 per cent of its electricity from renewables by 2020, while Italy’s small neighbour Slovenia targets 39.3 per cent and Greece 39.8 per cent.

Heating and cooling – a big vision for 2020

Italy is one of only a handful of EU Member States to focus heavily on the heating and cooling sector to attain its renewable energy target. In 2005 renewable heating and cooling accounted for 2.8 per cent of the total, expected to reach 7.09 per cent this year and to grow to 17.09 per cent in 2020.

In comparison, Germany is expecting to expand its heating and cooling from 9.4 per cent to 15.5 per cent, and Greece to raise its already high base of over 16 per cent to 19.7 per cent by 2020. It’s not really fair to draw simplified comparisons of the national plans, given the variation in countries’ targets, overall market size, and starting points, but it does give Italy’s numbers some context – and Italy does seem to have a remarkably steep hill to climb.

A 2 MW PV installation at San Mauro in Basilicata in the south of Italy Source: Enerqos

Looking specifically at solar heating and cooling, Italy’s 2020 NREAP has Europe’s most ambitious growth plans. It plans to increase 16-fold from a current 100 ktoe (kilotonnes of oil equivalent) to almost 1600 ktoe by 2020. (By contrast, Germany expects to increase three-fold from just over 400 ktoe to just over 1200 ktoe, and Greece to increase from 200 ktoe to about 350 ktoe.)

Is such acceleration achievable in just ten years? Italy’s solar heating sector is already well established, and in 2008 it installed 294 MWth of new capacity, adding a further 280 MWth (400 000 m2 of collector area) in 2009 to become Europe’s second-largest market in terms of new installations.

Solar thermal growth has been spurred by the introduction of 55 per cent tax rebates for a range of energy-efficiency measures in the existing building stock, including installation of solar thermal. This rebate was originally due to expire at the end of 2010, but was extended for a year. Incoming legislation in the NREAP will require new or refurbished buildings to heat at least 50 per cent of their hot water using renewables, but the NREAP does not appear to detail any other particular measures to stimulate solar thermal.

Biomass heating is already well established in Italy. End users who connect their properties to a biomass or geothermal-based district heating scheme have, since 1999, received a tax credit. Industry association AEBIOM has highlighted both France and Italy as being committed to biomass heating in their 2020 planning.

Its pellets markets figures (2009) show Italy as a leading consumer of pellets. Unlike some countries, which use pellets primarily for electric power generation, Italy has large numbers of pellets stoves and small boilers, a fact that AEBIOM puts down to the high taxes payable on heating oil. Italy had a remarkable 740 000 pellets stoves in 2007 (Austria had 20 000 in 2008). It also had 125 500 small pellets boilers in 2004 (last figure available) while Austria had 62 400 small pellets boilers in 2008, and Germany 105 000.

What next for Italy’s PV FIT?

In 2010, Italy installed at least 1800 MW of new PV, bringing total installed capacity, according to the GSE (the national electricity service agency, which administers the ‘Conto Energia’ FiT scheme) to 2903 MW and over 144 000 installations (a number that the GSE announced may grow as high as 7000 MW as plants are grid connected). Once the final count of applications is done and verified, it may be that 6 GW (or even 7 GW) of installed PV is eligible for FiTs at 2010 rates.

Italy’s PV FiT (the ‘Conto Energia’) was introduced in 2005, replacing an earlier incentive scheme that had had moderate success. The scope of the 2005 FiT was fairly limited: it covered installations from 1 kW to 1 MW in size, and would apply only until Italy reached a total of 100 MW installed capacity.

Half a year later, that cap was raised to 500 MW installed nationally: 360 MW for projects under 50 kW, and 140 MW for those between 50 kW and 1 MW. And in order to avoid overheating, an annual cap was put in place to restrict the new PV capacity that could benefit from the FiT in any one year: 60 MW for plants up to 50 kW and 25 MW for plants 50 kW to 1 MW. Between the FiT’s introduction in 2005 and the end of 2007, Italy’s installed PV capacity grew rapidly. At this point the government raised the national target for PV installations (set at 300 MW by 2015 in 2005) to 1000 MW by 2015.

Table 1: Growth in Italy’s PV market

A year later, this national target was raised again – this time up to 3000 MW by 2016 – and the restrictions of the first three years were removed. Plants were no longer limited to maximum capacity of 1 MW, the annual caps were removed, and plants became eligible for payments for PV power consumed on-site, as well as fed into the grid.

A certain amount of backdating allowed some existing plants to qualify for the new conditions. Payments would continue to be for 20 years, but with some reduction of the 2008 rates for plants commissioned in later years. Italy then set a 2020 target of 8 GW for PV.

The response in the field-based, multi-megawatt market was immediate. Rapidly, Italy upscaled its operations to establish several of the world’s largest solar PV parks: the 84.2 MW Montalto di Castro, the 70 MW Rovigo, the 43 MW Cellino San Marco, the 36.2 MW Alfonsine and the 34.63 Sant’Alberto being among the largest.

Mid-2010, following a surge of activity in the PV sector, the government announced another review, and the Third Conto Energia was introduced to apply from the start of 2011. This introduced a range of tariff reductions during the first four months of 2011 with further decreases foreseen at four-monthly intervals during 2011. For field-based systems these averaged 9.3 per cent for systems up to 5 MW in size, and 14.2 per cent for those of 5 MW and upwards. For rooftop installations, the reductions depended on system size, ranging from 4.75 per cent to 13.28 per cent (but integrated BIPV was treated more generously). A further degression rate of 6 per cent per year was planned for 2012 and 2013.


This new legislation also set a 3 GW cap (+ a further 200 MW for integrated BIPV), though it allowed a transition phase so installations could qualify for up to 14 months after the cap had been reached. Yet even before this had taken effect, a new review of renewables legislation was under way – the one that includes modifications for wind and biomass support as well as PV. For PV, there have been numerous scares: such as that the FiT might be withdrawn altogether as of 2013–2014, or that the rates would be reduced more drastically.

For a few weeks before 3 March it also seemed likely that the 2020 8 GW target might be treated as a cap, with eligibility for FiTs cut off beyond that. Given the explosive pace of developments in 2010 it started to become clear that the 8 GW level was far closer than thought, with space for as little as 50 to 100 MW to qualify for FiTs in 2011 before it was reached.

When Italy’s Council of Ministers met on 3 March they approved a new Legislative Decree that rejected the idea of an 8 GW cap, and it was confirmed that existing FiTs would be available to all plants connected to the grid by 30 May, 2011. A new Ministerial Decree from the Ministry of Economic Development has confirmed the details of the Legislative Decree and reviewed FiT rates.

Due to land-use concerns, it seems certain now that field-based systems will once again be limited to 1 MW in size. And when more than one plant is built on land with the same owner, they must be at least 2 km apart – presumably to avoid multimegawatt plants being built up of ‘separate’ 1 MW units. (Plants already under construction, or which had applied for permits before 1 January this year, are exempted.)

As Auriga USA reported on 6 May, the new subsidy regime is set to begin on 1 June. It will decline on a monthly basis through 2011 and then use a six-month schedule through 2016, with new rules – based on Germany’s support scheme – coming into effect from 2012. The ‘German’ basis seems likely to include an automatic reduction in tariffs as and when predetermined levels are reached. According to another Reuters report of 14 April, Italy plans to put a six-monthly or annual cap on solar incentive costs rather than power output, and aims to scrap PV incentives from 2017. The new regime may also feature FiTs for specific geographical regions.

GIFI, Italy’s largest solar industry association, said in April that it would be quite feasible for Italy to install 20 GW of PV by 2016 if a German-style model with regular rate cuts could be introduced. (Germany’s 2020 target for PV is 51.7 GW.)

Italy’s generous feed-in tariffs, maintained during a period when technology prices were falling, do mean that high payments will need to be made by Italian consumers over the next 20 years. Italians could have got more for their money. But this doesn’t mean that the rug should be pulled from underneath the solar industry.

With module prices continuing to fall, and natural gas prices still trending upwards, Italian solar cannot be too far from grid parity, and it would be irresponsible to take apart the industry that has been built up, rather than support it to reach that point and travel well beyond. Certainly there is plenty of scope to review the 8 GW 2020 target and set it a lot higher.

Italy’s energy background

Italy is dependent on imports for most of its fossil fuels, now producing only 10 per cent of its own natural gas compared with 90 per cent in the early 1970s. Production has dropped off steadily while demand has increased, driven largely by growing demand for electric power; 40 per cent of Italy’s natural gas consumption is for power generation. Russia and Algeria now supply two thirds of Italy’s gas, by pipelines via Austria and Tunisia–Sicily.

In 2007 natural gas was responsible for just over half of generation, coal 16 per cent and oil 12 per cent. A further 12 per cent came from hydro power, with geothermal and other renewables supplying the remaining 7 per cent, a number now closer to 10 per cent. Following a 1987 referendum Italy banned nuclear power, but the government reversed this decision in 2008. This spring, after the events at Fukushima, a one-year moratorium on nuclear has suspended new nuclear developments.

Power prices are high in Italy. This means the more expensive forms of renewable electricity can attain the sought-after ‘grid parity’ more easily than in many other markets – and this is already close for solar PV in the south.

Where to for wind power?

As for solar PV, the 3 March Legislative Decree outlined in principle new plans for wind, although the details for both sectors are to follow later. Italy’s existing green certificates incentive structure for wind is being switched to FiTs. According to draft legislation from November 2010, a fixed FiT will be paid to wind farms up to 5 MW that start operating from 2013, while projects over 5 MW will have to participate in a competitive bidding process for FiTs.

It’s expected that the new framework will reduce incentives for wind developments. Under the competitive bidding process it certainly seems likely that wind farm proposals that put in bids to accept the lowest FiT payments will succeed, although the law says a minimum rate must be set. Also, it appears that there will be a transitional phase so that wind farm developments that come on-stream by 2012 will get green certificates until 2015.

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