Will Italy's FiTs Survive the Fall of Berlusconi?

According to Gestore dei Servizi Energetici (GSE), the agency which supports the development of renewable energy on behalf of the Italian treasury, Italy had reached 10 GW of PV capacity by September, a calculation based on applications for incentives. By January 3, 2012 this figure ballooned to 12.5 GW at a cumulative annual cost of €5.4 billion and over 319,000 installations.

However, a recent report published by KPMG Advisory in Italy, which documents the remarkable growth of Italy’s renewable energy market, is emphatic that while these technologies present an attractive solution for a secure energy supply with reduced import dependence, the incentive mechanisms which have been so instrumental to sector growth are unsustainable.

In late November 2011, Investing in Renewables: Trends, Opportunities and Perspectives was first presented to an audience of around 50 key sector players. According to Gianpaolo Attanasio, the associate partner responsible for the report, the audience had two major concerns: stability of regulations for the future and fear that a sharp reduction in future subsidisation of the sector could halt investment activity and lead to delocalisation to the neighbouring countries of Eastern Europe. Indeed, with an unexpectedly new "technocratic" government in place, a scheduled talk by the representative of the Ministry of Economic Development was cancelled. "The concerns are not about the evolution of the regulation itself," says Attanasio, "but about the mid-term stability of this regulation. The big concern in the past was that every 12 months the regulation kept changing."

As described by Attanasio, the report was driven by two motivations: to define quantitative scenarios for green certificates for the wind, biomass and mini-hydro sectors based on realistic assumptions, and to paint a complete picture of Italy’s renewable energy landscape for potential investors. The comprehensive report summarises the history of incentives for the sector; benchmarks some of the key players, and touches on more specific issues such as reaching grid parity, project financing and M&A activity.

Italian attitudes towards renewable energy are not politically polarised, and it is generally seen as an attractive solution for energy autonomy given the country’s reliance on imports for 97 percent of its gross domestic energy needs. In 2009 energy from non-fossil fuel sources (including hydro over 1 MW) accounted for 11 percent of energy consumption. Limiting the analysis to domestic electrical energy production, however, Italy, with its absence of nuclear power, is highly dependent on thermo-electric generation (77 percent in 2009). In 2011 Italy generated approximately one-quarter of its electricity from non-fossil fuel energy sources, with large-scale hydro accounting for the lion’s share.

The KMPG definition of renewables excluding hydro over 1 MW describes technologies used to generate electrical energy without use of fossil fuels or nuclear power — and, most importantly, as not having reached grid parity and therefore in need of incentives (wind, PV, biomass and biogas, geothermal and mini hydro). By this definition, in 2010, of 106 GW of electrical generation capacity and an annual production of 299 TWh, thermal electricity generation, hydro and renewables accounted for 74 percent, 17 percent and 9 percent of national electrical energy production respectively while having 71 percent, 16 percent and 12 percent of capacity. From 2005 to 2010, production from traditional thermal electric generation actually decreased by 10%, while hydro’s share increased by 40 percent and that of renewables by 100 percent.

During these years, as the economic recession led to decreased electricity consumption, renewables reaped the advantage of their ‘dispatch priority’ at the expense of traditional thermal electricity generation. From 2005 to 2010, the contribution of renewables to domestic electricity generation increased from 5 percent to 9 percent.

Distribution of renewable technologies in Italy's regions

The PV incentive scheme seems to have been successful in decentralising power production. While in 2010 there were 871 thermal electric installations and about 1000 for hydroelectricity, renewable energy sources accounted for 159,000 installations, with PV alone accounting for 98 percent of these.

Based on data from Terna S.p.A, the owner and operator of the national high-voltage electricity transmission grid, the report spotlights the remarkable growth rates of the PV, wind and bioenergy sectors. From 2005 to 2010, installed capacity in PV increased from 7 to 3,500 MW — a CAGR of 246 percent compared to a CAGR of 29 percent for wind which, with almost 6 MW of installed capacity in 2010, accounted for 45 percent of renewable energy production capacity.

When it comes to actual electricity production, however, wind, geothermal and bioenergy carry the day. In 2010 geothermal, with only 6% of capacity, accounted for 19 percent of electricity generation while bioenergy, with 18% of capacity, accounted for 34% of production, reflecting the relatively higher load factors of these technologies. Wind accounted for 32% of electricity generation, mini-hydro for 8%, with PV accounting for the lowest share at 7% or 1.9 TWh.

Though some form of renewable electricity generation is present in all 20 Italian "regions" (the highest-level administrative divisions of the state), the distribution of renewable technologies throughout Italy reflects its diverse geography. In the northern macro-region which includes the Alps, the major industrial centres and the agricultural plains of Lombardy, Piedmont and Veneto, bio-energy and mini-hydro account for 64 percent and 25 percent of electricity generation from renewable resources. In the central part of the country, on the other hand, geothermal resources are the major renewable electricity generator, accounting for 77 percent of production, all of it concentrated in Tuscany. In the windy south (the macro-region is defined to also include Sicily and Sardinia in addition to the southern regions), bioenergy accounts for 28 percent and wind power for 65 percent.