Italy Abandons RPS, Adopts System of Feed-in Tariffs

While the trade press has focused on revisions to the solar tariffs, the abandonment of Italy's Renewable Portfolio Standard in favor of feed-in tariffs may be far more significant for what it says about the future of such policies in Europe.

Italy had previously relied on feed-in tariffs for solar photovoltaics (solar PV) and the European version of Renewable Portfolio Standards (RPS) and their Tradable Green Certificates (Certificati Verdi) for other renewable technologies.

While most European countries use feed-in tariffs in one form or another, Italy, had relied on a quota model, the RPS, to develop their large-scale renewable energy resources, mostly wind. By the end of 2011, Italy had installed a total of 6,700 MW of wind capacity.

In theory, RPS programs are expected to deliver renewables at lower cost than other policies. However, in practice this hasn't been the case. Both Italy and Britain pay more for wind energy through their quota programs than other European countries that use feed-in tariffs. (See Feed-in Tariffs Do More for Wind at Less Cost to Ratepayers than RPS Says German Agency.)

Italy Abandons RPS

All new renewable capacity in Italy will be moved to various portions of the feed-in tariff program beginning in the new year. Gestore dei Servizi Energetici (GSE) will cease buying Green Certificates in 2015 and utilities will be freed from the purchase mandates of Italy's RPS policy.

Whether cost was a driving force or not, Italy decided to switch from a quota model to a policy that incorporates many of the features of feed-in tariffs. The new policy will resemble feed-in tariff policies in France and Germany, but with important differences.

Beginning this January, Italy will implement an extremely complex suite of feed-in tariff measures under the caretaker government of Mario Monti.

The measures include fixed feed-in tariffs, indirect marketing of generation, and a system of premium feed-in tariffs available through a tendering process. Altogether, the policies cover a comprehensive list of renewables from solar PV to tidal and wave power. These policies include

• Fixed feed-in tariffs (Conto Energia V) for solar PV only,
• Net-metering (scambio sul posto) and self-consumption tariffs,
• All inclusive feed-in tariffs (tariffa omnicomprensiva) for renewables <1 MW other than solar PV,
• "Premium" model feed-in tariffs for all renewables >1 MW other than solar PV, and
• Indirect marketing of electricity through GSE (ritiro dedicato).

If the ideal of good feed-in tariff policy design is "simple and comprehensible," the new Italian program falls far short. The complexity of the program will likely engage Italian attorneys for years to come.

Perhaps it's a measure of the maturity of feed-in tariffs as a policy tool, and the Italian market for renewables, that a program of this complexity is needed to meet different policy objectives and the different interests at the negotiating table.

One key element of the new policies is Italian acceptance of differentiated pricing for commercial-scale renewables. Previously, solar PV tariffs were differentiated by size, application, and technology. Small-scale renewables other than solar PV were differentiated by technology only. There was no differentiation of green certificates.

In addition, program designers acknowledge using the "cost of generation plus profit" model in determining the base tariffs. This is another hallmark of successful feed-in tariff polices elsewhere in Europe.

The new policies will continue the rapid cuts in the payment for solar PV that has dramatically reduced the installation rate - as the government intended. Despite the previous cuts in the solar PV tariffs, the installation rate remains significant. By the end of the 2012, Italy will have installed more than 4,000 MW this year- nearly as much as will be installed in the USA in 2012.

The growth of solar PV in Italy has been meteoric. Currently, there are 17,000 MW of solar PV systems operating in the country. Systems already in place will probably generate more than 20 TWh this year, or nearly 6% of Italy's electricity consumption. For comparison, wind will generate more than 10 TWh in 2012 for about 3% of consumption. Altogether, new renewables will account for 15% of consumption. Existing hydro accounts for another 15%.

Program Caps

As with well-designed feed-in tariff policies in other countries, consumers pay for the Italian programs through their utility bills.

Ostensibly to control costs to consumers, the amount of renewable capacity installed annually under the program will be capped. The government will award contracts and connection capacity through a system of registration with GSE. When the limits are reached, no further capacity will be allocated for that year.

There are some exceptions for microgenerators. Those qualifying for these exceptions can obtain the appropriate feed-in tariff directly without entering the GSE registry by simply applying to GSE for the tariffs.

Overall program expenditures for renewables, other than solar PV, are capped at €5.8 billion per year. The capacity for individual technologies is also capped by the year of installation. 

Wind Cap

Since 2008, Italy has been installing about 1,000 MW of wind on land per year, about the same rate as that in France and Great Britain. However, the Monti government has chosen to cut that installation rate substantially to about 700 MW per year. With an average wind power plant size of 10 MW, the allocated capacity would permit the construction of about 70 projects per year.

Surprisingly, a large amount of capacity is set aside in 2013 for wind offshore. This capacity is unlikely to be fully used -- if at all.

Geothermal Cap

There has been very little growth in geothermal capacity in Italy since the 1960s. Italy's new program, thus, allocates substantial capacity to new geothermal development. With an average plant size of about 25 MW, the allocated capacity would permit construction of four to five new plants per year.