Can Italy Keep Its Renewables Investors?

Fuelled by generous incentives, growth in the Italian renewable energy industry – especially solar PV – has been astonishing. But as the debt crisis ripples through the economy, will investment trends maintain historical levels while shifting to other renewable energies or flow away from Italy to emerging markets?

In 2011 renewable energy generated 28 percent of Italy’s gross electricity production. Preliminary estimates for 2012 suggest they accounted for 27 percent of gross electricity consumption of 336 TWh (13.9 TWh from wind and 18.8 TWh from solar). Installed solar PV capacity shot from 3.5 GW in 2010 to 16.4 GW in 2012 while the number of installations increased to 478,331. By comparison between 2010 and 2012, wind power capacity only increased from 5.8 to 7.97 GW (bioenergy from 2.35 to 3.8 GW).

By May 13, 2013, the PV counter run by Gestore dei Servizi Energetici (GSE), the Italian agency supporting the development of renewable energy, clocked in at 16.9 GW of installed capacity – at a cumulative cost of €6.59 billion, close to the €6.7 billion ceiling.

Since 2005, the “Conto Energia” or feed-in tariffs (FiTs) have been the primary incentive mechanism for solar PV, but shadows loomed since May 2011 when the fourth Conto established review provisions once cumulative costs reached €6 billion. The fifth iteration of FiTs approved in July 2012 was to come into effect after “45 sunny days”. As successive heat waves swept across Italy, the fifth Conto became law on August 27, 2012. The surprise came last October when GSE published the list of qualifying projects in alphabetical order rather than according to priorities established by the fifth Conto – the established limit of €140 million hadn’t been reached.

Apart from establishing Italy as fifth in the world for electricity production capacity from renewable sources excluding hydropower, the incentive mechanisms were instrumental in attracting investment. In 2011, Italy attracted $29 billion in renewable energy investment (a global first with respect to investment intensity, i.e., clean energy investment/$GDP) and ranked first in the world for its $24.1 billion of small distributed capacity investment (the magnet being solar PV). But asset financing of renewable energy registered a 31% decline compared to 2010, according to investment data by Bloomberg New Energy Finance. Investment from asset finance, public markets and private equity was down 26%.

Italy’s Unicredit Banking Group, with assets of €927 billion and operations in 22 countries (mostly Central and Eastern Europe), is a major financier of renewable energy in Italy. Larger renewable energy projects are financed through leasing and project financing. Bloomberg ranked it among the world’s top 10 lead arrangers of project financing in both 2010 and 2011. In 2011 it participated in 31 deals with a disclosed value of $1.17 billion, of which five were located in Italy. However, the largest proportion of Unicredit’s renewable energy financing is done through Unicredit Leasing, its leasing unit.

In an email interview Leonardo Cartei, business development manager with Unicredit Leasing, emphasises that leasing is the financing tool most often used throughout Italy for renewable energy projects. Total investment volumes on renewable energy projects financed in Europe through Unicredit Leasing increased from around €1 billion in 2010 to €1.4 billion in 2011. In 2010, of the 470 deals closed by Unicredit Leasing, approximately €830 million was allocated to solar PV projects, with Italy taking the lion’s share of €750 million.

Though Uncredit Leasing has focused on PV for the past 2 years, Cartei is optimistic about other segments. “In 2010/2011 the funding was mostly related to PV projects but we expect wind/hydro/biomass will grow to at least 30 percent of the total projects funding in 2012 and more than 50 percent in the upcoming years.”          

Cartei describes some of the other projects that Unicredit Leasing has provided funding for: “We have provided a limited recourse lease for an innovative revamping of a hydro plant in Bolzano, Italy. Existing pipelines crossing a mountain village will be removed and encased in the Brixen granite rock through advanced drilling techniques. We also approved a corporate lease for a power plant using scrap from an ethanol production with non-food cellulosic as feedstock.”

He continues, “We see good prospects from the fifth Conto Energia for small wind plants up to 60 kwp, small hydro and biomass, with special interest in waste-to-energy plants up to 100 kw. We always value the bankability from a dedicated, single project perspective but it’s true that the leasing products are a good fit for small-to-medium sized investments of up to 7-8 MWp.”

One of the positive developments that Cartei points to with the fifth Conto Energia is the focus on environmental improvements. Examples of plants with priority include: systems installed on buildings with higher levels of energy efficiency certification, systems installed in place of asbestos roofs and systems installed on contaminated sites.

Cartei concedes that the economic crisis has had an impact on borrowing costs: “Recently we faced a decrease in base reference interest rates but also a higher rise of liquidity costs which drove a significant increase on overall borrowing costs.” But he adds that within the renewable energy sector, this increased cost is counterbalanced by a decrease in capital expenditure costs – especially for PV, but also for wind and bioenergy. “Making an investment in renewable here seems to be still profitable and is welcomed from our side.”

While Unicredit can diversify across renewable energy sectors and geographical markets, industry associations paint a cloudier picture for solar PV. A warning from the Association of Renewable Energy Technologies (ATER) that the fifth Conto is set up to be “an evident failure” rings alarm bells for an “enormous contraction” in the number of small size installations (20/30 kW-400 kW). Larger scale installations, though, account for 50 percent of the capacity with less than 10 percent of the projects. Assosolare, the National Association for the Solar PV Industry, too feels that the final decree is a watered-down version of earlier drafts. Apart from the decrease in FiTs, it points out that installations larger than 12 kW now face more bureaucratic requirements, placing them in a chicken-and-egg situation between obtaining bank financing and being selected by GSE. “In a moment of general crisis, one would expect a re-equilibrium with respect to support rather than punitive measures,” it objects.

On the whole there is a consensus that reduction in incentives has served to rid the market of speculators. Stefano Carpigiani, CEO of the Cleantech Group, a service provider for the PV sector, says that though international investors such as pension funds are avoiding Italy, there is plenty of opportunity in O&M as industry goes through a consolidation phase. “We also see a move towards the second-hand market.” Even if clouds are gathering for solar PV, the sun is still shining elsewhere: on January 2, 2013, incentives of €900 million were officially published in the Gazzetta Ufficiale as part of the so-called “Conto termico” to stimulate thermal renewable energy (biomass, heat pumps, solar thermal, and energy efficiency improvements in public administrations).

Rachana Raizada is a freelance journalist focusing on the energy sector.

Lead image: Italy flag via Shutterstock

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