London, UK — 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 indicate that new PV installations across Europe totalled 12.5 GW, for the first time overtaking installations of new wind. Indeed, PV accounted for 21% of all new power generating capacity, according to EPIA. Yet as Italy’s numbers for 2010 continue to be processed, it appears that across Europe this figure 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 have stayed too high to be sustainable. During the first three months of 2011, 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 and the information trickling out is keeping the industry in a state of alarm.
Italy’s PV sector appears poised precariously on the brink of a cliff. What’s more, a new support mechanism is unsettling the prospects for wind power, while biomass support is also under review. For investors in Italian renewables, this is a difficult moment.
Both the solar PV and wind sectors have flourished in Italy over recent years. Wind power has been propelled by a green certificate system introduced in 2002, after which installations grew steadily, reaching about 1 GW/year for 2006 to 2009.
In 2009 Italy installed over 1 GW of new wind, and in 2010 almost a gigawatt, although the figure slipped by about 15%, reflecting uncertainty over prospective changes to the country’s regulatory framework as well as a bleaker financial outlook. In the EU as a whole, new wind dropped 10% in 2010 from 2009 figures.
By early 2011, Italy’s installed wind capacity was estimated to have hit 5.8 GW, giving the country a third-place ranking in Europe, albeit well behind Germany and Spain, each with over 20 GW. The target for 2020 is 12.68 GW, although the Italian Wind Energy Association believes improved transmission and simplified administration make 16 GW a realistic objective.
Solar PV has benefited from a feed-in tariff since 2005. Installations have since soared from 60 MW in 2007 to as much as 6 GW in 2010 — the total is still being counted — way in excess of industry and government expectations.
The government is not alone in now 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 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 over the impact on consumers of higher-than-planned FiT charges — if tariffs are set so that the market grows faster than anticipated, then consumers have to start bearing the cost sooner too. Italy’s PV tariffs have also stayed high even though technology prices have fallen, and the country has certainly shot well ahead of its planned growth trajectory.
A 700-kW installation at Enna in Sicily (Source: Enerqos)
In a briefing to investors, Barclays Capital PV analyst Vishal Shah recently wrote that Italy is increasingly likely to have to pay for 6 GW worth of subsidies at the 2010 FiT rate. This would mean the subsidy would cost Italy €44 billion over the next 20 years. This translates into an increase for Italian consumers from 0.25 euro cents/kWh in 2009 to 1.42 euro cents/kWh in 2010, representing 6% of the electricity bill, according to Barclays’ calculations. By comparison, Germany’s subsidy burden is €25 billion, while Spain’s stands at €17 billion, said Shah.
The percentage contribution of each kWp of photovoltaics to electricity consumption is also higher in Italy than in Germany. Italy’s electricity market is less than 60% the size of Germany’s — Italy consumed some 309 TWh of electricity in 2008 against Germany’s 526 TWh, according to IEA figures — and Italy’s PV output is also greater due to its latitude. Enhanced performance, in turn, brings system owners a higher return from their investment. Internal Rates of Return (IRRs) in the range of 20% 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 capacity, 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 targets for renewable energy production (targets encompassing electric power, heating/cooling and transport).
Italy’s target, set in 2009, is for 17% 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%. Italy plans to meet the shortfall by co-operating with neighbouring countries.
In formulating its NREAP, Italy has set a much gentler growth curve for renewable electricity than for renewable heating and cooling. Renewables generated 16.9% of electricity consumed in Italy in 2005, a figure anticipated to top 19% this year and to hit 26.4% by 2020. Meanwhile, Germany is aiming for 38.6% of its electricity from renewables by 2020, while Italy’s small neighbour Slovenia targets 39.3%, and Greece 39.8%.
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 renewables accounted for only 2.8% of the country’s energy consumption for heating and cooling, but the figure is expected to reach 7.09% this year and to grow to 17.09% in 2020. By comparison, Germany is expecting to raise the contribution of renewables to heating and cooling from 9.4% to 15.5% by 2020, while Greece aims to raise its already high base of over 16% to 19.7%. Different market sizes and starting points limit the value of comparing national plans, but they provide some context — and reveal the steep hill that Italy must climb.
In solar heating and cooling, Italy’s 2020 NREAP sets Europe’s most ambitious growth plan: a 16-fold rise from 100 ktoe (kilotonnes of oil equivalent) today to almost 1600 ktoe by 2020. By contrast, Germany is targeting a three-fold increase from just over 400 ktoe to just over 1200 ktoe, and Greece an expansion from 200 ktoe to about 350 ktoe.
Is such acceleration achievable in just 10 years? Italy’s solar heating sector is already well established. It installed 294 MWth of new capacity in 2008 and 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 on by the introduction of 55% tax rebates for a range of energy-efficiency measures in the existing building stock, including installation of solar thermal. Originally due to expire at the end of 2010, this tax break was extended for a further year. Upcoming legislation under the NREAP will require new or refurbished buildings to heat at least 50% of their hot water using renewables, although NREAP appears to lack other specific solar thermal measures.
Biomass heating is well established in Italy. Since 1999 end-users have earned tax credits for connecting their properties to biomass or geothermal-based district heating schemes. The industry association AEBIOM has highlighted Italy, along with France, for a commitment to biomass heating in 2020 planning. Pellet market figures for 2009 show Italy as a leading consumer. Italy also stands out for the proportion of pellets burnt in stoves and small boilers, rather than used for generating electricity, a characteristic of the market that AEBIOM attributes to high taxes on heating oil. Italy had a remarkable 740,000 pellet stoves in 2007, which compares with only 20,000 in Austria in 2008. Italy also had 125,500 small pellet boilers in 2004 (the last year for which national figures are available) while Austria still had only 62,400 in 2008, and Germany 105,000.
The 70 MW Rovigo solar plant in northeast Italy (Source: SunEdison)
What Next for Italy’s PV FiT?
In 2010, Italy installed at least 1800 MW of new PV, bringing total installed capacity to 2903 MW across more than 144,000 installations, according to GSE (the national electricity service agency, which administers the ‘Conto Energia’ FiT scheme). Once new capacity installed over 2010 has been grid connected this year, as much as 7 GW of installed PV may be eligible for FiTs at 2010 rates, GSE has also announced.
Italy’s PV FiT was introduced in 2005, replacing an earlier incentive scheme that had been judged a moderate success. As Dietmar Zischg and Alessandro Antonioli described in an earlier issue of Renewable Energy World (September 2009), the scope of the 2005 FiT was fairly limited: installations from 1 kW to 1 MW, and only until Italy reached 100 MW in installed capacity.
Half a year later that cap was raised to 500 MW of installed capacity, with a 360 MW cap for projects under 50 kW and a 140 MW limit for those between 50 kW and 1 MW. But to avoid overheating, an annual cap was put in place: 60 MW for plants up to 50 kW and 25 MW for plants of between 50 kW and 1 MW. Between the FiT’s introduction in 2005 and the end of 2007, Italy’s installed PV capacity surged. At this point the government raised the national target for 2015 to 1000 MW in PV installations, up from a goal of 300 MW set in 2005.
In 2008, the national target rose again — to 3000 MW by 2016 — and the restrictions of the first three years were removed. The maximum capacity of plants was no longer restricted to 1 MW, annual caps were removed, and plants became eligible for payments for PV power consumed on-site as well as that fed into the grid. Backdating enabled some existing plants to qualify for the new conditions. Payments would continue to be for 20 years, but with reductions from the 2008 rates for plants commissioned in later years. Italy also set a 2020 target of 8 GW for PV.
The response in the field-based, multimegawatt market was immediate. Several of the world’s largest solar PV parks were soon established, including 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.
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 cuts foreseen at four-monthly intervals during the year. For field-based systems, these averaged 9.3% for systems up to 5 MW, and 14.2% for those of 5 MW and beyond. For rooftop installations, the decreases ranged from 4.75% to 13.28%, depending on system size, although integrated BIPV was treated more generously. A further annual drop of 6% was planned for 2012 and 2013. A 3 GW cap (plus 200 MW for integrated BIPV) was imposed, although a transition phase would enable installations to qualify for up to 14 months after the cap had been reached.
But even before this third Conto Energia had taken effect, a fresh review of renewables legislation to modify support for wind and biomass as well as PV was under way. For PV, the many scares include the fear that the FiT might be withdrawn altogether from 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. Amid the explosive pace of development in 2010 it became clear that the 8 GW PV goal for 2020 was far closer than thought — and might be reached with only another 50 to 100 MW in 2011.
But in early March Italy’s Council of Ministers met and approved a new Legislative Decree that rejected an 8 GW cap. It confirmed that existing FiTs would be available to all plants connected to the grid by 30 May 2011. A new Ministerial Decree is now awaited from the Ministry of Economic Development, confirming the details of the Legislative Decree and reviewing FiT rates. Under law, it has to be announced and adopted no later than 30 April.
Due to land-use concerns, it seems certain 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 that were already under construction, or had applied for permits before 1 January this year are exempted.)
Reuters recently reported that Stefano Saglia, Industry Ministry undersecretary, told reporters in early April that the decree will outline a transitional period up to the end of 2011, with new rules — based on Germany’s support scheme — that would come into effect from 2012.
The ‘German’ basis seems likely to include an automatic reduction in tariffs as and when predetermined levels are reached. 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, according to another wires report. Varying regional FiTs may also be introduced.
GIFI, Italy’s largest solar industry association, said in April that a German-style model with regular rate cuts would make a total of 20 GW of PV by 2016 quite feasible for Italy. Germany’s 2020 target for PV is 51.7 GW, for example.
Italy’s generous feed-in tariffs, maintained despite falling technology prices, will hit its consumers heavily over the next 20 years. Italians could have got more for their money. But this doesn’t mean that the rug should now be pulled from under the solar industry. With module prices continuing to fall, while natural gas prices still trend upwards, Italian solar must now be nearing grid parity. It would be irresponsible to take apart the industry that has been built up, rather than to 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.
Sidebar: Italy’s Energy Background
Italy depends on imports for most of its fossil fuels. It now produces only 10% of the natural gas it consumes, compared with 90% in the early 1970s. Production has fallen steadily while demand has increased, driven largely by growing demand for electric power: 40% 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% and oil 12%. A further 12% came from hydro power, with geothermal and other renewables supplying the remaining 7%, a number now closer to 10%. Following a 1987 referendum Italy banned nuclear power, but the government reversed this decision in 2008. This spring, following 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.
TABLE 1. Growth in Italy’s PV Market
Year Cumulative installed capacity PV at year end (MW)
*GSE estimates that an additional 4000 MW in PV capacity was installed in 2010 and is due to be connected to the grid by end of May 2011 to qualify for the 2010 FiT
Source: Gestore dei servizi energetici (GSE)