Italy’s new solar policy draft, the “Fourth Conto Energia” (4th Energy Draft bill) is now making the rounds. Two analysts give their take on the important sections of the policy, the proposed FiT schedule, and what questions still remain.
A quick summary of highlights of the new policy being proposed, courtesy of Vishal Shah (Barclays) and Satya Kumar (Credit Suisse): The bill would begin on June 1, with a transitional phase through December 2012. Through the end of 2011, large PV installation projects would be capped at 1.35GW (€447M); for FY12, the cap would rise to 1.75GW (€337M); and from 2013-2016 the cap would increase in half-year steps to a total of 9.77GW installation (€1.361B). (Small PV projects will have no caps — but it’s unclear just what defines “small.”) Overall the new decree targets 23GW for installed capacity between June 2011-December 2016 — or, stretched to a 4GW-5GW annual run-rate. The annual cost of cumulative incentives is projected to be €6B-€7B.
Feed-in tariffs would decline starting in June 2011 from their current structure: -4% for small systems and -11% for large rooftop systems. From there FiTs would decline on a monthly basis, starting in July as -2% to -5% from June (depending on size and type of system). By December FiTs would be about -26% to -42% lower than current incentives. In 1H12 the FiTs would decline another -8% to -12%, followed by another -8% to -10% in 2H12. The 2012 cap of 1.75GW on large installs suggests an annual decline, and project owners would have to reapply by November to qualify for 2012 incentives.
The draft answers some questions, but leaves plenty of loose ends for speculation, discussion, and concern:
Who are You Calling Small? First, the FiT cuts are deeper than expected (40% by end of this year and another 20% in 2012). And the draft talks mainly about cuts to large projects, while sparing “small” ones — but there isn’t a clear delineation between small and large projects (the government reportedly is leaning toward ≤20kW). Kumar notes that as of March 23% of GSE interconnections were for ≤20kW systems and 44% for ≤200kW. Developers of larger projects that don’t get approved may shift panels to smaller projects (depending on the definition of “small”).
Grandfather or Orphan? Also, only ongoing projects can potentially qualify for the 2011 cap (1.35GW) on large installations, which “involves very complex qualification process” that expire in August. It’s not clear whether projects physically completed but not yet connected by May will be “grandfathered” into the new rules, or if such “orphaned” projects would have to get back in line to reapply for a permit. Among metrics used to gauge priority for permitting: smaller size, time-to-connect, and timeliness of beginning operations.
Changing the Channel. Looking at the proposed 1.35GW cap from June-December 2011, there’s already an awful lot more than that in PV project backlogs. CS’ Kumar suggests as much as 2.5GW of 2010’s 7GW total installations didn’t get connected; around 890MW could get connected by May; and the channel probably has 1.25GW of inventories in different stages of installations. That would already exceed the 2H11 quota — and excess installs would get swept into 2H11’s lower FiT, “which would be a surprise for economics,” he notes. Meanwhile, panel makers haven’t really slowed production, so 2Q11 output earmarked for Italy will probably get redirected to the nebulously defined “small” systems category before those channel inventories can flow again. (FSLR has shifted some attention to the 10kW-30kW channel, Kumar notes.)
Kumar notes that the draft would allow for small and large systems in 2013-2016 even after subsidy cost limits were reached, but incentives would be reduced. If panel sales into Italy are strong in the near-term, look for steep drops in FiT rates in 2013 and slowing run-rate then depending on system costs, he says.
Bottom Line: Don’t look for solar PV construction to resume in Italy based on this draft, which means new shipments to Italy will bottom out, Shah says. CS’s Kumar agrees that supply/demand will worsen moving through this year, but that at least there won’t be another bubble in Italy. Ultimately, this is just a draft document, so there will be plenty of opportunity for debate over the coming days and weeks.
|Figure 1: Incentive caps. (Source: Energy Bill Draft, via Barclays Capital)|
|Figure 2: 2011 FiT in €/kWh. (Source: Italian Draft Decree, GSE, via Barclays Capital)|
|Figure 3: 2012 FiT in €/kWh. (Source: Italian Draft Decree, GSE, via Barclays Capital)|