The rules of the game - Roedl.com

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Markets & Trends

Italy’s rooftops offer a plethora PV prospects, which will make up for the lower FITs for large-scale projects.

The rules of the game Italy: The year had barely taken its first steps before Italy’s PV industry heard the dreaded words “new decree” and “retroactive” being bandied about. Hopes of a smooth start to 2012 were shattered when the government announced more changes to its beleaguered FIT scheme. The general consensus is that focus will now shift onto the rooftop market. However, concerns exist over what will happen next. Italy’s PV industry commandeered headlines at the beginning of last year as the country’s government delayed the signing of its new renewable energy law, the Conto Energia IV, until May 5. As a result of the constant toing and froing between March and May, the investment situation in Italy nosedived and its effects reverberated throughout the global PV market, leading many to lay partial blame for the free falling module prices at the feet of the Italian government. It was to the credit of the industry then, that it added a record nine gigawatts (GW) of new PV capacity to its grid in 2011, according to the Italian utility network authority, GSE.

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Consequently, it was disheartening to see, at the start of 2012, yet more announcements affecting the country’s PV industry. The first blow came when GSE officially confirmed on January 20, that it would not open a register for large-scale PV systems in the second half (2H) of the year, due to the fact that, at one billion euros, 2011 incentives for large-scale plants far exceeded the 300 million euros initially set out in the first register by the Conto Energia IV. In fact, already by last August 31, PV systems connected to the grid had triggered costs worth one billion euros. Accordingly, the excess costs under the

first and second registers, which ran from September 1 to December 31, 2011, and January 1 to June 30, 2012, respectively, will have to be deducted from 2H 2012’s 130 million euro funding allocation. The news affects all those who had hoped to secure a place under the third register for 2H 2012, in February. While the announcement came as no big surprise – “The note from the GSE … is not news for most of the Italian players,” a spokesperson for the Italian Photovoltaic Association, GIFI, tells pv magazine – Marco Pane and Gennaro Sposato from law firm Rödl and Partner say that trouble was caused for many who were rely-

03 / 2012 | www.pv-magazine.com

Bigger fish Paolo Mutti, CEO of Italian PV installer, and cell and module producer, Solsonica, believes that while the aforementioned announcements have affected the market, what comes next represents far more of a problem for Italy. His fears relate to the fact that the six billion euros set aside for the country’s solar market until 2016, is more than likely to run out this year. Back in October, GIFI President, Valerio Natalizia told pv magazine that nearly five billion euros had already been spent then, indicating that the coffers would be dry in 2012. Mutti says the figure is currently sitting at around 5.5 billion euros. “More or less, the six billion euros would be reached when an amount equal to between 1.5 to two GW [is installed],” meaning the threshold will, “by definition,” be reached this year. Indeed, according to estimates, Italy will add between two and five GW to its grid in 2012. As is laid out in the current Conto Energia, when the six billion euros limit is hit, the Ministry has to develop a new decree regarding incentives. Currently, there are no plans to formulate a new strategy. However, as Natalizia says, it is necessary to initiate discussions in 2012, “because we [Italy] need […] incentives at least until the end of 2013.” In 2013, many believe

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ing on securing a feed-in tariff (FIT) for this period. The PV plants do, however, have the possibility of re-applying for a FIT in January 2013, “if they meet the conditions provided for by the relevant applicable laws.” The second setback came under a week later, when on January 24, Article 65 of Law Decree n. 1/2012 (Decreto Monti) entered into law two months early, meaning that developers in the process of planning or installing PV systems with a capacity larger than one megawatt (MW) on agricultural land, could no longer meet the FIT requirements (see information box on p. 32), as set out under Article 10, paragraphs 4 and 5, of the Legislative Decree n. 28/2011 (Decreto Romani). Originally, they had until March 29 to do so. Parliament had 60 days to convert the new changes into law (i.e. until March 20). On February 10, the GIFI spokesperson told pv magazine, “We are ... meeting with the MP involved in the adoption of the new law and ... promoting the complete cancellation of Article 65.” They added that it appeared the retroactive action would be removed from the decree, but that incentives would still be halted for PV systems larger than one MW on agricultural land. Rödl and Partner, along with several associations, have outlined the negative impact this law will have on the Italian PV industry to the government. “It seems that there is the will to change the content of Article 65,” Pane and Sposato comment. “Obviously we can’t foresee how the text will change in detail, but it is possible that there could be a second chance to apply for a FIT for those plants which can’t do it today on the basis of the actual wording of the Decreto Monti.” In a positive sign that the industry’s voice has been heard, the Undersecretary for the Environment, Tullio Fanelli, and the Commission for the Environment of the Senate, announced on February 14 that it is highly likely the Decreto Monti, in its present form, will not be converted into law, in order to protect the investments made. Nevertheless, those at Rödl and Partner state that the situation cannot be solved with a simple repeal: “Considering that the time [has] uselessly elapsed for the owners of PV plants ... still not connected to [the] grid ... it should be impossible to connect within the original terms envisaged by the Romani Decree.”

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Markets & Trends

grid parity will be reached in the country. Referring to a recent study conducted by the European Photovoltaic Industry Association, Pane and Sposato say that at this time, grid parity could occur in Italy in the commercial segment. Stefano Neri, Chairman and CEO of Italian engineering, procurement and construction company, TerniEnergia, agrees, saying that grid parity is close to being achieved, especially in southern Italy, because of lower component and procurement costs. Nevertheless, Mutti points out that Italy’s new government has barely had time to put the Berlusconi scandal out of its mind, let alone address the mounting social and economic issues in the country. “Whatever the approach would be, it’s going to be the same problem as in Germany – how much are you spending for PV,” he says. “That is actually hard to understand. The Government is ... a different one from a few months ago ... there are so many things that are happening in ... Italy that of course photovoltaics is one of ... many.” Pane and Sposato say they believe that there could be a further reduction of the FITs. Due to the indecision over the path forward, investor uncertainty has been heightened. Pane and Sposato comment, “The several legislative changes [that] occurred during the last year have disoriented the operators and the investors, that have also [had] to face the difficulties of the general international economic situation.” Despite this, there is confidence that the Italian market not only remains “one of the most important countries” for PV business, but that investing in PV there is still “very attractive.” Indeed, Pane and Sposato highlight that as a result of the repositioning of the market, which saw falling module costs across the global PV industry, the cost of projects in Italy has decreased, while the return on investment (ROI) has remained constant, at “between 10 and 15 percent.

The net income will be obviously lower for a company which will not receive any FIT,” they explain. “By now, a company calculates the income for 2012 with a FIT of 0.228 euros per kilowatt hour (kWh) (for a plant with an average power of one MW) and another price of about 0.80 euros per kWh for the sale of the electricity. Therefore, in terms of ROI, there will be a decrease as well as for other economic indicators.” They believe internal rate of return will be lower than six percent, while payback time will be between 14 and 15 years. “Nevertheless, the reduction of the ROI could be mitigated by the reduction of the relevant costs for the modules and the other costs for the realization of the PV plant. Obviously, local developers and land owners have to consider these new economic scenarios and ... reduce their economic expectations.” Mutti adds that the year began with a “sharp decrease” in PV module prices. Currently, he says, Chinese modules are being sold for between 0.50 and 0.60 euros per Watt, and European modules are selling for between 0.75 and 0.80 euros per Watt. Meanwhile, installation prices for a standard three kilowatt rooftop system are around three euros per Watt. “The sector by itself, at least for 2012, is a sector that makes investments attractive, if one defines attractive as whatever makes a return on equity above 10 percent,” he concludes.

Realignment Stefano Neri succinctly sums the situation up: “The golden age of the [largescale ground-mounted] plant is now a memory. There is still a sizeable market, but it requires a restructuring of the industrial landscape. There is a need for larger companies, structured to streamline costs and optimize business.” He sees a number of mergers and acquisitions taking place in the coming months, and believes a small domestic market for own

Exemptions to Decreto Monti

Under the Decreto Monti, FITs are no longer paid to photovoltaic systems on agricultural land. This decision does not apply, however, to developers which have already received a construction permit, or which had applied for a permit by January 1, 2012. Due to these exemptions, under the Decreto Romani, published in March 2011, a FIT could be granted to those photovoltaic systems that entered into operation one year from the publication of the Decreto Monti, i.e. January 24, 2013, and that fulfilled the following conditions: (i) did not exceed one megawatt; (ii) had a minimum distance of two kilometers from privately owned land; and (iii) did not occupy more than 10 percent of the available land.

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consumption will develop. Furthermore, the attention of investors has shifted from ground-mounted plants to rooftop systems, because of the still-attractive aforementioned ROI’s. “Investments by large utilities are continuing ... We see a repositioning towards the retail and domestic market, even by the panel manufacturers that provide a turnkey kit,” he continues. In the case of TerniEnergia, the company has realigned its business plans. “The Quarto Conto Energia limited the possibility of constructing PV industrial-sized plants on agricultural land ... For this reason, TerniEnergia changed its strategic plan,” explains Neri, adding, “[We also have] no plant recorded in the register, because the company thinks there are insufficient conditions to give visibility to the return on investment.” The company now aims to create partnerships with European utilities and focus on the “new business trend” of installing PV on commercial rooftops. Many others, including Dirk Morbitzer of Renewable Analytics, also believe there are promising PV prospects on Italy’s rooftops. “There are a lot of industrial sites in the northern and central regions of Italy that could be an excellent opportunity for the further development of this sector,” say Pane and Sposato, adding, “The actual installed capacity of rooftop plants under Conto Energia IV is around 25 MW and therefore quite low, but it is probable that in spring, when climate conditions change and the [installation] of ... plants is easier, this number will substantially increase.”

The end is nigh? According to Rödl & Partner’s Pane and Sposato, PV development in Italy has been “very fast”, because of the high FITs under the Conto Energia’s I, II, III and IV. “In this context, the pace of capacity expansion will slow down in 2012, and may probably recover and stabilize in 2013, as a consequence of the end of registration duties introduced in 2011.” Add to the mix the imminent arrival of grid parity and they believe a FIT will not be necessary, particularly when decreasing component costs are taken into consideration. With this in mind, it would seem wise for the industry to adopt Mutti’s survival strategy of assuming a “mindset where the actual incentives are no longer the rule of the game.” u Becky Stuart


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