Italy Abandons RPS

Introduces Complex System of Differentiated Tariffs for Renewable Energy

Another Sign RPS Model Losing Favor in Europe

This past summer Italy not only adopted new feed-in tariffs for solar, but also radically revised its program for wind and other renewables. The complex new Italian policies go into effect at the beginning of the new year.

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.)

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.

Note: Any corrections, changes, or updates to this article can be found on www.wind-works.org/FeedLaws/Italy/ItalyList.html.

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.

Biomass Cap

While overshadowed by solar PV, the growth of biomass in Italy has also been dramatic. In 2011, biomass generated as much electricity as either wind or solar PV, about 11 TWh, and capacity has been growing at the rate of 300 MW to 500 MW per year. The 800 MW set aside in 2013 should accommodate the current growth rate, but the program places severe restrictions on further growth in 2014 and 2015, particularly on biomass.

Hydro Cap

Italian hydroelectric capacity has been growing at a moderate rate of 100 MW to 200 MW per year. The cap on hydro development of about 400 MW per year will allow expansion of the current pace of development. The average size of a hydro installation in Italy has been steadily decreasing as the best sites are exhausted. The program cap will permit the development of about 70 projects in the typical project size of 6 MW.

The cap on capacity by technology is subdivided by which program the capacity qualifies for. For example, the 710 MW set aside for wind in 2013 is divided among the premium tariff that must be tendered, 500 MW; premium tariff for repowering that does not need to go to auction,150 MW; and capacity that qualifies for the all-inclusive tariffs that also do not need to be auctioned, 60 MW.

Solar Cap

Solar PV is singled out from all other renewables for special treatment through Conto Energia V. Expenditures for solar are limited to €6.7 billion per year. The amount expended will be posted daily on the GSE web site in a running tally. The program closes 30 days after it has reached the expenditure limit. The cap covers solar PV, building integrated solar PV, and concentrating solar PV.

Plethora of Choices

Most renewable technologies can choose between a fixed tariff, a premium tariff, or an indirect marketing program. Beyond a certain size limit, most renewable technologies must use the premium feed-in tariffs. Under this program, contract capacity and the final tariff will be determined by a tendering process.

Some technologies within a certain size limit qualify directly for the base tariffs without entering GSE’s registry. Developers of other technologies or those projects beyond a minimum size must register with GSE to qualify. It is through this registry that GSE controls the amount of new capacity installed under the program.

All-Inclusive Tariffs

Projects less than 1 MW can choose the all-inclusive tariff (tariffa omnicomprensiva) or the premium tariff system. Projects under the all-inclusive tariff are not put out to tender.

Wind systems less than 60 kW, biogas plants less than 100 kW, hydro plant less than 50 kW, and biomass plants less than 200 kW qualify directly for the fixed tariffs. They do not need to register with GSE.

All other plants must register. For example, wind systems from 60 kW to 1 MW must register with GSE to qualify for the all-inclusive tariffs.

Tariffs are fixed, but may include premiums or a bonus for particular technologies.

Degression of 2% per annum on the base tariffs begins in 2014.

All-Inclusive Solar Tariffs

Conto Energia V governs all solar PV and concentrating solar PV tariffs. Solar PV less than 12 kW qualifies for the base tariff directly. All other solar PV systems up to 5 MW must register with GSE to qualify for the program.

There is an exception for solar PV used to replace asbestos roofs. Projects replacing asbestos roofs up to 50 kW qualify directly for the tariffs.

Projects using net-metering, in-direct marketing, or state subsidies are excluded from Conto Energia V’s all-inclusive tariffs.

There are separate “self-consumption” tariffs for solar PV systems that use net-metering.

There is also a bonus of €0.02/kWh ($0.025/kWh) for solar PV systems installed in 2013 where 50% of the value is added in the European Union. The made in EU bonus drops to €0.01/kWh ($0.012/kWh) for systems installed in 2014.

The base tariffs for solar PV are revised each semester.

Premium Tariffs for Concentrating Solar Power

Conto Energia IV for Concentrating Solar Power (CSP) still applies. This program is limited to 1.5 million square meters of collector area.

Because CSP projects are envisioned as using a supplemental fuel source to extend their operating hours, the tariffs are differentiated by the percentage of generation from the non-solar fraction.

Premium Tariffs for “Other” Renewables

Excluding solar PV, projects greater than 1 MW qualify for the premium tariff.

Premium tariffs include the base tariff plus any premium. For example, there is a premium for offshore wind of €0.04/kWh ($0.05/kWh).

For the most part, the “base tariff” is actually a maximum tariff. Contracts are awarded and the final price issued are based on bids in a tendering process. Bids qualify if they fall within an acceptable window: more than 2% reduction relative to the base tariff, and less than a 30% reduction of the base tariff.

Successful wind bidders have 28 months to complete their projects; successful offshore wind bidders have 40 months.

All participants in the premium tariff program must pay GSE a €0.0005 per kWh for administrative costs.

Indirect Wholesale Marketing

Another option for developers is to indirectly sell their generation into the Italian wholesale market through GSE (ritiro dedicato).

Producers of up to two million kWh per year can choose a minimum tariff or the market price. Generation greater than two million kWh per year is sold at the market price.

When this option is chosen, the generator cannot use the solar tariffs, the all-inclusive tariff, or the premium tariff.

This option is available to wind, solar, hydro, geothermal, biogas, and biomass technologies.

Net-Metering

Net-metering (scambio sul posto) is not limited to solar PV, it also available to projects using wind, geothermal, hydro, biogas, and biomass. While net-metering is applicable only to customers with a metered connection, there is an exception for municipalities.

Municipalities with less than 20,000 people can use net-metering for municipal purchases and the renewable plant need not be at a previously metered location, that is, it can be a green field site.

With the exception of solar PV, net-metered projects receive only the retail rate up to their consumption. For solar PV, projects also receive a self-consumption premium in addition to the retail rate.

Building Efficiency Bonus

Like Britain, Italy’s feed-in tariff for solar PV includes provisions for encouraging improvements in building efficiency. In Italy’s case, there is a substantial bonus payment if the solar system and the building of which it must be a part meets the program’s requirements.

Existing buildings qualify if the reduction of summer cooling and winter heating loads are reduced by a minimum of 10%. The bonus payment is half the percentage reduction times the applicable tariff.

For new construction, the bonus payment is 30% of the applicable tariff if the building cuts its consumption of summer cooling and winter heating 50% of values specified in a related regulation.

Italian Renewable Target

GSE argues that the country’s new feed-in tariff policy will enable Italy to increase the renewable contribution in its electricity sector from somewhat less than 30% today to its European Union target of 38% by 2020.

Next year begins the test whether Italy succeeds in making a seamless transition from a one of the continents largest RPS programs relying on green certificates to a complex system of feed-in tariffs, or whether Italy stumbles and loses momentum and misses its targets due to the program’s complexity.

Italy Abandons RPS – Adopts System of Feed-in Tariffs

Introduces Complex System of Differentiated Tariffs for Renewable Energy

Another Sign RPS Model Losing Favor in Europe