Italian solar: The kindest cut?

Italy last week became the latest European nation to approve a decree to cut incentives for photovoltaic generation. This long-awaited move signalled the end of a period of intense uncertainty for investors in one of the world's largest solar markets.

The decree was originally expected to be published in March, but differences of opinion between Industry Minister Paolo Romani and Environment Minister Stefania Prestigiacomo slowed the decision, to the frustration of project developers and would-be investors wishing to work in the Italian market.

According to Romani, the draft provides great certainty to the solar industry and defines a “sustainable”, progressive reduction in incentives until 1 January 2013. After 2013, a new mechanism will be introduced in which the level of future incentives will be revised to ensure that capacity targets are hit.

However, Bloomberg New Energy Finance analysts believe the decree does not dispel uncertainties completely – because some of the provisions seem too generous. Overgenerous tariffs are attractive to the more opportunistic local investors, but are worrying to international firms who want long-term stability. The danger is that a fresh phase of boom in Italy could be followed by further emergency cuts.

The decree says that incentives will be revised on a monthly basis for 2011, starting from June 1. Thereafter these will be revised every six months to bring levels in line with other EU countries and to protect investments under way.

Signed on Thursday, the draft must be published in the official bulletin to become law. It aims to impose rate cuts ranging from 4-14 per cent for projects installed between June and August. Reductions for the remaining months of the year and the next two half-years will be bigger, reaching almost 44 per cent for the largest plants.

The final decree includes a spending cap for large projects in 2011-13 and, starting in September, a registry will be introduced for rooftop projects larger than 1MW and ground-mounted plants bigger than 200kW. The measures are aimed at limiting speculation, the ministry said. Subsidies for smaller projects will not be capped, and building-integrated PV and concentrator PV projects are not included in the cap.

An interesting note is that projects where 60% of the cost of modules and inverters is made by EU-based companies will get a 10% bonus to the tariff. This is a clear boon for European module and inverter assemblers, as the concentrator PV provision is for developers specialising in that technology, including the French company Soitec.

The government has a complex roadmap of future financial caps and expected pay-outs, but unpredictable declines in system costs and the probability of a boom in sub-200kW projects are likely to invalidate its expectations.

The decree also includes a provision for payment of compensation in cases where grid connection is delayed, Prestigiacomo said, addressing a common problem in Italy. Earlier in the week she promised that the government would seek to protect investments in those renewable energy projects under development that might fail to connect to the grid by the May deadline. "This will allow (investors) to overcome a series of problems which do not depend on those who have made investments," she said.

Shares in some solar companies like Suntech Power and First Solar rose last Thursday after news of the announcement.

Italy, like other big PV markets such as Germany, Spain and the Czech Republic, is speeding up cuts in feed-in tariffs in reaction to falling module prices and increasing pressure on consumer bills. According to Bloomberg New Energy Finance's Solar Module Index, the module spot price has fallen 10 per cent since December 2010, and by more than 50 per cent since Q3 2008.

Overall, clean energy shares found the going tough last week, with the WilderHill New Energy Global Innovation Index, or NEX, which tracks the performance of 100 stocks worldwide, dropping from 233.18 at the close on Friday 29 April, to 223.29 at the end of Friday 6 May's trading session. This decline of more than 4 per cent took the index back closer to its level at the end of last year, of 212.46, than to its recent 4 April high, of 237.33.

Reproduced with the permission of Bloomberg New Energy Finance. For further information, see www.newenergyfinance.com