Killer decree threatens global solar

opportunity:energy

In a move that will shake the global PV industry, the Italian government approved on March 3 a long awaited Renewable Energy Decree that marks an unanticipated, early end to its incredible solar race.

After months of intense negotiations with parliament and industry representatives that seemed to have achieved positive results, the Italian minister for economic development, Paolo Romani, presented a final “surprise” version of the Decree that will set the new standards for all future renewable energy incentives.

The Decree was due to address Italy's path to its EU 2020 renewable energy targets (17 per cent of primary energy consumption and 30 per cent of electricity from renewables). The result? All that had been discussed until now is no longer valid, and the deadliest blow goes to solar power, effective immediately.

The third “Conto Energia”, the brand new scheme of incentives for solar power, which came into effect only two months ago and was planned to run for three years until the end of 2013, giving stability and a further boost to the growing sector, will in fact be cancelled altogether on 31st May 2011, three months from now. Whoever has not installed and connected their plants by then will be left to the mercy of a tariffs review that is still to be drafted and discussed.

To add further uncertainty to this gloomy outlook, an as yet undisclosed annual cap will be put in place for the years to come, on top of the downgraded tariffs. While a much feared 8,000 MW final cap was taken off the table, the lack of a new incentives scheme and this new annual cap will spread more panic than the original draft ever could have achieved.

To those with a feel for investments, it is clear that this situation leads to one inevitable consequence: all investment plans based on the currently set tariff regime (worth billions of euros) will be halted immediately until further notice, and chances are that the new rules will prevent solar photovoltaics from ever reaching the installation figures achieved so far, even when solar power will become a truly cheap energy option.

So why has the Italian government u-turned in this unprecedented way? Recent debate over the costs of renewable energy incentives was used as an excuse to revert the path thus far taken by the energy sector: around €4 billion will be spent in 2011 for green energy, an unacceptable price to pay, according to Minister Romani. Little matter that some €2.5 billion will go straight back in the form of taxes, that the renewables industry accounts for 2 per cent of Italy's GDP, or that Germany is spending far more and has created a strong industry as a result.

The environment minister Stefania Prestigiacomo noted only few days ago: “Solar incentives weigh on Italy's energy bill less than the CIP6 [a scheme by which refineries and incinerators also get incentives] or nuclear decommissioning. German renewables incentives weigh around 10 per cent, in Italy they do by 3-5 per cent." It is estimated that, after the last Italian nuclear plant was switched off over 20 years ago, Italy's nuclear decommissioning bill is still around €400 million per year.

The true reason for this last minute Decree is simple: Renewable energy, and solar power in particular, is growing fast, so fast that Italy's plans to build new EPR (European pressurised reactor) nuclear plants in the country by 2022 will fall apart if the race goes on undisturbed. Italy can already count on about 17,000 MW of hydropower, 6,000 MW of wind power, and a staggering estimated 7,500 MW of solar power (over 3,700 MW already connected, 3,771 MW awaiting connection), on top of other renewable energy sources like biomass and geothermal power (Italy is top European geothermal producer, with more than 800 MW, well over Iceland).

The ministry could have decided to “just” trim down solar incentives more quickly and steeply while ruling out all sorts of capping mechanisms (like Germany has recently done, while also confirming a 52,000 MW target by 2020). This would have given the industry a chance to absorb the hit, adapt to new terms and slow down as necessary, while also helping the solar sector reach an early grid parity two or three years from now (the PV industry has already got used to abrupt changes in market conditions, so much so that prices declined 50 per cent in the last two years).

Instead, a subtly planned Decree will now cancel a brand new three year scheme, leaving a legislative black hole and a looming annual cap on new schemes, so as to introduce an element of luck in the financing equation of all business to come. If you aren't quick enough to install your panels, you won't get the incentives, and could go bankrupt. It's not hard to guess how banks will react to this new state of play.

Should the global PV industry be concerned? Very much so. Italy was forecast to install something like 5,000 MW or more in 2011, threatening Germany's ranking as the world's top solar market. This means that as much as a quarter of global PV installations for this year (16- 20  according to the latest estimates by the European Photovoltaic Industry Association, EPIA) are expected to take place in this country alone.

Should this Decree be signed by Italy's President Giorgio Napolitano and come into effect, solar panel overproduction will occur for months to come, only to be reabsorbed whenever smaller, weaker manufacturers are gradually swept away by this unforeseen tsunami, something worse than Spain's solar tariffs' shutdown in 2009.

But can they actually do it? Tens of thousands of jobs are now set to disappear (120,000 in the solar sector alone, according to industry sources), along with hundreds of companies involved in what has grown to be a sizeable investment sector for the Italian economy. Things are so serious that national industry associations like Assosolare have threatened legal action against this Decree, and are seeking to have it cancelled by Italy's President on the grounds that it is unconstitutional, with too much power given to one ministry over energy incentives. Francesco Ferrante MP, a Democratic Party deputy, laconically commented: “Delegating renewable energy incentives to Minister Paolo Romani is like entrusting Dracula with the management of a blood donors association“. Assosolare finally suggested that international credit ratings agencies could well step in, to reassess and downgrade the credibility of a nation whose government's derogative methods create unusual risks and instability to long-term industrial investments.

These are crucial hours for an entire sector of Italy's economy, and beyond: should this Decree be signed off, we can expect a strong contraction of the solar photovoltaic industry at a global level in 2011. All eyes are on Italy.

Carlo Ombello writes about sustainability and renewable energy technology. This article first appeared on his blog opportunity:energy, and was reproduced with permission.