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The weekend read: Green shoots appearing in the Italian PV market

From pv magazine 11/2021

After 10 years of drought, green shoots are appearing in the Italian PV market. Developers, who used to spend most of their time in regional tribunals attempting to overcome local resistance, report that they are currently working on new investment opportunities. Increased political will at the European, but also national level, is providing fertile turf for developers. The real boost, though, is the increasing appetite of the financial sector.

“Money is burning in the hands of investors. Many investment funds in the energy sector have raised capital and would like to invest as soon as possible. But the projects in Italy are still few, and we witness a lot of competition to acquire the ready-to-build projects,” said Gianluca Biscotti, managing director of engineering consultancy Studio BFP. He added that, as a result, investors are willing to pay “very high” prices for the authorization and accept “very limited investment returns.”

Terna has received, in the first half of 2021, grid-connection requests for more than 150 GW of renewable energy projects, predominantly solar. “This shows that the main hurdle to reach the 2030 targets does not lie in the investors’ appetite but once again in the permitting process,” said Michele Scolaro, an associate at Aurora Energy Research. Under Aurora’s central scenario, renewable targets to 2030 will not be reached.

In July, Italy’s Ministry for Ecological Transition (MiTE) increased its 2030 objectives – emission reduction targets rose from 37% to 51%. As a result, renewables capacity will have to increase from 56 GW in 2020 to 114 GW by 2030. There is talk that new authorizations for hundreds of megawatts of new projects should be announced soon.

Carlotta Piantieri, an associate at Aurora Energy Research, says Italy is currently on a similar path to Spain, but is starting a couple of years behind. “This is confirmed by our model, through which we see merchant build-out of 20 GW to 30 GW over the next five to 10 years,” she said.

The next two years are shaping up as critical. Mauro Moroni, energy transition ambassador of testing provider Kiwa Italia, says that the new capacity should total between 2 GW and 3 GW per year over the next two to three years. “Despite the current authorization bottleneck, I foresee a surge of domestic and industrial installations already this year, mainly due to the increase in electricity and gas bills. In addition, there will be a great acceleration of ground installations, already starting from the second quarter of next year,” said Moroni. His forecasts are in line with the figures presented by MiTE in July.

Legal changes

To unlock the full potential of the Italian PV market, operators, developers, analysts, and lawyers have called for a simplification of the approvals required to develop a renewable energy project – along with regulatory reforms.

Andrea Sticchi Damiani, a founding partner of legal consultancy Sticchi Damiani, says that the DL Simplifications-Bis, a set of measures meant to simplify approvals, is moving in this direction. “The most significant changes are threefold: firstly, the extension of the scope of application of the Simplified Administrative Procedure (PAS); secondly, the attribution to the state of responsibility for the environmental assessment of PV plants with a capacity above 10 MW; thirdly, the creation of the PNRR-PNIEC Technical Commission to carry out the environmental assessment procedures, under the responsibility of the state.”

Technical Commission

The Technical Commission will decide on large, strategic PV projects, like the ones included in the National Recovery and Resilience Plan (PNRR), and the ones implementing the Integrated National Energy and Climate Plan (PNIEC).

Sticchi Damiani said that the Technical Commission will take some time to begin operations. “Like all new bodies, I imagine that the Technical Commission, which will be composed of up to forty members, will need an initial running-in period. As of today, the decree appointing the members has not yet been issued. Therefore, it is likely that one or two months will be needed before the commission becomes fully operational.”

Scolaro added that the commission might have to examine hundreds of requests every year, which might slow down its works. “There is the risk of just moving the permitting bottleneck from the regional level to the state.” Analysts expect that this centralization process will bear fruit in the next two to three years.

Emilio Sani, a lawyer at Studio Sani Zangrando, expects first indications in around six months. “The effects of the transfer of the environmental authorizations to the national level shall be verifiable from next spring when the first procedures at the national level should be completed.”

Uneven development

Italian regions show significantly different patterns of solar development. Apulia, a long-time frontrunner in the Italian PV landscape, is progressing slowly, whereas regions like Sicily, Lazio, Piedmont, and Emilia Romagna authorize new capacity more quickly.

Apulia has become a tourist hotspot over the last 10 years, and the trend intensified during the pandemic. In the region, public opposition to PV is rather strong. Sani says that Apulia is rejecting most requests for agricultural areas also because of the “already significant” capacity.

Sticchi Damiani explains that there are also procedural issues, like a highly restrictive interpretation of the Regional Landscape Plan (PPTR), and a conflict of attribution between regional and provincial authorities. The Council of State, a legal-administrative consultative body, recently intervened to resolve the conflict of attribution.

“On the contrary, in Sicily, competencies have been clearly defined,” said Sani.At the same time, local complexities are not just a matter of authorizations. “About 50% of the Italian energy consumption is in the north. Therefore, it will be key to install PV in areas with lower irradiation but closer to the consumption,” commented Sani.

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International investors are baffled by the regional variation. “It is very challenging for an international investor to understand why regions are moving at very different paces. It is also challenging that the permitting process is taking approximately two to three years when, by law, applications should be processed in a shorter time,” said Fabio Spucches, global head of project development at Greece-based Mytilineos. Italy accounts for approximately 25% of Mytilineos’ global PV and storage portfolio.

Local opposition

Operators and developers also see a nationwide communication problem. “In recent months the Italian generalist press has published numerous articles on the world of renewables, unfortunately communicating incorrect information. Mass disinformation simply slows down the process of decarbonization,” Moroni said. He explained that renewable energy operators are by nature fragmented. As such, PV developers find it difficult to influence public opinion.

Nonetheless, according to Moroni, “a good part of the citizens” remain in favor of energy from renewable sources. Additionally, instruments to trigger acceptance are emerging. Moroni refers to Enel Green Power’s community funding campaign.

In September, Enel Green Power launched the financing initiative for a 17 MW solar power plant in Emilia-Romagna. Italian citizens can invest between €100 ($116) and €5,000, with a gross annual return of 5.5% for people living in the municipality around the power plant, and 4.5% for non-residents.

“In this way, in addition to supporting the decarbonization of the place where they live, citizens will be further motivated to accept a renewable plant in their territory, participating in the financing of the realization of the same. I believe that this type of economic and social approach will have success in the medium and long term among renewables investors globally,” argued Moroni.

Commodity prices

Commodity prices are another crucial element for several reasons. High and volatile fossil fuel prices make renewables more competitive. On the other hand, operators are faced with new challenges.

“The impact of high commodity prices is strong and still little understood. The increase in the cost of raw materials, the lack of chips, the disproportionate increase in transport costs from China is causing an exponential increase in the cost of construction of photovoltaic systems that, unfortunately, increase from week to week,” commented Biscotti, adding that the situation is destined to get worse because of the rumored shortage of PV modules.

Growth pillars

Along with traditional installations, agrivoltaics, energy communities, and the PPA market should drive future growth. Public investments presented in the PNRR aim to secure resources to install a total of 2 GW of electricity generation from energy communities by 2026.

The Italian PPA market is also destined to grow, despite the usual permitting hurdles. “PPA is the best way to realize PV projects when subsidies are not an option. And PV on agricultural land is exempted from subsidies. Thus, currently, it is a buyers’ market. However, we expect demand for PPAs to increase over the next years. Consumers increasingly look to buy green power, and the additionality claim is often key in corporates’ procurement choices,” explained Piantieri.

Agrivoltaics

Agrivoltaic projects are more expensive than other ground-mounted plants. According to Piantieri, the LCOE is on average 20% higher. At the same time, agrivoltaics is needed in a country without flat deserts.

“We are a country where the needs of landscape protection, agriculture, and industrial decarbonization coexist. For this reason, Italy will be a laboratory where many innovative projects can be born. Farmers and energy producers will collaborate more and more,” added Moroni.

There is not a consensus, though, on whether agrivoltaic installations require subsidies. “We at BFP believe that agrivoltaics is a great opportunity that, if well studied and calibrated, can and must provide a dual channel of return on investment, one for energy and one for agriculture. Incentives could invalidate that,” said Biscotti, adding that subsidies could determine anomalies already seen in the past with greenhouses.

Sani explained that projects in agricultural areas will receive public support. “The sustainability of this model will be clear when the GSE [Energy Services Operator] and the MiTE will clarify exactly the requirements in terms of agricultural productivity and technical characteristics of the plants,” said the lawyer.

The PNRR expects €1.1 billion in public investments for agrivoltaic projects. At this point, subsidies or not, the growth of agrivolataics in Italy will depend mostly on approval processes. “Currently, projects face even additional permitting burdens due to the multitude of entities involved in the process, often with diverging decision criteria,” added Scolaro.

In general, the Italian PV sector now hopes that the centralization of the authorization process will help solar power plants replicating the successes recently registered by storage applications in Italy.

“We have experienced a completely different approach developing our storage portfolio with MiTE. Very positive,” explained Spucches, adding that the Greek company is also dealing with MiTE for solar power applications. “The projects have been submitted at the starting of the new procedure in late August so we cannot currently say whether the process is smooth or not.”

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Source: pv magazine