The development of renewable energies in italy results of ten years of experience

Gerardo Montanino Operations Department Head

“IRENA meets the Italian Renewable Energy System” GSE – Roma – June 7, 2013

The development of renewable energies in Italy: results of ten years of experience

- 2 -

Ownership 100%

MEF Ministry of

Economy and Finance

MISSION

GSE promotes the development of renewable energy sources and energy efficiency in Italy, mainly by granting economic incentives and supporting the policy makers.

GSE is also involved in various international activities such as, for example, international RES related associations (IRENA, IEA, OME, AIB, RES4MED) or projects funded by the European Commission (CA-RES, PV Parity, etc.).

MSE Ministry of Economic Development

also in consultation with Ministry of Environment

AEEG Energy Regulator

Decisions Guidelines

GSE – the Energy Services Operator

- 3 -

1) 2020 European targets for renewable energy sources

2) Italian instruments to achieve the targets

3) Monitoring: the main Italian results - where we are and where we should be

- focus on RES-E sector: some thoughts for a cost-benefit analysis

4) The National Energy Strategy: new Italian targets

INDEX

- 4 -

2009/28/EC Directive 2010 Italian Renewable

Energy Action Plan (NREAP)

10% 10%

26,6%

17,1%

10,1%

17% 20% 17%

RES in the ELECTRICITY sector

RES in the HEATING sector

RES in the TRANSPORT sector

TOTAL final energy consumption from RES

European Targets

Italian Binding Targets

NREAP's Italian Targets

2020 Renewable Energy Sources (RES) TARGETS

TARGETS

- 5 -






INDEX

- 6 -

RES - H

RES - T

Support schemes Other measures

RES - E

• Blending obligation

• Grants: “Heating Account” • White Certificates • Fiscal Incentives

• Green Certificates (phasing out) • Feed in tariff • Feed in premium

RES sectors

• Simplified administrative procedures

• Technical Regulation • Grids

• Training and

information

• Monitoring, controlling and reporting

INSTRUMENTS

Most instruments were in force already before the Directive 28 (after that they have been updated, but

Italy has a long history in focusing on renewables sources)

All support schemes except fiscal incentives are managed by GSE

- 7 -

RES - E SUPPORT MECHANISMS

PV PLANTS OTHER RES PLANTS

Feed-in Tariff Sliding Feed-in

Premium

A fixed tariff (technology and size banding incentive)

PLUS any applicable

premium

Value of Feed-in MINUS

hourly zonal energy market price

PLUS any applicable

premium

P ≤ 1MW P > 1MW

Feed-in tariff Sliding Feed-in

Premium

A fixed tariff (depending on

technology and size) PLUS

self consumption premium or/and any applicable premium

Value of Feed-in MINUS

hourly zonal energy market price

PLUS self consumption

premium or/and any applicable premium

P ≤ 1MW P > 1MW

Yearly cumulative spending limit:

6,7 € bln

Directly Registries

PV plants ≤ 12 kW (≤ 20 kW with 20% tariff reduction)

PV plants > 12 kW

How to access to incentives How to access to incentives

Directly Registries Auctions

Very small plant & other

marginal cases

- RES ≤ 5MW except - Hydro ≤10 MW - Geo ≤ 20 MW

- RES > 5MW except - Hydro > 10 MW - Geo > 20 MW

Yearly cumulative spending limit:

5,8 € bln

INSTRUMENTS: RES-E support schemes

- 8 -

SUPPORT MECHANISMS FOR RES-E IN EUROPE Examples of comparison of incentives in force in May 2013 (20 years annualized total revenues)

Feed in tariff Green Certificates Feed in Premium Wholesale electricity price Min and max value of the incentive

0

50

100

150

200

250

RO CK IT NL UK DE FR SE DK AT

€/M

Wh

Hydro – 10 MW

0

50

100

150

RO IT NL CK UK DE AT FR DK SE

€/M

Wh

Wind – 10 MW

0

50

100

150

200

250

300

350

DE FR RO UK IT CK NL AT SE DK

€/M

Wh

Geothermal – 10 MW

0

50

100

150

200

250

IT RO AT DE CK UK FR NL DK SE

€/M

Wh

Solid biomass – 10 MW


For almost all kinds of small plants, in Italy, incentives given to producers are still the highest of the EU. (this is due to a clear intention, in the latest reform, to encourage specific applications with more impact on Italian supply chain)

Source: GSE

- 9 -

0

100

200

300

400

500

600

700

€/M

Wh

0

100

200

300

400

500

600

700

€/M

Wh

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

2007 2008 2009 2010 2011* 2012 2013

MW

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

2007 2008 2009 2010 2011 2012 2013

MW

ITA

LY

GER

MA

NY

3 kW residential buildings total revenues

200 kW industrial buildings total revenues

2000 kW ground total revenues

* This includes more than 3700 MW of plants already completed in 2010 (“Salva Alcoa” Decree)


annual installed MW

SUPPORT MECHANISMS FOR PHOTOVOLTAIC IN EUROPE Examples of comparison of PV annual installed capacity and incentives digression (20 years annualized total revenues based on the Italian load factor)

Source: GSE

- 10 -

0

100

200

300

400

500

600

700

20

08

20

09

20

10

20

11

1°s

em

20

11

2°s

em

20

12

1°s

em

20

12

2°s

em

20

08

20

09

20

10

20

11

1°s

em

20

11

2°s

em

20

12

1°s

em

20

12

2°s

em

20

08

20

09

20

10

20

11

1°s

em

20

11

2°s

em

20

12

1°s

em

20

12

2°s

em

20

08

20

09

20

10

20

11

1°s

em

20

11

2°s

em

20

12

1°s

em

20

12

2°s

em

20

08

20

09

20

10

20

11

1°s

em

20

11

2°s

em

20

12

1°s

em

20

12

2°s

em

1-3 kW on building 3-20 kW on building 20-200 kW on building 200 - 1000kW on theground

>1000 kW on theground

[€/M

Wh

] INSTRUMENTS: RES-E support schemes

AVERAGE EVOLUTION OF TOTAL REVENUES AND LEVELIZED COST OF ELECTRICITY (LCOE) FOR PV PLANTS IN ITALY (Hyp: 1.250 kWh/kWp; 5% WACC (Weighted average cost of capital); 20 years lifetime; 30% selfconsumption;)

• "Parallel" (not simultaneous) decrease of incentives and costs (which is the cause and which is the effect?), not only in Italy, but in all EU MS. Decreasing trend of profitability.

• LCOE is highly sensitive to the cost of capital (WACC): e.g. in the range 2-8%, a 2% increase in the WACC causes an increase of 12-14% of the LCOE. Finance costs are high in Italy. In Germany, for example, there is a lower cost of capital (moreover, KfW, German government-owned development bank, provides low-interests loans)

Total revenue (incentive + max. energy value)

LCOE

Source: GSE

- 11 -

RES – H AND ENERGY EFFICIENCY SUPPORT MECHANISMS

Grant

Heating Account

Incentives are intended to support part of investment

costs through yearly installments

and are granted for a period varying between 1 and 5

years, depending on the type of intervention realized.

Quota – obligation scheme

White certificates

White certificates are tradable instruments giving proof of the achievement of end-use energy

savings through energy efficiency improvement

initiatives and projects. It is based on the obligation for electricity and natural-gas

distributors to achieve yearly quantitative primary-energy

saving targets.

Fiscal Incentives

Tax detraction

Government provides a tax detraction (raised from 50%

to 65% for 2013) of the expenses for interventions of

energy re-qualification on existing buildings, including

the replacement of old heating systems with new

RES heating devices.

Yearly cumulative spending

limit: 900 € mln

INSTRUMENTS: RES-H (and EE) support schemes

- 12 -

RES – T SUPPORT MECHANISMS

Quota-obligation scheme

Biofuel certificates

In Italy gasoline and diesel distribution companies are obliged to blend fossil fuels with a quota of biofuels (blending obligation). The companies can fulfill their obligation also by acquiring the equivalent quota of certificates. Every certificate corresponds to a well established biofuel quantity, that differs according to the biofuels typology blended (i.e: first or second generation biofuels). All the biofuels consumed in Italy must comply with well defined European sustainability criteria.

INSTRUMENTS: RES-T support schemes

- 13 -






INDEX

- 14 -

MONITORING

“SIMERI”

RES incentives results

EU Support Schemes

Costs

Green economy

Avoided emissions

Authorizations

Annual Report

Progress Report

The legislation includes a number of monitoring tasks (assigned to GSE)

RES STATISTICAL MONITORING to verify the compliance with the national and regional targets (burden sharing).

Reports on RES SUPPORT RESULTS: Green Certificates, Feed in Tariffs, Conto Energia, Heating Account, Biofuels, etc.

International energy policies: reports on ANALYSIS AND COMPARISON OF RES SUPPORT SCHEMES among EU MS; report on sustainability certification systems for biofuels.

Report on GENERATION COSTS in the main European Countries, with a special focus on Italy

Report on the assessment of the ECONOMIC AND EMPLOYMENT IMPACTS of renewable energy and energy efficiency development in Italy

Assessment of the ENVIRONMENTAL IMPACTS of RES and EE development (first of all avoided emissions)

Report on the AUTHORIZATION PROCEDURES of renewable energy power plants in Italian Regions

ANNUAL REPORT ON RES DEVELOPMENT IN ITALY: results, targets, costs, scenarios, forecasts

BIANNUAL REPORT FOR THE EUROPEAN COMMISSION on the progress in the promotion and use of energy from renewable sources (2009/28/EC Directive)

- 15 -

Progress Report

Legislative Decree no. 28/2011 charges GSE to draft the << Report on progress made by Italy in

the promotion and use from renewable sources >>. This report is made every two years, with

reference to the previous two years, and sent to the European Commission.

Progress

Report

1° Progress Report.

The first biannual report was made and sent to the

European Commission in 2011.

2° Progress Report.

2° report, to be sent by 2013, is under preparation.

Many information required:

• statistical data on RES-E, RSE-H, RES-T;

• authorization procedures;

• development of networks;

• incentives in the electricity, heat and transport:

explanation, results, effectiveness and efficiency;

• allocation of costs;

• emissions avoided and other environmental benefits;

• impacts on biodiversity and other environmental

impacts;

• guarantees of origin;

• availability of biomass;

• impact of the development of renewable energy on the

intended use of the land and on agricultural prices;

• development of 2nd generation biofuels;

• update on estimated production and consumption of

energy in all sectors until 2020;

• international cooperation projects.

MONITORING

Final consumption from RES

- 16 -






INDEX

- 17 -

2011 Statistical Data (latest available data in terms of total final consumption)

ENERGY PRODUCTION FROM RES IN THE ELECTRICITY SECTOR 2011 ENERGY CONSUMPTION FROM RES IN THE HEATING SECTOR 2011

6,9%

12,6%

13,2%

13,3%

54,0%

Geothermal

Wind

Solar

Bioenergies

Hydro

2,1%

2,3%

11,4%

22,0%

62,2%

Geothermal

Solar thermal

Derived heat

Heat pumps

Bioenergies

MONITORING: where we are

- 18 -

2005-2011 trends and 2020 binding targets

MONITORING: where we are and where we should be

Data available on SIMERI (http://www.gse.it/it/Statistiche/Simeri)

Share of RES in TOTAL gross final consumption

Share of RES in gross final consumption in the TRANSPORT sector

NREAP's trajectory Final


- 19 -

2005-2011 trends and 2020 NREAP sectorial targets

MONITORING: where we are and where we should be

Data available on SIMERI (http://www.gse.it/it/Statistiche/Simeri)

Share of RES in gross final consumption in the ELECTRICITY sector

Share of RES in gross final consumption in the HEATING sector



- 20 -






INDEX

- 21 -

MONITORING: FOCUS ON ELECTRICITY SECTOR

Breakdown of electricity demand in Italy (TWh)

From 2002 to 2012:

- renewables have increased significantly, especially in recent years

- the balance of trade decreased slightly from 40 to 51 TWh

- conventional production has fallen (from 213 TWh in 2002 to about 193 TWh in 2012).

* Preliminary Data . Source TERNA/GSE - ** “Other fossil fuels” includes pumping hydro plants, derivative gas ,etc.

Balance of trade

Natural Gas

Renewables

Coal

Oil products

Conventional

Other fossil fuels **

- 22 -

MONITORING: FOCUS ON RES-E SECTOR

RES cumulative installed capacity RES gross electricity production

Huge growth of photovoltaic power in a few years, continued good growth of wind power (both non-programmable) Recently, remarkable growth of small biogas plants

- 23 -

Indicative cumulative yearly cost of RES-E support (“counter PV” and “counter others RES”) Estimate of the net potential annual cost, already committed but not yet fully supported. It includes the economic value of all green certificates as well the costs of registries and auction. It does not include the costs of services such as “simplified purchase & resale arrangement” and “net metering”.

June 6, 2013

April 30, 2013 (latest available estimate)

PV 6,47 € bil

Other RES 2,54 € bil

Fossil 0,87 € bil

Total 9,87 € bil

MONITORING: FOCUS ON RES-E SECTOR. COSTS

Net cost of incentives on electricity bills (A3) in the year 2012 It includes the costs of services such as “simplified purchase & resale arrangement” and “net metering” (0,2 € bil). It does not include the economic value of the green certificates that have not been withdrawn from the GSE.

PV 6,70 € bil 6,70 € bil

Other RES 4,22 € bil 5,80 € bil

Total 10,92 € bil

"Spending caps"

Components of the electricity bill for a household type (March 2013): 53% energy and dispatching; 17% burden for incentives; 15% transmission and distribution; 13% taxes; 2% other system burdens

- 24 -

MONITORING: FOCUS ON RES-E SECTOR. ECONOMIC BENEFITS

HOURLY PRICES' CURVE IN THE WHOLESALE ELECTRICITY MARKET (comparison between Tuesday 23rd May 2006 and Thursday 23rd May 2013)

“Peak shaving” in the electricity market The price increase during the evening hours is heavily outweighed by the savings during the solar hours.

2013 average daily price

2013 hourly zonal price

2006 average daily price

2006 hourly zonal price

- 25 -

MONITORING: ENVIRONMENTAL AND ECONOMIC BENEFITS

0.2 Mt

2.9 Mt

7.4 Mt

3.8 Mt

0.4 Mt

0.3 Mt

23.3 Mt

4.7 Mt

3.8 Mt

2.9 Mt

1.0 Mt

BIOETHANOL

BIODIESEL

BIOENERGY

HEAT PUMPS

SOLAR

GEO

HYDRO

WIND

BIOENERGY

GEO

PV

RES – H (11.9 Mt CO2)

RES – T (3.1 Mt CO2)

RES – E (35.8 Mt CO2)

Avoided emissions of CO2 equivalent in 2010 *

Methodology: Life Cycle Assessment + individuation of fossil energy technologies replaced (in the electricity sector each renewable technology is assumed to replace the share of energy production from fossil sources that was marginal in the period of production).

* 2010 is at the moment the last year for which the methodology has been applied. 2011 and 2012 are currently being evaluated.

Source: GSE

- 26 -

MONITORING: FOCUS ON RES-E SECTOR. ECONOMIC BENEFITS

Employment impacts due to investments in 2011 RES Investments in 2011

Impacts on national value added in 2011 Impact on gross domestic production in 2011

Source: GSE Methodology: input/output analysis, using spending vectors updated and corrected to take account of the value of imports and exports

- 27 -

PV Huge imports of PV cells and modules. National inverter manufacturers are well positioned in the national and international market

CSP Strong competences in some aspects. Delays in projects development.

Solar thermal Domestic manufacturers are well positioned in the overall sector

Hydro Several Italian main contractors are leaders in the international market

Wind Huge imports of wind turbines. Foreign companies are leaders in the equipment manufacturing.

Geothermal One of the main Italian electricity operators is a global leader in geothermal technology.

Bioenergy (electricity sector)

For certain technologies there are Italian manufacturers that’s can provide equipment and EPC services.

Bioenergy (heating sector)

Domestic manufacturers are well positioned in the overall sector.

Bioenergy (transport sector)

Recently, a new initiative is carried out by an Italian company concerning the development of 2° generation biofuels

MONITORING: ITALIAN INDUSTRY

Average situation of the Italian industry in RES technologies. Sketch to be taken lightly.

- 28 -






INDEX

- 29 -

Four main goals

1) Significantly reduce the energy cost gap for consumers and businesses, by bringing prices and costs in line with European levels

2) Achieve and exceed the environmental targets established by the European Union’s 2020 Climate and Energy Package (known as the “20-20-20” package)

3) Continue to improve our security of supply, especially in the gas sector, and reduce dependency on imports

4) Foster sustainable economic growth by developing the energy sector

Seven priorities of action

1) Foster energy efficiency

2) Promote a competitive gas market

3) Sustainable development of renewable energies

4) Development of infrastructure and electricity market

5) Restructure the refining industry and the fuel distribution network

6) Sustainably raise national hydrocarbons production

7) Modernize the system of governance

NATIONAL ENERGY STRATEGY

- 30 -

NATIONAL ENERGY STRATEGY: NEW TARGETS

National Renewable Energy Action Plan (NREAP) vs National Energy Strategy (NES)

RES – E RES contribution to the electricity target

RES - H RES contribution to the thermal target

RES - T RES contribution to the transport target

~6 Mtoe

~ 10,5 Mtoe ~ 11 Mtoe

26%

36% -

38% 17%

19% -

20%

10 %

10 %

~ 8,5 Mtoe (~ 100 TWh )

~ 11 Mtoe (~ 130 TWh )

11% ~ 1,4 Mtoe

~ 3,4 Mtoe ~ 3,4 Mtoe

10% 5%

~ 8 Mtoe (~ 92 TWh )

28%

2012 2020 NREAP 2020 NES 2011 2020 NREAP 2020 NES 2011 2020 NREAP 2020 NES

2011

2020 NREAP

2020 NES 126 Mtoe

133 Mtoe

126,2 Mtoe

Gross final energy consumption

- 31 -

Thank you for your attention

The development of renewable energies in italy results of ten years of experience

Technology

simplified

national energy

main italian

gross final

renewable

tariff sliding

renewable

international