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Italy’s lower CHP tax could pressure natural gas demand further

27 Apr 2012 16:55:45 | edem esgm

Italy's plan to drop taxes for combined heat and power (CHP) plants could pressure natural gas consumption and further undermine gas-fired electricity generation margins, one analyst has told ICIS.

The Italian Senate approved a fiscal decree on Tuesday, which included a measure that could bring down taxes for CHP plants to the end of the year (see EDEM 25 April 2012).

The decree extends the lower tax rate on electricity generation fuels on CHP plant operators to heat production, whereas under the current regime, the tax on fuels for heat production is higher.

The new decree was welcomed by cogeneration industry associations.

"It should benefit CHP plants' operators," said Donatella Bobbio, analyst with Italian energy consultancy REF-E. However, she stressed that the real effect of the new regime will be made clear only when the ministry for economic development finalised the rate. The new tax regime will come into force in 2013.

New investments?

But another analyst argued that the new decree is unlikely to bring new investments in the CHP sector in Italy because of the current sluggish demand.

"There's currently a big issue about power demand and an even bigger problem about heat demand, so I don't think that a lower tax regime will trigger many new investments - at least not in big plants," he said.

"The main impact that this could have is that more CHP generation could mean a further decrease of gas demand. CHP plants are much more efficient and could take on part of the gas demand for household heating in particular," he added.

He also concluded that the use of more efficient plants such as CHPs "is definitely not going to help the gas-fired power sector."

The Italian gas-fired sector has been suffering since last year (see EDEM/ESGM 10 November 2011), mainly because the high cost for gas means that spark spreads no longer justify Baseload gas-fired generation (see EDEM 28 September 2011)

According to grid operator Terna, Italy's total gross CHP capacity amounted to 24.4GW at the end of 2010.

The new decree also imposes a new tax on the electricity that industrial energy users generate for their own consumption, when such users have a monthly consumption of more than 1.2GWh. MM

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