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Italy to refund phase III carbon costs to dirty fuel plants

22 Jul 2013 19:08:01 | edcm

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Italy will reimburse electricity plants' carbon-permit purchasing costs for 2013-2015 to installations still covered by a controversial and costly incentive scheme dating back to the 1990s, the country's energy regulator AEEG ruled earlier this month.

The CIP 6 incentive scheme, now closed for applications, was implemented in 1992 by the Interministerial Committee on Prices (CIP) to promote building renewable plants or plants fuelled by "assimilated" sources - i.e. municipal solid waste, biomass, fossil fuels, process or residual fuels, such as those from refinery or steel production.

The scheme set out that CIP 6 plants receive a regulated tariff for electricity that the Energy Services Operator (GSE) buys from them before selling it on the power exchange.

The regulator decided that "assimilated" CIP 6 plants are entitled to a refund for the cost of buying EU allowances (EUAs), certified emissions reductions (CERs) and emissions reduction units (ERUs) to cover the associated emissions of the amount of electricity that GSE buys from them.

The decision was based on the original incentive scheme text, which left the door open for higher refunds if subsidised plants incur additional costs from regulatory changes - such as the cost of complying with a new climate regime from 2005.

According to an opinion of the Italian Council of State on the matter, carbon costs fall under this category, hence Italy refunded companies for these in phase I and II.

The regulator decided to reimburse companies in phase III using a calculation based on the difference between free allocation and permits surrendered; as well as the maximum use of offsets possible. The refund is only valid for power bought by GSE.

The regulator will detail how the reimbursement procedure will work in 2016-2020 in subsequent measures. "We expect developments at EU-level for the ETS, which make long-term decisions [on this point] unwise," energy regulator AEEG said in the measure.

The overall cost of the scheme already totalled €25bn over 2001-2012, GSE data show.

Italy in 2009 offered to pay plants covered by CIP 6 to opt out of the scheme - but at a figure coming in below the total value of potential subsidies.

How many plants?

The country designed the program to spur on renewable investment, but it has instead subsidised mostly polluting plants. According to GSE data, over 2001-2012, 82% of the 510TWh withdrawn under CIP 6 came from assimilated sources and only 18% from renewable sources.

Expiring purchasing contracts and early cancellation of others have driven down how much electricity GSE withdraws from CIP 6 plants. This trend is expected to continue until Italy phases out the CIP 6 scheme in 2021.

In 2012, power from CIP 6 renewable and assimilated sources plants together accounted for 8% of total net electricity generated in Italy.

Since 2010, 14 plants with almost 2GW capacity have agreed to opt out of the subsidy scheme early. On 1 June 2013, six power plants fuelled by fossil/residual fuels still received subsidies for a total capacity of 1.7GW, according to GSE.

Of these plants, two accounting for 198MW have since asked for an early end to being subsidised, which GSE says it will bring forward. On top of this, some 25 plants totalling 714MW - including 400MW fuelled by municipal waste - are still subsidised.

An up-to-date list of plants currently receiving subsidies from CIP 6 is unavailable. The biggest 2012 CIP 6 power producers from "assimilated" sources listed by AEEG include oil refiners Saras (23%) and API (12%) and energy companies ERG (22%), GDF SUEZ (19%), Edison (8%) and BG Group (10%). This could have changed in 2013, however, as for instance Edison entirely withdrew from CIP 6 incentives as of 1 January 2013.

The 528MW ERG ISAB Energy plant in Sicily is among those plants remaining under CIP 6. The integrated gasification combined-cycle plant generates electricity from asphalt, the last residue of the ISAB Impianti Sud refinery's process.

The status of the combined-cycle Saras Sarroch plant, using residues process fuels, is unclear. Saras did not reply to ICIS' request for comment at the time of going to press, but said in its 2012 annual report that it "expressed its interest in an early withdrawal from the agreement to GSE" and that "the company's managers are currently assessing the various alternatives available."

API could also not be reached for comment by the time of going to press.

GSE expects the "assimilated" subsidised capacity to decline from 1.7GW in 2013 to 1.1GW in 2018 to 0.5GW in 2020 to zero in 2021. Silvia Molteni

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