Italian offshore wind, biomass outlook bleak – experts

01 September 2014 06:00 Source:ICIS
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Italy is almost certain to miss its target of subsidising 946MW of new offshore wind and large-scale biomass-fired power generation capacity in 2015 because its subsidy mechanism is not sufficient to offset investment risk in these technologies, experts say.

This means the country’s high reliance on solar power in the generation mix will remain, which already eats heavily into the values of peaks products at the country’s wholesale electricity market relative to baseload products. This slashes the baseload-peaks ratio, particularly in the summer months, and with no offshore wind and little large-scale biomass in the pipeline, this trend shows no signs of reversing, or even slowing.

Italy is to offer subsidies for new offshore wind and large-scale biomass projects in 2015 for the last time under its existing subsidy mechanism, but bids from developers are not likely to match the desired capacity on offer, as happened once last year and then again this year.

The government introduced a quota subsidy system for non-solar renewables in July 2012, under which subsidies for 650MW of new offshore wind capacity and 470MW of new biomass plants above 5MW were to be assigned under a lowest-bid auction mechanism, also known as a reverse auction.

Subsidies would be assigned to investors that offer to produce electricity at the largest discount from an initial level of incentives set by the government, up to a maximum 30% discount from the starting price.

Subsidies for the total 1.1GW of new non-solar capacity were first auctioned in 2013, with further auctions planned for this year and 2015 in the case that more than 20% of offered capacity per technology was not assigned in 2013.

Deserted

In fact, subsidies for all 650MW of new offshore wind and 296MW of new large-scale biomass were still up for grabs after this year’s auctions, meaning 84% of the new-capacity target will be auctioned again next year – for the last time.

The 2012 quota system also offered subsidies for other technologies, including large-scale onshore wind and geothermal, both of which were successful in 2013, but those for offshore wind and large-scale biomass were not ( see EDEM 17 January 2013 ).

The same happened this year, when subsidies for all 356MW of new large-scale onshore wind were assigned but offers for only 35MW out of 313MW of large-scale biomass were received by auction overseer GSE – 17MW of which was not admitted.

Moreover, the bidding landscape for 650MW of offshore wind parks went completely deserted, GSE documents showed.

Yet, small-scale biomass proved popular, with bids for 174MW out of an offered 199MW, and 171MW of this admitted ( see EDEM 11 August 2014 ).

The offshore wind auction flop of 2013-2014 is remarkable in the face of the success of onshore wind subsidies. But this is likely to be the case in 2015 as well.

The main cause of despair for potential offshore wind investors is project permitting rather than the economics of the subsidy system, the manager of an investment fund, who wished to remain anonymous, told ICIS.

“Getting the necessary permits to build an offshore park off Italian coasts is very hard as pretty much all coasts are tourism destinations,” the manager commented, pointing to opposition from local authorities and associations.

Past events proved the point, the manager noted. In 2009, the environment ministry approved a 162MW offshore park project off the Molise regional coast – it was to be Italy’s first ever offshore wind project.

The Molise regional government appealed against the national government arguing that the region had the last word on the project, and in March 2013 the council of state, Italy’s highest administrative court, ruled in the region’s favour. The regional government has since blocked the project.

Biomass

The mismatch in investment between large- and small-scale subsidised biomass plants has also been striking.

According to one utility-based renewables project manager, who also wished to remain anonymous, the poor uptake of large-scale biomass incentives is mostly technically motivated.

“The subsidy scheme adopted in 2012 explicitly favours plants below 5MW capacity [which are not required to enter a reverse auction]. But small generation also has the advantage of not aggravating network congestion, thus minimising the need for infrastructure investment to bring the plants on line. Also, biomass plants below 5MW can run twenty-four hours without unbalancing the network,” the source said.

The logistic of biomass fuel is just as important a factor. “Small biomass plants can produce power from relatively small amounts of wood chips which can be found fairly easily throughout the year.

“Bigger plants need larger amounts of fuel to a point in which the biomass fuel needs to come from mixed sources, often depending on the season. This raises a number of logistic issues ... and eventually the degree of investment risk, as the fuel supply chain is more exposed to seasonal factors,” the source concluded. Riccardo Patrian

By Riccardo Patrian