LONDON (ICIS)--Power purchase agreements (PPAs) have a lower uptake in Italy compared with other European countries due to a lack of regulatory framework, long authorisation process and uncertainty over the upcoming reform of the electricity system.
This is the picture drawn by the PPA Committee in its final report, published in July.
So far Italy has signed PPAs for around 500MW of capacity, which is just 1.3% of the new renewable (RES) capacity foreseen by the Italian National Energy and Climate Plan (NECP), according to the committee.
ROLE OF FOREIGN INVESTORS
The large majority of PPAs in Italy are signed by foreign investors that in many cases had previous experience in the development of RES plants in a market parity regime. In addition, the majority of PPAs in Italy concern solar capacity, which is currently the cheapest form of RES to build in the country.
This picture could change in five years according to EGO Trade board member Stefano Cavriani, one of the first Italian companies to sign a long-term PPA.
“Italy historically tends to follow others as it happened in 2009-13 when there was the RES boom in the country. After the boom, Italy worked in the secondary market buying plants that had been previously built by foreign investors. I expect a similar picture to reoccur in the future with projects realised through PPAs,” he said.
MARKET REFORM UNCERTAINTY
The Italian regulator is currently collecting data to reform the ancillary services market in line with EU regulations on electricity balancing.
No set date for the reform has been announced yet, but the government has been running a series of public hearings since April to collect stakeholder feedback and opinions.
As no definitive rules on the matter have been approved yet, the PPA Committee believes this is creating uncertainty among investors, subsequently slowing down the expansion of PPAs in the country.
In addition, “there is the need for the network to be further developed and to remove market zonal constraints” one PPA Committee spokesperson told ICIS.
Italy currently has six bidding zones which are defined by bottle necks. This results in six different day-ahead prices on the GME exchange.
SLOW AUTHORISATION PROCESS
According to Cavriani it is likely that a new wave of authorisations to build new RES projects will start in about a year and a half.
“Currently there are no available authorisations and in Italy it normally takes around 24 months to get an authorisations for solar plants and 48 months for wind farms.”
One of the major limits of getting an authorisation in Italy, according to the PPA Committee, is that there is a lack of clarity in the Italian system on at which level the approval should take place, specifically in relation of the environmental impact of a project.
In this regard the PPA Committee suggested increased coordination between regional governments and central government to speed up the approval procedure and attract more investors.
ROLE OF SUBSIDIES
Italy is also due to approve its latest renewable subsidy scheme, which will subsidise 8GW on new renewable capacity between 2019-2012.
Cavriani warned that the new scheme is likely to attract more wind farm projects than the PPAs. This is because wind farms are more expensive to build than solar plants in Italy, therefore investors would be less inclined to commit to long-term agreements to the former compared to the latter.
“Imposing a fixed price through a PPA for wind is also difficult as normally wind production is priced above the market level” Cavriani added.
In addition, the scheme will exclude solar plant built on agricultural land, redirecting even more solar projects toward PPA funding.
ROLE OF NEW TECHNOLOGIES
Cavriani added that more liquidity on the PPA offer side could come when storage systems are cheaper to build.
“I think this is likely to happen in around three years, but the transmission system operator (TSO) should invest more in implementing this technology” Carviani added.
Currently Italian grid operator Terna is running a few storage pilot projects, in the south and islands, for a total capacity of 51MW, according to the TSO’s available data.
POWER PURCHASE AGREEMENTS
PPAs are contracts between a company and an independent power producer, a utility or a financier. The company commits to buy a certain amount of electricity produced from a renewable project or another asset for a specific price over a period of time.
PPAs are traditionally long-term contracts that last between 15 and 25 years, although it is possible to have a PPA agreement for a shorter time frame.
PPAs have the advantage of being more flexible compared to auctions for renewable production. But they also pose more risks to companies who sign them and to banks who finance them through long-term loans.
Marta Del Buono