Italian ‘killer’ Decree Threatens Global Solar Industry

In a move that will shake the global PV industry like an earthquake, the Italian Government approved on 3rd March a long awaited Renewable Energy Decree that marks an unanticipated, early end to its incredible solar race. After months of intense negotiations with Parliament and Industry representatives that seemed to have reached positive results, the Italian Minister for Economic Development, Paolo Romani, presented a final, “surprise” version of the Decree that will set the new standards for all future renewable energy incentives. The Decree was due to address Italy’s path to its EU 2020 renewable energy targets (17% of primary energy consumption and 30% of electricity from renewables). The result? All that had been discussed until now is no more valid, and the deadliest blow goes to solar power, effective immediately.

The third “Conto Energia”, the brand new scheme of incentives to solar power, which came into effect only 2 months ago and was planned to run for three years till end of 2013, giving stability and a further boost to this growing sector, will in fact be canceled altogether on 31st May 2011, three months from now. Whoever will not have installed and connected their plants by then, will be left to the mercy of a tariffs review that is still to be drafted and discussed. To add further uncertainty to this gloomy outlook, a yet undisclosed annual cap will be put in place for all years to come, on top of the downgraded tariffs. While a much feared 8,000 MW final cap was taken off the table, the lack of a new incentives scheme and this new annual cap will spread more panic than the original draft could have ever achieved. To all the people who have a feel for investments, it is clear that this situation leads to one inevitable consequence: all investment plans based on the currently set tariff regime (worth billions of euros) will be halted immediately until further notice, and chances are that the new rules will prevent solar photovoltaics from ever reaching the installation figures achieved so far, even when solar power will become a truly cheap energy option.

So why has the Italian Government U-turned in this unprecedented way? Recent debate over the costs of renewable energy incentives was used as an excuse to revert the path thus far taken by the energy sector: around 4 billion euros will be spent in 2011 for green energy, an unacceptable price to pay, according to Minister Romani. Little matters that some 2.5 billions will go straight back in the form of taxes, that the renewables industry accounts for 2% of Italy’s GDP, or that Germany is spending far more and has created a strong industry as a result.The Environment Minister Stefania Prestigiacomo noted only few days ago: “Solar incentives weigh on Italy’s energy bill less than the CIP6 [a scheme by which refineries and incinerators also get incentives] or nuclear decommissioning. German renewables incentives weigh around 10%, in Italy they do by 3-5%“. It is estimated that, after the last Italian nuclear plant was switched off over 20 years ago, Italy’s nuclear decommissioning bill is still around 400 million euros per year.

The true reason of this last minute Decree is indeed simple: renewable energy, and solar power in particular, is growing fast, so fast that Italy’s plans to build new EPR nuclear plants in the country by 2022 will fall into pieces if such race goes on undisturbed. Italy can already count on about 17,000 MWs of hydropower, 6,000 MWs of wind power, and a staggering estimated 7,500 MWs of solar power (over 3,700 MWs already connected, 3,771 MWs awaiting connection), on top of other renewable energy sources like biomass and geothermal power (top European producer, with more than 800 MWs, well over Iceland). The Ministry could have decided to “just” trim down solar incentives more quickly and steeply while ruling out all sorts of capping mechanisms (like Germany has recently done, while also confirming a 52,000 MWs target by 2020). This would have given the industry a chance to absorb the hit, adapt to new terms and slow down as necessary, also helping the solar sector reach an early grid parity 2 or 3 years from now (the PV industry has already got used to abrupt changes in market conditions, so much so that prices declined 50% in the last two years). Instead, a subtly planned Decree will now cancel a brand-new 3-year scheme leaving a legislative blackhole, and a looming annual cap on new schemes, so as to introduce an element of luck in the financing equation of all business to come. If you won’t be quick enough to install your panels, you won’t get the incentives, and could go bankrupt. It’s not hard to guess how banks will react to this new playground.

Should the global PV industry be concerned? very much so. Italy was forecast to install something like 5,000 or more megawatts in 2011, threatening Germany’s ranking as World’s top solar market. This means that as much as a quarter of global PV installations for this year (16- 20 GWs according to the latest estimates by the European Photovoltaic Industry Association, EPIA) are expected to take place in this one country. Should this Decree be signed by Italy’s President Giorgio Napolitano and come into effect, solar panels overproduction will rage for months to come, only to be re-absorbed whenever smaller, weaker manufacturers will have been gradually swept away by this unforeseen tsunami, something worse than Spain’s solar tariffs’ shutdown in 2009.

But can they actually do it? Tens of thousands of jobs are now set to disappear (120,000 in the solar sector alone, according to industry sources), along with hundreds of companies involved in what has grown to be a sizeble investment sector for the Italian economy. Things are so serious that national industry associations like Assosolare threatened legal action against this Decree, and are seeking its cancellation by Italy’s President on the grounds of unconstitutionality, as too much powers are given to one Ministry over energy incentives. Francesco Ferrante MP, a Democratic Party deputy, laconically commented: “Delegating renewable energy incentives to Minister Paolo Romani is like entrusting Dracula with the management of a blood donors association“. Assosolare finally suggested that international credit ratings agencies could well step in, to reassess and downgrade the credibility of a nation whose government’s derogative methods create unusual risks and instability to long term industrial investments.

These are crucial hours for an entire sector of Italy’s economy, and beyond: should this Decree be signed off, we can expect a strong contraction of the solar photovoltaic industry at a global level in 2011. All eyes are on Italy.

Carlo Ombello writes about sustainability and renewable energy on his blog opportunity:energy