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INTERVIEW - Market-parity renewable energy investments gain momentum in Italy

Solar park in Italy. Image by: Octopus.

January 24 (Renewables Now) - Market-parity renewables are steadily gaining traction in Italy, Dario Gallanti, business development partner for Italy at energy services and consulting firm Our New Energy (ONE), tells Renewables Now in an exclusive interview.

Q: How do you see the Italian solar power market developing this year and beyond, in line with the new National Integrated Plan for Climate and Energy 2030 which targets a 55.4% renewables share in the electricity sector?

A: The appetite of renewable energy investors on market parity in Southern Europe and arriving into Italy is very strong at the moment, supported by strong fundamentals and sound financials in their business plans.
It is vital that tools such as the aforementioned National Integrated Plan for Climate and Energy 2030 give some long term comfort to investors, setting the strategic targets for the country and ultimately for the EU. With this framework in place, it is most important to point towards the economics as main driver for such investment decision.

Q: What else in the regulatory framework needs to be updated to help this renewable energy growth?

A: The main issue we see is the future market design that following the new EU directives needs to be adopted on a national level for the next decade. This is to set the ground for a “renewable-friendly” energy pricing mechanism.

Another pressing issue we see as a major bottleneck in Southern Europe as a whole is the permitting process for projects and management of grid connection on a local level. It is our experience that strategic objectives set at a national level are very often not fully translated into operational regulations at a regional level.  Ultimately, this often causes problems when it comes to project permits, both in terms of lead time and total volumes.

Q: Is the grid infrastructure developed enough?

A: The grid infrastructure was probably not designed for a model with 50%+ renewable energy indeed. However, we see how TSOs and DSOs are working on these fronts and planning investments to reinforce grids where needed on a country-level.

Q: Who will be the main players driving growth in grid parity and utility scale solar? 

A:  Over the past few months it has become ever more clear that the energy transition will not be achieved through subsidies and taxpayers’ money, as was the case in the subsidized era, but through private investors and private agreements instead. This creates a space where we see the need for capital, need for financing and need for professional project development, construction and operation.
Traditional utilities will certainly have a role too, but their dominance will be diluted with the vast amounts of capital landing on renewable generation investments which with instruments such as long-term renewable PPAs can become significantly de-risked investments.

One sector that we cannot forget here is the energy intensive industries. They have a great role to play and they are starting to understand, accept and take on it. Their interest and appetite in participating to this new and transforming space of opportunities brings only additional opportunities to their competitiveness, but also to the new-built solar developments.

Q: What types of corporate PPAs structures (sleeved or synthetic) are currently more popular in Italy? Why?

A: Italy has so far witnessed extremely limited closings on the corporate PPAs. Based on our experience in the Iberian market, first come the traders and the utility which are more used to manage the risk related to a long term PPA on the production side. What we are witnessing is that many of these players are now re-selling to large consumers the volumes they have purchased through PPAs from RES producers only a few months ago. This stimulates the development of a more long-term price index which, depending on its level of transparency, provides guidelines also to large corporates to enter into direct corporate PPAs with the generators themselves.

For 2019, we expect some top-notch players to match market parity initiatives with very strong corporate PPAs also in Southern Europe, most likely starting in Iberia which is perceived as the sandbox for testing products and concepts to be then delivered abroad, where solar irradiation allows.

Q: Which are the key requirements of a PPA for projects to be bankable?

A: Until not so long time ago people thought that bankability was a chip on the shoulder of the offtaker. Instead, our experience is that this is a concept associated to the whole structure of the PPA, and also the project.

Reality shows that PPA structures can enhance their bankability at various fronts beyond the rating of the offtaker. At ONE, we estimate bankability by looking into the price-level and structure, route-to-market considerations, contract optionality and collaterals’ package from the offtaker, among others.

Q: Can we compare Italian projects with Spanish ones?

Italy is in many ways in the same position Spain was some 12-18 months ago, with many still questioning if building grid-parity renewable energy assets is even possible. Italy has the same strong fundamentals as Spain with an abundance of renewable resources, an established development sector and even higher energy prices that may continue to rise.

Unlike Spain however, the size of the projects being approved are smaller in scale. Yet to overcome this constraint developers are getting very exotic when it comes to project clustering.

Another effect of the time lag compared to Spain is that there is still a very limited number of authorized solar power projects which are currently available on the market since development activities have re-started only last year.

We definitely see market-parity renewables have attracted the interest of the investment community and thanks to the Spanish example, this interest is getting further traction, traction that is making its way into Italy without a cast of a doubt.

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Browse all articles from Mariyana Yaneva

Mariyana is a founding member of the Renewables Now team. With nine years of professional experience in renewables she has built strong expertise in the wind industry and French-speaking markets.

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