BNP Paribas Project Finance is part of BNP Paribas Corporate & Investment Banking. It is one of the world's leaders in advising, structuring and financing of infrastructure, energy and renewable energy projects
1. How was the year 2011 for the total Italian PV market? How many MW of new PV power systems are being installed in 2011, to your knowledge?
The year 2011 saw Italy become the world leader in terms of yearly installed PV capacity. At the end of 2011, Italy will have 12 GW of solar PV capacity in place. Compare this to the 0.4 GW of cumulated PV capacity in place at the end of 2008! The growth over these 3 years has been 3,000%.
In terms of cumulated capacity, Italy is second only to Germany. The number of PV power systems installed cumulatively at the end of 2011 will exceed 300,000, which is about twice the amount installed at the end of 2010 – an impressive step towards decentralized power production, which for Italy also means an improvement in terms of security of supply. This advance in solar PV was achieved under the most challenging conditions imaginable:
1) Power production by means of PV systems should ideally be financed with tenors matching borrowers' predictable revenue streams, which for Italian PV incentives is obviously 20 y. So this advance in Italian PV production occurred right in the midst of the worst credit crunch of the last 80 years.
2) The growth of Italian solar PV production has occurred during a period of tough brutal public budget cuts and of frequent regulatory changes. In 2011 we have had PV plants connected and incentivized under the 3 different regulatory frameworks: the 2nd Conto Energia, the 3rd, and then the 4th.
This incredibly challenging situation has taken a toll on the PV sector, but Italy's case has so far been a success story in the solar PV market.
2. Based on your market position, market knowledge and vision, what are your expectations for Italy's market development in 2012? What will be the trends and differences compared to 2011?
The consequences of the disruption caused by the Decree 28 of March 3 2011, wherein the 4th Conto Energia was announced, will unfortunately be apparent in 2012. Yearly installed capacity is expected to plummet to about 3 GW. Whilst the incentives under the 3rd Conto Energia had been entirely "bankable", i.e. they gave predictability to the expected revenue streams of potential borrowers, those under the 4th Conto Energia present certain bankability issues that have, regrettably, aggravated the effects of the Credit Crunch on the sector.
As a consequence of this, there will be – as is already the case – less credit granted to non-connected plants. Certain segments of the PV sector will continue to grow, but the sector will slow down in a way that cannot possibly be desirable, considering the undisputed employment-generating potential of the solar PV sector and the need to replace nuclear energy in fuel as a power-generating source in the future.
In conclusion, we urgently need a new National Energy Plan, as the existing one is hopelessly anachronistic. Once we have this, we need consistent and insightful legislation on the Italian energy sector, to pursue a consistent energy market design covering production, storage, transport and distribution.
3. The spectacular growth of the Italian market in 2011 does not show any sign of the current economic crisis. What practical consequences are visible for the PV market?
As mentioned under Answer 1, the perfect coincidence of the Italian PV sector growth with the credit crunch and budget cuts period is indeed a sign of the value-added of PV technology. But this trend is not exclusive to Italy: global installed PV capacity has been growing exponentially over the last decade. It is up to our legislators to acknowledge the value of this form of energy production and to encourage Italian value creation on a longer value chain, hopefully including other segments of the Solar PV industry.
As many giants of the PV industry have lately been experiencing overcapacity, Italy can profit from this cyclical mass extinction in the Solar PV industry, provided our companies are supported by a robust domestic market, with regulatory stability, bankability, and transparency in legislation and permit procedures. Italian PV companies are also well positioned to look for opportunities in the Middle East and Northern Africa, as the Italian PV market has been the forerunner for other cases of spectacular growth expected over the next few years.
4. For a few months now, Berlusconi is no longer the Italian Prime Minister and the new Mario Monti Government has been formed. How will this impact the Italian Solar PV industry and market in 2012 and 2013?
I have not sugar-coated the description of what happened in Italy with Decree 28 in March. Nevertheless, it must be acknowledged that even Ministers in the Berlusconi Government, who at the outset had almost hostile views towards or were unaware of the value of the solar PV industry in Italy, later showed sensitivity for its job-creation potential during this event-rich year 2011.
The Monti Government is giving great hope to the country. And this not only because of the profiles of the Government's Members, but also because of the discipline and team spirit that they are showing in action and communication. Even if the international situation is still full of dangers, the Government is gradually moving Italy away from the cliff's edge. I'm confident that this perception, which is shared by the majority of Italians despite the sacrifices they are currently suffering, will sooner or later become evident to the less direct observers of the country.
Furthermore, it is part of the DNA of economists and bankers (who comprise a good portion of Prof. Monti's Government) to appreciate the value of regulatory stability, bankability and transparency. These values are precisely the cornerstones of the expansion of renewable energy in every country.
5. Grid parity will be achieved in Italy in 2012 for residential households, at least in Southern Italy. What changes do you expect to see in the market?
Grid parity is not a line to be crossed in a split second at the end of a marathon; it is a condition, through which a country penetrates gradually, and which obviously is exposed to exogenous factors such as the glut of PV material production, gas prices, or the cost of long-term credit.
Italy is deemed by the European Photovoltaic Industry Association, among others, as being very close to the grid parity zone due to a combination of strong irradiation, good grid quality and exposure to spikes in fuel prices. Grid parity will first be reached by certain categories of producers, during for certain months, after which it will spread gradually and possibly suffer temporary setbacks. In any case, grid parity will eventually mean the end of Feed-in Tariffs.
The grid parity condition will also require a considerable effort on the part of individual power producers to make their output more programmable and closer to the daily power demand curve. The use of batteries and auxiliary generation systems could make a solar PV plant suitable to long-term PPAs, which would mean bankability without Feed-in Tariffs. As we gradually enter the grid parity zone, we will continue to move in a very exciting and innovation-rich energy scenario.
6. What will the focus be for Italian developers, investors and contractors in 2012?
As a country, Italy should act with more vision and consistency than it did in 2011. Legislation should follow the drafting of the new National Energy Plan – not anticipate it. Under the old Italian Energy Plan, nuclear should have covered 24% of domestic consumption by 2020. This has fallen away, leaving a large gap for renewable energy and room for political support for the sector. Solar PV has of course a lead role to play in Italian renewable energy because it is more stable than other sources. In addition, Europe continues to move towards a decarbonisation of its economy, as demonstrated by last week's proposal from the European Commission to Europe's Parliament.
Hopefully this will involve a revision of the Italian 2011 legislation on solar PV, along the lines of removing excessive restrictions, and taking in consideration the bleak employment situation surrounding the Italian renewable energy sector. The Italian solar PV sector can thrive with very low Incentives, but regulatory stability and bankability should be preserved. In this regard, the 4th Conto Energia has room for improvement.
7. What are your expectations for the Italian market in 2013-2015 (in MW new installed PV power)? Will the Italian PV market continue its spectacular growth of 2011?
My job is to support the bank's clients to carry out sensible investments, not to make market forecasts for the coming years. I am aware that the pace of capacity expansion will slow down considerably in 2012, and that it may somewhat recover in 2013 as a consequence of the end of the registration duties introduced in 2011. It will not, however, be possible to experience the same growth rate as that seen in 2011. That said, I'm aware that Italy has passed an important milestone with these 12 GW of cumulated installed capacity. And if you compare the current situation with the incredulity and lack of interest in solar PV investments that was common up until 2008, you can clearly see that for Italy there is no way back to renewable energy illiteracy. We will never fall back into irrelevance in the solar power sector.
