The development of renewable energies in Italy: results of ten years of experience - Gerardo Montanino, Operations Department Head GSE

1. Gerardo Montanino
Operations Department Head
“IRENA meets the Italian Renewable Energy System”
GSE – Roma – June 7, 2013
The development of renewable energies in Italy:
results of ten years of experience

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Ownership 100%
MEF
Ministry of
Economy and Finance
MISSION
GSE promotes the development of renewable energy sources and energy efficiency in Italy,
mainly by granting economic incentives and supporting the policy makers.
GSE is also involved in various international activities such as, for example,
international RES related associations (IRENA, IEA, OME, AIB, RES4MED)
or projects funded by the European Commission (CA-RES, PV Parity, etc.).
MSE
Ministry of Economic Development
also in consultation with
Ministry of Environment
AEEG
Energy Regulator
DecisionsGuidelines
GSE – the Energy Services Operator

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1) 2020 European targets for renewable energy sources
2) Italian instruments to achieve the targets
3) Monitoring: the main Italian results
- where we are and where we should be
- focus on RES-E sector: some thoughts for a cost-benefit analysis
4) The National Energy Strategy: new Italian targets
INDEX

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2009/28/EC Directive
2010 Italian Renewable
Energy Action Plan (NREAP)
10% 10%
26,6%
17,1%
10,1%
17%20% 17%
RES in the ELECTRICITY sector
RES in the HEATING sector
RES in the TRANSPORT sector
TOTAL final energy consumption
from RES
European
Targets
Italian Binding
Targets
NREAP's Italian Targets
2020 Renewable Energy Sources (RES) TARGETS
TARGETS

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1) 2020 European targets for renewable energy sources
2) Italian instruments to achieve the targets
3) Monitoring: the main Italian results
- where we are and where we should be
- focus on RES-E sector: some thoughts for a cost-benefit analysis
4) The National Energy Strategy: new Italian targets
INDEX

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RES - H
RES - T
Support schemes Other measures
RES - E
• Blending obligation
• Grants: “Heating Account”
• White Certificates
• Fiscal Incentives
• Green Certificates (phasing out)
• Feed in tariff
• Feed in premium
RES sectors
• Simplified
administrative
procedures
• Technical Regulation
• Grids
• Training and
information
• Monitoring,
controlling and
reporting
INSTRUMENTS
Most instruments were in force already before the Directive 28 (after that they have been updated, but
Italy has a long history in focusing on renewables sources)
All support schemes except fiscal incentives are managed by GSE

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RES - E SUPPORT MECHANISMS
PV PLANTS OTHER RES PLANTS
Feed-in Tariff
Sliding Feed-in
Premium
A fixed tariff
(technology and size
banding incentive)
PLUS
any applicable
premium
Value of Feed-in
MINUS
hourly zonal energy
market price
PLUS
any applicable
premium
P ≤ 1MW P > 1MW
Feed-in tariff
Sliding Feed-in
Premium
A fixed tariff
(depending on
technology and size)
PLUS
self consumption
premium or/and any
applicable premium
Value of Feed-in
MINUS
hourly zonal energy
market price
PLUS
self consumption
premium or/and any
applicable premium
P ≤ 1MW P > 1MW
Yearly cumulative spending limit:
6,7 € bln
Directly Registries
PV plants ≤ 12 kW
(≤ 20 kW with 20% tariff
reduction)
PV plants > 12 kW
How to access to incentives How to access to incentives
Directly Registries Auctions
Very small
plant & other
marginal cases
- RES ≤ 5MW
except
- Hydro ≤10 MW
- Geo ≤ 20 MW
- RES > 5MW
except
- Hydro > 10 MW
- Geo > 20 MW
Yearly cumulative spending limit:
5,8 € bln
INSTRUMENTS: RES-E support schemes

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SUPPORT MECHANISMS FOR RES-E IN EUROPE
Examples of comparison of incentives in force in May 2013
(20 years annualized total revenues)
Feed in tariff Green Certificates Feed in Premium Wholesale electricity price Min and max value of the incentive
0
50
100
150
200
250
RO CK IT NL UK DE FR SE DK AT
€/MWh
Hydro – 10 MW
0
50
100
150
RO IT NL CK UK DE AT FR DK SE
€/MWh
Wind – 10 MW
0
50
100
150
200
250
300
350
DE FR RO UK IT CK NL AT SE DK
€/MWh
Geothermal – 10 MW
0
50
100
150
200
250
IT RO AT DE CK UK FR NL DK SE
€/MWh
Solid biomass – 10 MW
INSTRUMENTS: RES-E support schemes
For almost all kinds of small plants, in Italy, incentives given to producers are still the highest of the EU.
(this is due to a clear intention, in the latest reform, to encourage specific applications with more impact on
Italian supply chain)
Source: GSE

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0
100
200
300
400
500
600
700
€/MWh
0
100
200
300
400
500
600
700
€/MWh
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
2007 2008 2009 2010 2011* 2012 2013
MW
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
2007 2008 2009 2010 2011 2012 2013
MW
ITALY
GERMANY
3 kW residential buildings
total revenues
200 kW industrial buildings
total revenues
2000 kW ground
total revenues
* This includes more than 3700 MW of plants already completed in 2010 (“Salva Alcoa” Decree)
INSTRUMENTS: RES-E support schemes
annual installed MW
SUPPORT MECHANISMS FOR PHOTOVOLTAIC IN EUROPE
Examples of comparison of PV annual installed capacity and incentives digression
(20 years annualized total revenues based on the Italian load factor)
Source: GSE

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0
100
200
300
400
500
600
700
2008
2009
2010
20111°sem
20112°sem
20121°sem
20122°sem
2008
2009
2010
20111°sem
20112°sem
20121°sem
20122°sem
2008
2009
2010
20111°sem
20112°sem
20121°sem
20122°sem
2008
2009
2010
20111°sem
20112°sem
20121°sem
20122°sem
2008
2009
2010
20111°sem
20112°sem
20121°sem
20122°sem
1-3 kW on building 3-20 kW on building 20-200 kW on building 200 - 1000kW on the
ground
>1000 kW on the
ground
[€/MWh]
INSTRUMENTS: RES-E support schemes
AVERAGE EVOLUTION OF TOTAL REVENUES AND LEVELIZED COST OF ELECTRICITY (LCOE) FOR PV PLANTS IN ITALY
(Hyp: 1.250 kWh/kWp; 5% WACC (Weighted average cost of capital); 20 years lifetime; 30% selfconsumption;)
• "Parallel" (not simultaneous) decrease of incentives and costs (which is the cause and which is the effect?), not only
in Italy, but in all EU MS. Decreasing trend of profitability.
• LCOE is highly sensitive to the cost of capital (WACC): e.g. in the range 2-8%, a 2% increase in the WACC causes an
increase of 12-14% of the LCOE. Finance costs are high in Italy. In Germany, for example, there is a lower cost of
capital (moreover, KfW, German government-owned development bank, provides low-interests loans)
Total revenue (incentive + max. energy value)
LCOE
Source: GSE

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RES – H AND ENERGY EFFICIENCY SUPPORT MECHANISMS
Grant
Heating Account
Incentives are intended to
support part of investment
costs through yearly
installments
and are granted for a period
varying between 1 and 5
years, depending on the type
of intervention realized.
Quota – obligation scheme
White certificates
White certificates are tradable
instruments giving proof of the
achievement of end-use energy
savings through energy
efficiency improvement
initiatives and projects. It is
based on the obligation for
electricity and natural-gas
distributors to achieve yearly
quantitative primary-energy
saving targets.
Fiscal Incentives
Tax detraction
Government provides a tax
detraction (raised from 50%
to 65% for 2013) of the
expenses for interventions of
energy re-qualification on
existing buildings, including
the replacement of old
heating systems with new
RES heating devices.
Yearly cumulative spending
limit: 900 € mln
INSTRUMENTS: RES-H (and EE) support schemes

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RES – T SUPPORT MECHANISMS
Quota-obligation scheme
Biofuel certificates
In Italy gasoline and diesel distribution companies are obliged to blend
fossil fuels with a quota of biofuels (blending obligation).
The companies can fulfill their obligation also by acquiring the
equivalent quota of certificates. Every certificate corresponds to a well
established biofuel quantity, that differs according to the biofuels
typology blended (i.e: first or second generation biofuels).
All the biofuels consumed in Italy must comply with well defined
European sustainability criteria.
INSTRUMENTS: RES-T support schemes

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1) 2020 European targets for renewable energy sources
2) Italian instruments to achieve the targets
3) Monitoring: the main Italian results
- where we are and where we should be
- focus on RES-E sector: some thoughts for a cost-benefit analysis
4) The National Energy Strategy: new Italian targets
INDEX

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MONITORING
“SIMERI”
RES incentives
results
EU Support
Schemes
Costs
Green economy
Avoided
emissions
Authorizations
Annual Report
Progress
Report
The legislation includes a number of monitoring tasks (assigned to GSE)
RES STATISTICAL MONITORING to verify the compliance with the national and regional
targets (burden sharing).
Reports on RES SUPPORT RESULTS: Green Certificates, Feed in Tariffs, Conto Energia,
Heating Account, Biofuels, etc.
International energy policies: reports on ANALYSIS AND COMPARISON OF RES SUPPORT
SCHEMES among EU MS; report on sustainability certification systems for biofuels.
Report on GENERATION COSTS in the main European Countries, with a special focus on
Italy
Report on the assessment of the ECONOMIC AND EMPLOYMENT IMPACTS of renewable
energy and energy efficiency development in Italy
Assessment of the ENVIRONMENTAL IMPACTS of RES and EE development (first of all
avoided emissions)
Report on the AUTHORIZATION PROCEDURES of renewable energy power plants in
Italian Regions
ANNUAL REPORT ON RES DEVELOPMENT IN ITALY: results, targets, costs, scenarios,
forecasts
BIANNUAL REPORT FOR THE EUROPEAN COMMISSION on the progress in the
promotion and use of energy from renewable sources (2009/28/EC Directive)

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Progress Report
Legislative Decree no. 28/2011 charges GSE to draft the << Report on progress made by Italy in
the promotion and use from renewable sources >>. This report is made every two years, with
reference to the previous two years, and sent to the European Commission.
Progress
Report
1° Progress Report.
The first biannual report was made and sent to the
European Commission in 2011.
2° Progress Report.
2° report, to be sent by 2013, is under preparation.
Many information required:
• statistical data on RES-E, RSE-H, RES-T;
• authorization procedures;
• development of networks;
• incentives in the electricity, heat and transport:
explanation, results, effectiveness and efficiency;
• allocation of costs;
• emissions avoided and other environmental benefits;
• impacts on biodiversity and other environmental
impacts;
• guarantees of origin;
• availability of biomass;
• impact of the development of renewable energy on the
intended use of the land and on agricultural prices;
• development of 2nd generation biofuels;
• update on estimated production and consumption of
energy in all sectors until 2020;
• international cooperation projects.
MONITORING
Final consumption from RES

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1) 2020 European targets for renewable energy sources
2) Italian instruments to achieve the targets
3) Monitoring: the main Italian results
- where we are and where we should be
- focus on RES-E sector: some thoughts for a cost-benefit analysis
4) The National Energy Strategy: new Italian targets
INDEX

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2011 Statistical Data
(latest available data in terms of total final consumption)
ENERGY PRODUCTION FROM RES IN THE ELECTRICITY SECTOR 2011 ENERGY CONSUMPTION FROM RES IN THE HEATING SECTOR 2011
6,9%
12,6%
13,2%
13,3%
54,0%
Geothermal
Wind
Solar
Bioenergies
Hydro
2,1%
2,3%
11,4%
22,0%
62,2%
Geothermal
Solar thermal
Derived heat
Heat pumps
Bioenergies
MONITORING: where we are

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2005-2011 trends and 2020 binding targets
MONITORING: where we are and where we should be
Data available on SIMERI (http://www.gse.it/it/Statistiche/Simeri)
Share of RES in TOTAL gross final consumption
Share of RES in gross final consumption in the TRANSPORT sector
NREAP's trajectoryFinal
NREAP's trajectoryFinal

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2005-2011 trends and 2020 NREAP sectorial targets
MONITORING: where we are and where we should be
Data available on SIMERI (http://www.gse.it/it/Statistiche/Simeri)
Share of RES in gross final consumption in the ELECTRICITY sector
Share of RES in gross final consumption in the HEATING sector
NREAP's trajectoryFinal
NREAP's trajectoryFinal

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1) 2020 European targets for renewable energy sources
2) Italian instruments to achieve the targets
3) Monitoring: the main Italian results
- where we are and where we should be
- focus on RES-E sector: some thoughts for a cost-benefit analysis
4) The National Energy Strategy: new Italian targets
INDEX

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MONITORING: FOCUS ON ELECTRICITY SECTOR
Breakdown of electricity demand in Italy (TWh)
From 2002 to 2012:
- renewables have increased significantly, especially in recent years
- the balance of trade decreased slightly from 40 to 51 TWh
- conventional production has fallen (from 213 TWh in 2002 to about 193 TWh in 2012).
* Preliminary Data . Source TERNA/GSE - ** “Other fossil fuels” includes pumping hydro plants, derivative gas ,etc.
Balance of trade
Natural Gas
Renewables
Coal
Oil products
Conventional
Other fossil fuels **

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MONITORING: FOCUS ON RES-E SECTOR
RES cumulative installed capacity RES gross electricity production
Huge growth of photovoltaic power in a few years, continued good growth of wind power (both non-programmable)
Recently, remarkable growth of small biogas plants

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Indicative cumulative yearly cost of RES-E support
(“counter PV” and “counter others RES”)
Estimate of the net potential annual cost, already committed
but not yet fully supported. It includes the economic value of
all green certificates as well the costs of registries and auction.
It does not include the costs of services such as “simplified
purchase & resale arrangement” and “net metering”.
June 6,
2013
April 30, 2013
(latest available estimate)
PV 6,47 € bil
Other RES 2,54 € bil
Fossil 0,87 € bil
Total 9,87 € bil
MONITORING: FOCUS ON RES-E SECTOR. COSTS
Net cost of incentives
on electricity bills (A3) in the year 2012
It includes the costs of services such as “simplified purchase &
resale arrangement” and “net metering” (0,2 € bil).
It does not include the economic value of the green
certificates that have not been withdrawn from the GSE.
PV 6,70 € bil 6,70 € bil
Other RES 4,22 € bil 5,80 € bil
Total 10,92 € bil
"Spending caps"
Components of the electricity bill for a household type (March 2013):
53% energy and dispatching; 17% burden for incentives;
15% transmission and distribution; 13% taxes; 2% other system burdens

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MONITORING: FOCUS ON RES-E SECTOR. ECONOMIC BENEFITS
HOURLY PRICES' CURVE IN THE WHOLESALE ELECTRICITY MARKET
(comparison between Tuesday 23rd May 2006 and Thursday 23rd May 2013)
“Peak shaving” in the electricity market
The price increase during the evening hours is heavily outweighed by the
savings during the solar hours.
2013 average
daily price
2013 hourly
zonal price
2006 average
daily price
2006 hourly
zonal price

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MONITORING: ENVIRONMENTAL AND ECONOMIC BENEFITS
0.2 Mt
2.9 Mt
7.4 Mt
3.8 Mt
0.4 Mt
0.3 Mt
23.3 Mt
4.7 Mt
3.8 Mt
2.9 Mt
1.0 Mt
BIOETHANOL
BIODIESEL
BIOENERGY
HEAT PUMPS
SOLAR
GEO
HYDRO
WIND
BIOENERGY
GEO
PV
RES – H
(11.9 Mt CO2)
RES – T
(3.1 Mt CO2)
RES – E
(35.8 Mt CO2)
Avoided emissions of CO2 equivalent in 2010 *
Methodology: Life Cycle Assessment + individuation of fossil energy technologies replaced (in the electricity sector each renewable
technology is assumed to replace the share of energy production from fossil sources that was marginal in the period of production).
* 2010 is at the moment the last year for which the methodology has been applied. 2011 and 2012 are currently being evaluated.
Source: GSE

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MONITORING: FOCUS ON RES-E SECTOR. ECONOMIC BENEFITS
Employment impacts due to investments in 2011RES Investments in 2011
Impacts on national value added in 2011Impact on gross domestic production in 2011
Source: GSEMethodology: input/output analysis, using spending vectors updated and corrected to take account of the value of imports and exports

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PV
Huge imports of PV cells and modules. National inverter manufacturers are well
positioned in the national and international market
CSP
Strong competences in some aspects.
Delays in projects development.
Solar thermal Domestic manufacturers are well positioned in the overall sector
Hydro Several Italian main contractors are leaders in the international market
Wind
Huge imports of wind turbines.
Foreign companies are leaders in the equipment manufacturing.
Geothermal
One of the main Italian electricity operators is a global leader in geothermal
technology.
Bioenergy
(electricity sector)
For certain technologies there are Italian manufacturers that’s can provide
equipment and EPC services.
Bioenergy
(heating sector)
Domestic manufacturers are well positioned in the overall sector.
Bioenergy
(transport sector)
Recently, a new initiative is carried out by an Italian company concerning the
development of 2° generation biofuels
MONITORING: ITALIAN INDUSTRY
Average situation of the Italian industry in RES technologies.
Sketch to be taken lightly.

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1) 2020 European targets for renewable energy sources
2) Italian instruments to achieve the targets
3) Monitoring: the main Italian results
- where we are and where we should be
- focus on RES-E sector: some thoughts for a cost-benefit analysis
4) The National Energy Strategy: new Italian targets
INDEX

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Four main goals
1) Significantly reduce the energy cost gap for consumers and businesses, by bringing prices and
costs in line with European levels
2) Achieve and exceed the environmental targets established by the European Union’s 2020
Climate and Energy Package (known as the “20-20-20” package)
3) Continue to improve our security of supply, especially in the gas sector, and reduce dependency
on imports
4) Foster sustainable economic growth by developing the energy sector
Seven priorities of action
1) Foster energy efficiency
2) Promote a competitive gas market
3) Sustainable development of renewable energies
4) Development of infrastructure and electricity market
5) Restructure the refining industry and the fuel distribution network
6) Sustainably raise national hydrocarbons production
7) Modernize the system of governance
NATIONAL ENERGY STRATEGY

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NATIONAL ENERGY STRATEGY: NEW TARGETS
National Renewable Energy Action Plan (NREAP) vs National Energy Strategy (NES)
RES – E
RES contribution
to the electricity target
RES - H
RES contribution
to the thermal target
RES - T
RES contribution
to the transport target
~6 Mtoe
~ 10,5 Mtoe
~ 11 Mtoe
26%
36%
-
38%
17%
19%
-
20%
10 %
10 %
~ 8,5 Mtoe
(~ 100 TWh )
~ 11 Mtoe
(~ 130 TWh )
11% ~ 1,4 Mtoe
~ 3,4 Mtoe~ 3,4 Mtoe
10%
5%
~ 8 Mtoe
(~ 92 TWh )
28%
2012 2020 NREAP 2020 NES 2011 2020 NREAP 2020 NES 2011 2020 NREAP 2020 NES
2011
2020 NREAP
2020 NES 126 Mtoe
133 Mtoe
126,2 Mtoe
Gross final
energy
consumption

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Thank you for your attention