General Solar

Penetrating the Solar Energy Market in Italy

A Background Paper

Wais Alemi

Graduate Student in Energy Engineering

Umass, Lowell
Summary Page 2

Background Page 2

Section 1: PV overview Page 5

Section 2:Challenges for growing the PV deployment Page 8

Section 3: Penetrating the Italian Energy Market Page 10

 Summary

This paper intends to describe the current status of the Energy sector in Italy. It further

goes on to describe the Green energy trend with a particular focus on energy

Generated through the PV. Provides a brief overview of the PV sector in Italy and id

doing so outlines the most pronounced challenges to PV deployment in the said

country. On a final note some specific ways of action for General solar to penetrate

the energy market in the Italy has been suggested. Although not a strategic model, it

only highlights the areas where the company could be prosperous given the situation

on the ground.

Background:

Italy is a country in southern Europe. To the north Italy borders France, Switzerland,

Austria and Slovenia. To the south it consists of the Italian peninsula and the two

biggest Mediterranean islands of Sicily and Sardina, in addition to many other smaller

islands.

Economically, Italy is the second largest manufacturing country in the EU and fifth

largest in the world. Italys GDP in total of $1.847 trillions and nominal GDP is

$2.171 trillions. The per capita income is $36216 making Italy 27th in world standing.

On power consumption grounds, Italy consumed about 185 Metric tones of oil

equivalent of primary energy in 2010 1 . On the primary energy generation and

consumption, Italy has consumed 60.7 Mtoe in 2012, which totals to 1947 TWh2 of

which the total electricity consumption was 339 TWh. According to data by the U.S.

1 BP data http://www.bp.com
2 IEA key world Energy statistics
Energy Information Administration, Italy is heavily dependent on imports to meet its

energy needs. Petroleum and other liquids were imported to an extent of 1.1. Million

barrels per day in 2013. Also to note that Italy is the second largest natural gas

importer in Europe, after Germany. On the renewable side the National energy

strategy calls for renewables to provide 23% of primary energy consumption by 2020,

up from 13% in 2012.

Italy is the worlds 14th largest producer of hydroelectric power, with a total of 50,582

GWh produced in 20103. Nuclear power was opted out from particularly due to a

public vote against it due to the fact that Italy is a seismically active area. Gas on the

other hand is the predominant primary source of electricity production in Italy,

accounting for about half of the total power production. The electricity production

from this source was 173 TWh in 20084. Worth to put, Electricity imports amounted

to about 40 TWh in 2008 which is the second highest in the world.

Italy similar to other European countries, has been investing heavily on the renewable

energy infrastructure. Among the renewable energy technologies, solar energy alone

grew 300% per year in the past three years. Italy ranks among the largest producers of

electricity from solar power with an installed capacity of 12750 MW at the end of

2010. This was a result of the economic incentives the government put forward

towards the RE development.

3 List of countries by electricity production from Renewable energy sources.

http://en.wikipedia.org/wiki/List_of_countries_by_electricity_production_from_r
enewable_sources
4 IEA key stats 2010
As the cost goes, Italy has one of Europes highest final electricity prices. In 2011 the

average cost was 28 US cents per KWh5. Adjusted to the purchasing power parity the

price comes down to 25 US cents per KWh. In 2013 the average price a household

had to pay for KWh was 0.348 US cents whereas the industry had to pay was 0.25 US

cents6. This can be attributed to the high prices of fossil fuels, Gas pipelines and the

Tax imposed by the government.

Section 1: PV Overview

Italy ranking among the largest producers of electricity from solar power, has

witnessed tremendous growth in the sector. Given the growth, installed

Photovoltaic nameplate capacity has increased nearly 15 fold from 2009 to 2013 and

2013s year-end capacity 17928 MW ranks third in the world7. This amount accounts

to 7% of electricity generated during 2013, which is supposed to double by 2030. Due

to this growth in the solar energy sector, many gas turbines run at half their potential

during the day.

5 IEA, EIA, National electricity boards, OANDA, 2011
6

http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Electricity_and
_natural_gas_price_statistics
7 Earth policy center. June 18, 2014.

http://www.earthpolicy.org/datacenter/xls/indicator12_2014_2.xlsx


Figure 1 Growth of PV capacity in MW since 19928

Among the many Solar PV installations in the country the top three largest solar

plants are the Montalto di Castro Photovoltaic power station with a peak capacity of

85 MW, the Rovigo Photovoltaic power plant with a peak capacity of 70.6 MW and

the Serenissima Solar Park which has peak capacity of 48 MW.

Figure 2 Montalto di Castro PV plant9

8 http://en.wikipedia.org/wiki/Growth_of_photovoltaics
9 http://www.solarserver.com/solar-magazine/solar-energy-system-of-the-

month/the-italian-montalto-di-castro-and-rovigo-pv-plants.html
The Montato di Castro PV station was developed by the independent developer

Sunray and was later acquired by Sunpower. The project saw many phases of

construction. During the first phase the total capacity was 24 MW with solar panels

from SunPower as well their tracker systems. Other phases were added during the

years 2010 and onwards, leaving the plant with 276156 units that generate the

nameplate capacity.

The Rovigo PV power plant was built at a cost of $400.5 millions, generates a total of

70 MW and was completed in November 2010. The project was developed by

SunEdision and built by Isolux Corsan. The plant has 280000 units operational in a

area of 9150000 Sq. ft.

Figure 3 Rovigo PV plant10

10 http://sunedison.es/proyecto-rovigo/img/Rovigo_SunEdison-2011.jpg
The Sernissima solar park is a 48 MW PV plant that was completed in August 2011

by Solarstrom AG. It has 127660 units operational in an area of 150 hectares.

Figure 4 Sernissima Solar Park11

More on, the three major PV manufacturing facilities in Italy are MX group 60 MW,

SolarDay 50 MW and IstarSolar SRL. These provide much for the smaller distributed

generation systems typically under 200 KW. Utility scale PV systems are outsourced

from Asia at a lower cost.

More on, there are a number of other facilities totaling to 100 in the list that only deals

with PV module manufacturing12. Same is the case with inverter and other equipment

manufacturers for the Solar industry.

11 http://kaco-newenergy.com/us/company/references/

12http://energy.sourceguides.com/businesses/byGeo/byC/Italy/byP/solar/pvM

/byN/byName.shtml

As noted above the Solar Energy market grew by 300% in Italy during the last year.

This can be attributed to the strong government incentive systems. Starting in 2003,

Italy had a 20-year feed-in tariff, what was to be called the primo conto energia,

which entered into force in 2005. The tariff was very generous and was an astounding

success. Only limitation to this subsidy was that it had a limit per year, which called

for the second version of this subsidy scheme to be launched. With the second version

cap/limit was removed, a reduced VAT of 10% was applied to PV producers, and the

authorization process was made easier. The results showed quickly and by 2008 the

growth in PV segment was fivefold.13

The incentives provided were also a burden on the government. With a total cost of

110 million Euros in 2008 for a total of 432 MW, the cost grew to 3.9 billions in one

year by 2011. The government for the same reason to avoid growing subsidy cost will

be introducing Quinto conto Energia, another version of the scheme to keep the costs
14
at the same level despite the growth in the segment. Given that the cost of

electricity has increased by 9.8%, government will have to provide more subsidies to

find alternate means of managing supply during peak demand hours.

Section 2 Specific challenges for growing the PV deployment

As mentioned above that price of electricity has increase by 9.8%. Out of the 9.8%

increase in price of electricity, 4% was attributed to the increase in incentives alone.

Another 5% was as a result of indirect effect of intermittent renewables. The Italian

energy authority has predicted that the cost of solar subsidies will increase to 6 billion

euros.

13 How Solar subsidies can distort the power market: the case of Italy:

http://www.brunoleoni.it/nextpage.aspx?codice=11679
14 How Solar subsidies can distort the power market: the case of Italy:

http://www.brunoleoni.it/nextpage.aspx?codice=11679
More on, the large-scale solar plants are located in the south of the country while the

industries are located in the north of the country. With this, it can be concluded that

line congestion will inevitably happen given that solar panels only produce energy at

certain periods of the day. Also, the technical difficulties for local distrusters to

handle a large number of intermittent inputs will require hefty investments, which

need an adhoc policy framework to be put in place.

Also to note, the renewable energy production doesnt happen in an empty space.

With this said, we can attribute the case of Italy to the case of any country where the

economic growth goes with a strong correlation to the electricity demand. Given the

economic perspectives, it can be concluded that the consumption will grow

significantly in the near future or that it will grow at all. At the same time the amount

of subsidized energy will be growing at the rates put forward in the first part of this

paper. This will displace the conventionally produced power and create a far un

favorable market, as the size of contestable part of the market will be shrinking. We

can assume the above given that it fell from 292 TWh in 2007 to 248 TWh in 2011,

which is a -15 % reduction. Worth noting, the reduction observed was not due to any

crises but because of the green production specially the PV.

The nature of green energy is that it is not perfectly forcastable and since the policies

dictate that any green KWh it does not incorporate any volume risk, green production

has not seen any forecasting risks and produced KWh are injected to the grid

irrespective of forecasts communicated to the TSO.

Another scenario where the green energy trend casts shadow on the energy market is

where the energy supplied particularly by the PV is during peak demand hours

attributing to the KWhs the highest prices. During late hours of the day when the PV

are not operational, conventional producers must start production rapidly. This

implies a relatively high marginal costs which has led to convincing Italians to shift

consumption to the night in order to save money15!

Another problem lies in the growing conventional overcapacity. This is a result of

changing government policies which has played a major role. In part, it all sums up to

the wrong investments done at wrong times and targeted a dispersed set of

beneficiaries which in the wrong run the government could not afford. Leading to as a

result was the inclusion of the Robin Hood Tax on Energy producers. This is what to

be paid on top of the 27.5 % corporate tax16.

In recent, due to the change in government, Italian government decreed that it would

cut some solar power tariff incentives by at least 10 to 25 %. On one hand this will

reduce the incentive costs on the government and make the market more competitive

and will demand higher efficiencies from the companies. On the other, it will lead to

failure of a majority of the entrepreneurial initiatives of the recent years.17

Section 3: Penetrating Italys PV Market

15 Insituto Bruno Leoni, Da European Energy Review, 5 Luglio 2012
16 How Solar subsidies can distort the power market: the case of Italy:

http://www.brunoleoni.it/nextpage.aspx?codice=11679
17 Investors challenge Italys cuts for solar power, Guillia Segreti,

http://www.ft.com/cms/s/0/37c36b94-f962-11e3-bb9d-
00144feab7de.html#axzz3GHFkGaYF
Italys PV market has been taking a new shape over the recent years. Given that after

Germany, Italy has been the biggest market for many foreign companies; the

paradigm has shifted. Italy no longer wants to subsidize in the way PV power was

subsidized during last decade, at the same time targets for achieving a 30% generation

from PV by 2030. With the details at hand, many of the foreign investment plans that

were in pipeline has been halted due to the change in Italy policies over cuts in the

Feed in Tariff incentives. Although, the cuts will only applicable to systems greater

than 200KW, it will cause disruption in the planning of the other major PV projects

for which the only other option would to invariably substitute the incentive costs with

cheaper products and to target small scale systems.

For our company to enter the PV dominated Italy there are the following scenarios

that requires particular attention.

1. General Solar can work on net zero houses where the surplus of the

generated energy could be supplied to the grid. Supply to the grid option

will need the grid congestion and peak load hours in consideration so as to

get the maximum amount of green bucks for the energy generated. It will

also call for that the right region of the country be targeted too. For

instance, it is given that the excess of the energy consumed is congested in

the north of the country and so naturally it could be inferred that the

demand for energy and those that are off grid will be high in those areas.

For this particular reason it is proposed that General solar concentrate on

small scale PV for stand alone systems and if the provisions exist it could

also be possible to feed in the power generated taking in consideration that

 the bulk of the household consumption is during the evenings. This will

generate excess revenue as well be able to maintain subsidies from the

feed in tariff.

2. Many of the current operational PV plants were implemented by a number

of parties and after the commissioning the plants were either given for

operation to the power companies or sold to a third party. General solar

can look into profitable PV plants where there is a profit margin.

3. General Solar can look into a cost leadership strategy and in doing so

provide low cost solutions for materials and the services in the PV sector.

This goes without saying if a sufficiently low priced module and

component manufacturer is in the picture it will be able to balance the

reduction in the feed in tariff incentives provided it sufficiently brings the

initial investment cost down.

4. The recent in the PV news for the Europe puts forward single plants of a

10GW capacity. This will require many of the investors and technological

firms to join hands. General Solar could go in the same path where they

could highlight their most significant area of expertise and contribute with

others involved so as to penetrate the market and take it from there as

demand for other segments of the company arises.

5. Since large scale plants have had their feed in tariffs modified, putting

aside the grid congestion and peak demand hours, General Solar could

work on enhancing the efficiency of the plants be in any way. The simplest

could be provisions of providing for Solar Concentrators and Storage

possibility to reverse the problems arising due to the green energy trend as
 well the government policies that has discouraged the investors in the

immediate term.

6. The least significant part where General Solar could intervene would be

providing stand alone systems in such a manner where the green energy

generated by the companys plant would be stored using appropriate

technology and then during demand hours, could be sold to the power

companies. The surplus energy could also be fed in to industries wanting

to pronounce their self-reliance in Energy production and consumption.

Above are the most logical and pronounced areas where General Solar could

intervene. All of the above need a particular strategic model to be approached and to

make them applicable. This work of addressing the strategic models is beyond the

scope of this paper and only a generalized way of action in an ideological format has

o been described in this paper.