Under its proposals, the government is looking to cut the feed-in tariff premiums by between 28 and 42 percent in the second half of 2011.
However, as analysts at Jefferies & Company Inc. point out, the cuts, when including the market sale of electricity at approximately 0.08 per kilowatt hour, actually work out at between 23 and 33 percent in the second half of the year, and just 12 to 15 percent in 2012.
They also state that while the cuts are bigger than expected, they are still more favorable than the tariffs in Germany.
In what has been seen as a positive move, under the draft regulation there will be no cap for small rooftop installations in the second half of this year, or in 2012. However, the definition of small is still to be worked out, and could include anything between 20 and 200 kilowatts.
The Jefferies analysts explain: This will be a main focus of lobbying efforts in the region. We view a 20 kilowatt definition would be a negative, while a 200 kilowatt system (the sweet spot of the Italian market) would be a positive. This decision will determine if the commercial market can develop without a regulating cap.
Large scale solar systems will be subjected to an annual cap in the second half of 2011 and for the whole of 2012. The mechanism has been described by the analysts as complicated due to its registry process and resulting ranking list for plants that are granted the feed-in tariff. This complication, they say, is a negative for ground based systems.
For systems installed this December, 2011, total revenue per kilowatt hour will decrease by 23 to 33 percent in comparison to the levels seen in the first half of this year, depending on the system's size.
If the proposals are implemented, Jefferies says the tariffs, including the 0.08 market price, will be adjusted as follows:
- Systems one to three kW in size will receive a tariff of 0.442 from January to May 2011; 0.424 in June; 0.417 in July; 0.407 in August; 0.396 in September; 0.382 in October; 0.361 in November; and 0.341 in December. This would mean a year on year decline of 27 percent. In 2010, the tariff was 0.464.
- Systems three to 20 kW in size will receive a tariff of 0.419 from January to May 2011; 0.399 in June; 0.392 in July; 0.383 in August; 0.369 in September; 0.356 in October; 0.336 in November; and 0.318 in December. This would mean a year on year decline of 29 percent. In 2010, the tariff was 0.445.
- Systems 20 to 200 kW in size will receive a tariff of 0.401 from January to May 2011; 0.386 in June; 0.380 in July; 0.371 in August; 0.351 in September; 0.338 in October; 0.320 in November; and 0.304 in December. This would mean a year on year decline of 29 percent. In 2010, the tariff was 0.426.
- Systems 200 kW to one megawatt (MW) in size will receive a tariff of 0.394 from January to May 2011; 0.371 in June; 0.356 in July; 0.343 in August; 0.325 in September; 0.313 in October; 0.290 in November; and 0.269 in December. This would mean a year on year decline of 37 percent. In 2010, the tariff was 0.426.
- Systems one MW to five MW in size will receive a tariff of 0.393 from January to May 2011; 0.357 in June; 0.344 in July; 0.330 in August; 0.323 in September; 0.303 in Ocotber; 0.281 in November; and 0.261 in December. This would mean a year on year decline of 39 percent. In 2010, the tariff was 0.426.
- Systems over five MW in size will receive a tariff of 0.377 from January to May; 0.344 in June; 0.331 in July; 0.318 in August; 0.311 in September; 0.292 in October; 0.271 in November; and 0.252 in December. This would mean a year on year decline of 41 percent. In 2010, the tariff was 0.426.
In 2012, this revenue will decline by 12 to 15 percent, which as the analysts say, is significantly better than expectations. They add: We caution that some analysts may quote the FIT decline as 28 percent to 42 percent for December 2011, as they are not including the ~0.08 EUR electricity market sale.
The annual cap will be eliminated in 2013, and as with the German system, the market sale of electricity will be removed. As Jefferies states: No longer will project owners be able to sell the energy systems produce beginning in 2013. Meanwhile, tariffs will decrease by between 33 and 43 percent in 2013. Furthermore, large systems will qualify for a tariff of 0.14 in the first half of 2013 and 0.121 in the second half of the year.
Given that Italy is blessed with 25 percent to 35 percent more irradiance than Germany, this FIT should allow healthy IRRs above other solar markets, say the analysts.
Jefferies concludes by saying that the final decision could be delayed and that pull in is likely. Because the monthly FIT decline is steep (and messy) people will tend to install systems as early as possible. This is likely to create a pull in scenario as it will encourage earlier installation. However, they are confident that Italy should continue to have a solid solar market over the coming years.
Following the issuance of the draft regulation, Italys ministry will now discuss the proposed regulation with the regions today. Amendments are to be expected.
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