Having waited anxiously for the past two months, Italys Government has finally accepted the new solar regulations. Analysts at Jefferies and Co. Ltd believe that, overall, the outcome is more positive than previously expected.
On the downside, however, while it was originally thought that the under 200 kilowatt (kW) photovoltaic ground-mounted market would be uncapped, the new regulation includes a clause stating that it will only be uncapped if installed under a self-consumption feed-in tariff.
Commenting, the analysts say: "While a negative, it does not change our view that policy is favourable the Italian market can be 3.5GW in 11." However, they add: "(…) we recommend that investors consider all ground based systems as capped (…)."
Reasons to install quickly
The analysts add that the question now, is how quickly the market can recover. With the monthly degressions most prominent in November and December, they believe there are incentives to install quickly in Italy.
They continue: "Also, it will be important to determine if an Italian demand pick up triggers German buyers to accelerate orders in anticipation that module prices have mostly bottomed. For stocks, we see a slow rise from current levels as investors wait for poor earnings calls to be fully priced in.
"The final regulation is in line with our earlier view, and substantially more positive than the first drafts and analyst expectations. We expect a robust ~3.5-4GW market in 2011, 2H loaded, and growth in 2012."
As previously reported, the new solar regulation sees the cap on large photovoltaic systems this year lowered to 1.2 GW and 300 million, from 1.35 GW and 447 million. Meanwhile, it will be lowered to 1.49 GW and 280 million in 2012, from 1.75 GW and 373 million. Small systems, and existing plants through August 31 will not count toward these caps.
Furthermore, ground-based photovoltaic systems are capped, and only those systems under 200 kW that use self-consumption are uncapped. The analysts comment: "Although farmers use electricity for pumping water and could benefit from this self consumption regulation, and that farmers are a large market in Germany, we recommend that investors consider all ground based systems as capped until this market can be further studied."
On a more positive note, no cap has been implemented for rooftop solar systems up to one megawatt (MW) in size. It has also been agreed that no cap will be placed on existing permitted systems of all sizes through to August 31. Moreover, solar plants that are grid connected by this date will not count towards the cap imposed in the second half of the year.
"This is a strong positive given we believe this market alone may be ~2GW in 2011. Acceptance of systems under the Third Conto Energia is a big win for the industry, and this is why 2H and 2012 were modestly reduced," state the analysts.
Additionally, they explain that the Third and Fourth Conto Energias will overlap. "Existing permitted projects under Third Conto Energia will be allowed through August 31; this will overlap with Fourth Conto Energia new plants that will begin June 1. New large projects subject to the 2H cap will be given approval by July 15, 2011, at which time plants will commence under the 2H cap."
There are also no changes to the tariffs previously announced. Consequently, the Jefferies analysts say that their internal rate of return assumptions remain unchanged and "will allow strong panel prices, especially those made in Europe."
The new solar regulation is also said to include "interesting" premium tariffs for: photovoltaic projects located on landfills and other contaminated sites, at five percent; small plants in towns with a population under 5,000, at five percent; plants installed to replace asbestos roofs, at five euro cents per kilowatt hour; and projects, which have a 60 percent European content – defined as cost of construction content excluding labor at 10 percent.
"This," say the Jefferies analysts, "will certainly favour European modules that will be made from Asian cells/wafers." They add that companies making original equipment manufactured modules for European brands, or those using innovative technologies, will particularly benefit.
It has also been decided that the feed-in tariff will be received once the photovoltaic system has been grid connected. Explaining, the analysts state that this "does require that grid operators connect PV systems under deadlines, otherwise they will be responsible for compensation for the lost FIT rate. New large projects will be required to register with the GSE, and will have seven to nine months to complete the plant."
Finally, the feed-in tariffs in 2013 will no longer include the energy sale, but they will offer tariff premiums for self consumption.
So, now the details have been agreed upon, hopefully Italys photovoltaics market can get back on track.