Italy’s solar industry is in limbo after its committee of the regions refused to consent to the ministry for economic development’s draft of Italy’s New Energy Law 4 (Conto Energia 4). The minister of environment, Alfonso Pecoraro Scanio, is also heavily opposed to the draft, which will see large reductions to the previous tariff regime, the imposition of a money cap on the total amount of subsidies and is skew­ed against large projects. The ministries and the committee of the regions are still discussing the draft.

The impasse means the ministry of eco­nomic development has missed its 30 April deadline to enact a new tariff regime, which was due to begin 1 June. The Renewable Decree 28, of 3 March 2011, had delegat­ed to the ministry the power to enact a new photovoltaic tariff regime. The existing tariff regime under Conto Energia 3 will re­main in place until a compromise is reached.

As expected, the draft imposes a country-wide money cap on the total amount of subsidies paid out to solar developers, although plants under 200kW are not expected to be counted under these caps, according to law firm McDermott Will & Emery. The new regime will see significant cuts to the Conto Energia 3 tariffs, though these will be reduced gradually rather than cut suddenly, as is the case in Spain.

From 1 June 2011 to 31 December 2011 tariffs will decrease on a monthly basis. Under Conto Energia 4, tariffs that were authorised under Conto Energia 3 are re­duced by 1.02% in June 2011, to 31.47% in December 2011. For 2012, tariffs under this regime are reduced by 23.25% in the first six months, to 45.64% in the second.

Money caps of Eu447 million ($663 million) in 2011, and Eu373 million in 2012 are stipulated in the draft, although small plants will be excluded. There are no capacity caps, only indicative goals of nominal power to be installed that should more or less correspond to the money cap. The indicative capacity goals are 1,350MW from 1 June to the end of 2011 and 1,750MW for 2012.

According to the McDermott analysis of the draft, in 2011 and 2012 large-scale PV plants will be eligible for the incentives only if the plant has been registered in a new register held by state-renewables regulator GSE, and certification of the completion of the works is filed with the GSE within 9 months of the publication of a ranking list by the GSE. PV plants that have not been awarded incentives in 2011, because the money cap has been reached, can apply for 2012 tariffs. Plants missing out have no priority, however, and apply again for inclusion in the GSE’s register.

The draft also provides a new mechanism from 2013, an overall tariff (tariffa onnicomprensiva) that includes not only the feed-in premium but also the price of the sale of the energy. From the second half of 2013 to 2016, incentives will be reduced each six months on a percentage basis (from 9% to 30%). The percentages can increase depending on the overall cost of the subsidies in the previous six months.

If the Conto Energia 4 is passed as proposed, large developers and sponsors are will shift their medium-term plans else­where. AES Solar, the Riverstone-AES joint venture, is close to completing a 125MW project, and SunPower and SunEdison/ First Reserve are probably going to scale back their Italian operations.

Italy’s approach, like Spain, shows that governments cannot accurately move tariffs in-step with drops in the price of technology. According to a finance specialist at one developer, a neater way of accurately aligning the cost of incentives with the cost of generation is to run competitive bids as an offtaker would on an independent power project tender. Developers do not like this method of procurement because it is time consuming and squeezes margins. Competitive tenders were a feature of Conto Energia 3 for projects over 5MW but were easily avoided.

Now that Italy has cooled from being the number one PV market in Europe there are no stand-out European PV markets: the UK has a promising regime but lacks the resource, France has all but aban­doned any meaningful development with the imposition of meagre 500MW annual cap, and Spain and Germany have stepped back from their roles as market pioneers.

With the price of modules on a downward trajectory, those countries that wait will have a cost advantage to those that moved first such as Spain. Countries that are likely to benefit include those in North Africa, particularly Morocco, Abu Dhabi, Mexico, and fringe European markets such as Bulgaria and Greece.

Until the new Italian tariff regime is an­nounced those developers in construction are in limbo. There is a current debate between the ministry of economic development, the banks and the industry around grandfathering of projects permitted but not yet installed. It is unlikely that the grandfathering provisions or grace period will be favourable for sponsors. A large part of the reason that Italy is changing its tariff, so soon after the protracted delay in drafting the current tariffs is because of the number of applications state renewable regulator GSE received for new PV plants at the end of 2010. In total it received applications worth 3,771MW in 2010.

Sponsors of projects that were racing toward connection by the end of 2010 were comforted by the so-called Alcoa law, which protected developers from in­stances where Terna, ENEL or the local grid operator had not physically connected the plant to the grid by 2011. This led to an unexpect­ed surge in applications received by GSE that ultimately led to the shock decision to pull the current tariff regime on 31 May 2011. The government will not make the same mistake twice.