Italian experience in deploying renewable energy

Italian experience in deploying renewable energy Luca Benedetti Head of Study and Statistics RES4MED DAYS A step change in the deployment of RE and EE solutions in the Mediterranean 16th September 2014, Rabat - 1 -

Summary - GSE and its activities: in Italy, over the last ten years, RES = GSE - RES Italian outlook: targets and results. On track - How it has been possible? Instruments - Instruments: effectiveness and efficiency - Looking closely at results: monitoring - Statistics - Burden - Costs - Electricity market - Supply chain, investments, jobs - Avoided emissions - Lessons learned: some tips of common sense - 2 -

GSE : Italian Energy Services Operator MSE Ministry of Economic Development (with others Ministries) MEF Ministry of Economy and Finance AEEG Energy Regulator Guidelines Ownership 100% Decisions Ownership 100% Ownership 100% Ownership 100% Purchase of electricity for small customers Electric market, natural gas market and environmental markets Research on the energetic system MISSION: GSE promotes the development of renewable energy sources and energy efficiency in Italy, granting economic incentives, managing energetic services and supporting the policy makers - 3 -

GSE s activities Management of support schemes and energy services for RES, CHP and Energy Efficiency (electricity, heating, transport): management of dematerialized applications, plants qualification and inspection, contracting, management of measures and incentives(services, etc. Energy management: participation in the electricity market (energy withdrawn in the context of incentives/services managed), forecasting of electricity production, management of unbalancing costs, calculation of curtailed wind power generation, etc. GSE aims to reduce renewables unbalancing costs so it is crucial accurate forecasting of non-programmable plants. CO2 auctions : we are in charge of auctioning Italian emission allowances on the European Common Auction Platform (CAP) Studies, statistics, monitoring on RES and EE: statistics, monitoring reports for the EU, analysis of economic and employment impacts, environmental effects, authorization procedures, generation costs in Italy and at international level, analysis and comparison of international policies Support to institutional policy makers and public administration International activities: participation in the main international associations (IEA, IRENA, RES4MED, etc.) and in the energy projects and studies funded (Concerted Action on RED, PV Parity, etc.) Information and training: promotion of RES and EE (workshops, reports and guides, training, etc.) Support to Italian RES operators ( Corrente project) to contribute to improving the chain visibility and to introducing the operators into the international markets - 4 -

RES Italian monitoring : STATISTICS and TARGETS Share of renewable energy: statistics and targets 2012 statistics 2012 forecast NREAP* 2020 target NREAP* 2020 target NES** * National Renewable Energy Action Plan (2010) ** National Energy Strategy (2013) - 5 - Source: GSE

RES Italian instruments : all sectors RES sectors Support schemes Other measures RES - E RES - H Green Certificates (phasing out) Feed in tariff Feed in premium Net metering ETS (indirect) Grants: Heating Account White Certificates Fiscal Incentives ETS (indirect) Priority dispatch and access to the grid Services for market access Simplified administrative procedures Certification, training, information Obligations for new or refurbished buildings Simplified administrative procedures Certification, training, information RES - T Blending obligation of sustainable biofuel (including biomethane) Technical Regulation Simplified administrative procedures Research and development Centralized implementation: all support schemes except fiscal incentives managed by GSE - 6 -

RES Italian instruments : HEAT (and efficiency) support mechanisms Grant Quota-obligation scheme Fiscal Incentives 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 (heat pumps, biomass boilers and stoves, solar thermal, small energy efficiency projects) [Financed by the gas tariffs ] 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 [ Financed by distributors, gas and electric tariffs ]. Tax detraction Government provides a tax detraction of 65% of the expenses for interventions of energy re-qualification on existing buildings, including the replacement of old heating systems with new RES heating devices [ Financed by taxation ] Yearly cumulative spending limit: 900 mln - 7 -

RES Italian instruments : TRANSPORT support mechanism Quota-obligation scheme Biofuel certificates In Italy gasoline and diesel distribution companies have the obligation to sell a quantity of biofuels equal to a certain quota of the total fossil fuel energy content sold in the same year (quota obligation). The 2014 quota is equal to 4,5%. The companies can fulfill their obligation by blending biofuels with fossil fuels or, also, by acquiring the equivalent quota of certificates. Certificates are issued by GSE on the basis of companies annual declarations. Every certificate corresponds to a 10 Gcal of biofuel, with the exception of biofuels produced from waste, by-products or non-edible feedstock, which receive 2 certificates every 10 Gcal (double counting mechanism). All the biofuels consumed in Italy must comply with the European sustainability criteria, in order to receive the certificates. - 8 -

RES-E : the latest support mechanisms PV PLANTS OTHER RES PLANTS P 1MW P > 1MW P 1MW P > 1MW Feed-in tariff A fixed tariff (depending on technology and size) PLUS self consumption premium or/and any applicable premium Sliding Feed-in Premium Value of Feed-in MINUS hourly zonal energy market price PLUS self consumption premium or/and any applicable premium Feed-in Tariff A fixed tariff (technology and size banding incentive) PLUS any applicable premium Sliding Feed-in Premium Value of Feed-in MINUS hourly zonal energy market price PLUS any applicable premium How to access to incentives Directly PV plants 12 kw ( 20 kw with 20% tariff reduction) Registries PV plants > 12 kw Yearly cumulative spending limit: 6,7 bln (reached) 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 (we are today at 5,05 bln)* * It has been implemented a monthly counter of the indicative annual total cost for incentives - 9 -

RES-E : M.D. July 6 th 2012 (RES-E other than PV) Base tariffs (RES-E other than PV) from (small plants) to (large plants) * Years /MWh Years /MWh + premium Wind on-shore 20 291 20 127 Wind off-shore 25 176 25 165 connection self-financed Hydro fluent 20 257 30 119 Hydro basin or tank 25 101 30 96 Tides and wawes 15 300 20 194 Geothermal 20 135 25 85 advanced, reinjection, new areas Landfill gas 20 99 20 90 Sewage gas 20 111 20 85 Biogas from biological products 20 180 20 91 chp, nitrogen recovery Biogas from by-products 20 236 20 101 chp, nitrogen recovery Biogas from waste 20 216 20 85 chp, nitrogen recovery Biomass (biological products) 20 229 20 122 chp, local biomass, lower emissions Biomass (by-products) 20 257 20 145 chp, dh, lower emissions Biomass from waste 20 174 20 125 chp Sustainable bioliquids 20 121 20 110 chp * Plants up to 20 MW for geothermal; up to 10 MW for hydro; up to 5 MW for others - 10 -

RES-E : M.D. July 6 th 2012 (RES-E other than PV) Registries for new power plants: results for 1 st, 2 nd and 3 rd procedures 1 st procedure (2013 cap) 2 nd procedure (2014 cap) 3 rd procedure (2015 cap) Source Available capacity (MW) Applied capacity (MW) Available capacity (MW) Applied capacity (MW) Available capacity (MW) Applied capacity (MW) Wind on-shore 60 192 53 201 65 162 Hydro 70 163 61 150 74 239 Geothermal 35 17 53 0 99 0 Biomass 170 221 140 184 169 173 Waste 30 2 28 0 30 1 Tides and waves 3 0 3 0 3 0 In all procedures, for wind on-shore and hydro registries submitted applications exceeded by far the available capacity foreseen by MD. Extra request has also been recorded for biomass, biogas, sewage gas, landfill gas and sustainable bioliquids registry. - 11 - Source: GSE

RES-E : M.D. July 6 th 2012 (RES-E other than PV) Auctions: results for 1 st, 2 nd and 3 rd procedures 1 st procedure (2013 cap) 2 nd procedure (2014 cap) 3 rd procedure (2015 cap) Source Available capacity (MW) Bidding capacity (MW) Available capacity (MW) Bidding capacity (MW) Available capacity (MW) Bidding capacity (MW) Wind on-shore 500 442 400 1086 356 1261 Wind off-shore 650 30 620 0 650 0 Hydro 50 0 50 0 50 0 Geothermal 40 40 0 0 Biomass 120 13 107 34 64 17 Waste 350 33 317 0 249 18 Wind sector proved to be comfortable with Auction mechanism, showing an increasing bidding capacity, from 88,4% to 354% of the available power capacity. This turned into increasing tariff bid reductions : from 2,5% to 24,4% for 1 st procedure from 9,5% to 19,0% for 2 nd procedure from 26,4% to 30,0% for 3 rd procedure - 12 - Source: GSE

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 RES Italian instruments : history in the ELECTRICITY sector Timeline of accessing period for Italian support schemes to RES electricity production (indicative, without considering transitional periods, etc.) Effectiveness (installed) Average Efficiency (supp. intensity) CIP 6/92 (Feed in tariff) Green Certificates (Green Certificates) Conto Energia PV (Feed in premium) 1 Tariffe Onnicomprensive (Feed in tariff) Conto Energia CSP (Feed in premium) 2 Decree 6 July 2012 (Feed in premium/feed in tariff) 2 Emissions trading scheme (EU ETS) not appreciable 1: yearly cumulative spending limit ( 6.7 billion) - Reached 2: yearly cumulative spending limit ( 5.8 billion) Still to be reached - 13 -

RES-E : EU support schemes Italian incentives have been the highest in EU but now they are in line RES-E support schemes can differ on many aspects: type of incentive, duration, plant size, sub-technology, etc. - Example below: total remuneration over 20 years RO PL UK SE BE NL CZ FI EE EL IT AT PT HU DK DE FR SI LT HR SE BG Wind power plants [10 MW] June 2013 CY RO EL HR PT IT MT FR BU LU LT DE SI BE-WA CZ UK SK HU PL EE BE-FL DK SE PV power plants [3 kw] June 2013 0 50 /MWh 100 150 0 50 100 /MWh 150 200 250 300 Feed in tariff Green Certificates Feed in Premium - Wholesale 14 - electricity price Source: GSE studies

RES-E : burden for incentives Financial resources for incentives come from a component ( A3 ) of the electricity bill (public funding is highly affected by changes in budget policies and does not offer a good stability). 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 auctions. It does not include the costs of services such as simplified purchase & resale arrangement and net metering. 1,33 1,07 0,11 2,53 6,70 Jul 31, 2014 (latest available estimate) "Spending caps" PV 6,70 bil 6,70 bil Other RES 5,05 bil 5,80 bil Total 11,75 bil PV Bio Wind Hydro Geo Components of the electricity bill for a household type (Sept 2014): 19 c /kwh 49,2% energy and dispatching; 18,3% burden for incentives; 15,8% transmission and distribution; - 15 13,3% - taxes; 3,4% other system burdens Source: GSE

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 *2013 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 *2013 MW GWh 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 *2013 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 *2013 MW GWh RES-E statistics : RES capacity and production RES cumulative installed capacity RES gross electricity production 50.000 120.000 45.000 40.000 100.000 35.000 30.000 25.000 20.000 15.000 80.000 60.000 40.000 Solar Bioenergy Wind Geothermal 10.000 5.000 0 20.000 0 Water 18.000 50.000 16.000 14.000 40.000 12.000 10.000 30.000 Water Solar 8.000 6.000 4.000 2.000 20.000 10.000 Wind Bioenergy Geothermal 0 0 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 - 16 - Source: TERNA - GSE

RES-E statistics : the growth pf PV PV penetration in Italian municipalities 2006 2013 Today ~ 100% of Italian municipalities has at least one PV plant installed. At the end of 2013 we have almost 600.000 PV plants and more than 18 GW installed in Italy, producing 21.6 TWh. - 17 - Source: GSE

RES-E : production from RES and other sources Breakdown of gross consumption (TWh) - renewables have increased significantly, especially in recent years - the balance of trade decreased slightly - conventional production has fallen - 18 - Source: TERNA - GSE

Energy Daily Distribution RES-E in the market : some effect on the electricity market Peak shaving in the electricity market The strong RES penetration has significantly changed the energy price profile A peak-shaving effect can be observed, especially driven by the high PV generation during the day A price increase during the evening hours can be observed, where the thermal production is prevalent HOURLY RES PRODUCTION DISTRIBUTION PER SOURCE HOURLY PRICES IN THE WHOLESALE POWER MARKET 16,0% 14,0% 12,0% 10,0% 140,00 120,00 100,00 Peak shaving Evening increase 8,0% 6,0% 4,0% 2,0% 0,0% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Geotermal Hydro Hydro (River) PV Thermal Wind Pumps Consumption 80,00 60,00 40,00 20,00 2007 2013 0,00 1 3 5 7 9 11 13 15 17 19 21 23-19 - Source: GSE studies

technoogy market price ( /MWh) technoogy market price ( /MWh) RES-E in the market : some effect on the electricity market Average market price of energy by technology For every technology, an average market price of energy can be calculated, on the basis of the energy production profile and the wholesale price profile. Technologies producing in hours when energy is more expensive have higher average market price 80,0 75,0 70,0 65,0 60,0 71,1 75,1 74,2 74,7 74,1 77,1 Geotermal Hydro Hydro (River) Thermal Wind PV 80,0 75,0 70,0 65,0 60,0 61,0 64,8 59,5 67,1 59,8 56,3 Geotermal Hydro Hydro (River) Thermal Wind PV 55,0 55,0 50,0 50,0 45,0 45,0 40,0 2011 PUN 2011: 72.23 /MWh 40,0 2013 PUN 2013: 62.99 /MWh In 2013, programmable technologies like Thermal and Hydro had higher market price values, while non-programmable, especially PV, had lower average market price values. This did not occur in 2011, when the peak shaving effect of RES on daily energy price was not evident yet - 20 - Source: GSE studies

RES-E in the market : the GSE s forecasting activity Forecast & Optimization of variable renewable generation Main target The commitment of GSE aims to reduce energy imbalances, and related costs. To this end, it is crucial to perform accurate forecasting of the energy produced from the non-programmable renewable sources. GSE key-activities Energy Forecasting GSE implements accurate meteorological modeling to predict short-term energy production GSE performs forecasting for a large number of power plants ( 560000) all-over the country 13% 24,9 GW in 2013 11% 4% Solar PV Wind Water Biogas Optimization A state-of-the art satellite leveraged infrastructure let GSE monitor almost real time the energy generation of about 3,000 variable renewable plants. Information coming from Satellite Metering System are used to support optimization algorithms Power plants satellite GSE Server 71% - 21 - Optimization algorithms

RES monitoring : the decrease pf the costs (example PV) COSTS: evolution of specific costs of PV plants in Italy ( /W) Source: GSE, Studies Unit - 2014 Fast decrease of investment costs (20% of average annual reduction), especially for large PV plants In 2013, the cost of 1-3 kw residential PV plants was 44% of the cost in 2008 In 2013, the cost of 1 MW ground-mounted PV plants was 25% of the cost in 2008-22 - Source: GSE studies

RES monitoring : relation between costs and incentives (example PV) Evolution of generation costs of PV plants in Italy ( /MWh) in comparison with total income ( /MWh) arising from energy production Generation costs and total income refer to ground-mounted PV plants with P > 1 MW, while developed capacity includes all plants. The fast decrease of generation costs in 2008-2010 was not combined with the same rate of reduction of energy remuneration, thus determining the economic conditions for an explosive development in 2010-2011 - 23 - Source: GSE studies

RES monitoring : supply chain (example PV) Country of origin of the manufacturer companies of PV modules installed in Italy (% of annual capacity entered into operation) Country of origin of the manufacturer companies of PV inverters installed in Italy (% of annual capacity entered into operation) - 24 - Source: GSE studies

RES monitoring : investments and jobs RES-E sector According to Legislative Decree n.28/2011, GSE must provide estimates on economic and employment impacts of RES development RES - E Investments in 2012 (mln ) Total O&M expenditures in existing plants in 2012 (mln /year) Employment impacts due to investments in new plants in 2012 (FTE) Employment impacts due to total O&M expenditures in existing plants in 2012 (FTE) - 25 - - 12 - Source: GSE studies

RES monitoring : GHG savings National GHG emission and avoided emissions through RES use (MtCO 2eq ) RES avoided emission by sector (MtCO 2eq ) RES avoided emissions (source: GSE) Energy emissions Combustion processes (electricity, heat, transport, other) And fugitive emissions National GHG Emission (source: ISPRA) No Energy emission Industrial Processes, chemicals, agriculture, waste Sources: GSE, ISPRA data elaborations RES (direct) avoided emissions (Electricity, Heat, Transport) Over the recent years the renewable energy growth has led to an increasing of CO2 savings (mainly by electricity sector) - 26 - Source: GSE studies

RES international monitoring : analyses of POLICIES and results The legislation relies on the GSE processing of an annual report of analysis and comparison of support mechanisms for RES in Europe. At the extra-european level, the monitoring is carried through country reports that: provide a detailed overview on existing support systems for RES and its energy context in which they operate; constitute a first approach for potential investors who would "enter" into the country; provides a short summary of the macro-economic and commercial context. - 27 -

RES policies : some tips for efficient policies The extensive monitoring activity of Italian and international trends allows deriving the following recommendations for efficient RES development: Guarantee transparency and try to guarantee continuity of RES policies, in a long-term perspective, in order to: - Minimize country/investment risk, encouraging foreign investors - Promote a progressive development, consistent with the national context Provide an integrated approach: o o o o o o o o o o Look at RES not as an aim in itself, but as a piece of a national energy and economic policy Set long-term RES targets Identify the most appropriate instruments for the national context Define a continuous, progressive decrease of possible incentives Promote national and local economic development Plan the development of the electricity grid in accordance with the RES targets Promote efficient integration and empowerment of variable RES into the grid and the market Define efficient authorization procedures Take care of training and information And (last but not least). - 28 -

RES policies : the virtuous circle of a broad spectrum monitoring o monitor! A comprehensive monitoring activity (costs, markets, tariffs, infrastructures, technologies, net economic effects, investments, value added, jobs, balance of trade, environmental and social impacts, etc.) can provide effective feedback on strategic priorities, targets and instruments Instruments (not only financial ones) Targets «Internal» monitoring: effectiveness, efficiency Considering interaction with other policies «external» monitoring: National and international trends (technology, economic, and political trends) Strategic Priorities - 29 - Feed-back

Thank you for your attention Gestore dei Servizi Energetici GSE S.p.A. Viale Maresciallo Pilsudski, 92 00197 Roma Italy www.gse.it luca.benedetti@gse.it - 30 -