Italy Renewables Report Q2 2016
BMI View: We maintain our downbeat outlook for the Italian non-hydropower renewables segment this quarter, as lack of short-term and long-term regulatory clarity will weigh on growth in the sector. Solar PV will offer the main avenue of growth in Italy, as the technology has reached grid parity in parts of country, but investor sentiment will remain weak on account of the retroactive cuts implemented in the PV sector in 2013.
Latest Updates And Structural Trends
The regulation that will extend Italy's non-photovoltaic renewables subsidy scheme until end-2016 and free up EUR400mn has been passed through all relevant Italian legislative bodies, but has yet to be approved by the European Commission to verify it does not breach state-aid laws. We note that the funding ceiling - at EUR5.8bn - is about to be breached and that the lack of certainty over the longevity of the subsidy scheme will weigh on growth in Italy's renewables segment. Post-2016, the government aims to deploy a new subsidy scheme, but a mechanism proposal has not yet materialised, meaning that there is little long-term regulatory clarity in the segment.
Solar power is reaching grid parity in certain parts of Italy, which in turn could help boost growth. Grid operator Terna's grid parity scenario aims for solar capacity to reach 23 gigawatts (GW) by 2020 and 30GW by 2020. We still believe that uncertainty over the country's regulatory framework will continue to warrant investor caution, particularly when considering that Spain implemented profit caps on renewables projects, and Italy has reportedly been contemplating the implementation of levies on the segment.
Given our muted outlook for growth in the Spanish renewables segment, we forecast non-hydropower renewables electricity generation to grow by an annual average of 1.8% between 2016 and 2025. This is significantly slower growth than what was registered between 2005 and 2015, when power generation in the sector expanded by an annual average of 15%.
We believe large Italian renewables companies such as Enel Green Power (a subsidiary of Enel) and Edison (a part of the EDF Group) will continue to look abroad for opportunities, given the slow growth trajectory in the Italian renewables segment.
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