PPA and Italy. Is the Time Finally Ripe?
By Francesco CALABRETTA – Country Manager Italy
With the National Integrated Plan for Energy and Climate – more simply PNIEC – Italy has established the lines of action that it will adopt, over the next 10 years, on the front of ever greater decarbonisation and the use of renewable energy sources.
Beyond individual judgments on the effectiveness or otherwise of the actions planned to counteract the climate change – adequate for some, insufficient for others – it is interesting to note that among the measures, PPAs or Power Purchase Agreements are also mentioned. In the final text recently published, we read that from this type of financial instrument “a contribution of renewable energy equal to at least 0.5 additional TWh is expected each year”. Finally, even the MiSE recognizes the importance that PPAs will assume in achieving the declared objective of 30% of renewable energy (gross final consumption) between now and 2030.
But let's take a step back. What are the PPAThese are renewable energy supply contracts stipulated between those who produce energy (and own the system, photovoltaic or wind) and those who buy it (often a company that markets or distributes it).
As long-term agreements (around 10-15 years), they have the advantage of providing a certain stability in the inflows for producers, avoiding the problem of market volatility and facilitating the financing or “bankability” of projects. On the other hand, thanks to these financial instruments, sales companies purchase energy at better economic conditions than those they would have had buying it on wholesale markets, thus obtaining competitive benefits – in the short and medium term – in energy supply compared to competitors.
This type of contract is usually accompanied by guarantees that protect both parties. On the seller side, there are credit insurance policies available (which protect the seller from the insolvency of the buyer) or financial mechanisms that mitigate any excessive fluctuations in energy prices. On the buyer side, there are, for example, certifications such as Guarantees of Origin that attest to the renewable origin of the energy sources purchased.
This system, first widespread in the United States (a federal law has regulated its use since 2005) and then in Europe, is still little known or at least underused in Italy. The reasons for this delay involve the regulatory uncertainty of the renewable energy sector and the consequent fear of operators in entering into agreements lasting more than 5 years. Just think of the long and slow approval process of the awaited FER1 Decree.
Hitches and contingent problems aside, one certainty has been emerging in recent years: the era of incentives and subsidies is over, PPAs are the most appropriate and effective tools to change the face of renewable energy, especially that coming from solar photovoltaic and, secondly, from wind. This appears clear, observing the increasingly substantial agreements stipulated on the world energy markets, especially if we look at the Spanish one.
A situation we know closely. In fact, both as an integral part of the Audax Group and as Audax Energia Italia, we can define ourselves as “pioneers” in the use of these financial instruments. From 2017 onwards, Audax Renovables has stipulated PPAs for over 1.7 GW, activating strategic partnerships with entities such as Trina Solar, WeLink, Innogy, Statkraft, Cox Energy.
In our country, Audax Energy played ahead of the curve and in January 2019 signed a 20 MW PPA in Basilicata, with BAS FV. A first step that we are working on so that others will soon follow. Compared to 12 months ago, however, something has changed and the road seems less full of obstacles and uncertainties.
A situation which, it would seem – the use of the conditional is most appropriate – finds correspondence with the recently published data and which tell of an Italy in second place for planned projects, right after Spain.
