investing in-renewables
TRANSCRIPT
ADVISORY
Investing in renewables
Trends, opportunities, prospects
kpmg.com/it
© 2011 KPMG Advisory S.p.A., an Italian limited liability share capital company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
1
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IndexIntroduction
The renewable energy market in Italy 6
- The energy market in Italy and the importance of renewable sources- National energy policy and legal framework
The players in the Italian market and their performance 24
- Frame of reference- Benchmarking the companies in the sector
Investing today in renewable energy: key points 44
- Expected changes to the regulations and the relative impacts on returns- Conclusions
Insights 57
- Renewable energies and achieving grid parity by Luca Mazzoni, Managing Director Protos- Project Financing in the renewable energy sector by Marco Serifio, Partner KPMG Advisory- Investment project plans in the renewable energy sector by Stefano Cervo, Tax Partner KStudio Associato- M&A activities in the renewable energy sector in Italy by Alessandro Zanca, Associate Partner KPMG Advisory
Country Focus 75
- Internationalisation in renewables by Protos
© 2011 KPMG Advisory S.p.A., an Italian limited liability share capital company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Introduction
The renewable energy sector, comprising technologies for the generation of electric energy from sources other than fossil and nuclear, such as wind, photovoltaic, bioenergy, geothermoelectric and mini-hydro, has yet to achieve grid parity. The full cost of generating the energy produced, taking also into account returns on invested capital, is therefore still significantly higher than for conventional sources of energy with the result that incentives are necessary, to be decided by the Regulator.
The sector concerns and appeals to three main types of companies*:
•companiesspecialisedinthedevelopmentandintheoperationofrenewable source power plants, comprising start ups as well as large conventional source energy companies
•financialinvestors,inparticularthoseoperatingininfrastructurefunding,and which are therefore attracted to the sector
•industrialcompaniesfromnon-energysectors,whichseerenewablesources as a potential opportunity to diversify their investments.
It is a regulated sector with guaranteed returns against large initial investments, but which in reality presents two types of problems. First, there are significant difficulties at industrial level in carrying through the investments because of complex authorisation processes and because of the problems obtaining funding from the banks for these kind of projects. Furthermore, there are major inconsistencies in the regulations which have emerged for photovoltaic and they continue to be an issue for wind power and bioenergy. Inconsistencies which have not only brought about a significant reduction in the incentives and therefore in the returns, but have also introduced the principle of ‘quota of installable capacity’ in a fixed period, generating much uncertainty in the programming of the investments by the companies.
Faced with an ever-changing scenario and the complex nature of the sector, there is an objective need for knowledge to at least understand how the renewable sector is organised in present day Italy. The picture presented herein forms a basis for ensuing discussion with concrete facts about the development prospects for the future. In particular, it is necessary to try to reply to a series of questions of an ‘existential’ nature with regard to the evolution of the sector; for example:
•whatistheindustrialbackgroundandtheregulatoryframeworkwithregard to the renewable sector in Italy?
•whatarethecompanies’returnsandthecrucialfactorsofsuccess?
© 2011 KPMG Advisory S.p.A., an Italian limited liability share capital company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Investing in renewables 5
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•whatregulatorydevelopmentscanbeexpectedinthenearfutureandwhat will their impact be on the companies?
This study, which brings together and elaborates a vast array of referencematerial, attempts to provide an answer (at least in part) to these strategicmatters. The first chapter provides a basic overview of the characteristicsof the sector, for use by companies currently taking it into consideration;the subsequent chapters provide detailed studies.
It is our belief at the present time, and not only in Italy, that Governments of the main western economies are obliged to pursue aggressive strategies of reform and spending cuts. Hence the question of whether or not to continue funding the development of green technologies becomes an issue of utmost importance. With the new phase of austerity now upon us it is likely that creative strategies will be necessary in order to support the development of the sector. It is certain that renewable energies can represent a clean ‘engine’ for relaunching innovation. It is no coincidence that, for better or for worse, also in Italy the sector has generated new pipelines, with start ups launched by industrial companies, partnerships between industrial and financial companies, or spin-offs from players operating in the traditional energy sector.
For a country like ours, with no fossil fuel sources and which has decided to turn its back on nuclear power, the development of renewables, and the ensuing process of productive reconversion, can represent a great opportunity and a possible driver to relaunch growth as a model of sustainable development.
Gianpaolo AttanasioAssociate Partner, KPMG Advisory
Methodological note
*It should be pointed out that this framework does not include, as they are not relevant, or not directly
correlated from a regulatory point of view with regard to business operations or companies involved:
•energyefficiency,intermsofreductionofenergyconsumptionperunitproduced,whichinthecaseof
Italy involves principally the Energy Service Company (the so-called Es.C.O.)
•theKyotoprotocol,whichcentresonthereductionofpollutionandconcernssomesectorsofindustry
(e.g. metalworks, conventional generation, etc.) and transport.
The above matters are therefore not dealt with herein.
© 2011 KPMG Advisory S.p.A., an Italian limited liability share capital company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
6 Investing in renewables
© 2011 KPMG Advisory S.p.A., an Italian limited liability share capital company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The renewable energy market in Italy
by KPMG Advisory Research Department
The energy market in Italy and the importance of renewable sources
National energy balance
It is a well known fact that our country has a high dependence on energy from
abroad. Indeed, imports account for 97% of the gross national energy requirements.
Table 1National energy balance per source: gross domestic energy consumption, Mtep and percentage of total
National energy balance 2000 Mtep
2000 percentage
... 2005 Mtep
... 2010 Mtep
2010 percentage
Petroleum 92.0 50% 85.3 72.2 39%
Natural gas 58.3 31% 71.2 68.1 36%
Solid fuels 12.9 7% 17.0 14.9 8%
Imported electric energy 9.8 5% 10.8 9.7 5%
Renewables* 12.9 7% 13.5 22.9 12%
Gross domestic energy consumption
185.9 100% 197.8 187.8 100%
Mtep: million tonnes equivalent of petroleum*including hydroelectric plants exceeding 1MW, not considered as renewable
Source: Ministry for Economic Development data adapted by KPMG Advisory Research Department
During the last decade, Italy has tried to diversify the sources of energy used,
in an attempt to redress the energy imbalance towards other countries and to
reduce the risks to supply resulting from this dependence.
Renewable energy sources represent the most innovative tool for reaching
greater energy independence, despite the fact that they still contribute in a very
limited way to satisfying the national energy demand (including hydropower
plants of over 1 MW, not considered renewable, 12% of the gross domestic
energy consumption is reached), compared to traditional sources.
Limiting the analysis to the domestic production of electric energy, Italy stands
out, compared to the main European countries, for its high dependence
on thermoelectric energy (77% of the total national production), the high
proportion of the hydroelectric sector (mainly hydroelectric of over 1 MW) and
the absence of nuclear power.
6
Investing in renewables 7
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Graph 1
Electric energy per source: percentage of total domestic production (2010)
77%
18%
Thermoelectric * Hydroelectric ** Nuclear
Wind Geothermoelectric Solar and others
66%
4%
22%
6%
2%
49%
15%
20%
14%
2%
55%
4%
Italy Germany
Spain EU-27
Renewables5%
Renewables8%
Renewables5%
Renewables16%
Production: 625 TWh Production: 296 TWh
Production: 306 TWh Production: 3,335 TWh
12%
1%
28%
3%
2%
* thermoelectric includes combustion of biodegradable waste, considered renewable and a form of bioenergy
** hydroelectric includes also power plants of over 1 MW, not considered renewable
Source: Enerdata data adapted by KPMG Advisory Research Department
8 Investing in renewables
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Renewables represent 12% of the peak power in Italy
At present, renewable sources are the least problematic solution for redressing the energy balance in our country. The high level of social
consensus contributes to this conviction.
Furthermore, the presence of incentives helps the sector remain profitable.
At present, the renewable energy sources are, indeed, cost-efficient, but not
sustainable, if paid for at the market prices of electric energy, compared to
conventional traditional sources (thermoelectric).
Grid parity, i.e. the parity of the production costs of energy from conventional
or renewable sources, has not yet been achieved and therefore incentives are
necessary to allow the diffusion and profitability of renewable sources.
Electric power plants in Italy
At present, there are over 160,000 electric power plants in Italy, with an
efficient power (corresponding to the maximum potential power of a plant,
measured under optimal conditions) equal to approximately 106 GW and
electric production of over 299 TWh (2010 figures).
Table 2 Electric power plants in Italy
Thermoelectric Renewables* Hydroelectric > 1 MW Total
2005 2010 2005 2010 2005 2010 2005 2010No. Plants 720 871 1,624 158,893 898 1,002 3,242 160,766
Efficient power (GW) 63 76 4 13 17 17 84 106
Production (TWh) 248 222 14 28 35 49 297 299
Production (percentage) 83% 74% 5% 9% 12% 17% 100% 100%
* renewables include hydroelectric plants of no more than 1 MW
Source: Terna data adapted by KPMG Advisory Research Department
In 2010, 74% of the national electric production came from traditional
thermoelectric plants, over 17% from large hydroelectric plants (over 1 MW)
and the remaining 9% from renewable sources plants.
In particular, there are 871 traditional thermoelectric plants using fossil
fuels, such as natural gas and coal, over 1,000 large hydroelectric plants
(over 1 MW) and almost 159,000 power plants which produce electricity via
renewable energy sources; it should be stressed that photovoltaic accounts for
approximately 98% of the renewable plants.
Investing in renewables 9
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Renewable sources
Those forms of energy generated by sources intrinsically capable of
regenerating more than their consumption or which are not ‘exhaustible’ are
considered renewable.
Herein renewable power plants refer to mini-hydro (power equal to or less than 1 MW), wind, photovoltaic, geothermic and bioenergy (biomass and biogas) plants designed to produce electric energy, given that the other possible uses, such as heat production, are marginal.
Graph 2 Evolution of energy produced: TWh, percentage variation and CAGR
Renewables Hydroelectric> 1 MW
Traditional thermoelectric
Total
2005 2010
100%
+15.1%+7.2%
-2.2%
0.1%
40%
-10%
CAGR
Var.%
1435
248
297
2849
222
299
+1%
CAGR: compound annual growth rate
Source: Terna data adapted by KPMG Advisory Research Department
From 2005 to the present, electric power generation in Italy has seen good
stability in the production of electricity in part due to the recession which
began in 2008. In particular, generation from renewable plants has recorded
growth over the last five years (CAGR 2005-2010: + 15.1%), while generation
from conventional traditional sources saw an overall decrease (CAGR 2005-
2010: -2.2%) which levelled off in 2009, thanks mainly to the slowing of the
economic recession. The recent financial crisis, followed by a drop in the
consumption of electricity, has been borne in terms of lack of production,
entirely by the traditional thermoelectric plants, since renewable sources
benefit, by the Network Operator, from the so-called ‘dispatching priority’ (i.e.
guarantee of priority withdrawal) of the energy thus produced compared to
that generated by conventional plants.
The high rates of growth seen in the renewables sector, with regard to the
peak power (CAGR 2005-2010: +27%) and energy production, highlight a
10 Investing in renewables
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sector undergoing massive expansion, at least throughout 2010, thanks mainly
to the favourable incentives system present in our country until that time.
Analysing the evolution of the efficient power for each renewable source, it is
possible to note how the highest growth rates have been recorded, in order, by
photovoltaic, wind and bioenergy.
Graph 3 Evolution of the efficient power for each type of renewable source: MW, percentage variation and CAGR
25%
+5%
9%
+2%97%
+14%49,471%
+246%
255%
+29%
CAGR
Var.%
GeothermoelectricMini-hydroelectric Bioenergy Photovoltaic Wind
2005 2010
419711
1,195
7
1,639
523772
2,351
3,470
5,814
CAGR: compound annual growth rate
Source: Terna data adapted by KPMG Advisory Research Department
Graph 4
Evolution of the efficient power in photovoltaic: percentage variation compared to previous year
2005 2006 2007 2008 2009 20100%
200%
400%
600%
800%
1,000%
1,200%1,143%
397%
164% 204%
Source: Terna data adapted by KPMG Advisory Research Department
The development trend of the renewable sources depends essentially on two
factors:
• theprofitabilityoftheincentive,relativetothecostsoftherenewable
technology
The last five years have seen renewable production double compared with peak power which has more than tripled
Investing in renewables 11
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• theneedtohavesuitablesites,whichlimitstheapplicabilityofwindand
mini-hydro power, compared with the absence of limits for photovoltaic.
In the present case:
• theincentiveslinkedtophotovoltaicandcontainedwithinthemechanism
of the Feed-In-Tariff have been important for the acceleration of the
development of power plants
•mini-hydroandgeothermoelectrichaverevealedverylowratesof
development of the efficient peak power, as a result of the saturation of the
suitable sites in our country.
Table 3
Gross efficient power2010
GW %Wind 5.8 45%
Photovoltaic 3.5 27%
Bioenergy 2.3 18%
Geothermoelectric 0.8 6%
Mini-hydro 0.5 4%
Total renewables 12.9 100%
Table 4
Gross production2010
TWh %Bioenergy 9.4 34%
Wind 9.1 32%
Geothermoelectric 5.4 19%
Mini-hydro 2.3 8%
Photovoltaic 1.9 7%
Total renewables 28.1 100%
Domestic electric power plants per type of renewable source
Source: Terna data adapted by KPMG Advisory Research Department
As can be seen in the tables above, bioenergy continues to generate the
highest quota of energy produced by renewable sources (34% in 2010),
despite the fact that they represent 18% of the peak power of renewable
plants.
This phenomenon is represented by the so-called load factor, i.e. the hours of
functioning that the technology, per unit of peak power (1 MW), is capable of
generating:
•geothermoelectric;approx.5,500–7,000hours/year
•bioenergy:approx.5,000–6,000hours/year
•wind:approx.1,800–2,200hours/year
•mini-hydro:approx.1,500–2,000hours/year
•photovoltaic:approx.1,100–1,400hours/year
compared with a thermoelectric plant, which can operate:
•peak-loadtechnology,e.g.opencycleturbogas:1,500–2,500hours/year
•mid-merittechnology,e.g.combinedcyclegasturbine(CCGT):3,000–5,000
hours/year
•base-loadtechnology,e.g.coal,nuclear:6,000–7,500hours/year.
12 Investing in renewables
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Graph 5 Macro-regional distribution of gross electric production per type of renewable source: percentage contribution of each macro-region in GWh (2010)
13,616
GWh
1%
65%
6%
28%
7,463
GWh
25%1% 10%
64%
7,014
GWh
4% 1% 6%
77%12%
Total renewables Mini-hydro Wind
Total renewables:1st Southern Italy and Islands, 2nd Northern Italy, 3rd Central Italy
Mini-hydro:1st Northern Italy (high availability of water resources)
Wind:Almost exclusively in Southern Italy and Islands
Photovoltaic:1st Southern Italy and Islands with 775 GWh (large photovoltaic plants),2nd Northern Italy with 741 GWh (mostly residential use),3rd Central Italy with 390 GWh
Geothermoelectric:Exclusively in Central Italy
Bioenergy:1st Northern Italy (high availability of agro-forestry waste),2nd Southern Italy and Islands
Photovoltaic Geothermoelectric Bioenergy
Source: Terna data adapted by KPMG Advisory Research Department
As can be seen in the graph above, the geographic distribution of the
renewable source electric power plants is not homogeneous in the national
territory. Although renewable source plants are found in all the regions of Italy,
the diverse distribution of natural resources and the layout of the land mean
that certain renewable sources are concentrated in certain regions.
The inhomogeneous geographical development of the renewable sources may
be influenced by differing authorisation processes and uncertainties arising
from the time required for and the modalities for being connected to the grid.
Investing in renewables 13
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Table 5Gross production of electric energy by region and by renewable source in GWh: regions ordered on the basis of total gross production (2010)
Region Mini-hydro Wind Photovoltaic Geothermoelectric Bioenergy Total renewables production
Percentage of national renewables
total Tuscany 83 76 80 5,376 378 5,993 21.3%
Puglia 2 2,103 412 1,298 3,816 13.6%
Sicily 0.2 2,203 97 150 2,451 8.7%
Lombardy 313 190 1,903 2,405 8.6%
Campania 17 1,333 46 827 2,223 7.9%
Emilia Romagna 65 25 153 1,580 1,823 6.5%
Sardinia 1,036 74 570 1,680 6.0%
Calabria 14 953 46 583 1,597 5.7%
Piedmont 517 22 121 450 1,110 3.9%
Veneto 248 2 129 367 746 2.7%
Molise 29 532 13 138 712 2.5%
Trentino Alto Adige 452 2 92 138 684 2.4%
Basilicata 14 458 46 162 680 2.4%
Lazio 34 15 152 318 520 1.8%
Abruzzo 48 329 40 40 457 1.6%
Friuli Venezia Giulia 161 44 241 446 1.6%
Marche 132 104 85 321 1.1%
Liguria 45 35 11 114 204 0.7%
Umbria 32 2 54 92 180 0.6%
Valle d’Aosta 39 2 6 47 0.2%
Italy 2,245 9,126 1,906 5,376 9,440 28,093 100.0%
Source: Terna data adapted by KPMG Advisory Research Department
The leading Italian region in terms of electric production from renewables is
Tuscany, thanks to the load factor of geothermoelectric. In second and third
place are Puglia and Sicily, respectively, with a high production from wind
power, and then Lombardy with high use of bioenergy.
Development: part public funding, part aiming for grid parity
To redress the balance between the high dependence on imported energy and
the risk of shortages, Italy has, in recent years, moved towards diversification
of energy sources.
In this context, renewable sources offer a solution for redressing Italy’s energy
balance; they are supported by public opinion and in line with EC directives.
Thankstoanadvantageousincentivescheme,renewableplants–inparticular
photovoltaicandwindpower–experiencedaboominthe5-yearperiod
2005-2010. Other sources, such as mini-hydro and geothermoelectric, did not
increase to the same extent due to the limited availability of suitable sites.
Renewables have yet to achieve grid parity and incentives therefore continue to be crucial for sector development.
14 Investing in renewables
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(1) defined as ‘…energy products supplying the industry, transport and tertiary sectors, as well as housing, with electricity and heating, taking into account electricity and heat lost during distribution and transmission …’.
Italy is committed to achieving the 2020 goal of 17% of energy consumption through renewables
National energy policy and legal frameworkPolicies for energy and the environment
The world debate in the last ten years (since the Kyoto Protocol) concerning,
among other things, the climate and environment, reliability of supplies and
safe energy, has had repercussions in the European Union, leading to the
definition of an integrated policy for energy and the environment.
In 2009 the European Commission approved the so-called ‘20/20/20 Climate-Energy Package’ (or Green Package), with energy and environmental policy
measures designed to achieve by 2020 the reduction of climate-altering
emissions, the promotion of energy efficiency and the development of
renewable sources.
Directive 2009/28/CE, with its objective of 20% renewable sources for energy
consumption(1) by 2020, obliged all the Member States to develop renewable
sources, setting precise mandatory national objectives. Italy’s assigned objective is to achieve by 2020 17% of its energy from renewable sources
(see the detailed study). The Directive also states that, by 2020, every State
must guarantee that 10% of the energy used for transport comes from
renewable sources.
Italy responded to the 2009/28/CE Directive on renewable energy sources with Legislative Decree 28 on 3 March 2011; the Decree formally recognizes
the national objectives for 2020 (17% of gross energy consumption and 10%
of energy consumption in the transport sector from renewable sources) and is
in line with the National Plan of Action (NPA); furthermore it establishes:
• thedeadlineoftheendofJune2011fordefiningandquantifyingtheregional
burden sharing, as laid down in the Renewable Sources NPA (to date no
specific measures have been taken);
•a revision of the incentives scheme for the production of electric
energy from renewable sources (in particular, Green Certificates [GC] and
photovoltaic incentives) with the aim of providing incentives to all the various
sources of renewable energy;
•guidelinesforthesimplification of the authorisation procedure for
renewable energy plants, which must then be applied in other legislative
measures (e.g. Interministerial Decree, 5 May 2011).
© 2011 KPMG Advisory S.p.A., an Italian limited liability share capital company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Investing in renewables 15
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InlinewithDirective2009/28/CE,Italyiscommittedtoachieving,by2020,17% of final gross energy consumption through energy produced from renewable sources. The Directive also establishes the objective of 10% of
consumption in the transport sector from renewable resources.
Given the national potential for the use of renewable sources, the National Plan of Action for Renewable Energy
(NPA RES, Italian PAN FER) has converted the EC Directive objectives into specific objectives for the three sectors of
intervention (electricity, heating and transport).
Final gross consumption from renewable sources and 2020 objectives
Electricity
Heating
Transport
Imports from other States
Total
Transport (towards objective of 10%)
2008
RES consumption
(Mtep)
Final gross consumption
(Mtep)
RES/consumption
%
5.2 30.4 17.0%
3.2 58.5 5.5%
0.7 42.6 1.7%
- - -
9.1 131.6 6.9%
0.9 37.7 2.4%
2020
RES consumption
(Mtep)
Final gross consumption
(Mtep)
RES/consumption
%
8.5 32.2 26.4%
10.5 61.2 17.1%
2.5 39.6 6.4%
1.1 - -
22.6 133.0 17.0%
3.4 34.0 10.1%
Overall situation
Source: Ministry for Economic Development
In summary, the NPA RES aims to:•stabilisetotalfinalconsumptionofprimaryenergyat133Mtep,promotingenergyefficiencyinitiativesaimedatthereduction
of final consumption by about 8.7%, compared with primary energy consumption for 2020 forecast at 146.6 Mtep.
• increasefinalconsumptionofenergyfromrenewablesourcestoa levelof22.6Mtep,withanexpectedincreaseof148% compared with 2008 consumption (9.1 Mtep) to be distributed as follows:
8.5 Mtep electrical energy from renewable sources-10.5 Mtep heating from renewable sources-2.5 Mtep biofuel-1.1 Mtep imports from other European Union States.-
2020 objectives for final gross consumption of electrical energy
Hydroelectric
Geothermic
Photovoltaic
Wind
Bioenergy
Total
2020
Final gross consumption RES
(Mtep)
Proportion of RES of final gross
consumption %
3.6 11.2%
0.6 1.8%
1.0 3.0%
1.7 5.3%
1.6 5.0%
8.5 26.4%
Electricity
Source: Ministry for Economic Development
For each sector of intervention, the Plan establishes overall objectives which are not individually binding for the various renewable sources. In particular, with regard to the production of electric energy, it is expected that the greatest increases in the use of alternative sources for electricity consumption will be seen with wind and solar sources (especially photovoltaic).
RenewableenergyobjectivesinItaly:the‘17/20/20Package’
RES = renewable energy source Mtep = million-ton equivalent of petroleum: represents the quantity of petroleum released by the combustion of one ton of crude oil (approximately 42 billion joules) and is equivalent to 5.348 MWh.
Investing in renewables 15
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16 Investing in renewables
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National Plan of Action for Renewable Energy (NPA RES)
The document, in addition to identifying specific interventions and quantitative
objectivesineacharea(electricenergy,heating/coolingandtransport)andfor
each separate technology and application (see the detailed study), looks to
apply the national targets at regional level through burden sharing designed to
coordinate the various levels of public programming, the relative laws and the
authorisation procedures for plants and infrastructures.
The Regions, the principal authorities responsible for the country’s energy
policies following reorganisation, developed, through Regional Energy Plans (REP), a programme of interventions in the energy sector to include the
promotion of renewable energy in the various regions supported by a system
of incentives.
Table 6 Regional and Provincial Energy Plans
2003 2004 2005 2006 2007 2008 2009 2010
V.d’AostaLiguria
PiedmontUmbria
MarcheCalabriaVeneto
Molise Sardinia*
Friuli V.G.E.Romagna
Puglia
TuscanyLazio*
Lombardy*
SicilyAbruzzo
Campania
Autonomous Province of
Trento* Basilicata*
* most recent approved updates of the Plans
Source: KPMG Advisory Research Department on the basis of regional data
Since 2000 the REP has been approved in every Italian Region. The
Autonomous Province of Bolzano had already adopted a Provincial Energy Plan
in 1997.
Although the State did not oversee the drawing up of the plans and no
reference model was provided, the REPs remain a useful guide for the
evaluation of the potential energy production from renewable sources in the
various regions and of their relative environmental and economic impact, and
are a tool for the realisation of the National Energy Strategy and the burden
sharing outlined in the NPA RES.
Investing in renewables 17
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Legislative tools for the promotion and regulation of the development of renewable sources
In Italy legislation for the renewable energy sector is based on the guidelines
below:
•anintricateincentiveschemebasedonthetechnologyandtheplantsize
•acomplexandirksomeauthorisationprocedure,basedonplantsizeandon
the Region of the site location.
Incentive scheme for renewable energy plants
Renewables have seen rapid development in the main European countries
thanks to support programmes designed to make investments profitable; such
programmes may be based on:
•marketregimes(basedonquantity),forexampleGreenCertificates
•administeredschemes(basedonprice),suchastheFeed-InTariffscheme
(FIT,forexample,theTariffaOmnicomprensiva–onetariffforenergyprice
and incentive), Feed-In Premium (FIP, i.e. an extra incentive, in addition to
payment for the electric energy sold at market prices), grants, tax incentives.
Italy has adopted incentive mechanisms in both these categories, illustrated
below.
Table 7Incentives linked to the energy policy objective of generation of energy from renewable sources
Applicable to Means of incentive Operative Renewable source
of application Length of incentive Total profits for producer
Renewable energy producers
CIP 6 *
From 1992 to 1999; not applicable to new systems
All sources, including some ‘high-efficiency’ conventional sources
Up to 15 years the first 8 of which with additional incentive
Assimilable to a Feed-in Tariff (TariffaOmnicomprensiva)
Green Certificates
Since 1999; being replaced by mechanism of feed-in tariff + fixed quotas of peak power
All sources except photovoltaic
15 years for systems operative by 31/12/2012 Regulations still being defined for systems operative after 2012
Sale of electric energy at market prices + variable incentive (value set on the basis of market price of GC)
4th FIT From5/5/2011 Photovoltaic
20 years for systems operative by 31/12/2016; fixed quotas of peak power for systems operative by 1/9/2011 For systems operative after 2016, regulations still being defined
Sale of electric energy at market prices or predetermined value (as the producer prefers) + fixed incentive
Feed-in Tariff (TariffaOmnicomprensiva)
From1/1/2008
All sources (except photovoltaic) with capacity of up to 1 MW (200 kW for wind)
15 years for systems operative by 31/12/2012
Sale of electric energy at all-inclusive price comprising the incentive
* Interministerial Price Committee Source: National regulations, adapted by KPMG Advisory Research Department
18 Investing in renewables
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Compatibility between the various incentive schemes
18 Investing in renewables
While a single source can choose between the various incentive schemes, different systems may not be accumulated:
• theFeed-InTariff(Conto Energia) is only available for photovoltaic and, therefore, does not allow access to the Feed-in Tariff
(Tariffa Omnicomprensiva) or to Green Certificates
• forallothersources,theFeed-inTariff(Tariffa Omnicomprensiva) is not compatible with Green Certificates: a small plant may
have access to the Feed-in Tariff (Tariffa Omnicomprensiva) or the Green Certificate system.
Summary of the incentive system
Renewable source Plant size (N.B. 1,000 kW = 1 MW)Incentive system
Feed-in Tariff (Omnicomprensiva) Green Certificates Feed-In Tariff
(Conto Energia)
Photovoltaic
Photovoltaic > 1 kW
Integrated photovoltaic from 1 kW to 5,000 kW
Concentrated from 1 kW to 5,000 kW
Thermodynamic
Electricity from bioenergyUp to 1,000 kW * *Over 1,000 kW
Cogeneration from bioenergy
Up to 1,000 kW * *Over 1,000 kW
Wind
Upto200kW(micro/miniwind) * *Over 200 kW
Offshore
Hydroelectric Upto1,000kW(micro/minihydro) * *Over 1,000 kW
GeothermicUp to 1,000 kW * *Over 1,000 kW
Tidal and waveUp to 1,000 kW * *Over 1,000 kW
* for systems with nominal capacity below 1,000 kW (200 kW for wind power), it is possible to opt, on request, for the Feed in Tariff (Tariffa Omnicomprensiva)
Source: National regulations, adapted by KPMG Advisory Research Department
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Investing in renewables 19
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The cost of incentives borne by the Country System (Sistema Paese) to support renewable sources will, by the end of 2011, exceed 6 billion euros
Estimated system costs of reaching the 2020 objectives
The incentive systems so far described have to date been a significant factor
in the growth of renewable energy in Italy. Concern has recently focused on
the economic sustainability, in the medium term, of the incentive systems
currently charged to the consumer.
Table 8 Cost of incentive schemes for electric energy from renewable sources
CIP 6 (only renewables)
Green Certificates
Feed in Tariff (Omnicomprensiva)
PhotovoltaicFeed-In Tariff (Conto Energia)
TotalOf which in A3
2008
Energy Cost
TWh Mill. Euro 7.8 948
10.5 615
0.2 36
0.2 110
18.7 1,7091,109
2009
Energy Cost
TWh Mill. Euro 6.9 810
17.4 1,296
0.7 112
0.7 303
25.7 2,5211,872
2011 *
Energy Cost
TWh Mill. Euro 5.2 520
24.0 2,100
1.5 270
10.0 3,500
40.7 6,3905,690
2010
Energy Cost
TWh Mill. Euro 6.3 780
21.2 1,580
1.2 212
2.0 826
30.7 3,3982,758
Incentive regime
* estimate
Source: Electric Energy and Gas Authority
As can be seen in the above table, the total cost of incentives for renewable sources alone (i.e. excluding assimilated sources, as well as other incentive
systems for achieving energy efficiency and pollution reduction objectives)
reached 3.4 billion euros in 2010 and it is expected to exceed 6 billion
euros by the end of 2011; of this sum, 80% has been dedicated to the A3 component of the electricity bill and is therefore paid by the end consumer.
Specifically:
• thecostsassociatedwithGreen Certificates in 2010 were more than double
those in 2008. The total cost of this incentive system should reach 2.1 billion
euros in 2011, an increase of 33% compared with 2010
•althoughtheabsolutevalueoftherelativeexpenseswaslessthanthat
registered for the Green Certificates, the greatest increase was in the Feed-In Tariff for photovoltaic, which in 2010, with a twofold rise in the number of
systems operative compared to the previous year, almost tripled compared
to 2009, exceeding 800 million euros (+650% compared to 2008). Taking
into consideration the further increase in the solar power plant in 2011,
concentrated mainly in the first half of the year given the expected changes
to the Feed-In Tariff (Conto Energia), further increases in the costs of this
type of incentive are expected (over 300% growth compared to 2010).
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20 Investing in renewables
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Incentives have accelerated development of the sector, but represent an unsustainable system
Advantageous incentives, given the costs of renewable technologies, have
resulted in a surge in the peak power from alternative sources, doubling over
the last four years, in contrast with the cost of the incentives to the Country
System which has increased fourfold. Although this incentive system has
helped increase the development of renewable sources power plants in order
to achieve the European Union targets, drawbacks have emerged:
•aninstalledpowerplant,inparticularforphotovoltaic,isnotfullyexploited
considering the technologies adopted and the relatively low costs of plant
construction expected in the near future, resulting in higher costs per TWh of
renewable energy produced
• thecostoftheincentiveschemesisrapidlyincreasingandislikelytobe
unsustainable in the medium term in a context of policies of reduced public
spending.
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Investing in renewables 21
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Fragmentation of administrative procedures at regional level leads to uncertainty and delays for authorisation; the Legislator is attempting to remedy the problem
Legal framework: administrative procedures for plant authorisation
The administrative procedures for the authorisation of renewable energy
plants and related infrastructures may be divided according to type of plant
or infrastructure, size and location. It is the Regions which are responsible for
establishing the precise rules regarding licensing requirements in their own
territory.
The main authorisation procedures are laid out below.
Table 9 Summary of the main authorisation procedures at national level for the realization of renewable energy plants
Procedure Type of plant Competent authority Reference legislation
Single Permit Plants with an average of over 1 MWDelegated Region or Province
D.Lgs.387/2003ands.m.i.andD.Lgs.28/2011
Simplified Licensing Procedure (Italian PAS) (formerly DIA - Declaration of Commencement of Works)
Plants smaller than the set limits (in general up to 1 MW)
MunicipalityL.244/2007,D.MSE10/09/10andD.Lgs.28/2011
Small cogeneration (capacity less than 1 MW or 3 thermic MW)
MunicipalityL.99/2009,D.MSE10/09/10andD.Lgs.28/2011
Photovoltaic panels on existing buildings MunicipalityD.M.06/08/10,D.MSE10/09/10andD.Lgs.28/2011
Communication of building operation
Microgeneration (capacity less than 50 kW) MunicipalityL.99/2009,D.MSE10/09/10andD.Lgs.28/2011
Close-fitting/integratedphotovoltaicplantsandsingle aerogenerators h<1.5 metres
MunicipalityD.Lgs.115/2008,D.MSE10/09/10andD.Lgs.28/2011
Photovoltaic, biomass, hydroelectric, geothermic plants in existing structures (capacity less than 200 kW)
MunicipalityD.P.R.380/2001,D.MSE10/09/10andD.Lgs.28/2011
Source: National regulations, adapted by KPMG Advisory Research Department
Local management of the authorisation procedures for renewable sources
has led to fragmentation with major differences between regions, and
bureaucratic problems often arising when local regulations are not in line with
nationallegislation.Forexample,Lawno.129/2010validatedtheauthorisation
procedure (known as ‘DIA’ Declaration of Commencement of Activity)
introduced for the construction of renewable energy plants in line with regional
regulations; these regulations had set thresholds higher than the national limits
and were subsequently declared illegal by the Constitutional Court.
This kind of regional interpretation of the law resulted in a longer wait before
authorisation could be granted (often more than the three months recently set
by national law), subsequently higher costs for applicants, and a drop in Italy’s
popularity for investment in renewable energy sources compared to other
countries, despite the favourable environmental conditions and the high level of
incentives.
For the renewable energy sector to develop in Italy, it is essential to introduce
regulations designed to make authorisation procedures more concrete and
homogeneous nationwide.
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22 Investing in renewables
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In this regard, norms and provisions recently passed are highlighted below:
• theDecreeoftheMinistryforEconomicDevelopment,10September2010,
lay down guidelines for the authorisation of renewable energy plants
•LegislativeDecreeno.28/2011introducedinnovativechanges,withparticular
reference to:
introduction of a simplified procedure, applicable to plants of up to 1 MW, -to resolve former problems with the DIA
introduction of a single procedure, involving all administrations, for a -license to link up with the electric grid, to be issued by grid operators and
which is separate from authorisations for the construction and operation of
production plants.
Appropriate tools are still required to coordinate territorial planning and
facilitate identification of suitable sites free from environmental and landscape
constraints for the construction of renewable energy plants, while increasing
the involvement of the Regions and other administrations in the authorisation
procedures so as to reduce the time required to obtain authorisation.
Administrative processes: the order of the day is ‘simplify’
The success of the strategy and of measures laid down in NPA RES depend
on the simplification of the authorisation procedures in line with valid national
criteria.
The regulations currently in force produce constraints for renewable energy
operatorsand/orforpotentialpurchasersoftheplants,inparticular:
• inthecontextofthecurrentSinglePermitprocedure,forplantsofover1
MW, the following constraints arise:
prior to issue of the Single Permit, the planning conference involving -the competent authorities can involve up to thirty-four different public
authorities or related institutions (for example Aviation Safety Authority
etc.) and there is no obligation to respect a given time limit
there is no list of specific requirements to start the local authorities -planning conference (for example the precise nature of the project and the
land to be used), causing uncertainty as well as prolonging the process
there is no regional map of suitable areas nor are there predetermined -criteria for evaluating suitability; therefore, each separate project
necessitates a labour-intensive Environmental Impact Assessment.
Such constraints lead to much uncertainty and a significant increase in
development costs before work even commences, in turn discouraging the
development of renewable sources, even when incentives are available.
• forplantssubjecttotheSimplifiedLicensingProcedure(maximumcapacity
1 MW) there are no clearly defined regulations for determining so-called
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Investing in renewables 23
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‘illegal sub-division’, i.e. when a company requests different licenses for
the development of different parts of a plant which is de facto single (for
example, several plants close to one another, with one cabin for connection
to the grid).
Should such a discrepancy emerge during an inspection by the competent
Authorities, an assessment of any irregularities in the administrative
procedure would have to be carried out and, if necessary, the plant
confiscated, whether during the development stage or already operative.
In both cases there is no coordination with the licensing requirements for
connection to the grid; this means that, both in the case of an Environmental
Impact Assessment to obtain the Single Authorisation and in the case of the
PAS, in reality two parallel and uncoordinated procedures must be followed to
obtain authorisation.
It is therefore important that suitable ‘implementing regulations’ are issued by
the competent authorities (the Regions) in order to overcome the constraints
outlined above.
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24 Investing in renewables
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The players in the Italian market and their performance
by KPMG Advisory Research Department
Frame of reference
The renewable energy sector in Italy has a quite singular structure, resulting from the
recent evolution and the uniqueness of the industries it comprises, characterised by
a high level of fragmentation and involving a wide variety of companies.
The players in the Italian sector may be divided according to the following factors:
•presenceinthevaluechain
•origin.
Figure 1 Value chain in the renewable energy sector
Plant producers Planning,
commissioning and construction
Scouting and plant development
OperationSale of energy
Plant maintenance
Focus of the present study
Source: KPMG Advisory Research Department
Considering all stages in the industry and the activities carried out, the sector
includes the following kinds of company:
•plant producers: a range of companies, usually specialising in just one
source (wind, photovoltaic, bioenergy), each with its own place in the
industry, for example:
the wind sector is dominated by a small number of major international -companies, some of them specialised in renewable energy (Vestas,
Gamesa, First Solar), others involved also in other sectors (Siemens, GE,
Alstom), who tend to limit their involvement to the initial stages of planning
and construction
the photovoltaic and bioenergy sectors also feature companies operating -atinternationallevel(solarpower–FirstSolar,Sharp,MEMC,Suntechetc.;
bioenergy–Babcock,Ansaldo,FosterWheeler,Alstometc.),aswellas
smaller national companies, and local companies dealing with assembly
and installation of the plants;
24
Investing in renewables 25
© 2011 KPMG Advisory S.p.A., an Italian limited liability share capital company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
•developers identify, promote and develop new sites and renewable energy
projects, measuring the energy resource (for wind power), providing
technical services (preliminary planning) and obtaining authorisation, as well
as land contracting:
they generally operate in partnership with medium-large companies (for -example, Sorgenia, Enel Green Power, Edison Energie Speciali etc.) or
with financial operators (for example, infrastructure investment funds),
alternatively they yield their own projects to bigger players
the role of the developer is likely to decrease in the near future as the rate -of growth of the sector declines and reaches a stable level, also in relation
to guarantees and sureties which are increasingly necessary during the
‘development’ stage (for example for application for connection to the grid);
•fitters and installers, a heterogeneous group of companies, including
large EPC (Engineering, Procurement, Construction) contractors and small
and medium-sized companies, mostly already operative in other sectors
(especially plant engineering and building);
•companiesdealingwithoperation, sale of energy, and management and maintenance of renewable energy plants.
With regard to the players in the value chain described, the various activities
sometimes overlap, with:
•theinvolvementofsomeenergycompaniesalsointheearlystagesof
development and realisation of the renewable energy plants, as well as in
the production of technologies (as with photovoltaic, for example Enel Green
Power)
•theintegrationduringlaterstagesofsomefittersandinstallers(inparticular
with photovoltaic) who, in addition to acquiring contracts for third parties,
realise their own plants (becoming renewable energy operators via
generation activities) or plants as part of joint ventures set up together with
traditional energy operators or financial investors, thus creating a captive
market for their own technologies and infrastructures.
26 Investing in renewables
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A sector featuring Clusters of operators adopting very different strategies for getting into the business
Considering the nature and the origin of the operators, the companies involved in the management of renewable energy plants and in the generation
and subsequent sale of electric energy produced may be divided as follows:
• traditionalenergycompanieswhichhavedevelopedspecificdepartmentsor
businesses specialised in renewable energy, with the aim of achieving correlated
and synergic diversification
• companiesfromnon-energyindustrialsectorswhichhavediversifiedintothe
renewable energy business, originally operating in food (such as Energhe of the
Ferrero group), refinement (for example ERG with ERG Renew, Api with Api
Nòva Energia), cement (Italcementi with Italgen) etc.
• startupcompanies,thatisindependentbusinesseslaunchedtodevelop
exclusively renewable energy sources.
The heterogeneous background of companies in the renewable energy sector,
compared to those in the traditional energy sector, is due to the wide variety of reasons for choosing to invest in this area:
• fortraditionalenergycompanies,synergy:
obligations imposed by the legislator concerning renewable energy, for -example the law regarding producers of conventional energy and the input into
the grid of a corresponding quota of energy from renewable sources (see the
above section with the description of the various incentives); this provision is
soon to be outdated
image and corporate social responsibility, especially for listed companies, with -higher return differentials recognised by the market for renewable energy
companies compared to traditional energy companies (‘premium’ recognised
by the analysts)
industrial synergy in plant development and construction activities and, above -all, sale of electric energy and administrative management of the incentives;
•diversificationwithinasector(atleastuntil2010),characterisedbyapositive
relationship between profit and the relative business risk:
high profits, guaranteed by an advantageous incentive system (under revision -by the Legislator, as described in the next chapter)
relatively low investment, given the high degree of leverage granted by the -banks
relatively simple technologies for plant construction and maintenance, at least -compared with the sectors of origin (for example conventional generation or
industrial processing sectors).
The companies operating renewable energy plants are therefore of all shapes and sizes, depending on their background and the wide range of means at their
disposal; renewable energy generation is in the hands of multinationals, medium-
sized companies and small businesses focusing on a single source and on a small
number of plants within a limited geographical area.
Investing in renewables 27
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A dynamic business involving a multitude of players. Not an easy model to categorise
Compared with the electric energy sector as a whole, renewable energy
workers tend to be young, due to the growing attractiveness of the sector
(thanks in turn to an incentive system operative in Italy since the early 2000s)
and to the increasing reliability of the technologies and the competitiveness of
the relative costs.
The presence of a multitude of new companies with different ways of thinking,
the articulation and fragmentation of the industry and the highly heterogeneous
nature of the sector, are all factors contributing to making the renewable
energy business very dynamic, with players that are not easily defined.
Benchmarking the companies in the sector
In the light of the above considerations, in order to benchmark the players
in the Italian market operating in the renewable energy (RES) sector, certain
considerations and limits must be imposed in order to draw up a standard
‘sample’:
• forthesakeofouranalysis,thesamplecomprisesonlythemainnationalor
international players operating in the Italian renewable energy market
•giventhescopeofthisdocument,onlycompanyoperationswithinItalyhave
been taken into consideration; therefore, only operational and economic-
financial indicators concerning renewable energy operations in the Italian
market have been used
• renewableenergycompanieshereinarethoseoperatingwind,photovoltaic,
geothermicandbioenergy,i.e.biomass(liquidand/orsolid)plantsforthe
generation and sale of electric energy. Hydroelectric power plants have
not been included in this analysis, as it is difficult to separate the quota
represented exclusively by renewable energy (mini-hydro) from the power
plant for this source
• forgroups/companiesnotspecialisingexclusivelyinrenewableenergy
(traditional forms of energy, other industrial sectors), only those operating
and economic-financial indicators concerning exclusively renewable energy
have been taken into consideration, wherever possible
•cross-holdingsbetweendifferentgroupshavenotbeendeducted
• inordertocarryouttheanalysis,data(operativeandeconomic-financial)
and information available to the public on company web sites, financial
statements and press releases have been used.
28 Investing in renewables
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The sample of companies selected for benchmarking comprises the following
categories.
Figure 2Categories of companies considered for benchmarking
CLUSTER 1Traditional energy companies with divisions/subsidiaries in renewable energy (8 companies, 1 of which listed)
CLUSTER 2Non-energy companies diversifying in the renewable business (9 companies, 4 of which listed)
CLUSTER 3Start ups (8 companies, 1 of which listed)
Figure 3Composition of the benchmarking sample – focus on Italy
Traditional energy companies with
divisions/subsidiaries in renewable energy
Non-energy companies diversifying in the
renewable businessStart ups
List
ed in
Ital
yN
ot
liste
d in
Ital
y
CLUSTER 1 CLUSTER 2 CLUSTER 3
Enel Green Power Alerion Clean Power
Falck Renewables
Kinexia
K.R. Energy
api Holding
ERG Renew
Marseglia Group
Moncada Energy Group
TRE Tozzi Renewable Energy
Alpiq
BKW
EDF Energies Nouvelles
Edison
E.ON Climate & Renewables
International Power - GDF Suez
Sorgenia
Asja Biz
FRI-EL Green Power
Fortore Energia
ICQ Holding
I.V.P.C. Italian Vento Power Corporation
Marcopolo Environmental Group
Veronagest
ErgyCapital
Note: Edison, parent company of Edison Energie Speciali, and CIR, shareholder in Sorgenia, are listed on the Italian stock market. The ERG Renew shares were delisted by the Italian stock marketinJune2011followingcompletionofthepublicofferoftotalitarianvoluntarypurchasepromoted by the parent company ERG (listed on the Italian stock market).
Source: KPMG Advisory Research Department
Investing in renewables 29
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With over 5,000 MW of peak power the sample represents 43% of the national renewable power plant
The three clusters in the selected sample, with approximately 5,400 MW of total operational peak power (as at 2010), represent 43% of the Italian power plant from renewable sources (24% Cluster 1; 9% Cluster 2; 10% Cluster 3).
Graph 6Representativity of the sample relative to the national power plant from renewable sources (2010)
47%28%
19%
6%
* excluding hydroelectric
Wind Photovoltaic
94%
20%
5%
0% 20% 40% 60% 80% 100%
69%
proportion % of the power plant sample out of the national total
43% of the energy production (Italy)
Power plant (MW)
SourceSourceWindPhotovoltaic
ItalySample
Total power plant from renewable sources (sample)
5,373 MW
Total power plant from renewable sources (Italy)
12,408 MW
Bioenergy Geothermic electric
Bioenergy
Total renewable sources 5,373 12,408729 772473 2,352183 3,470
3,988 5,814
Geothermic electric
Source: Terna data and company data adapted by KPMG Advisory Research Department
With regard to the individual sources, the sample is representative of almost the whole national geothermic electric power plant (approx. 700 MW), of 69% of wind power (approx. 4,000 MW) and of 20% of bioenergy (approx. 500 MW); in the case of photovoltaic, the intrinsic characteristics of
the technology, in particular the small average size (between 1 and 5 MW) of
the plants, and the ease of installation result in a relative fragmentation of the
sector and therefore in a reduced presence in the sample compared to the
national total.
30 Investing in renewables
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Source: Terna data and company data adapted by KPMG Advisory Research Department
Graph 7Level of concentration for the different types of renewable sources: first 5 companies in the sample for each source (2010, peak power in MW and market share of national power plant)
IP
EDF EN Alerion Moncada Marseglia Sorgenia Remainder of sample
Marseglia FRI-EL Asja Biz Marcopolo api Remainder of sample
EGP Edison ES E.ON C&R IVPC Remainder of sample
500
–
1,000
1,500
2,000
2,500
571
10% 9% 7% 5% 5% 33%
0.7%2.0% 0.5% 0.5% 0.4% 1.2%
8% 4% 2% 2% 1% 3%
532 382 296 283
1,924
MW
Total wind farm Italy5,814 MW
Market share: Total sample: 69%; top 5 companies: 36%
10
20
30
40
50
60
70
80 69
23 17 16 15
42
MW
50
100
150
200
250
192
83
53 51 30
65
MW
Total photovoltaic power plant Italy3,470 MW
Market share: Total sample: 5%; top 5 companies: 4.1%
Total bioenergy power plant Italy 2,352 MW
Market share: Total sample: 20%; top 5 companies: 17%
Cluster 1 Cluster 2 Cluster 3 Remainder of sample
• Enel Green Power has a monopoly in geothermic electricity; the group accounts for almost all power plants in Italy
• in wind power, 36% of the peak power in the country is accounted for by the top five players, four of which are traditional energy operators which have diversified into renewable energy sources (Cluster 1)
• bioenergy, a more recently developed sector, is more evenly spread with the top five companies accounting for 17% of the national power plant
• photovoltaic is, on the other hand, somewhat fragmented, with the first five companies accounting for a mere 4% of the peak power, thanks to the reduced capital expenditure (CAPEX) for plant development.
Investing in renewables 31
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High fragmentation in photovoltaic versus concentration in wind power
In 2010 the power plants managed by the companies in the sample generated
around 8,700 GWh, i.e. over 30% of the electric energy produced at national
level.
In terms of average efficiency of the plants, measured using the load factor, i.e. hours of operation that the technology is capable of generating per unit of
peak power (1 MW), the companies in each Cluster give homogeneous results
compared to all plants at national level, confirming the representativeness of
the selected sample.
Graph 8 Load factor for each source (2010, hours of operation per year)
Wind power Photovoltaic Geothermic electric Bioenergy
Sample Italy
8,000
hours/year
7,000
6,000
5,000
4,000
1,515 1,570
855 549
6,898 6,964
4,0144,373
2,000
3,000
1,000
0
Source: Terna data and company data adapted by KPMG Advisory Research Department
On the basis of the evidence above, the operative data and the economics of the sample, analysed below, are a valid representation of the average trend of the renewable energy sector in Italy.
32 Investing in renewables
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(1)
(2)
(3)
(4)
Main strategic-operative evidence of benchmarking the companies in the sector
Table 10Cluster 1 companies: traditional energy operators with divisions/subsidiaries in renewable energy
Company
Renewable energy company in Italy
Year of launch of
renewable energy activity
Company within group dealing exclusively in renewable energy
Nationality of parent company
Geographical location of plants belonging to group
Power plant in Italy
Total peak power (MW) in
2010
Source (in order of power)
Enel Green Power
Enel Green Power SpA (EGP)
2008 IT Italy,Europe,North, Central and South America
2,776(of which hydro
1,509)
International Power - GDF Suez
International Power Plc (IP)
n.d. UK Europe, Italy 571
Edison Edison Energie Speciali SpA (Edison ES)
2008 IT Italy 382
E.ON Climate & Renewables
E.ON Climate & Renewables Italia Srl(E.ON C&R)
2008 D Europe,North America,Italy
298
EDF Energies Nouvelles
EDF EN Italia SpA (EDF EN)
2002 FR Europe,North America,Italy
245
Alpiq Alpiq Holding AG (Alpiq)
2009 CH Europe, Italy 243(of which hydro
165)
Sorgenia Sorgenia SpA (Sorgenia)
2007 IT Italy, France 128 (of which hydro
32)
BKW BKW Italia SpA (BKW)
2006 CH Switzerland,Germany,Italy
93(of which hydro
43)
Geothermic electric Hydroelectric Photovoltaic Wind Biomass Biogas
(1) The Enel Group was operative in the renewable energy sector before 2000 with Enel Produzione and other specialist companies; in 2008 it proceeded with the establishment of Enel Green Power
(2) The Edison Group, through other subsidiaries (in particular Edipower, of which it owns 50%) is also operative in hydroelectric power, photovoltaic and bioenergy
(3) Until the end of 2010, Alpiq was operative in the renewable energy sector through subsidiaries of Alpiq Italia Srl
(4) In addition to the power plants recorded here, Sorgenia is currently also developing biomass plants. In July2011SorgeniaGreenwasestablished,anewcompanyintheGroupdedicatedentirelytorenewableenergy.
Source: KPMG Advisory Research Department
The companies concerned:
•beganoperatingonaverageinthesecondhalfofthedecade2000–2010
•havearangeoftechnologiesinthefieldofrenewableenergy
•havemademajorinvestments,withanaveragepeakpowerofover200MW
•areoftenconnectedtothemajorinternationalenergycompanieswhohave
invested in Italy.
Investing in renewables 33
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Table 11 Cluster 2 companies: non-energy companies, diversifying in renewable energy
Company
Renewable energy company in Italy
Year of launch of
renewable energy activity
Company within group dealing exclusively in renewable energy
Nationality of parent company
Geographical location of plants belonging to group
Power plant in Italy
Total peak power (MW) in 2010
Source (in order of power)
ERG Renew ERG Renew SpA (ERG Ren)
2008 IT Italy, France 246
Alerion Clean Power
Alerion Clean Power SpA (Alerion)
2004 IT Italy 225
Marseglia Group Ital Green Energy Holding Srl (Marseglia)
2000 IT Italy 209
Falck Renewables
Falck Renewables SpA (Falck Ren)
2010 IT Italy, Spain,France,UK
150
api Holding api nòva energia Srl and CER Srl (api)
2006 IT Italy 134
TRE Tozzi Renewable Energy
TRE & Partners SpA (Tozzi)
2009 IT Italy 107(of which hydro 21)
Moncada Energy Group
M&A Rinnovabili Srl (Moncada)
2008 IT Italy 105
K.R. Energy K.R. Energy SpA (KRE)
2008 IT Italy 13
Kinexia Kinexia SpA (Kinexia)
2008 IT Italy 6
Geothermic electric Hydroelectric Photovoltaic Wind Biomass Biogas
(1) In 2011, the parent company ERG acquired from IVPC wind power plants totalling 112 MW; ERG Renew is also developing photovoltaic plants
(2) Falck Renewables also deal in waste to energy and waste treatment(3) Tre & Partners is 55% owned by TRE Tozzi Renewable Energy and 45% owned by Axa Private Equity;
the TRE Tozzi Renewable Energy Group also deals in photovoltaic and biomass(4) M&A Rinnovabili is 70% owned by Moncada Energy Group and 30% owned by Alpiq; it is also
developing geothermic plants(5) K.R. Energy also provides engineering services(6) Kinexia deals in the sale of thermic energy, generation plant management, cogeneration and teleheating
networks.
Source: KPMG Advisory Research Department
The companies concerned:
•onaveragebecameoperationallaterthanthoseinCluster1
•unlikethoseinCluster1,areallItalianandinonlytwocaseshave
undertaken a process of internationalisation, confirmation that the sector is
infrastructural, i.e. dependent on local knowledge, except for when dealing
on a very large scale
• likethoseinCluster1,haveanimpressiveportfolioofinstallations,albeitnot
quite as big, and featuring a wide variety of technologies.
(1)
(2)
(3)
(4)
(5)
(6)
34 Investing in renewables
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(1)
(2)
(3)
(4)
(5)
(6)
Table 12 Cluster 3 companies: start ups
Company
Renewable energy company in Italy
Year of launch of
renewable energy activity
Company within group dealing exclusively in renewable energy
Nationality of parent company
Geographical location of plants belonging to group
Power plant in Italy
Total peak power (MW) in
2010
Source (in order of power)
FRI-EL Green Power
FRI-EL Green Power SpA (FRI-EL)
2002 IT Italy 307
I.V.P.C. Italian Vento Power Corporation
I.V.P.C. Italian Vento Power Corporation Srl (IVPC)
1993 IT Italy 283
Veronagest Veronagest SpA (Veronagest)
2008 IT Italy 225
Fortore Energia Holding Fortore Energia SpA (Fortore)
2005 IT Italy 123
Asja Biz Asja Ambiente Italia Spa (Asja Biz)
1995 IT Italy,South America,Asia
108
ICQ Holding ICQ Holding SpA (ICQ)
1982 IT Italy 107(of which hydro
6)
Marcopolo Environmental Group
Marcopolo Engineering SpA (Marcopolo)
2004 IT Italy, Portugal 53
ErgyCapital ErgyCapital SpA (Ergy)
2007 IT Italy 15
Geothermic electric Hydroelectric Photovoltaic Wind Biomass Biogas
(1) In 2011 IVPC yielded 112 MW of wind power plants to ERG (2) Veronagest is also developing photovoltaic plants (3) Holding Fortore Energia is also developing biomass plants(4) ICQ Holding is 21% owned by Fondo Ambienta(5) Marcopolo Engineering is 66% owned by Colombo Ambiente and 30% owned by Amber Capital; it is
also developing biomass and photovoltaic plants(6) Ergy Capital is also developing biogas plants.
Source: KPMG Advisory Research Department
The companies concerned:
• likethoseinCluster2,haveundertakenaprocessofinternationalisation,
confirmation that the sector is infrastructural, i.e. dependent on local
knowledge, except for when dealing on a very large scale
•unlikethoseinCluster2,therearethreecasesinthesamplewithpower
plants equivalent to that of the Cluster 1 companies, proof that as their equity
and sharing resources are less than those of the players in Cluster 2, the
‘specialisation’ factor becomes fundamental.
Investing in renewables 35
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The sample’s power plants are mainly wind power (74% of the total plants installed)
Table 13Concentration of technologies for each company in the sample (2010, peak power in MW and proportion % of the company’s total power plants)
Company Total power plants Percentage of total accounted for by each source
MW Wind Photovoltaic Geothermic electric Bioenergy
EGP 1,267 42% 0.5% 57.5%
IP 571 100%
Edison ES 382 100%
E.ON C&R 298 99.5% 0.5%
EDF EN 245 72% 28%
Sorgenia 96 84% 16%
Alpiq 78 97% 3%
BKW 50 92% 8%
Total Cluster 1 2,985 72% 3% 24% 0.1%
ERG Ren 246 100%
Alerion 225 88% 10% 2%
Marseglia 209 8% 92%
Falck Ren 150 88% 2% 10%
api 134 72% 6% 22%
Moncada 105 75% 16% 9%
Tozzi 86 100%
KRE 13 46% 54%
Kinexia 6 100%
Total Cluster 2 1,172 71% 6% 23%
FRI-EL 307 73% 27%
IVPC 283 100%
Veronagest 225 100%
Fortore 123 99% 0.81%
Asja Biz 108 51.5% 0.05% 48.5%
ICQ 101 81% 19%
Marcopolo 53 5% 95%
Ergy 15 100%
Total Cluster 3 1,215 82% 1% 17%
Total sample 5,373 74% 3% 14% 9% Source: company data adapted by KPMG Advisory Research Department
Analysis of the technologies in the plant portfolios of the three Clusters shows that:
•windpoweraccountsfor74%oftheinstallationsand,albeitinvarying
proportions, is the main source in all three Clusters
• formsofbioenergy
did not interest the large companies in Cluster 1, probably due to the -
fact that they do not fully conform to the definition of ‘renewable’ (CO2
emissions parity rather than reduction) and because a specialised fuel
industry is required to maintain supplies
are significant for Clusters 2 and 3, thanks to those companies specialising -
in (Ital Green Energy of the Marseglia Group and Marcopolo Engineering) or
looking towards the development of biomass or biogas production plants
36 Investing in renewables
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Plants are located above all in Southern Italy
•photovoltaic,consideringthelimiteddimensionsoftheplants(between1
and 5 MW), accounts for a limited proportion in absolute terms compared
with the other technologies (total power plants between 15 and 60 MW).
Geographical location is in line with the prevalence of the technologies in the
sample:
• for Cluster 1, geothermic is located mainly in the Tuscany Region
• foralltheClusters,itisclearthatwindpowerislocatedmainlyinSouthern
Italy and the Islands.
Graph 9Macro-regional distribution of the sample’s power plants (2010, MW and percentage of total company power plants for each Cluster)
Southern Italy and Islands 66%
Central Italy 33%
Northern Italy 1%
Total power plants Cluster 12,308 MW
Southern Italy and Islands94%
Central Italy 5.6%
Northern Italy0.4%
Total power plants Cluster 21,167 MW
Southern Italy and Islands94%
Central Italy1%
Northern Italy 5%
Total power plants Cluster 31,165 MW
Source: Terna data and company data adapted by KPMG Advisory Research Department
Summary of the main strategic and operational evidence of benchmarking
The results emerging from the analysis of the three Clusters are summarised
in the graph below, in which the companies in the sample are represented in
terms of two variables:
• degree of geographical diversification of RES activity of the companies
(and/orofthereferencegroupstowhichtheybelong)inordertoevaluatethe
size of the markets reached: ranging from a low level of diversification in the
case of national markets, to international or global coverage
•degree of diversification in terms of renewable source (hydroelectric,
wind power, photovoltaic, bioenergy, geothermic) developed by each player
in the Italian market alone: measured by the presence of each source
compared to all the power plants run by the company.
Investing in renewables 37
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Unlike diversification by source, achieved by almost all the companies, the thrust towards internationalisation is the prerogative of the main players
Graph 10Groupings in the renewable energy sector: location of markets/sources (2010)
Geo
grap
hica
l div
ersi
ficat
ion
Diversification by source LOW
Cluster 1 Cluster 2 Cluster 3
HIGH
ITALY ONLY
EUROPE
WORLD
>50.0% 0.0%÷ 24.9%>25.0% ÷ 49.9%
Circle area: MW operational in Italy (2010)
IP
EdisonES
E.ON
C& REDFEN
Sorgenia
AlpiqBKW
Ren
Alerion
Marseglia
Falck Ren
api
Moncada Tozzi
KREKinexia FRI-EL
IVPC
Fortore
Asja Biz
ICQ
Marcopolo
Ergy
Veronagest
EGP
ERGRen
Source: company data adapted by KPMG Advisory Research Department
The graph above illustrates the following two points:
• internationalizationcanbeachievedbylargegroupswithabackground
in the traditional energy sector; in addition to capital requirements
(theoretically similar for the markets of Central-Northern Europe, in terms
of absolute quantity required for the plant and the possibility of access
to credit locally), the existence of suitable organisational structures and
technical and managerial know-how are essential for managing the different
locations which, in the energy sector, both conventional and renewable, are
characterised by very different industries and regulations for each country
•whilethereistechnologydiversification,whatisstrikingisthatalarge
number of companies in the sample specialise in just one technology, which
in most cases accounts for more than 50% of their total power plant in terms
of MW.
38 Investing in renewables
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Economies of scale have a positive impact on the profitability of the companies in the sector
Economic performance
The only recent arrival of renewable energy in Italy and the irksome task of
separating production of electric energy from alternative sources from any
other company activities, mean that it is complicated and not very relevant
to carry out a historical analysis of the financial data of the companies in the
sample. However, some sector characteristics may be identified by examining
the information available for 2010.
In particular, the graph below, which compares the turnover to the percentage
of Ebitda (or Gross Operating Margin) in the turnover, shows that the sample
has on average very positive correlation between the variables, i.e. for each
unit of additional turnover, profitability increases more than proportionally,
showing that there are important economies of scope and scale with reference
to the operating costs.
It should be stressed that for the companies in the sector:
• turnoverincludesbothprofitsfromthesaleofelectricenergyandthe
incentive
• theoperatingcostsbeforeEbitdaareforplantpersonnel,maintenance,
royalties paid to the Municipalities where the plants are located and charges
paid to the landowners.
Graph 11Relationship between profitability (Ebitda margin %) and turnover (2010)
Edison ES
EGPERG Ren
SorgeniaFRI-EL
Moncada
Alerion
KRE Tozzi
Kinexia
Asja Biz
api
Marcopolo
ICQ
Veronagest
10%
20%
30%
40%
50%
60%
70%
80%
90%
0 20 40 60 80 100 120 140 160 180 200 1,1001,000...
Turnover (million euros)
Cluster 1 Cluster 3Cluster 2
Ebitda margin %
Source: company data adapted by KPMG Advisory Research Department
Investing in renewables 39
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With reference to the comparison between turnover and the margin of the
Ebit (or Operating Profit Margin), the above-described correlation is inverted, in
that for each additional unit of turnover the increase in profitability is less than
proportional. This phenomenon may be read in the light of the nature of the
expenses after Ebitda and before Ebit, comprising basically the depreciation
and any write-downs of the fixed assets. The trend revealed in the graph
highlights however both the positive impact on the profitability resulting from
economies of scale on the investments, and values of profitability which are
very positive, close to or higher than 20%.
Graph 12 Relationship between profitability (Ebit margin %) and turnover (2010)
Edison ESERG Ren
SorgeniaFRI-EL
EGP
api
Kinexia
Veronagest
Tozzi
Asja Biz
Moncada
Alerion
Marcopolo
50%
40%
20%
30%
10%
0%
-20%
-10%
-40%
-30%
20 40 60 80 100 160 1,000... 1,100140120
Ebit margin %
Turnover (million euros)
Cluster 1 Cluster 3Cluster 2
Source: company data adapted by KPMG Advisory Research Department
Also in terms of net profit most of the companies in the sample show very
positive results; the negative results shown in the graph below are often due to
financial expenses attributable to investments made.
40 Investing in renewables
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Company investments are backed by loans, mainly from the banks, in a sector which is similar to the infrastructure sector (frequently resorting to project financing)
Graph 13 Relationship between profitability (net profit margin %) and turnover (2010)
Edison ESTozzi
Veronagest
FRI-EL EGP
Moncada
Alerion
Marcopolo
api
Kinexia
Asja Biz
...
- 45%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
20 40 60 80 100 120 140 160 1,000... 1,100
Net profit margin %
Turnover (million euros)
Cluster 1 Cluster 3Cluster 2
Source: company data adapted by KPMG Advisory Research Department
Financial data are available for a limited number of companies in the sample.
In general terms, with regard to the financial resources of the companies in
the sample it may be observed that:
•Cluster1companiesallbelongtolistedgroups;inthisCluster,EnelGreen
Power is the only company listed in Italy
•Cluster2and3companies,i.e.non-energycompanieswhichhavediversified
into the renewable energy business and start ups, typically have a financial
structure characterised by project financing (project financing non-recourse,
i.e. debt concentrated in the project’s special purpose vehicle, with no
guarantee from the shareholder); in terms of equity, development is often
achieved by opening up capital to third parties:
through listing on the Italian Stock Exchange (Alerion Clean Power, Falck -
Renewables, Kinexia, K.R. Energy, ErgyCapital)
resorting to financial investors, represented mainly by specialist funds -
(such as the Ambienta fund, present in more than 20% of the capital of
ICQ Holding) or by private equity funds, such as Amber Capital (which
holds 30% of Marcopolo) and Axa Private Equity Infrastructure Fund (45%
in TRE & Partners)
Investing in renewables 41
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and yielding capital shares to other companies in the sector (30% of M&A -
Renewables of the Moncada group held by Alpiq).
The limited financial strength in equity is one of the factors that often
encourages such players to come to specific arrangements with other
investors or with other companies in the industry in order to spread the
investmentout–risksharing–forexample:
• jointventuresbetweenFRI-ELGreenPowerandEDFEnergiesNouvelles
(2001) for the development, realisation and management of wind power
plants and with RWE Innogy (2008) for the realisation of wind power and
solid biomass projects
• thephotovoltaicpartnershiplaunchedbyErgyCapitalthroughthejoint
venture between Ergyca Tracker and Beghelli Servizi.
An analysis of the financial structure of some of the companies in the sample
confirms these characteristics.
Graph 14 Level of debt (2010)
Edison ES
Veronagest
EGP
MoncadaFRI-EL
Asja Biz
Alerion
Marcopolo
Tozzi
0
100
200
2,000
300
400
500
600
...
0 100 200 300 400 500 600 700 8,000... 8,300
Net financial position (million euros)
Net invested capital (million euros)
Cluster 1 Cluster 3Cluster 2
Source: company data adapted by KPMG Advisory Research Department
The level of debt, represented by the relationship between the net financial
position and the net invested capital, of the companies in Clusters 2 and 3,
on average 0.7, reveals a high level of borrowing, above all from the banks, to
support business investments, typical of this sector. In the case of Cluster 1,
note that the financial structure of Enel Green Power has a very low level of
debt (0.2), thanks to the support of the parent company.
42 Investing in renewables
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Main economic evidence of benchmarking: size counts
The sample companies’ accounts for 2010 show that performance in terms of
economic marginality is proportional to company size, highlighting economies
of scale and scope in the sector, in terms of both operational structures and
investment burdens.
In absolute terms the sector reveals very positive Ebit marginalities on the
turnover, with an average of over 20% for the sample.
In terms of investment funding, it is similar to the infrastructure sector, i.e.:
•extensiveuseofprojectfinancingnon-recoursestructures,withahigh
degree of leverage (70% on average for the sample), at least until the end of
2010
•strengtheningofownresourcesthroughstrategicactionssuchasstock
exchange listing and entrance into the capital, with minority interests, of
funds or of other companies from the traditional energy sector
•useofstrategicpartnershipswithothercompaniesinthisandothersectors,
for targeted investment initiatives; on the other hand, there are no cases of
entrance into the capital of other companies in the renewable energy sector.
However, the analysis results must be reconsidered in the light of the recent (photovoltaic – September 2011) or future (wind and biomass – end of the current year 2012) regulatory changes, aimed at significantly reducing the incentives, which will influence:
• theexpectedprofitabilityofnewinvestments
• thelevelsofleverageachievableontheinvestments,certainlylowerthan
in the recent past, and the structure of the investments themselves, with
the possibility of passing from project financing non-recourse (increasingly
complicated given the demands placed by the banks) to funding through
leasing, which means that financial structures need strengthening.
The next chapter therefore seeks to define the likely regulatory changes and the relative impacts on the companies.
© 2011 KPMG Advisory S.p.A., an Italian limited liability share capital company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Investing in renewables 43
© 2011 KPMG Advisory S.p.A., an Italian limited liability share capital company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.© 2011 KPMG Advisory S.p.A., an Italian limited liability share capital company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
44 Investing in renewables
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Investing today in renewable energy: key points
by Gianpaolo Attanasio, Associate Partner KPMG Advisory
Expected changes to the regulations and the relative impacts on returnsReturns under the 2010 regulations
On the basis of the current regulations concerning incentive schemes, and
disregarding the effects of ongoing changes, the returns of the companies in
the renewable energy sector are shown below (as an example).
Table 14Average indicators forming a typical business plan for wind power and photovoltaic (2010)
Current industrial reference criteria Wind power PhotovoltaicPower (MW) 36 5
Price of energy (€/MWh) ~ 65 ~ 78 (1)
Incentive (€/MWh) 85 346 (2)
Production capacity (hours) 1,850 1,400 (3)
CAPEX ALL-IN (‘000€/MW) 1,800 3,800
Royalty (% of total revenue) 3 3
ICI(*) (‰ of asset value) 4 4
OPEX (‘000€/MW) ~ 50 ~ 100
Leverage (%) 75 80
Repayment period (incentive period less than 2 years)
13 18
Fixed rate debt capital (%) 5.5 5.5 (*) ICI: Italian - Imposta comunale sugli immobili (local property tax)(1) The price differential is explained by analysing the production time frames of the two different
technologies during the day; wind power works well as the ‘base load’ while photovoltaic has production peaks when the market price of electric energy is higher
(2) Incentive for ground plants of over 1 MWp(3) The photovoltaic operative hours refer to a plant located in Southern Italy (average value) Source: adapted by KPMG Advisory
44
Investing in renewables 45
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Revision of incentives for photovoltaic encourages development of roof plants
The table below illustrates the returns relative to the industrial economics of
the above plants.
Table 15Simulation of current yields for wind power and photovoltaic, average values (2010)
Wind power PhotovoltaicIncentive Green Certificates
(15 years duration)Feed-in premium
(20 years duration)
DSCR (1) average >1.3 x >1.2 x
Equity IRR (2) (%) >11% >10%
(1) Debt Service Cover Ratio: represents the relationship between total cash flow and debt cash flow(2) Internal Rate of Return: compound annual rate of return generated by capital invested by shareholder
Source: adapted by KPMG Advisory
Regulatory changes with regard to incentives – photovoltaic
Given the steady rise in total costs to the Country System of renewable energy
incentive schemes, the Legislator proceeded, last May, to revise the Feed-In
Tariff for photovoltaic, with a reduction of the incentives as well as limits on
the installable capacity. The 4th Feed-In Tariff (FIT) scheme (see the relevant
sectioninthepreviouschapter)complieswithLegislativeDecreeno.28/2011,
which establishes, among other things, that an incentive for the production of
renewable energy must guarantee equitable remuneration for the investment
costs and the plant operating costs.
The 4th feed-in tariff scheme reduces the incentive tariffs originally established
in the 3rd FIT; the Legislator’s intention is that this will lead to an alignment
between the level of support and the generation costs of photovoltaic.
Furthermore, the 4th FIT, by varying the tariffs depending on the size and the
location of the plant (on the ground or on a building), aims to promote the
development of small plants located on buildings rather than large plants on the
ground, typically on agricultural land.
46 Investing in renewables
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The new incentive scheme includes:
•atransitoryperiod,forplantsduetobecomeoperativebetween1June2011
and 31 December 2012, during which feed-in premium tariffs will be applied
and a cost cap applied to large photovoltaic plants (580 million euros for the
entire transitory period).
During this period incentives for large plants will be regulated through a large
plant register;
•afullyoperativeperiod(plantsduetobecomeoperativebetween2013and
2016) during which feed-in tariffs will be applied with no limit to the cost of
the incentives, but with automatic tariff-reduction mechanisms should costs
exceed the thresholds set by the Decree for the various periods in which the
4th feed-in tariff scheme is divided.
During this period all plants are subject to a minimum reduction of the tariffs
every six months, with reductions increasing over time, until in 2016 there is
an expected reduction of 30% from one six-month period to the next.
The main reasons for the regulatory changes to photovoltaic are summarised in
the figure below.
Figure 4 Main principles behind the revision of the feed-in tariff scheme for photovoltaic (4th FIT)
STABILISE INCENTIVES OVER TIME, ON THE BASIS
OF THE YEAR OF ENTRY
Producer can be certain that the incentive value acquired, depending on the year of commencement, is stable throughout the incentive period
BRING INCENTIVE IN LINE WITH FALLING COSTS
OF TECHNOLOGY
GUARANTEE AND LIMIT THE FINANCIAL BURDEN OF INCENTIVES ON COUNTRY SYSTEM
Fixed cost of incentive for 20 years linked to limits on installation capacity/production/incentive tariff with clearly defined incentive costs (e.g. €280 mill. for 2012, €440 mill. for 2013, etc.)
PROMOTE GENERATION THROUGH INCREASING
NUMBER OF SMALL PLANTS
Promote small plants, for more widespread generation, rather than large plants (~5 MW); e.g. tariff for small plants (~1 MW or less) 1/3 larger than for large plants)
Average annual reduction of 30-40% of the incentive, in line with the expected reduction of CAPEX and operating costs, due to economies of scale following more widespread adoption of photovoltaic technology
Pri
nci
ple
s o
f 4t
h F
eed
-In
tar
iff
sch
eme
(FIT
) (p
ho
tovo
ltai
c)
Source: KPMG Advisory
Investing in renewables 47
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The new structure of the Green Certificates (GC) includes, depending on plant size, premium feed-in tariffs and a bidding system
New plants operational before the end of 2012
Regulatory changes to incentives – wind power and biomass
In like measure, the Legislator is proceeding with a revision of the Green
Certificates system, reducing the incentive and limiting the installable power; in
the light of the incentives introduced for photovoltaic, similar changes may be
expected, to be issued by the end of 2012.
Todate,LegislativeDecreeno.28/2011determinesthatthecurrentincentive
system will cease to be valid when the transitory period ends at the end of
2015 (see the relevant section in the previous chapter). The general principles
on which the revision of the Green Certificates is based are that the incentive
must aim to provide remuneration equal to the costs of investment and
operation.
The regulation guidelines contained in the Decree define, on the basis of the
‘starting date of plant operation’ and ‘peak capacity’, an incentive system
staggered over time as shown below.
Figure 5 Evolution of the Green Certificate system as defined by Legislative Decree no. 28/2011
2011 2012 2013 2014 2015 2016 2017 ...
n.a.
TRANSITORY PERIOD OPERATIVE PERIOD
An annual reference price for withdrawal of Green Certificates to be applied by GSE for withdrawal of all the available supply
DIMENSIONS (date of entry into operation/peak capacity)
PLANTS OPERATIONAL OR ENTERING INTO OPERATION BEFORE 31/12/12
NEW PLANTS after 31/12/2012
Capacity under 5 MW
Capacity over 5 MW
Establishment of a constant system of premium feed-in tariffs for the entire lifespan of the plant
Establishment of a bidding incentive mechanism through ‘cap’ and ‘floor’ price
Migration of the Green Certificates system towards a constant premium feed-in tariff for the entire lifespan of the plant
Source: adapted from Legislative Decree no. 28/2011 by KPMG Advisory
On the basis of the new rules, plants becoming operational before the end of 2012 may benefit from the current incentive scheme. For these plants there
is a transitory period from 2012 to 2015 during which:
• theshareofenergyfromtraditionalsourcesthatproducersmustinputinto
the grid will decrease linearly during the three-year period 2013-2015, until it
is extinguished
• thepriceofwithdrawaloftheunsoldGreenCertificateswillbe78%of
the price of yielding Green Certificates held by the GSE (Gestore Servizi
Energetici – Energy Services Manager).
At the end of the transitory period, as of 2016, Green Certificates will no longer
be issued and in their place there will be the right to a constant incentive
rate fixed to guarantee the profitability of the investments made, on top of
48 Investing in renewables
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the market price for electric energy produced; the actual modalities of the
transaction will have to be laid down during implementation of Legislative
Decreeno.28/2011.
The new regulations to be implemented have yet to be defined, but it is likely
that they will be along the lines of those recently adopted for photovoltaic, as
illustrated in the figure below.
Figure 6Principles on which revision of the Green Certificates system is likely to be based (wind power and bioenergy)
Like
ly p
rin
cip
les
new
GC
sce
nar
io
Incentive is calculated on basis of financial and operational costs of plant to:- permit the plant’s debt service (share capital + interest) as opposed to covenants in terms of DSCR
- permit remuneration of the shareholder higher than the relative WACCReduction of the unit incentives to reduce expenses for the Country System must be staggered over time
The Country System must have a fixed and monitored budget for renewable energy incentives based on:- fixed rates per MWh produced- estimate of installable capacity in the medium term (until 2020)
Promote small plants (up to 5 MW), rather than large plants (more than 5 MW)
The incentive granted depends on the year of commencement and may not be modified at a later stage (guaranteeing stable incentive throughout the incentive period)
STABILISE INCENTIVES OVER TIME, ON THE BASIS
OF THE YEAR OF ENTRY
BRING INCENTIVE IN LINE WITH FALLING COSTS
OF TECHNOLOGY
GUARANTEE AND LIMIT THE FINANCIAL BURDEN ON
COUNTRY SYSTEM WITH REGARD TO INCENTIVES
PROMOTE GENERATION THROUGH INCREASING
NUMBER OF SMALL PLANTS
Source: KPMG Advisory
The key theme to these regulatory changes is thus based on two factors:
• identificationofascenarioforeachlevelofincentive,validforallplants:
as of 2016, both those already operational and those due to become -
operational by the end of 2012
as of 2013, for plants operative from that date-
• formulationofabiddingsystem,inordertoreachtheinstallablecapacityfor
which the incentive is valid, applicable to large plants operational as of 2013.
In order to quantify the incentive required to make an investment profitable the
Legislator could follow the scheme outlined in the figure below, identifying the
current industrial reference parameters and the constraints of the debt service
and of obtaining minimum profitability for the shareholder.
Investing in renewables 49
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New plants operational as of 2013
Figure 7 Simulation of level of incentive for plants operational before the end of 2012 (wind power plant)
• Power: 36 MW
• Price of energy (€/MWh): ~ 65 €/MWh
• Production capacity: 1,850 h
• CAPEX ALL-IN (‘000€): 1,800 ‘000€/MW
• Royalty: 3% of total revenue
• ICI: 4‰ on the value of the asset
• OPEX : ~ 50 ‘000€/MW
• Leverage: 75%; duration: 13 years (2 years before the end of the incentive) • Fixed rate debt capital: 5.5%
Average DSCR > 1.2x(Project Financing Covenant)
2. Constraints
~70 € / MWh
IRR shareholder > 7.5%
Value of premium compared to market price of energy
Duration of incentive: 15 years
1. 3.
Current industrial reference parameters (as at 31/12/2011) for a wind farm
Source: adapted by KPMG Advisory
In the simulation, the minimum value of the premium compared to the
market price of electric energy, with respect to the financial covenants and to
areturnfortheshareholderofmorethan7.5%,isequaltoabout70euros/
MWh (more than 20% less than the price established in the existing Decree of
89.7euros/MWh).
Regardless of the level of premium feed-in set by the Legislator, it must remain constant over time, while the plant on the other hand, given that its base industrial cost may no longer be modified, would be in breach of the covenant of the project financing contract.
It should also be stressed that a return for the shareholder of 7.5% is a very low threshold for an industrial and/or financial investor, such that it would not be possible to count on the company’s permanent investment in the sector.
The renewable energy plants (except photovoltaic) becoming operational after 31 December 2012 should have access to new incentive schemes:
•aminimumleveloffeed-inpremium,guaranteeingadequateprofitabilityfor
the plant
•amechanismfortheallocationofcapacitywithincentivebasedonbidding
for the incentive (feed-in premium) for larger plants.
50 Investing in renewables
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The level of incentive capable of guaranteeing adequate profitability to those
plants that become operational from 2013 could be set by the Legislator
according to the scheme illustrated below which identifies:
• thecurrentindustrialreferenceparametersandtheefficiencypotentialfor
subsequent years
• theshareholder’sobligationswithregardtothedebtandminimum
profitability service. In particular, it is likely that the Legislator will resort
to corporate financing rather than project financing, with a subsequent
reduction in the financial covenants to be met.
Figure 8 Simulation of the level of incentive for plants becoming operational after 2012 (wind power plant)
• Power: 36 MW
• Price of energy (�/MWh): ~65 �/MWh
• Production capacity: 1,850 h
• CAPEX ALL–IN (‘000€): 1,800 ‘000€/MW
• Royalty: 3% of total profits
• ICI: 4‰ of the asset value
• OPEX : ~ 50 ‘000€/MW
• Leverage: 75%; duration: 13 years (2 years before end of incentive)
• Fixed rate debt capital: 5.5%
• Power: 36 MW
• Price of energy (�/MWh): ~65 �/MWh
• Production capacity: 1,850 h
• CAPEX ALL–IN (‘000€): 1,400 ‘000€/MW
• Royalty: 1.5% of total profits
• ICI: 4‰ of the asset value
• OPEX : ~ 35 ‘000€/MW
• Leverage: 70%; duration: 13 years (2 years before end of incentive)
• Fixed rate debt capital: 5.5%
Average DSCR > 1.15 ÷ 1.20 x
(from Project Finance to corporate financing)
IRR shareholder >WACC > 7.5%
Duration feed-in premium: 15 years
1 .Industrial reference parameters on basis of efficiency (at 2015-16; wind farm)
2. Constraints
Minimum tariff > 50 euros / MWh (with plant cost based on efficiency)
3. Value of premium with respect to the market price of energy
Current industrial reference parameters (as at 31/12/2011) for a wind farm
Source: adapted by KPMG Advisory
It should also be stressed that a return for the shareholder of 7.5% is a very low threshold for an industrial and/or financial investor, such that it would not be possible to count on the company’s permanent investment in the sector.
Reduction of CAPEX in relation to economies of scale is not considered
relevant for the Italian market, in that the total peak power, due to the nature of
the technology and to site availability, will also be low in the future.
For the simulation, the reference feed-in premium must remain constant
over time, otherwise the plant, given that its base industrial cost is no longer
modifiable,wouldnotbeprofitablefortheshareholderand/orthedebtservice.
Investing in renewables 51
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The bidding system is being defined for large plants
For larger plants (probably over 5 MW) operational after 31 December 2012 a
bidding system has been introduced, the precise rules of which still need to be
defined.
The bidding system, managed by the GSE, is designed to allocate precise
quotasofinstallablepowerforeachsource/technology.
Base (cap) and minimum (floor) price are to be defined, based on the return requirements of the investments made, as outlined in the simulation
above.
In summary, the bidding system should be based on the following:
•maximumquantityofpowerwithincentivebelowthecompanies’actual
request (so as to achieve competitiveness between the companies)
•allocationtoallcompaniesofthelowestoffermadeintheauction,withfloor
price to guarantee sustainability of the plants
•allocationofincentivesonthebasisofoffersreceiveduntiltheallotted
quantity is reached (maximum quantity of power with incentive).
Figure 9Auction price: probable dynamics
MWh
Euro/MWh
Maximum quantity established by the legislator at the time of bidding
Actual request made
Floor
Cap
Source: KPMG Advisory
In concrete terms, if the GSE puts up for sale a quota of installable power
which is less than the companies’ annual installable capacity, the bidding
system obliges companies to make their offers in line with the floor price, to
avoid losing their right to the incentive.
The starting bid will however be set to guarantee an investment return in line with Legislative Decree no. 28/2011.
52 Investing in renewables
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The provisions laid down in article 81 of Legislative Decree 138, 13 August 2011, will have major effects on the
financial returns of renewable energy companies. Indeed, the recently approved Budget Law includes newly introduced
measuresrelevanttothe‘RobinHoodTax’,theadditionalcompanyincometax(IRES)introducedbyLaw133/2008and
applied to businesses in the traditional energy sector:
• increasefrom6.5%to10.5%oftherateofadditionalIRESforcompaniesoperatingintheenergysectorforthetax
periods between 2011 and 2013
•extensionoftheadditionalIREStocompaniesoperatinginboththeelectricityandthegassector(transmission/
dispatch and distribution) and it is prohibited to offset this tax on the end user
•extending application to companies producing electricity from biomass, solar-photovoltaic and wind sources,
to date excluded
• reductionoftherevenuebracketdeterminingapplicationofthetaxfrom25to10millioneuros.
The‘Robin Hood Tax’
The bidding system, one of the most innovative elements introduced by
LegislativeDecreeno.28/11,isasourceofuncertaintyforcompanies
operating in the sector. Indeed, while waiting for decrees to be implemented,
there are several unknown factors with regard to the system; the main
problems arise:
• fromthefrequencywithwhichtheauctionsareheldduringtheyearand
from the relative power quotas, given that they enable projects that were
not selected to enter the bidding at a later stage, increasing their chances of
success. The power quotas could refer to specific geographical areas and be
defined in line with the regional planning
• fromthetypeofprojectadmittedthroughauction,inparticularbythe
definition of any minimum requirements (technical and financial) of the actual
projects and of the companies’ financial security
• fromtheexclusioncriteriaofthetenders(forexampleonthebasisof
the date that the company can declare the works started; of the date of
presentation of the tender; etc.).
The bidding requirements, which ought to include appropriate guarantees (for example sureties) to ensure that the plant is actually built once the incentive is allocated, should mean that the market is reserved for medium-large companies, with or without a background in the energy sector, thus strengthening the sector, unlike the current situation characterised by a large number of private companies (so-called ‘developers’).
With regard to the regulations outlined above, the recently approved ‘Robin
Hood Tax’, should be in effect for 2013 alone, as it was intended for three
years, beginning in 2011 (see in-depth study below).
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Investing in renewables 53
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The new Feed-In Tariff should produce a reduction in the average return of the shareholder
Impacts of the new laws on returns – photovoltaic
Application of the 4th feed-in tariff scheme, in force since last May and
applicable to all plants becoming operational by 31 December 2016, should
lead to a reduction of the average return of the shareholder (see tables below).
Table 16Development of the average indicators at the basis of a typical investment in photovoltaic following the introduction of the new Feed-In Tariff
Industrial reference parameters2010
(average recorded values)
2012 (simulated
values)Power (MW) 5 5
Price of energy (€/MWh) ~ 78 ~ 78
Incentive value photovoltaic (€/MWh) 346 (1) 156 (2)
Production capacity (hours) 1,400 (3) 1,400
CAPEX ALL-IN (‘000€/MW) 3,800 2,300Royalty (% of total profits) 3 3
ICI (‰ of asset value) 4 4
OPEX (‘000a/MW) ~ 100 ~ 50Leverage (%) 80 80
Repayment term (incentive period less than 2 years) 18 18
Fixed rate debt capital (%) 5.5 6.5 (4)
(1) incentive for plant of over 1 MWp, installed on the ground, operational since 2010(2) incentive for a plant of between 1 and 5 MWp, installed on the ground, operational as of 2012(3) operating hours are for a plant located in the South of Italy (average value)(4) The simulated debt rate is higher than that recorded in 2010, given the current liquidity crisis of the
financial institutions
Source: adapted by KPMG Advisory
Table 17Development of expected returns for photovoltaic following introduction of the new Feed-In Tariff
2010(average recorded values)
2012 (simulated values)
Incentive Feed-in premium (20 years duration)
Feed-in premium (20 years duration)
Average DSCR >1.2 x >1.1 x
IRR equity (%) >10% 7.5%
Source: adapted by KPMG Advisory
The new regulatory provisions produce the following effects on the economics
of photovoltaic companies:
• reductionofshareholderreturns
•maintainingdecentprofits(despitesaidreduction)thanksto:
the re-alignment of the industry towards lower CAPEX unit values, thanks -
to technological developments in photovoltaic and to the important
economies of scale in the production of the panels
the expected reduction in the premium currently awarded to plant -
developers
the major restructuring of the industry in terms of the operational costs. -
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54 Investing in renewables
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The new regulations for wind power should have a limited impact on average shareholder profits
Impacts of the new laws on yields – wind power
Changes being made to the regulations could produce effects on company
profits in the wind power sector as outlined in the tables below.
Thesimulationprovidesanincentiveof130euros/MWh.
Table 18Development of average values underlying an investment in wind power resulting from possible new incentives schemes
Industrial reference parameters 2010 (average recorded
values)
2016
(simulated values)
Power (MW) 36 36
Price of energy (€/MWh)~ 150
~ 65~ 130
~ 65
GC/Feed-in premium (€/MWh) ~ 85 ~ 65Production capacity (hours) 1,850 1,850
CAPEX ALL-IN (‘000€/MW) 1,800 1,600
Royalty (% of total profits) 3 1.5ICI (‰ of asset value) 4 4
OPEX (‘000€/MW) ~ 50 ~ 35Leverage (%) 75 70
Repayment term (incentive period less than 2 years)
13 13
Fixed rate debt capital (%) 5.5 5.5 (1)
(1) The hypothetical rate of debt is based on 2010 levels, once the current liquidity crisis of the financial institutions is over
Source: adapted by KPMG Advisory
Table 19Development of expected profits in wind power following changes in the incentive regulations
2010 (average recorded values) 2016 (simulated values)Incentive Green Certificates
(duration 15 years)Feed-in premium
(duration 20 years)
Average DSCR >1.3 x >1.4 x
IRR equity (%) >11% >10%
Source: adapted by KPMG Advisory
The effects of the new regulatory provisions on the economics of the
companies in the wind power sector should have a limited impact on
shareholder profits so long as the CAPEX and OPEX costs adapt to much lower
incentives.
Covenants will have to be respected with a higher level of capitalisation of the
plants.
Investing in renewables 55
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Conclusions
In recent years, the incentive systems in Italy have been essential for
renewable energy development. Despite continual changes to the regulations,
the incentives have remained sufficiently ‘predictable’ with regard to the
investment return and it has therefore been possible to fund the works.
In this perspective, and leaving aside the ongoing debate, it should be
stressed that incentives are important for achieving the EC renewable energy
objectives and they also have an important role in promoting productivity and
employment.
However, the steadily increasing expense of the incentive systems has often
had a negative effect on consumers in terms of increased costs, to such an
extent that the economic sustainability of renewable sources of energy has
been questioned.
In this context, the appropriate level of incentives must be decided, in terms of:
• trendofthecostsofthetechnologiesandtrendofthetimingforachieving
so-called ‘grid parity’
•sustainabilityofthecosttotheCountrySystem.
These questions have for a long time been at the centre of a lively debate at
both political and economic level: the central theme is the attempt to achieve a
balance between system sustainability and making it worthwhile for companies
to continue to invest.
The positions emerging from the revisions of the incentives (both for
photovoltaic and other systems) and the first such interventions in recent
months open the doors to several possible developments in the renewable
energy sector in Italy.
In any case, leaving aside the development of the incentive system, other
crucial factors for companies are the size of the operation and access to large
economies of scale. Dimensional growth permits a structural reduction of
the company’s capital investment costs and plant management costs, thus
guaranteeing the sustainability of the new investments.
56 Investing in renewables
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Frame of reference for sector development
01. uncertainty in legal framework due to lack of National Energy Plan and ongoing revision of the incentive systems
02. long waiting periods for authorisation: the result of administrative ‘fragmentation’
03. increasingly expensive incentive system, not sustainable in the medium term for the Country System
04. with the exception of the main players, reference market mainly national or, at most, European
05. profitability on average positive thanks to economies of scale
06. possible reduction in average profits: the result of changes to incentive schemes
In recent years the sector underwent major growth,
thanks also to an advantageous incentive system; further
development is based on the following principal drivers:
•companygrowthandachieving economies of scale
•achievinggridparity
•developmentoflegislation
•wideningthereferencemarket through
internationalisation.
The ultimate goal should be market-driven development.
56
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Investing in renewables 57
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Insights
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58 Investing in renewables
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Renewable energies and achieving grid parity
by Luca Mazzoni, Managing Director Protos
Achieving grid parity is the real key to sector development
Alternative energy sources and their development, in the light of changes
in EU and national energy policies, closely linked to the need to reduce
energy dependence of many countries in the European Union, require further
evaluation, regardless of the incentive schemes which it is expected will
no longer be necessary in the future, examining the economic viability of
the production of electric energy from renewable sources compared with
traditional sources.
The goal of achieving so-called grid parity (i.e. the same cost for producing
energy from conventional or alternative sources) for renewable energies is
therefore crucial; achieving this objective within a short time would mean that
new sources of energy could begin their own development, no longer tied to
government incentives but led exclusively by strictly market dynamics.
The ‘traditional’ energy sources (coal, gas and nuclear) which have been the
main contributors to the production of electric energy, offer limited scope
for technological improvements, while the ‘new’ sources of energy reveal
interesting development potential but, at present, do not seem to be as
competitive.
The production cost of energy from traditional sources, based on tried and
tested technologies, can change on a yearly basis simply because of fuel
prices, since there is no technical progress enabling further reduction in
expenses.
In the field of renewable sources, on the other hand, technological
development, linked both to growing investments in research, and to the ever
more widespread adoption of these forms of energy production, results in
steadily diminishing production costs thanks to the creation of economies of
scale and to the emergence of incremental innovations among other things.
The graph below presents the most recent data available to compare the
production costs per kWh of the various sources of energy.
58
Investing in renewables 59
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Production costs of renewable energy sources are falling sharply as a result of technological progress and economies of scale
Graph 15Cost of kWh for various sources of energy, Europe (2010, in Euro cents/kWh)
18
14
12
10
8
6
4
2
0
16
ToFrom
Coal(2009)
Gas(2009)
Nuclear(2007)
Wind(2007)
Photovoltaic(2010)
Source: World Energy Council (2011)
The costs do not include the social and environmental costs arising from the
use of different energy sources. For coal and gas the ‘maximum’ price includes
the tax on CO2 emissions (not however applicable in all European countries).
As already mentioned, the production costs from fossil sources (coal, gas,
uranium) do not vary greatly from year to year, it may, therefore, be assumed
that the 2007 and 2009 values remained unchanged in 2010:
•coal:3.5Eurocents/kWh(+2.5Eurocents/kWhoftaxonCO2)(European
Wind Energy Association, 2010)
•gas:4.6Eurocents/kWh(+1.1Eurocents/kWhoftaxonCO2) (European
Wind Energy Association, 2010)
•nuclear:2.5-5.5Eurocents/kWh(average4Eurocents/kWh)(WorldEnergy
Council, 2010)
•wind:6-9Eurocents/kWh(EuropeanWindEnergyAssociation,2010)
•photovoltaic:11-17Eurocents/kWh(EPIA,2010).
Taking into account the production costs, falling sharply as a result of
technological progress and economies of scale, it is important to invest in
renewable sources for as long as they are competitive even without incentives.
60 Investing in renewables
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The principal factors determining the trend of the production costs of wind energy are represented by the investment costs and by the energy which the wind turbines are capable of producing
The cost of production of energy from renewable sources varies depending
on the availability of the natural resources (wind or sun etc.) in the power plant
location; this affects the ever-changing cost dynamics with an increase in the
initial investment costs, and a general reduction in the total production costs,
when the source is plentiful.
Below is a description of the expected evolution of the costs of production
from wind and photovoltaic sources.
In the wind sector, the main factors determining the trend of energy
production costs are represented by the investment costs and by the energy
that the wind turbines are able to produce in line with the availability of the
wind resource.
For wind plants connected to the grid, in recent years it has been possible to
record a general reduction in the production costs in terms of cost of kWh.
This trend may be mostly explained by the increase in the average size of the
generators installed, as well as by the progressive improvement of wind power
technology, especially in relation to the reliability and efficiency of the wind
turbines.
The effect of a steady increase in the average size of the wind turbines has, in
fact, led, as a result of the introduction of economies of scale, to a reduction in
the initial investment costs. In parallel, the steady annual increase in the overall
efficiency of the wind turbines, equal to 2-3 percent in recent years, has led to
a corresponding increase in the energy produced.
Graph 16Hypothesis of development for wind turbines, average size 2MW, until 2015 (Euro cents/kWh)
Inland
Eur
o ce
nts
/ kW
h
Coastal site
12
10
8
6
4
2
01985 1987 1990 1993 1996 1999 2001 2004 2006 2010 2015
Source: RisØ / DTU (National Laboratory for Sustainable Energy of Denmark)
The rapid drop in production costs came to an end in 2006 (see graph above)
due to the increasing demand for wind turbines, which led to a demand for a
period of realignment of the production capacity by the producers, and to the
increase in prices of raw materials such as steel.
Investing in renewables 61
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The production cost of solar energy is closely linked to the cost of technologies used for making the photovoltaic panels
The wind power market has recently recorded very rapid development,
characterised by an average annual growth rate of between 25 and 30 percent
in the last ten years, which according to recent estimates (World Wind Energy
Association) may last until 2015.
This trend was forecast on the basis of the following hypotheses:
•reductionoftheunitcostoftheproductdependingonaconstantpercentageof
10 percent, in correspondence with a doubling of the accumulated production
•doublingoftheaccumulatedpeakpowerpotentialeverythreeyears(assuming
that the recent rate of growth remains constant).
The photovoltaic sector has seen, as of the year 2000, development at an
exponential rate of growth which has continued to the present at an increasing rate
despite the global economic crisis and the changes in energy policies which have
been implemented in various countries.
The trend of production costs from solar sources is closely linked to the cost of the
technologies used to make the photovoltaic panels.
Graph 17 Historical trend of the cost of the photovoltaic modules
Cumulative output of modules (MW)
Pric
e ph
otov
olta
ic m
odul
es (U
SD
/W)
100
10
1
Trend thin film Trend silicon Thin film Crystalline silicon
Crystalline silicon
Shortage of silicon2007
2009
1979
2009
1 10 100 1,000 10,000 100,000 1,000,000
Thin film
Source: EPIA (2010)
The above graph shows the variation over time of the costs relative to the
different photovoltaic technologies, from which it is possible to highlight the
significant reduction in the price of the production of the panels following the
introduction of new technologies (thin film).
Over the next twenty years it may be presumed that new technological leaps
will be revealed in the learning curves, with the possibility of seeing new
technologies.
Photovoltaic panels represent at present approximately 50 percent of the
investment value; they are therefore central to future reductions in the cost of
this technology.
62 Investing in renewables
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Technological research in photovoltaic could further improve the effects of decreasing costs, significantly reducing the time required to achieve grid parity
Graph 18Forecast of costs of photovoltaic plants (in Euros)
- 66%
- 56%
1,229
875
1,301
993
1,378
995
1,460
1,062
1,549
1,135
1,644
1,214
1,804
1,409
1,982
1,640
2,193
1,908
2,445
2,215
2,800
2,600
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Price range
Source: EPIA (2010)
On the basis of the price ranges observed in October 2011 it is possible to
revise downwards the values cited in the EPIA forecast: the price of ground
plants operational in the first half of 2012 varies between 1.8 and 2.2 million
Euros per MWp, with an additional reduction of approximately 8% compared to
the initial estimates.
In the case of steady market development, it is possible to forecast, taking into
consideration the composition of the costs to establish a photovoltaic park, a
reduction in costs over 20 years of between 56 and 66 percent; however, if
there are ‘quantum leaps’ in the learning curve, due to technological research,
the effects of cost reduction would increase, significantly reducing the time
necessary to achieve grid parity.
This would bring the production costs, currently between 11 and 19 Euro
cents/kWh,tobetween6and10Eurocents/kWhin2020and4-7Eurocents/
kWh in 2030 (see graph below).
Graph 19 LCOE forecast* for photovoltaic (range in Euro cents/kWh)
Hours of operation kWh/kWp
Euro cents/kWh
25
20
15
10
5
01,200 1,300 1,400 1,500 1,600 1,700 1,800 1,900 2,000 2,100
20.118.7
11.8
8.78.35.9
12.611.7
7.45.45.23.7
2010
2020
2030
High 2010 High 2020 High 2030 Low 2010 Low 2020 Low 2030
* LCOE Levilized Cost of Energy: result of the relationship between total energy produced by the plant during its life cycle, and the discounted investment costs, interest rates and all related costs (both during construction and when operational).
Source: EPIA (2010)
Investing in renewables 63
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For photovoltaic the best case scenario forecasts grid parity by 2013
On the basis of this description it is possible to hypothesize certain scenarios for achieving grid parity in Italy for the energy produced by the potentially
most abundant source in terms of available resources and their distribution
throughout the national territory, i.e. photovoltaic.
Three different scenarios have been adopted for the increase in the sale price
of energy, in line with market analysis expectations (high price, average price,
low price), while for the evaluation of photovoltaic energy costs a range has
been used (High photovoltaic and Low photovoltaic) using the figures in the
preceding graph.
Graph 20Hypothesis of grid parity for photovoltaic
Low price Average price High price High PV Low PV
0.30
0.25
0.20
0.15
0.10
0.05
0.00
2010 2015 2020 2025 2030
Source: Protos (2011)
There is assumed an increase in the sale price of energy which, from 6 Euro
cents/kWhin2010,risestoarangeof7-18Eurocents/kWhin2020toreach,in
2030,9-25Eurocents/kWh.
It is interesting to note how, in the best case scenario, grid parity may be achieved as early as 2013.
The current global economic crisis, however, whose effects include a reduction
in consumption and in industrial production, is the cause of deflationary
mechanisms which may lead to a delay in achieving grid parity.
In any case the proposed scenario does not take into account possible
technological innovations and leaps in the learning curve which, in the medium
term, will contribute further to the technology’s competitiveness.
64 Investing in renewables
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Project Financing in the renewable energy sector
by Marco Serifio, Partner KPMG Advisory
(1) Source: ‘Guida agli Operatori del Project Finance 2010’ Finlombarda. The amounts funded and the number of operations backed by the banks refer to the beginning of the activity through to the first semester of 2010. With regard to the banks’ data of the projects, past and present, it should be noted that the same project may have been backed by more than one bank at the same time, each with a different role (Advisor, Arranger, Asseverator etc.).
(2) DSCR is an expression of the relationship between operating cash flow and debt service (share capital and interest). It is a measurement of the project’s capacity to generate sufficient cash flow to repay the debt.
Renewable energy is one of the leading sectors in terms of project financing
In Italy project financing in the first semester of 2010 had reached in
cumulative terms(1) a total value of around 158 billion euros with 611 financial
closes. Compared with the market as a whole, financial closes in public and
private works for the renewable energy sector, as at the first semester of 2010,
numbered 342 operations, for a total value of around 50 billion euros.
In terms of both number of operations (about 56% of the total) and value
financed (about 32% of the total), renewable energy is a primary sector for
project financing (surpassed only by telecommunications for value of financing).
Compared with the first semester of last year, the energy sector saw an
increase of 112 financial closes (out of a total of 131) for a total value of about 7
billion euros.
Analysis by the banks of projects past and present reveals how the debt-capital
relationship of the project financing operations is equal to 80%-20%, with base
facilities lasting between 10 and 20 years.
Expectations with regard to the spread applied to the interest rates of the main
base facilities ranges from 240 to 280 base points, at least until 2010, currently
undergoing a sharp increase as a result of the recent macroeconomic trends.
For debt repayment, almost all the banks consider it fundamental that the
DSCR(2) (Debt Service Cover Ratio) settles, for the duration of the project, at
around 1.3 to guarantee the sustainability and ‘bankability’ of the investment
made.
Until 2010, the banks involved in the analysis considered the renewable energy
sector to be in a stable period with further growth likely, indeed with the
greatest growth potential in the national project financing market.
However, during 2011, uncertainty with regard to the incentives has de facto
hindered the completion of project financing operations.
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Investing in renewables 65
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Of all the banks, Unicredit and Intesa Sanpaolo are the main players in the sector at national level (backing 32% of all projects)
With regard to the role of the banks, note that Unicredit and Intesa Sanpaolo
are the main players in the sector at national level. Indeed, they represent, to
date, around 32% of all the projects (see graph below).
Graph 21The project financing market in the energy sector: major banks and their % proportion of the accumulated number of financial closes
Unicredit 17%
Intesa Sanpaolo 15%
Centrobanca 11%
MPS 11%
BNP Paribas 10%
Agrileasing 4%
Dexia 4%
WestLB 4%
Others24%
Market total:342 Operations
Source: Finlombarda data adapted by KPMG Corporate Finance
For the above-mentioned projects, Unicredit alone represents 25% of the
funding granted, followed by Intesa Sanpaolo with 16% and BNP Paribas
with 13% (the three banks account for more than 50% of total funding). With
regard to the other banks, they account for smaller but nevertheless significant
percentages, as shown below.
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Wind power and biogas account for over 50% of projects funded
Graph 22The project financing market in the energy sector: major banks and their % proportion of the total value funded
Unicredit 25%
Intesa Sanpaolo 16%
BPN Paribas13%WestLB
5%
ING4%
Mediobanca4%
Banco Bilbao4%
Dexia4%
Centrobanca4% MPS
4%
Others17%
Market total: 50 billion euros
Source: Finlombarda data adapted by KPMG Corporate Finance
In terms of volume, wind power and biogas account for the greatest number of
investments.
Graph 23The project financing market in the renewable energy sector: investments divided by sector
Wind Biogas Photovoltaic Biomass Hydroelectric
39%
32%
13% 12%
4%
Market total: 342 operations
Source: Finlombarda data adapted by KPMG Corporate Finance
It can be seen that wind power and biogas, taken together, represent well
over 50% of the total projects funded. Photovoltaic, despite recent signs of
recovery, was subject to a sharp reduction in investments as a result of the
temporary uncertainty with regard to the incentives.
Investing in renewables 67
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The South of Italy has the highest number of project financing operations
The graph below shows, in percentage terms, the geographical location of the
projects funded (Regions with the greatest number of operations).
Graph 24The project financing market in the renewable energy sector: investments divided according to geographical location
17% 17%
11% 11%10%
7%6% 6%
17%
Market total: 342 operations
Puglia
Sicily
Sardin
ia
Campa
nia
Lom
bard
y
E.Rom
agna
Tusc
any
Mar
che
Other
s
Source: Finlombarda data adapted by KPMG Corporate Finance
The South is without doubt the geographical area in the country with the
greatest number of project financing operations, due mainly to its territorial
characteristics which make its resources available for renewable energy
production.
KPMG carries out regular Financial Business Plan audits with regard to
operations for the construction and management of alternative energy plants,
so as to monitor both the companies and the banks in the sector.
Following years of experience it may be noted that in order for the sector trend
to pick up, the current period of uncertainty with regard to incentive schemes
must end.
68 Investing in renewables
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Investment project plans in the renewable energy sectorby Stefano Cervo, Tax Partner KStudio Associato
The tax treatment reserved for operations may vary greatly depending on the specific subject of the project which may be the company or its holdings
The opportunities linked to the production of electric energy from renewable
sources (and particularly from photovoltaic sources) have for several years now
been the subject of special attention from various points of view.
Analysis of the tax variable is clearly of interest as it represents one of the
elements for a positive evaluation of an investment in the sector, permitting the
appreciation of its margins of profitability.
There are numerous considerations with regard to taxation and the tax
treatment reserved for the operations may vary greatly depending on the
specific subject of the project which may be the company or its holdings; it is
opportune, however, when examining tax matters, to carefully consider various
aspects.
Taxation considerations in the acquisition of an asset in renewable energy
Project carve-out
For example, a frequent pattern in photovoltaic includes:
•adeveloperwhodealswithidentificationofthesite,planning,liaisingwith
the authorities in charge of granting authorisations, and in some cases
obtaining grants for a series of projects (pipeline)
• thecarve-outofcertainprojectsinthepipelineinspecialpurposevehicles
(SPV)
• thetransferofsharesoftheSPVtoapurchaser
and various tax problems emerge with regard to the carve-out of the projects in
the pipeline and to the transfer of shares of the SPV.
Assuming that the projects are classed as ‘companies’, one possible
hypothesis is a contribution to a regime of neutrality and it may be possible
to make use of the disposition contained in Article 176, comma 3, TUIR
(Testo Unico Imposte sui Redditi–IncomeTaxConsolidation)No.917/86,
which explicitly considers ‘non elusive’ the successive transfer of holdings on
condition that it has been owned for at least one year.
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Investing in renewables 69
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The range of extra ‘tax neutral’ operations, such as partial division in favour
of a newly constituted or pre-existing beneficiary, poses the problem of the
elusiveness of the operation when it is followed by transfer of shares and,
therefore, careful evaluation must take place on the basis of the risk profile.
In this situation, there is the problem of the possible application of the so-called
regime of Participation Exemption (PEX, exemption of 95% of the gain deriving
from the transfer of the participation shares).
PEX, in reality, is conditioned by the effective operation of the business. It
is therefore necessary to question the emphasis given to the preliminary
activities upon completion of the plant which, together with a time profile
(transfer before three years, with the possible exception of newly constituted
beneficiaries), would appear to cast doubts on the applicability of the
exemption system.
The doubts cast on the application of PEX often recommend detaining the
SPV directly between foreign companies, so as to be able to transfer shares
by taxing capital gains exclusively in the place of residence of the transferor, in
the case in which the latter should benefit from the conventions against double
taxation.
Alternative structures: real estate fund
On the basis of the premise that defines a solar plant as real estate, it is
possible to hypothesise the structuring of investment projects via the use of a
real estate fund.
The system, not always simple to set up, is as follows:
EU investor
User of Property
Real estate investment fund
Asset
Rent
Return
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The appeal of renewable energies must take into consideration the so-called Robin Hood Tax and its application to companies operating in this sector
With this structure, the investor purchases the property and stipulates a
contract (in general, a rental contract) with a third party for the use of the asset.
In this case the profits resulting from the real estate investment fund will be
exempt from tax, while on the other hand, the holders of the units will be taxed
depending on the participating companies:
• inthecaseofforeigninvestorsresidentin‘whitelist’countriesorso-called
‘institutional’ investors (banks, SIM (società di intermediazione mobiliare–
brokerage firms), etc.), the profit will be taxed at a rate of 20% applied on
perceived profits (rate which may be reduced on the basis of the conventions
against double taxation)
• inthecaseofnon-institutionalresidentinvestors,itdependswhetherthe
percentage of shares owned is above or below 5%; if greater than 5%, for
reasons of transparency, the receiver is subject to taxation of the investment
returns, regardless of the effective payment; while if 5% or less, there will
be a tax of 20% on the profit. In the case of transfer of the shares of the
investment fund by the investors, however, it will not be possible to make
use of the PEX mechanism.
Tax and renewable energy operations
Robin Hood Tax
The appeal of the renewable energy sector must take into consideration the
so-called Robin Hood Tax and its application to companies operating in this
sector, that is an additional IRES tax (Imposta sul Reddito delle Società–taxon
corporate income) applicable to larger companies (rising from 6.5% to 10.5%
for the three years from 2011), bring the total IRES tax to 38%.
Butthisisnotall.Newlyintroducedwiththelegislativedecreeno.138/2011
(the so-called supplementary budget law 2011) is the reduction also of the
minimum entry thresholds which were formerly 25 million euros for the tax to
be applicable and are now down to 10 million euros turnover. The tax system
takes into account the profits made by the company in 2010 (which must
be over 10 million euros) and 1.2 million euros of taxable income, with no
exemption from the new tax even for those who in 2011 should be below the
set thresholds.
In this regard it should be noted that the ordinance dated 26 March 2011 no. 9,
with which the Provincial Tributary Commission of Reggio Emilia questioned the
constitutional legitimacy of this tax at the Constitutional Court, affirming that it
is in contrast with the principle of equality as laid down in articles 3 and 53 of
the Constitution.
While waiting for the verdict (which if in favour would translate to a total of 3.6
billion euros not payable in tax), it may be observed that the tax represents,
among other things, a variable to be taken into account when drawing up an
investment project.
Investing in renewables 71
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A source of operative uncertainty arises from the classification of the plants as immovable property or moving property
Thus one questions the compatibility with the current tendency of the law and
the financial administration in the field of law abuse, to constitute SPV in the
form of an unincorporated company, owned by partners in limited companies,
for which the Robin Hood Tax would seem not applicable given the exclusion
of these subjects from those referred to in article 73 of the TUIR. It must also
be verified whether or not it is possible structure a company (via extraordinary
operations of merging or separating), to be positioned beneath the threshold of
application of the tax in question, in the presence, of course, of valid economic
reasons which justify this kind of organisation (or reorganisation).
ICI (Imposta Comunale sugli Immobili – local property tax)
Another hot topic of debate and source of uncertainty with regard to taxation,
regardless of the presence of numerous ministerial statements on the matter,
is that regarding the nature and classification of plants and whether or not they
are immovable property or moving property, with particular reference to direct
taxation, ICI and the possibility of utilising the real estate fund.
OnthebasisofthepositionoftheRevenueAgency,expressedincircular46/E
in 2007: ‘… the photovoltaic plant located on the ground does not constitute
a plant fixed to the ground given that the modules used to compose it (solar
panels) may easily be removed and positioned elsewhere, maintaining
unaltered their original function …’. The nature of ‘moving’ property was
confirmedinthesubsequentcircular38/Ein2008bythesameRevenue
Agency, recognising the benefit of tax credits for investments in depressed
areas(art.1,commi271-279,law296/2006).
On the other hand, the Agenzia del Territorio(seecircular3/Tof6/11/2008)
has always maintained that photovoltaic panels positioned permanently on the
ground must be considered in the same way as the turbines of the hydropower
plants (representing an electric power station) and that the structure of the
property comprising the ground and the series of ‘… panels comprising the
photovoltaic plant, constitutes a plant with the characteristics of ‘real estate’
and with its own relevance in the land register (category D1)...’.
The contrast between the two financial administrations continues, even though
following the most recent intervention by the Revenue Agency (circular 11
March2011no.12/E),itmustbenotedthatthegeneralconsiderationisnow
that photovoltaic plants are considered immovable property, with important
consequences in terms of: amortisation coefficient to apply to the plant;
minimum duration of the financial leasing contract expected for the deductibility
of the relative license fees; applicability of the discipline relative to shell
companies; applicability of ICI to the plant, tax to be applied directly should the
plant change hands; and so on.
72 Investing in renewables
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M&A activities in the renewable energy sector in Italyby Alessandro Zanca, Associate Partner KPMG Advisory
Despite reduced growth due to delays in changes to legislation and to the consequent uncertainty for equity and, especially, debt investors, the sector will become increasingly consolidated
The mergers and acquisitions market in Italy in 2010 and in the early months
of 2011 saw a reversal of the trend that, since the last quarter of 2007, had
seen the number of operations, in terms of countervalue, close to the number
recorded in the mid-1990s. The Energy and Utilities sector does not stray far
from the general context, with the added consideration, however, that in the
last three years the relative weight in terms of both number of operations and,
most of all, countervalue is much higher: 2009 represents the peak with almost
70% of countervalue, thanks most of all to the acquisition of Endesa by Enel,
further enhanced by the low level of transactions in the other sectors.
Graph 25M&A market in Italy in the E&U: countervalue and number of operations completed since 2008
11 233 2.5
56
2425
14
0
20
40
60
80
0
10
20
30
2008 2009 2010 3rd quarter 2011
No.
Ope
ratio
ns
Cou
nter
valu
e (b
illio
n eu
ros)
Source: KPMG Corporate Finance Mergers & Acquisitions Report
The sector continues to grow because it is basically countercyclical (or at least
more so than other sectors, considering that reductions in industrial production
have had major effects also on energy consumption), and within the sector
itself waste and water operations counterbalance the energy sector’s volatility;
its continuing development is also due to the dynamics of renewable energy.
Renewable energy, despite delays in changes to legislation which slow down
the rate of development and produce uncertainty in equity and, above all, debt
investors, continues to grow; these uncertainties or gaps in legislation are
a problem at European level and have been a major constraint both to new
investment initiatives and to potential aggregations.
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Investing in renewables 73
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The renewable energy sector attracts interest also from investors who do not belong to the energy sector
Investors who until a few years ago were interested in the acquisition of
medium-long-term development projects at high prices now concentrate
mainly on production assets and increasingly less on hypothetical pipeline
developments with uncertain returns (and possibly without even having all
the necessary authorisations). This is particularly the case with photovoltaic,
where the tariff reductions introduced by the new Feed-In Tariff (despite not
having effectively made any real change to the investors’ return thanks to a
perhaps more than proportional decrease in costs for the plant systems) led
to an increase in the interest in plants already connected to the grid, especially
from institutional traders, for example Private Equity specialist funds, but also
international pension funds willing to recognise investments in multiples of
over 5 million euros per MW installed. In Italy, in particular, the difficulties
obtaining authorisation and the necessary permits for the construction
of photovoltaic plants and wind farms means that investors often opt for
acquisition of already operative businesses.
Of the various kinds of renewable energy, and leaving aside hydropower (which
still represents the main source of non-fossil production in Italy, but which has
already been almost fully exploited), it is believed that the development of
wind power in the next few years may be less than that of photovoltaic and
biomass. As with other sources of renewable energy, biomass gives quite
high economic returns in a relatively short period, but unlike wind power and
photovoltaic, they are not subject to transport and distribution problems as
production is easier to plan, although there are risks connected to the difficulty
of obtaining supplies and the constantly changing prices of biomass supplies.
It is interesting to note the interest in the renewable energy sector shown by
investors who do not come from the energy sector (for example the announcement
that Google is to invest in wind farms) and by investors who belong to the sector
but pursue other activities (Total recently bought the majority in Sun Power Corp.
for 1 billion euros; in Italy Erg and Sara were among the first to invest in the
sector). In general in Italy there is a process of risk spreading which is leading many
investors to substitute that which in the past may have represented the real estate
market with investments in renewable energy.
74 Investing in renewables
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The renewable energy sector takes on, in this perspective, an increasingly
important role in the M&A market not only in terms of the number of
operations but also in terms of countervalue (for example the acquisition by
Terra Firma of the photovoltaic plants in Terna for over 600 million euros),
considering also the fact that, when investing in the energy sector, renewable
energy represents an alternative to other activities which are subject to
environmental and safety risks as well as supply and price fluctuation risks.
Another sector in which investors are showing great interest (especially
institutional investors) is ‘cleantech’ and companies operating outside of
energy generation. This sub-sector includes (the list is not exhaustive) all those
companies operating in efficiency and energy storage, emissions reduction,
recycling and the production of biodegradable materials. It is widely thought
that, in addition to the production of energy from renewable sources, in the
coming years it will be energy saving in the widest sense that gives the best
(and perhaps most immediate) results in terms of energy sustainability.
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Investing in renewables 75
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Country Focus
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76 Investing in renewables
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Italy has been, in the last two years, from 2010 to 2011, a
world leader in the development of renewable energies, in
particular in the photovoltaic sector.
Italian companies operating
in the sector (development, planning, construction,
maintenance, services) have acquired an excellent level
of know-how, thanks in part to opportunities to interact
with companies (investment, componentconstruction,EPC/
O&M contractors) from all over the world.
Internationalisation in renewables
by Protos
7076
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Investing in renewables 77
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The new scenario, resulting from the economic-financial crisis as well as the complexity of the regulations is taking Italy towards an inevitable reduction of the market for new renewable energy plants.
In the current situation, a winning approach may be a move towards the internationalisation of activities through the export of experience to markets which whilst not yet mature offer great growth potential.
The challenge is not a simple one. The organization required to carry out similar activities in another country, the socio-cultural differences, the different ways of ‘doing business’, the different legislative bodies which regulate business and the different ways of managing administrative matters represent often insurmountable obstacles.
Without doubt assistance can be provided from the external support of professionals familiar with the new local operational context and who can help the company develop the appropriate modus operandi through which they can seek out their own niche in the new market.
The natural alternative to the national market, to which Italian companies can turn to in order to find new opportunities, comprises countries currently undergoing major economic expansion.
In particular those realities which are implementing renewable energy development programmes (the so-called ‘BRICS’, Brazil, Russia, India, China and South Africa). The opportunity becomes more concrete given the lack of experience in the sector which is often lamented by the local banks and by investors, both at a qualitative level (availability of suitable competences) and at a quantitative level (availability of an adequate number of professionals/consultantscomparedtothepotentialsizeofthe market).
Another interesting issue is the attempt to export to different geographical areas the virtual synergies which have involved investors, banks and advisors in the national territory.
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78 Investing in renewables
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Country Focus:South Africa
Advantages
•Goodavailabilityofsolarsource(the
best sites have irradiation 30% higher
than the best Italian sites)
•Goodavailabilityoflandfor
installations
•Advantageoustariffs(despitebidding
system) for solar energy
•Entryintoamarketwith42,600MW
of potential new sites by 2030.
(1) Integrated Resource Plan for Electricity 2010-2030, to be revised every two years by the Department of Energy.
Development Plan
The Republic of South Africa has planned(1) that the development of renewable
energy, over the next 20 years, will come to account for 42% of the electric energy
generation plants and 19% of the total electric peak power (see table below).
Table 20Evolution of power plant (power in MW)
Source Existing plants*
New plants (until 2030)
Total (as at 2030)
% of total power plant
Photovoltaic solar 8,400
Concentrated solar 1,000
Wind 8,400
Total renewable 1,000 17,800 18,800 19%
Coal 45,600 6,300 51,900 54%
Nuclear 1,800 9,600 11,400 12%
Hydroelectric 2,150 2,600 ** 4,750 5%
Turbogas (closed + open cycle) 3,400 6,300 9,700 10%
Total other sources 52,950 24,800 77,750 81%
Total power plant 53,950 42,600 96,550 100%
* including those already with authorisation** from import
Government incentive programmes
The Renewable Energy Independent Power Producer (REIPP) Purchase Programme includes the development of a further 3,725 MW of new power
from renewable sources with entry into commercial operation by 2016. The
tariffs will be allocated through five bid rounds to be held by 2013 (precisely on
4/11/2011,5/3/2012,20/8/2012,4/3/2013and13/8/2013).Theminimumsize
for the projects is currently set at 5 MW; the programme for smaller projects is
expectedtobeissuedon23/8/2012.
Table 21Development objectives for renewable power plant and incentives
Renewable source REIPP objectives (MW new power)
Auction-based tariff (euros/MWh)*
Photovoltaic solar 1,450 258
Concentrated solar 200 258
Wind (on shore) 1,850 104
Biomass 12.5 97
Biogas 12.5 72
Landfill gas 25 54
Hydroelectric (small size) 75 93
Other (< 5MW) 100
Total 3,725
* 1 Rand = 0.09 euros
78
Investing in renewables 79
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Authorisations
Authorisation for a renewable energy plant is obtained when the Department of
Energy recognises the status of ‘Preferred Bidder’ within the REIPP Procurement
Programme.
In order to enter the bidding, a project must have obtained final authorisation from
the Department of Environmental Affairs following the Environmental Impact Study;
this can take between 9 and 24 months. Other necessary authorisations are:
• thetechnicalsolutionandthepreliminaryconnectionestimate(issuedbyESKOM)
• depositmadewiththeresponsibleMunicipalityforre-registeringfees(forland
originally for cultivation).
Land
Ownership rights are sanctioned in the Constitution of the Republic of South
Africa (Section 25). Land and property registration is regulated by the 1937
Deeds Registry Act. Most land is privately owned. The purchase of publicly
owned property (government agencies or Municipalities) is subject to public
tender. There are no restrictions on land ownership by foreigners. The land
registration system is reliable and no particular problems arise with regard
to land rights. Ownership is registered at regional level (Regional Deeds
Registries) and documentation may be viewed by the public.
Grid
South Africa’s national public utility (practically a monopoly) is ESKOM, Africa’s
largest electrical energy producer and one of the world’s biggest companies
in terms of production capacity; among other things, it owns and manages a
1.9 GW nuclear power plant in Koeberg (about thirty kilometres north of Cape
Town), currently the only nuclear power plant in South Africa and the whole of
the African continent.
South Africa’s national grid is owned entirely by ESKOM and it is considered
the most advanced on the African continent. In order to satisfy the increasing
demands on the grid for energy distribution, ESKOM has allowed over the next
five years for a budget of around 30 billion euros (300 billion Rands).
NERSA (National Energy Authority of South Africa), founded in 2004, is South
Africa’s Authority for electricity, gas and pipelines. Application for a license to
produce energy must be made to NERSA once ‘Preferred Bidder’ status has been
acquired (in the field of REIPP).
Financial system
The banking system is dominated by five main banks, Standard Bank, ABSA,
Rand Merchant Bank, NedBank and Investec, each one able to provide a range
of funding for renewable energy projects, for example on a non-recourse or
limited-recourse basis.
The ‘go ahead’ for funding is generally achieved with acceptance of the Power
Purchase Agreement for the sale of energy produced.
Solar and wind availability
Figure 10Map of solar radiation in South Africa (annual irradiation)
6,000-6,500 MJ/m2
6,501-7,000 MJ/m2
7,001-7,500 MJ/m2
7,501-8,000 MJ/m2
8,001-8,500 MJ/m2
8,501-9,000 MJ/m2
9,001-9,500 MJ/m2
Annual solar irradiation (1,000 MJ/m2 = 277.8 kWh/m2)
Source: CSIR, Eskom Corporate Technology, Minerals and Energy
Figure 11 Map of average wind speed in South Africa (m/s)
Source: Hagemann (2008)
80 Investing in renewables
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Country Focus:India
Advantages
• Fast-growing nation (PIL increasing at more than 8% per year)
•Goodavailabilityandvarietyof
renewable energy sources: solar
irradiation reaches, in the best
cases,2,500kWh/m2 per year
•Availabilityofhighlyqualifiedand
specialist labour force.
Development Plan
On30/06/2008theNationalActionPlanonClimateChange(NAPCC)was
issued outlining eight National Missions, including the National Solar Mission
(NSM) which aims to promote the use of solar energy to compete with
traditional fossil fuels (grid parity by 2020).
Energy policies are laid down by the Ministry of New & Renewable Energy
(MNRE).Asat31/07/2011twentyplantshadbeeninstalledwithnominal
power of at least 1 MWp for a total of about 45 MWp. Historically, the most
developed renewable resource is wind power (fifth place in the world), while
also the biomass sector, thanks to a still mainly agricultural economy, shows
good development potential. There is also high availability of hydropower
sources.
Incentives are granted for energy produced and inputted into the grid, and
also in the form of Renewable Energy Certificate (REC); furthermore, most
plants using renewable energy benefit from the profits coming from the sale of
carbon credits as per the Clean Development Mechanism.
Table 22 Evolution of India’s power plant (power in MW) and present incentive system
SourceIncentive
(USD cent/kWh)
Existing plants *
Total plants (as at 2020) Variation %
Photovoltaic solar 27-40 4520,000 +44,344%
Concentrated solar 22-31 -
Wind 8-12 14,157 50,000 +253%
Biomass 6-11 2,673 10,000 +274%
Hydroelectric (small) CAPEX 3,043 6,000 +97%
Hydroelectric (large) - 38,106 n.a. -
Total renewable energy (except large hydro) 19,918 86,000 +332%
*AsatJune2011
Government and state-run incentive programmes
•Jawaharlal Nehru National Solar Mission (JNNSM): includes installation
by 2022 of 20,000 MWp of solar power; incentives (feed-in tariff, all-inclusive
tariff) last 25 years. Plants, to have access to the incentives, are admitted to
a procedure incorporating a lowering of the reference tariffs (variable within
therange27-40cents(USD)/kWhforphotovoltaicandwithintherangeof
22-31USDcents/kWhforconcentratedsolar)setbytheCentralElectricity
Regulatory Commission (CERC)
80
Investing in renewables 81
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Table 23Solar power plant development objectives
TypePhase 1
(2010-2013)Phase 2
(2013-2017)Phase 3
(2017-2022)Solar collectors 7 million m2 15 million m2 20 million m2
Off grid plants 200 MW 1,000 MW 2,000 MW
Utility grid power (including roofs)
1,000-2,000 MW * 4,000-10,000 MW 20,000 MW
* In 2011-2012 it is estimated that 350 MW of photovoltaic plants will have access to incentives
• Gujarat State
- Solar Power Policy 2009 (2009-2014): 500 MW of solar generators with
incentives for 25 years
- WindPower Policy 2009 (2009-2012): incentives for 20 years
• Rajasthan State: Policy for Promoting Generation for Electricity from Non-
Conventional Energy Sources (2004)
• Karnataka State: Karnataka Renewable Energy Policy 2009-14 (2009).
Authorisations
In the context of the National Solar Mission, NTPC Vidyut Vyapar Nigam Ltd
(NVVN) issues tenders and stipulates PPA (Power Purchase Agreement)
contracts with the selected companies proposing to install photovoltaic plants.
Selection takes place through the evaluation of technical and financial criteria,
including use of national components. For example, for the period 2011-2012,
projects were chosen for plants with power of between 5 and 20 MWp,
connected to 33 kW grids which, at the time of application, had already been
successively evaluated for interconnection by Transmission Utility. The PPA
tariff is defined by the CERC (Central Electricity Regulatory Commission) so
as to avoid having to lower the total power of the successful plants in order
to make sure they all fall within the maximum power for which incentives can
be granted (in a single tender): to this end those plants which have offered the
greatest discount on the CERC tariff (bidding system) are preferred.
At the end of the selection process, a Letter of Intent is signed between NVVN
and each of the selected companies, and within a month the actual PPA is
reached. The date of signing of the PPA is the date of reference for financial
closing (within 210 days of signing the PPA) and for the plant to become
operational (within 13 months of signing the PPA).
Grid
At present there is no electric grid unified at national level; in 1989 Powergrid
Corporation of India Ltd was commissioned to bring together the regional grids
(five in total: NR Northern Region, ER Eastern Region, WR Western Region, SR
Southern region and NER North-East Region).
Banks
92% of the sector is under state control (there are, for example, nineteen
nationalised banks), even if at the beginning of the 1990s the drive towards
liberalisation brought about the creation of some private banks.
Solar and wind source availability
Figure 12Map of solar radiation in India (annual irradiation)
Accumulated annual average (2005-2010)
Source: GeoModel Solar
Figure 13 Map of average wind speed in India (m/s)
0.0 – 2.0 m/s
2.0 – 2.5 m/s
2.5 – 3.0 m/s
3.0 – 3.5 m/s
3.5 – 4.0 m/s
4.0 – 4.5 m/s
4.5 – 5.0 m/s
5.0 – 5.5 m/s
5.5 – 6.0 m/s
> 6.0 m/s
Source: AL-PRO
<1,2501,4001,5501,7001,8502,0002,150<kWh/m2
82 Investing in renewables
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Country Focus:Israel
Advantages
•Goodavailabilityofsolarsource
(best sites have irradiation 15% hi-
gher than the best Italian sites)
•Entryintoamarketwithpotential
for new plants with 300 MW by
2017.
Development Plan
The total peak power supply in Israel in 2010 is about 13,000 MW, with a
total national energy production of 56,432 GWh. The current main energy
sources are gas and coal, accounting respectively for 39.8% and 37.9% of the
energy supply installed in Israel (Table 24). Until 2010, renewable sources and
hydropower accounted for less than 1% of energy resources.
The Ministry of National Infrastructure (MNI) of Israel planned (‘Policy of MNI to
incorporate renewable energies in the electricity production sector’, February
2010) the development of renewable energy, and in the next ten years it
should account for 10% of the country’s total energy production. Israel looks
mainly towards solar power (1,750 MW planned by 2020).
Table 24 Evolution of Israel’s power plant (composition %)
Source 2001 2005 2010Coal 50.0% 48.4% 37.9%
Gas oil 22.6% 10.3% 3.4%
Fuel oil 27.4% 28.4% 18.9%
Gas - 12.9% 39.8%
Total 100.0% 100.0% 100.0%
Table 25 Evolution of the demand for electrical energy (TWh) and of the power plant in Israel (power in MW per source)
Renewable source 2014-2015 2016-2017 2018-2019 2020% of peak
power 2020
Total electrical energy demand (TWh) 60.4 61.5 64.5 64.3
Wind power 250 400 600 800 29.0%
Biogas and biomass 50 100 160 210 7.6%
Solar thermic and large photovoltaic plants
700 750 1,000 1,200 43.5%
Medium photovoltaic plants 350 350 350 350 12.7%
Small photovoltaic plants 200 200 200 200 7.2%
Total renewables 1,550 1,800 2,310 2,760 100%
% production in renewables 5.3% 6.5% 8.3% 10.2%
82
Investing in renewables 83
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Availability of solar source
Figure 14Map of solar radiation in Israel (annual irradiation)
Total irradiation (kWh/m2)
Source: Ecole de Mines de Paris
<1,200 1,400 1,600 1,800 2,000 2,200 2,400 2,600 2,800>
Government incentive programmes
• Decision of the board of Public Utilities Authority – Electricity (28 December 2009): the plants are classified as ‘small’ (up to 50 kWp),
‘medium’ (up to 5 MWp) and ‘large’. Medium and large plants input all the
energy produced into the grid (unlike the small plants) and the energy they
produce is repaid through a feed-in tariff. The incentive system sets a base
tariff(1.49NIS/kWh),updatedeveryyearinlinewithinflation,theEuro/NIS
andUSD/NISexchangerates,andadecrementalfactor.Thedecrementis
applied until either:
- a cap of total peak power (300 MWp) is achieved or
- the year 2017.
Table 26 Incentive system: reference scheme (MW)
Year Maximum annual quantity Accumulated quantity
2010-2011 50 50
2012 65 115
2013 85 200
2014 100 300
The decrement is bound by further annual caps on accumulated power until the
point shown in Table 26 is reached.
If the power cap of a given year is reached before the end of the year, the tariff
for the following candidate will be that set for the following year.
The tariff is recognised from the moment that the Provisional Tariff Approval
is issued. The tariff is for twenty years from the date that the plant becomes
operational. A time constraint exists in that it is necessary to prove to the
Public Utility Authority-Electricity (PUA) that the forms and inverter have been
handed in on site no later than eight months from the financial closure. What is
more, connection to the grid cannot be more than 42 months from the date of
issue of the Conditional License.
National Outline Program 10/D/10 for PV installation (December 2010):
this document provides guidelines for the construction of photovoltaic
plants and promotes the use of this type of energy source minimising the
environmental impact. In particular, instructions are given for obtaining building
permits for plants on roofs and walls of commercial buildings, and special
installations such as deposits, cisterns, car parks etc.
84 Investing in renewables
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(1) Source: Israel Electric Corporation (2009 figures)(2) Source: Business Atlas 2010(3) Source: BOI news releases
Authorisations
For plant authorisation it is necessary to first obtain a Conditional License,
issued by the PUA and which must be countersigned by the MNI, in order to
operate as an Independent Power Producer (IPP) of solar energy. In this stage
the applicant must show that there exists a link with the area on which the
plant is to be built (preliminary agreement with the owners) and that it holds
at least 20% of the investment value in equity, with as reference a normative
costof5,000USD/kWp.ThisfigurehasbeenrecentlyupdatedbythePUA
fortheyearsafter2011:3,700USD/kWp(2012),3,480USD/kWp(2013)and
3,270USD/kWp(2014-2015).TheapplicationforProvisionalTariffApproval
may be made with or without funding. In order to not lose the provisionally
recognised tariff it is necessary to stipulate a Power Purchase Agreement (PPA)
for withdrawal of the energy by the grid company (IEC) and any funding within
ninety days.
Authorisation for plant operation is granted once the Operational Permit is
recognised by the MNI.
Other necessary authorisations are:
• technicalsolution(Technical Coordination Appendix) and the preliminary
connection estimate
• feasibilityStudybytheIEC,onlyiftheplantisconnectedinMT
•checkandgo-aheadofIECbeforeobtainingtheOperationalpermit.
Land
Most land is publicly owned. Land is easily rented for long periods (up to 90 years):
land purchase, on the other hand, is subject to detailed procedures depending on
municipal, regional and national regulations, and is greatly conditioned by the very
scarcity of land. For this reason, the relative cost of purchase can be very high.
Ownership is registered at municipal and regional level and documentation is
available for public viewing.
Grid and Authority
Israel’s national grid company is the Israel Electric Corporation (IEC), the country’s
only integrated electric utility and almost entirely state owned (99.85%). Established
in 1923, IEC is one of the largest industrial companies in Israel and owns the national
distribution and transmission grids. Furthermore, it owns and manages the seventeen
main generating plants (including the five large thermoelectric plants)(1) with a total
production capacity of about 11,000 MW (13,000 MW estimated for 2012). The main
sources of generation are also coal and gas.
In addition to IEC, the generation sector includes private investors (IPP Independent
Power Producer); the State depends on them for satisfying a part (target of 20%) of
the national energy demand, which from 1999 to 2009 increased at an annual rate
of 3.6%.
Wind power availability
Figure 15Map of average wind speed (m/s) in North Israel
Average wind speed – 50 m
-1 – 1 m/s
1 – 3 m/s
3 – 4 m/s
4 – 6 m/s
6 – 8 m/s
Red dots indicate zones with greatest potential at height of 50 m
Source: Gotland University
Figure 16Map of average wind speed (m/s) in the Northern Area of the West Bank on the border with Jordan
Average wind speed – 50 m
3.8 – 4.4 m/s
4.4 – 5.0 m/s
5.0 – 5.6 m/s
5.6 – 6.2 m/s
6.2 – 6.8 m/s
6.8 – 7.4 m/s
Orange dots indicate zones with greatest potential at height of 50 m
Source: Gotland University
Investing in renewables 85
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The national distribution medium tension grid varies between 22 kV and 33 kV (and
12.6 kV in some urban areas), and a production plant (or a consumer) of up to 12
MVA can normally connect to this grid. Plants of up to 630 KVA can connect with
the grid in BT, while over 630 kVA and up to 12 MVA, the connection must be made
in MT or above.
The Israeli Authority (for electricity) is the Public Utility Authority – Electricity (PUA).
It receives license applications for energy production as an Independent Power
Producer andapplicationsforaccesstotheincentivetariffsintroducedinJune2008
for producers of solar power.
Banks
The banking sector is dominated by three main banks: Bank Hapoalim, Bank Leumi
and Israel Discount Bank(2), which account for about 76%(3) of all the commercial
banking business in Israel, and finance renewable energy (in particular solar power).
The two other important banks are United Mizrachi Bank and First International
Bank of Israel. These five major banks control about 96%(3) of the banking sector in
Israel.
The international banks most active in the country are City Bank, BNP Paribas,
HSBC. The essential requirement for the sponsor in order to obtain funding for
photovoltaic solar plants is having a ‘Provisional Tariff Approval’ recognised by the
PUA. The timescale for financial closure is closely linked to the ‘Provisional Tariff
Approval’, which is confirmed by the PUA only if within 90 days the funding is
finalised and the Power Purchase Agreement signed with IEC for the sale of the
energy produced.
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Current situation and Development Plan
Brazil is one of the ‘emerging’ countries known as ‘BRICS’ (Brazil, Russia,
India, China, South Africa).
Regulation of the electric energy sector in Brazil began, in 1996, with the
creation of ANEEL, the National Electric Energy Agency, which is responsible
for regulating and supervising the production, transmission, distribution and
sale of electric energy, as well as for regulating the concessions of public
services associated with it.
Brazil has large reserves of petroleum, but it is also the world’s biggest
producer of biofuels and has enormous hydropower and wind resources. It is
a leader in the sector of renewable energies, which satisfy about 45% of the
domestic energy demand.
With regards to the production of electric energy, renewable energy sources
account at present for around 84% of the peak power in the country, about
76% of which is represented by large hydro, 4% by biomass, 3.5% by small
hydro and a smaller percentage by wind power (data from 2010).
InJanuary2010theBrazilianEnergyMinisterlaunchedanewten-yearplan
for energy expansion by 2020 (PDE 2020) which, in response to an expected
increase in demand and supply of energy resources during the next ten years,
establishes an investment plan for the creation of new infrastructures for
energy supply (see table below in MW).
Table 27 Evolution of power plant (power in MWp)
Source Existing MWp (2010)
New MWp (2010-2015)
New MWp (2015-2020)
Total (2020) Variation %
Biomass 4,496 2,857 1,810 9,163 103.8%
Wind 831 6,191 4,510 11,532 1,287.7%
Small-scale hydroelectric 3,806 1,151 1,490 6,447 69.4%
Hydroelectric 82,939 11,114 21,070 115,123 38.8%
Natural gas 9,180 2,479 0 11,659 27.0%
Coal 1,765 1,440 0 3,205 81.6%
Oil fuels 2,371 6,419 0 8,790 270.7%
Diesel 1,497 -376 0 1,121 -25.1%
Process gas 686 0 0 686 0.0%
Nuclear 2,007 0 1,405 3,412 70.0%
Total renewables 92,072 21,313 28,880 142,265 54.5%
Total other sources 17,506 9,962 1,405 28,873 64.9%
Total renewables + other sources 109,578 31,275 30,285 171,138 56.2%
Country Focus:Brazil
86
Advantages:
•Gooddevelopmentpotentialof
the various technological options,
especially in a very promising wind
market, with installation potential,
by 2020, of around 11 GW
•Goodavailabilityoflandforplants
•Presenceofaconstantlyexpand-
ing domestic consumption market
• Increasingimportanceintheworld
economic scene and increasing
economic development
•Highpotentialofthephotovoltaic
sector, particularly suited for the
electrification of internal rural ar-
eas, where connection to the na-
tional grid would be too expensive.
Investing in renewables 87
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Graph 26 Evolution of power plant (power in MWp)
11 232.50
50,000
100,000
150,000
200,000
Existing MWp(2010)
Renewables Other
New MWp(2010 - 2015)
New MWp(2015 - 2020)
Total(2020)
[MW
p]
2311
92,072
142,265
17,50621,313 28,880 28,8739,962 1,405
Government incentive programmes
• Programma de Aceleraçao do Crecimiento 2 (PAC2). The programme,
launched in 2010, includes two phases for investments: the first between
2011 and 2014 and the second after 2014, to a total value of 1,590 billion
Reais (around 680 billion euros). PAC 2 defines six priority sectors, including
energy, construction and transport. The majority of investments will be
destined for energy projects, to a total value of 1,092 billion Reais (around
470 billion euros).
For the production of electric energy, the creation of 76 power stations is
planned for a total peak power of approximately 26,252 MW.
•Bill 2562/2011. While awaiting the final word of the Mining and Energy
Commission following recent approval from ANEEL, the bill establishes
the energy compensation system for those generation plants which use
renewable energy (mini-hydro, solar, biomass, wind and cogeneration), up
to a maximum of 1 MW. Energy produced and not consumed by the unit of
installed generation capacity will be put into the distribution system and a
credit recorded to be used up within 36 months. Photovoltaic plants up to a
maximum of 30 MW will be exempt from tax for use of the network, with
the possibility for tax payers to deduct from their income tax, up to 2020, a
part of the costs relative to goods and services needed to use solar energy.
A progressive deduction is planned, starting at 25% and up to 100% for
individuals and small businesses.
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•Carta do Sol.ApprovedbytheBrazilianstateofRiodeJaneiro,thedocument contains 14 proposals to promote the photovoltaic technology
within its own territory. The proposals include, in particular, exemption from
charges for distribution and transmission of electric energy and inclusion of
photovoltaic in the Programa de Incentivo de las Fuentes de Energia Electrica
(Proinfa), a programme established in 2002 with the aim of promoting
renewable sources, in particular wind, biomass and small hydro.
Authorisations
The Brazilian electric energy sector is regulated by the Federal Government
which operates through the Mining and Energy Ministry (MME), responsible for
development policies, and through ANEEL.
ANEEL, acting as an independent regulator, delegated by the Federal
Government, is responsible for holding public tenders (auctions) for the
construction and maintenance of the new segments of the Brazilian RTN
(National Transmission Network) and for handing out and supervising
concessions for the production, transmission and distribution of electric energy.
In order to participate in the auction, a project must obtain an environmental
license, including an environmental impact study carried out by independent
experts, and which must be given to the federal or state authorities for
appraisal and approval.
The approval procedure is divided into three stages:
1) initial provisional license following assessment of the project’s
environmental feasibility
2) installation license
3) operating license.
In particular, the environmental license is granted by the Brazilian Institute
for the Environment and Renewable Natural Resources (IBAMA), executive
organ of the National Environmental Agency (SISNAMA) which carries out the
national environmental policy and is responsible for verifying, monitoring and
promoting the use of Brazil’s natural resources.
Land
In Brazil, land ownership is certified by property deeds, duly registered in the
competent Property Register.
With regard to urban property, each city has its own development plan
(‘Plano Diretor’) which defines the intended use of each area: residential,
commercial, industrial and agricultural. As for rural areas, if by definition they
are not destined for urban development, they may be considered agricultural
or protected reserve. In Brazil it is forbidden for persons not resident in
thecountrytopurchaseareasdefinedasrural,aslaidoutinlawn°5709/
71, except in the case of legitimate succession. Consequently, a foreigner
must create a Brazilian company which is the legal owner of the property, or
alternatively be already resident in Brazil.
Investing in renewables 89
© 2011 KPMG Advisory S.p.A., an Italian limited liability share capital company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Brazilian companies, with majority ownership of foreign capital, may be
subject to restrictions for purchase, which must be approved by the Ministry
of Agriculture and by the Department of Commerce and Industry in Brazil,
depending on the circumstances. The president of the Republic may permit
exemptions when a project is in the interests of national development.
Grid
In Brazil, the electric energy sector, with particular reference to generation and
transmission, is dominated mainly by large Government-controlled companies,
above all Eletrobras owned by the federal government, but also other state-
owned companies, while a smaller proportion of the assets is currently in the
hands of private investors.
The companies (or agents) are classified according to their activities:
generation, transmission, distribution.
In 2004, the federal Government established a new model for the Brazilian
electric sector and defined the creation of two energy trading markets: a
regulated environment (RCE), where a pool of distributors purchases energy
from the producers in public auctions, and a free trading environment (FCE),
where consumers, traders and free producers, can freely negotiate contracts.
The Chamber of Electric Energy Trading (CCEE) was created under law 10848,
in March 2004, and is responsible for administrating and regulating both trading
environments under the supervision of ANEEL.
Requests for licenses for new production plants are made to ANEEL.
Banks
The National Bank for Economic and Social Development (BNDES), created
in 1952, with the aim of implementing the investment policies of the Federal
Government, is one of the main funding agencies for the development of
Brazil. In 2011, BNDES received a loan to the value of 500 million euros
from the European Investment Bank (BEI) with the aim of contributing to the
development of renewable energies and energy efficiency in the Country.
Thanks to this loan, the Brazilian bank is able to back small and medium
investments; in particular various investment programmes will receive funding
in the sectors of renewable energy and energy efficiency.
The selection of the projects which must be carried out in Brazil will be
entrusted to BNDES, on the basis of the criteria for eligibility established in the
loan contract undersigned with the BEI.
Solar and wind source availability Figure 17 Map of solar radiation in Brazil
Source: Atlas Brasileiro de Energia Solar – 1st edition 2006
Figure 18 Map of average wind speed (m/s) in Brazil
Source: CRESESB
3.153.503.854.204.554.905.255.605.956.306.65KWh/m2
<3.5 4 4.5 5 5.5 6 6.5 7 7.5 8 8.5 >9
The analyses contained in this publication come from publicly available data and information, for which KPMG Advisory S.p.A. cannot guarantee the accuracy, completeness and correctness. This publication is neither a sales offer nor a solicitation for purchases of any type. Similarly, it does not intend to provide any suggestions or recommendations in terms of operational decision making or investment. KPMG Advisory S.p.A. will not accept any responsibility for loss or damage deriving from the improper use of this report or the information contained herein. © 2011 KPMG Advisory S.p.A., an Italian limited liability share capital company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
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