Aug 16, 2006

Italian Firm Plans Solar-Energy Farm

Wall Street Journal
August 16, 2006
By Sofia Celeste

MILAN-If renewable-energy company Italgest Energia SpA has its way, the southern Italian region of Puglia soon will play host to a solar-energy farm spanning nearly a square kilometer with a production capacity of 11 megawatts.

Italgest Chief Exexutive Paride De Masi said the $108 million project is a step toward alleviating Italy's dependence on foreign supplies of natural gas. Local politicians are keen on the project because they hope the photovoltaic plant and its related side industries will draw other high-tech enterprises to the underdeveloped region.

Despite growing consumer demand for environmentally friendly power, the solar plant wouldn't be possible without government incentives meant to reduce Italy's dependence on foreign energy and lessen production of greenhouse gases.

Italgest's project is one of many renewable-energy projects that have sprung up in Italy since the government declared a state of emergency at the beginning of 2006 after disruptions in its gas supply from Russia. Solar energy is likely to play a key role in increasing the output of renewable energy.

Since Italy banned nuclear power in 1987, more than 73% of the country's electricity has come from natural gas and oil. Hydroelectric and geothermal power are currently the main sources of renewable energy, with hydro accounting for more than 70% of the whole renewable market. However, bothtypes of generation offer very little prospect of growth, energy analysts said.

Despite Italy's sunny climate, solar power so far has failed to get off the ground because of the high costs of installation: solar energy can cost as much as $9.25 per kilowatt peak, compared with $1.59 per kilowatt for wind power, according to APER, Italy's Association for Producers of Renewable Energy.

Energy companies wouldn't be eager to venture into renewable energy, without government incentives, according to Massimo Orlandi, chief executive of Sorgenia SpA, the electricity-and-gas arm of holding company Compagnie Industriali Riunite SpA, which is planning to build 15 photovoltaic plants across southern Italy by the end of next year.

Without government incentives "it would be way too expensive," Mr. Orlandi said.

A one-megawatt solar plant, for example, can earn a "feed-in tariff" of 49 European cents for every kilowatt-hour produced, with the money coming as a surcharge on consumer electric bills.

The 11-megawatt plant Italgest is planning for Puglia could make the company eligible for "green certificates" or a government return valued at 11 European cents for every kilowatt-hour generated.

Another incentive, at least in less developed regions like Puglia, is available from the European Union, which in April allocated $1.778 billion to encourage economic development.

The Italian state-owned Electric System Operator said the availability of EU money has prompted nearly 3,000 applicants for small photovoltaic plants that would benefit from the grant program.

The scale of the Italgest plant has led the company to consider constructing a factory to produce enough siliconcell solar panels to supply it. Mr. DeMasi said that would make Puglia hub for the innovation and study of photovoltaic energy. It "will bring the know-how to Puglia," a region with an unemployment rate of 14.6%, one of the highest in Italy.

Regional counselor Michele Losappio said the regional government probably will approve the Italgest plant within six months because it "provides an alternative source of energy," to the carbon plants that have been polluting the region for nearly 30 years.

Electrotechnologic professor Alberto Reatti of the University of Florence said photovoltaic-energy projects like the Italgest plant have the potential to "bring Italy back to the carbon-emission levels of 12 to 15 years ago."

But environmentally friendly initiatives like these don't come cheap.

Alessandro Brusa, chief executive of APER, said the production cost of solar energy can cost nearly 25 European cents a kilowatt hour more than gas-generated energy. Solar energy costs about 35 European cents a kilowatt hour, compared with seven to nine European cents a kilowatt hour for gas-generated energy.

The cost of photovoltaic-generated power is likely to increase by about 6% or 7% in the next two years because of a world-wide shortage of the silicon used to make photovoltaic cells, said Leonardo Berlen of the Italian section of International Solar Energy Society.

"Right now the major challenge is the development of more silicon," Mr. Berlen said.

Mr. De Masi said it will be about seven or eight years before the Puglia plant would turn a profit.

In order to build the plant, Italgest plants to fund 20% from equity and obtain bank financing for the remainder.

Although the project currently hasn't received EU or national government funding, the plant may benefit from Italy's Law 488, which gives investors breaks on interest rates of as much as 50%. The law aims to aide enterprises that seek to bring more jobs and strengthen economies in underdeveloped regions like Puglia. Construction will take an estimated 30 months to complete after the plant secures approval from the regional government, Mr. De Masi said.`

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