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- Reference market
Reference market (1) 2017 2018 Italian Renewable Energy Sources Market ((2) (GWh) Generation from renewable sources(3) 85,618 88,932 of which: Hydroelectric 37,530 43,785 Geothermal 5,785 5,867 Wind 17,492 17,523 Photovoltaic 24,811 21,757 Sale prices (Euro/MWh) Reference price of electricity - Italy (baseload) (4) 54.0 42.8 Feed-In Premium (former Green Certificates) - Italy 107.3 100.1 Electricity price - Central-South zone 51.6 41.6 Electricity price - South zone 49.8 40.4 Electricity price - Sicily 60.8 47.6 Electricity price - Sardinia 51.5 41.6 Average unit value of sale of ERG energy - in Italy (5) 147.1 139.0 Feed in tariff - Germany(6) 91.7 92.6 Feed in tariff - France(6) 88.3 88.7 Feed in tariff - Bulgaria(6) 81.9 84.0 Electricity price - Poland 36.5 33.4 Certificate of origin price - Poland 8.5 10.8 Electricity price - Romania (7) 28.7 27.3 Green Certificate price - Romania (8) 29.0 29.5
(1) Estimated output for December
(2) Source: Terna S.p.A. monthly report on the electrical system. Estimated data. subject to correction
(3) Sources considered: hydroelectric. geothermal. wind power and photovoltaic
(4) Single National Price - Source: GME S.p.A.
(5) The average value in Italy does not consider the Feed in Tariff of 123.8 EUR/MWh acknowledged to the Palazzo S. Gervasio plant
(6) The values of the Feed-In Tariff abroad refer to the prices obtained by the wind farms
(7) The Romania price of electricity refers to the price fixed by the company via bilateral agreements
(8) Price referred to the unit value of the green certificate (the number of green certificates recognised and the timeline are discussed in the section describing the scenario in Romania)
- Market scenario in ItalyIn 2017, 32% of (net) domestic electricity output of 213,108 GWh (+3.6%) was covered by renewable sources. In particular, 14% of the output derives from hydroelectric power, 6% from wind farms, 10% from photovoltaic plants and 2% from geothermal sources.
Compared to 2016, photovoltaic generation grew (+13%), while hydroelectric power generation declined (-12%) as did wind (-7%) and geothermal power generation (-2%).
Non-programmable sources - Regulatory scenario
- ItalyIn Italy, for plants powered by renewable sources in operation no later than 201218 and entitled to receive Green Certificates (GCs), the incentive system calls for the conversion of these certificates into a feed-in premium (FIP) starting from 2016 and for the residual period of entitlement to incentives. With regard to the value of the 2017 FIP, the Authority disclosed, by means of resolution 31/2017/R/EFR dated 27 January 2017, the average annual value recorded in 2016 for the electric power sales prices for incentive purposes, amounting to 42.38 EUR/MWh.
Therefore, the value of the 2017 incentives, equal to 78% of the difference between 180 EUR/MWh and the average annual sale price of electricity in the previous year19, amounts to 107.34 EUR/MWh. Pursuant to Italian Ministerial Decree of 6 July 2012, wind plants with more than 5 MW capacity built from 2013 onwards (starting operations after April 2013) instead shall gain access to the incentives by participating in a Dutch auction. The Italian Ministerial Decree of 23 June 2016 regulated the auctions that were held in 2016.
With regard to the rules on imbalances, with resolution 419/2017 of 8 June 2017 the Authority for Energy prescribed a revision of the procedures for calculating the current aggregate zonal imbalance sign based on the energy balance of the macro-zone; this new method of calculation came into force on 1 September 2017. From that date onwards, the ‘single price' procedures for the setting of the imbalance price for all units not eligible (both production and consumption) entered back into force.
The Authority also introduced a macro-zonal no-arbitrage consideration in order to put a stop to any arbitration between zonal prices within the same macro-zone. In April 2017, the AEEGSI notified the involved companies ERG Hydro S.r.l. and ERG Power Generation S.p.A. of the resolutions issued within the scope of the procedures started with resolution no. 342/2016 for the timely adoption of prescriptive and/or asymmetrical regulation measures and the assessment of potential abuses in the electricity wholesale market in accordance with (EU) Regulation no. 1227/2011 (REMIT), potentially committed in the recent past by some electric market operators (including ERG Power Generation S.p.A. and ERG Hydro S.r.l.).
The main elements of the above-mentioned deeds are the modification of the methodology used to define the results of the assessment with respect to that used in the communications sent to said companies in September 2016, and a specific indication of the non-existence of unlawful behaviour pursuant to (EU) Regulation no. 1227/2011 (REMIT).
With the two successive resolutions approved in January and February 2018, the Authority closed the procedures related to the prescriptive measures for ERG Hydro S.r.l. and ERG Power Generation S.p.A. By the end of February, Terna is expected to quantify the value to be returned as a result of the two indicated resolutions. It is estimated that any economic impacts are not significant.
- GermanyThe incentive system for wind power in Germany is of the feed-in tariff/feed-in premium type, based on the plant's date of entry into operation:
• plants that entered into operation by July 2014 access FIT tariffs and, on an optional basis, FIP tariffs plus a management premium (EEG 2012);
• plants that entered into operation from August 2014 to December 2016 may benefit exclusively from an FIP tariff pursuant to EEG 2014;
• plants that entered into operation from 2017 onwards access FIP incentives through Dutch auctions pursuant to EEG 2017.
For wind power plants authorised by the end of 2016 and in operation by 2018, a transition period is provided, in which it is possible to continue to benefit from the tariffs set out in the EEG 201420 with decreasing value in relation to the actual new power installed in the period. The tariff in force at 1 January 2017 for plants covered by the transitional rules is 83.8 EUR/MWh for the first five years of operation, and 46.6 EUR/MWh for the following 15 years.
Application of the maximum tariff prescribed for the first 5 years can be extended to the remaining period: the extension varies according to the ratio between the actual hours of operation of the plant and the reference hours (i.e. 3,300 hours)21.
For plants that access the auction system, the 20-year incentive is equal to the FIP awarded, corrected by applying an adjustment factor specific to the plant, based on the actual wind strength of the site (Reference Revenue Model), which can be revised every 5 years based on the plant's actual yield in the previous 5 years of operation.
The starting bid price for wind power auctions for 2017 is 70 EUR/MWh for a total amount of 2,800 MW. In the three sessions of 2017, the average award values declined progressively, and in November 2017, they reached 38.2 EUR/MWh (the average award value of the May and August sessions equalled respectively 57.1 EUR/MWh and 42.8 EUR/MWh).
Citizens Energy Companies (Cooperatives), unlike the other operators who are awarded the price offered on the basis of the "pay-as-bid" mechanism, obtain the national marginal price and, for the exemption from the obligation to obtain the authorisation before the auction is conducted, they had nearly all the amounts envisioned recognised. In July 2017, the German Parliament approved certain amendments to the EEG 2017, providing, inter alia, that, from 2018, in order to be able to participate in auctions, the Cooperative's projects must have been awarded the environmental authorisation (BImschG, abbreviation of Bundes-Immissionsschutzgesetz, federal pollution control act). In light of the low award values reached in the 2017 auctions, BNETZA (the German Regulator for network services) decided to raise the starting bid price for 2018, from 49 EUR/MWh prescribed by the EEG (i.e. the average of the three highest tariffs awarded in the three previous auctions increased by 8%) to 63 EUR/MWh, for all auctions to be carried out in 2018 (1 February, 1 May, 1 August and 1 November 2018). Four auctions will be held in 2018 and 2019 (1 February, 1 May, 1 August and 1 October), for a total amount of 2,800 MW/year, and three in 2020 (1 February, 1 June, 1 October) for an amount of 2,900 MW/year also planned for the following years.
Between 2018 and 2020, multi-technological auctions are planned for on-shore wind power and photovoltaic for a total amount of power of 400 MW. The assigned volumes shall be deducted from the respective annual amount reserved to the specific technology. The goals to reach a portion of renewable energy sources of 40-45% by 2025, of 55-60% by 2035, and of 80% by 2050.
20 In this regard the BNetzA announced that: (i) 8,365 MW of new wind capacity should start operations between 2017 and 2018 (5,000 MW in 2017 and 3,365 MW in 2018) accessing the FIP in accordance with the 2014 EEG; (ii) 475 MW of capacity, which would have been entitled to access the FIP under the 2014 EEG, instead opted to participate in the auctions to be held in 2017-2018.
21 The ratio between actual hours of operation of the plant and the reference hours (amounting to 3,300 hours) fluctuates between a minimum value of 80% (below which the maximum tariff shall be applied to the entire duration of the incentive period) and 150% (above which the maximum tariff shall be applied only in the first 5 years).
- FranceThe incentive system for on-shore wind power is of the feed-in tariff (FIT) type, governed by the Decree of 17 June 2014, for plants that stipulated the application to purchase electricity generation by December 2015, and of the FIP type plus a premium (with a total value in line with the FIT pursuant to Decree dated 17 June 2014), for plants that finalised or submitted the application to purchase electricity generation in 2016, pursuant to the Decree of 13 December 2016.
The feed-in tariff (FIT) pursuant to Decree dated 17 June 2014 is disbursed for 15 years and is defined based on the year the application to purchase electricity production was made and updated annually according to a formula tied to the index of hourly labour cost and to the index of the production prices of industrial products. After 10 years of operation, the tariff, determined based on the year the application was made, will be reduced for the subsequent 5 years of the incentive based on the wind farm's actual load factor if the annual number of hours of operation exceed 2,400 (otherwise, the initial tariff will also be confirmed for the subsequent 5 years of operation).
The system of FIP plus premium introduced with the decree of 13 December 2016 (which is applied to plants with acquisition application finalised or filed in 2016) comprises multiple components: the incentive component (complément de rémunération), calculated as the difference between the current FIT (amounting to approximately 81 EUR/MWh) and the average monthly price of energy weighted on the national wind power profile, plus the management premium of 2.8 EUR/MWh, to cover the costs for managing the sale of energy. The total value of that incentive is in line with the FIT pursuant to the Decree of 17 June 2014. In May 2017, the CRE (French Energy Authority) published the procedures for the Dutch auction system for accessing the new twenty-year FIP incentives for on-shore wind power plants made up of more than 6 wind turbines or individual wind turbines with capacity greater than 3 MW each.
The first auction session took place on 1 December 2017 with a quota of 500 MW and a basic auction price of 74.8 EUR/MWh, while the last auction is scheduled for 1 June 2020. The aim is to use this mechanism to develop 3 GW of on-shore wind capacity over the years 2017-2020. In December 2017, the CRE also regulated the procedures on multi-technological auctions for access to the FIP for new wind farms and FV with power between 5 MW and 18 MW scheduled for September 2018.
The amount made available is 200 MW and there will be a Cap and Floor for the bid, respectively amounting to 90 EUR/MWh and 40 EUR/MWh. The decree of 6 May 2017 instead regulated access to the new FIP for on-shore wind power plants made up of a maximum of 6 wind turbines with up to a maximum of 3 MW of power each, that have submitted a request to EDF for access to the FIP starting from 2017. The value of the FIT, on the basis of which the incentive component (complement de rémunération) is calculated, depends on the diameter of the turbine rotor, as well as the annual production of the plant, which, if it exceeds a certain production threshold (limit), incurs a reduction for the excess energy produced.
As regards the climate objectives, the energy transition law of July 2015 set ambitious targets for the reduction of emissions (-40% by 2030 compared with 1990), reduction of fossil fuel consumption (-30% by 2030 compared with 2012), reduction of energy consumption (-30% by 2030 and -50% by 2050, compared with 2012), reduction of nuclear energy generation (-50% by 2025) and increase in renewable energies, which were then confirmed in October 2016. The targets for growth in on-shore wind power are as follows: 15 GW by 2018 and between 22 to 26 GW by 2023 (from the current 11 GW of installed wind power).
Off-shore wind power should reach 3,000 MW by 2023, while photovoltaic power should rise from 6,200 MW to 18,200 MW or 20,200 MW, again by 2023. Based on these growth targets, France thus aims to reach 2030 with a total installed capacity from renewable sources of 175 GW.
- BulgariaFor onshore wind farms, current regulations prescribe a feed-in tariff (FIT) in brackets based on hours of operation, which is constant in nominal terms. The duration of the incentive varies based on the date of entry into operation, and can be equal to 12 years (Hrabrovo plant) or 15 years (Tcherga plant).
In particular, below the first bracket (on average equal to approximately 2200 equivalent hours of operation annually), the FIT recognised amounts to approximately 97 EUR/MWh, while the changes to legislation significantly reduced revenues for higher production levels.
These legislative amendments are currently the subject of an appeal by renewable source producers. On 2 March 2015, an amendment to the legislation was approved which does not permit access to the incentive system for the new plants. This measure, which did not have retroactive impacts, is justified by the achievement of the 2020 objectives already in 2013.
- RomaniaAt the end of December 2016 the Government approved the mandatory quota for purchase and cancellation of Green Certificates for operators selling electricity and for large consumers. That quota, at 12.15% in 2016, was reduced to 8.3% for 2017.
Following the verification of compliance with EU rules on State aid by the European Commission, at the end of March 2017 the Romanian Government published Emergency Ordinance 24/2017 which introduced important amendments to law no. 220/2008. The main changes concern:
• the lengthening of the recovery period of the GCs withheld from 1 July 2013 to 31 March 2017 (which must take place at constant instalments through the years 2018-2025);
• the period of validity of the GCs, which is extended to 31 March 2032 (only the GCs issued before 31 March 2017 maintain the validity of 12 months);
• the cap and the floor between which the price of the GCs may fluctuate, set respectively at 35 EUR/MWh (from 57 EUR/MWh) and 29.4 EUR/MWh (from 27 EUR/MWh);
• the definition of the mandatory quota, which from 2018 onwards shall be determined according to a pre-set fixed volume of GCs on the market and a maximum average expense on the end consumer that may not exceed 11.1 EUR/MWh;
• the creation of two "anonymous" centralised markets to trade GCs starting from September 2017: the Anonymous centralised forward market of bilateral GC contracts (PCTCV) and the anonymous centralised spot market of green certificates (PCSCV).
In May and June 2016 the Polish Parliament, on an initiative by the Ministry of Energy, approved a set of amendments to both the Wind Turbine Investments Act (WTI Act) and the Renewable Energy Sources Act approved in 2015 (RES Act). The amendments, promoted by the current conservative, anti-European government, have a negative impact on the profitability of existing plants and risk compromising further development of on-shore wind power in the country. In particular:
1. a prohibition from installing new turbines within set distances from buildings, forests or protected areas is introduced;
2. taxation on real estate and similar is increased from 2017;
3. the new rules on minimum distances are not applicable to plants that have already obtained a construction permit that are not subject to changes. Otherwise, plants that are not yet in operation must comply with the new regulations;
4. less strict requirements are set out for the definition of dedicated co-combustion, possibly reducing the effectiveness of the rule which halved the number of Certificates of Origin recognised to "non-dedicated" co-combustion;
5. the principal of technological neutrality of the auctions, which was featured in the first version of the Law, is eliminated in favour of an approach based on technology baskets;
6. higher priority is granted to renewable technologies with high load factors and waste-to-energy plants;
7. on-shore wind and photovoltaic power are located in the residual basket of "other technologies";
8. the obligation that distributors (DSO) purchase renewable energy produced at a price equivalent to the average of prices of the previous quarters is abolished.
The first pilot multi-technology auctions (for new installations with capacity of less than 1 MW) that involve the move from an incentive system to competitive procedures for assigning contracts for differences - CfD - were held on 30 December 2016. At the end of September 2017, the Government announced the cancellation of all auctions planned for the year, including the one for wind power, to which a basket of 5,175 GWh for 15 years had been dedicated (corresponding to approximately 145 MW installed). The next auctions will probably be organised in 2018 after the entry into force of the amendment to RES Act 2015.
In this regard, last December 2017 the European Commission announced the approval, on the basis of European state aid rules, of the Polish programme for renewable energies, which provides, for installation with capacity above 500 kW, a premium relative to the wholesale price, awarded through competitive auctions. As to the Certificates of Origin (CO) mechanism provided for renewable plants commissioned by June 2016, in August 2017 an amendment was introduced to the RES Act 2015 which changed the method for calculating the Substitution Fee (the penalty applied in case of non-compliance with the CO purchase obligation) tying its value to the weighted annual average of the prices of the COs recorded the previous year, plus 25%. For the September-December 2017 period, this penalty was thus equal to 92.04 PLN/MWh (sharply lower than the value of 300.03 PLN/MWh set previously).
For the year 2018, after the 2017 trading closed, the penalty is set to 48.53 PLN/MWh.
- United KingdomThe incentive system in the United Kingdom is currently based on two systems:
• RO (Renewable Obligation - the certificates granted are ROC), with annual mandatory quotas of electricity consumption, defined year by year based on (i) the expected output from Renewable Energy Sources (plus 10% headroom) and (ii) the expected electricity consumption, with the goal of keeping the market balanced/short. The quota calculated for the period April 2017 - March 2018 amounts to 40.9% for Great Britain and 16.7% for Northern Ireland. The incentive is recognised for 20 years. As a result of the approval of the new Energy Bill in 2016, access to this system is substantially prescribed for the plants planned no later than 31 March 2016 and completed no later than 31 March 2017. Grace periods are recognised if any construction delays are not directly caused by the producer.
• CfD - for new, renewable source plants, a CfD incentive is recognised, awarded through multi-technological Dutch auctions.
The incentive is recognised for 15 years (inflated). In October 2017, the Government approved the document on Clean Growth Strategy, the strategy whereby the British Government promotes a new era of green economic growth, supported by the largest increase in public expenditures of the last three decades (2.5 billion Pounds to support innovation with low carbon emissions from 2015 to 2021). The Clean Growth Strategy regulates the extension of the tenders for the CfD which, however, do not provide onshore amounts except for projects "on remote Scottish islands".
- Reference market
Italian Electricity Market(1) (GWh) 2017 2016 Demand 320,437 314,261 Pumping consumption 2,441 2,468 Import/Export 37,760 37,026 Internal generation(2) 285,118 279,703 of which Thermoelectric 199,500 190,771 Hydroelectric 37,530 43,785 Other renewable energy sources 48,088 45,147 Sale prices (EUR/MWh) PUN (3) 54.0 42.8 Sicily zone price (baseload) 60.8 47.6 Centre North zone price (peak) 63.5 47.6
(1) source: Terna S.p.A. monthly report on the electrical system. Estimated data, subject to correction
(2) output net of consumption for auxiliary services
(3) Single National Price. Source: GME S.p.A.
- Market scenario in ItalyThe electricity demand of the Italian electric system in 2017 came to 320.4 TWh, up (+2.0%) compared with the values recorded in 2016.
With regard to Sicily, a region in which ERG is present with its CCGT plant, in 2017 a requirement of approximately 19.1 TWh was recorded, up (+1.1%) with respect to 2016, while in the group of regions including Abruzzo-Lazio-Marche-Molise-Umbria, where ERG has been active since the end of 2015 with its hydroelectric plants, electricity demand amounted to 44.8 TWh (+2.6%).
In the same period, net internal electricity generation amounted to 285.1 TWh, up by 1.9% compared with 2016, whilst the net balance of trading with foreign countries recorded net imports of 37.8 TWh (+2.8% compared with 2016). 70% of (net) domestic electricity generation was obtained from thermoelectric plants and the remaining 30% from renewable sources.
Compared to the previous year, thermoelectric output grew (+5%) whilst hydroelectric output declined (-14%). The average value of the PUN (Single National Price) in 2017 was 54.0 EUR/MWh, up by 26% compared with the value of 2016 (i.e. 42.8 EUR/MWh).
Programmable sources - Regulatory framework
- ItalyThermoelectric: the Mucchetti amendment
The period for application of the regulation on Essential Units pursuant to Italian Law Decree no. 91/2014 and the resolution 521/2014 as amended, ended on 27 May 2016 following the commissioning of the aforementioned doubling of the Rizziconi-Sorgente power line.
In the month of July 2016, the balance of the 2015 reintegration was thus requested in accordance with Article 65.28 of the 111/06 resolution; in September 2016 the advance payment of the reintegration price for the first quarter was requested, in accordance with Article 3.1, Letter aa.2) of Resolution no. 521/2014, as amended by Resolution no. 496/2015.
On 30 December 2016, approximately EUR 28 million had been collected as an additional advance on 2015 and approximately EUR 18 million as an advance on 2016, while approximately EUR 26 million still remained to be collected.
In October 2017 the Authority initiated the preliminary investigation on fixed cost pertaining to the request for reintegration for the year 2015. The preliminary investigation ended with resolution 745/2017: at the end of November 2017, the final balance accrued in 2015 (approximately 12.6 M€) was collected.
In October 2017 Terna carried out the preliminary investigation on the contribution margin of the request for reintegration (balance) accrued in 2016: with Resolution 841/2017, ARERA set an extraordinary advance for the UESSE per Italian Legislative Decree no. 91/2014 pertaining to 2016 accruals. The company collected this advance payment in December 2017 (9 M€ out of the residual 12.9 M€). The residual 2016 reintegration shall be collected in 2018.
Internal user networks
For operators that own "closed distribution systems", which include the "internal user network" (RIU) in Priolo, the Authority for Electricity, Gas and Water published Resolution 539/2015, which introduces the need to adopt accounting and functional separation of distribution activities from those of sale of electricity within the RIU (socalled "unbundling"). With the subsequent resolution 788/2016, the Authority has provided for the extension of the new regulations to 1 October 2017. With its resolution 582/2017, the AEEGSI further postponed the entry into force of
the new RIU regulations to 1 January 2018, in order to align the aforesaid reform with the entry into force of the reform of the structure of the general system costs.
Lastly, Article 1, paragraph 91 of Law no. 124/2017 ("2017 Competition Law") prescribes that functional separation rules do not apply to the operators of closed distribution Systems (which includes the RIU); only the accounting separation rules apply to the aforesaid operators. The Authority initiated a process to implement the provisions of the aforesaid law (resolution no. 613/2017 of 7 September 2017).
Hydroelectric: concession fees
The Regional Council of the Umbria Regional Authority by means of resolution no. 1067 dated 22 September 2015 took steps to re-calculate the concession fees for the large water offtakes for hydroelectric purposes. The new unit tariff of 31.02 EUR/kW per module, which applies as from 1 January 2016, comes to double that in force until 31 December 2015. In December 2015, ERG Hydro S.r.l. presented an appeal to the Higher Court of the Public Waterways in Rome, to request the cancellation of the afore-mentioned resolution. The results for the period prudently
reflect the afore-mentioned increase.
Italian Stability Law no. 208/2015
By means of the approval of Italian Stability Law no. 208/2015, new regulations were launched, as from 1 January 2016, for the determination of the cadastral income of the real estate property units used for generation purposes. Specifically, in Article 1, paragraphs 21-24, the 2016 Stability Law prescribes that for electricity generation plants, system components are no longer subject to taxation with a consequent positive impact in terms of lower tax costs.
REMIT - Dati relativi alle indisponibilità programmate degli impianti di ERG - Ultimo aggiornamento