Italy is going to invest more than €30 billion over the next two decades into renewable energy technologies. To pull it off, the Italian government is relying on an increasingly popular and powerful funding instrument.
Earlier this week, the European Commission said it had approved an Italian support scheme that will channel up to €35 billion into renewable energy generation over the next twenty years.
Italy wants to fund less-developed clean power technologies, including geothermal, floating offshore wind turbines and tidal energy.
All are proven zero-carbon options but existing projects are few and far between. The Italian government wants to scale them up and start chipping away at its power sector emissions.
The support scheme will also include biomass and biogas generation, both of which come with sustainability concerns attached.
Italy has good reason to turn to less ubiquitous forms of renewable power, as it is one of the biggest importers of energy in Europe. In a world that punishes dependencies, the government is desperate to start fending for itself and producing energy in house.
Italy’s geographical particularities also mean that alternative renewables need to be considered. Smack bang in the middle of the Mediterranean and surrounded by deep waters on all sides, Italy needs to get serious about floating offshore power.
Normal fixed-bottom turbines are not suitable for many areas and onshore will always face the same old challenges like local acceptance and legal challenges. The technology is currently more expensive than normal wind power but as more countries invest, economies of scale should reduce the price.
France is among the pioneers in the sector, as it too has deep Atlantic and Mediterranean waters to consider. The authorities recently completed a floating offshore auction, indicating that more developments are expected in the coming months and years.
Geothermal is also an extremely promising sector as Italy has a lot of potential to decarbonise both electricity and the heating sectors. Not surprising for a country that counts Vesuvius and Mount Etna among its geographical features. Estimates even show that Italy's power needs could be met many times over by geothermal alone.
The sector is more advanced than in other countries but still is nowhere near its potential. If Italy is able to scale up geothermal further, it could even start exporting knowledge and maybe even technology if it becomes established as a leader in the field.
And then there is tidal. One of the world's most beautiful cities, Venice, is regularly flooded when Adriatic tides meet certain weather conditions. It would be a rather poetic success story if those tides were harnessed to generate clean power.
Paying for it
Italy’s government wants to fund the support scheme by adding extra charges to electricity bills and channelling it towards financial instruments called contracts for difference (CfDs).
CfDs come in many shapes and forms but typically the power producer and the authorities agree on a set price for electricity through a bidding process.
Then, if the market price increases, the developer is bound to return those extra profits to billpayers or reinvest them in clean energy projects. This is something that did not happen during the energy price crisis, as power companies made gigantic profits when costs increased.
Conversely, if the price falls below that agreed level then the developer is compensated for the shortfall.
CfDs have been touted as a good response to the energy price crisis and a recent update to EU electricity market rules elevated the instruments to top billing in energy policy making.
Renewables developers like well-designed CfDs because they guarantee revenues and provide a safety net without stifling investment.
It is not a perfect silver bullet, as CfDs increase the involvement of the state in the free energy market, this is why the EU Commission had to approve the Italian scheme.
As more countries turn to CfDs to manage their energy policy, regulators like the EU will have to make sure that they do not stifle innovation and that more flexible power purchase agreements are also deployed.
In any case, more money is starting to flow into clean energy tech, which can only be a good thing. Italy's decision to fund less-developed forms of power generation is also a really positive step, as wind and solar won't be able to drive the energy transition by themselves.
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