Italy’s solar market is going into overdrive in the fourth quarter, setting the stage for a doubling in photovoltaic (PV) installations in 2011, as global investment flows into the country, according to the photovoltaic market research firm iSuppli, now part of IHS Inc. (NYSE: IHS).
Based on interviews with leading project developers and energy performance contractors in Italy, iSuppli predicts the country will install 975 megawatts (MW) worth of PV solar systems in the fourth quarter, doubling the 487 MW in the third quarter, and rising 239 percent from 288 MW during the fourth quarter of 2009.
This fourth-quarter surge will cause installations in 2010 to rise to 1.9 gigawatts (GW), up 100 percent from 720 GW in 2009. The rise in installations will set the stage for another doubling of the market in 2011, with installations rising to 3.9 GW.
“The strong fourth-quarter growth represents a breakthrough for Italian PV installations, which until now had been limited to 300 MW or less, with the expansion propelled by installers rushing to take advantage of an Italian government subsidy scheduled to expire soon,” said Dr. Henning Wicht, senior director and principal analyst for PV systems at iSuppli.
Installations finished by the end of the year and connected to the grid by June 30, 2011, will still be able to benefit of the 2010 feed-in tariff (FIT) tariff of Italy’s Second Conto d’energia.
Under the current FIT, and with installed system prices of 2,500 to 2,800 euros per kilowatt-peak units (kWp), a highly attractive internal rate of return (IRR) of 15 to 18 percent is possible in Italy. Italy’s IRR is alluring to solar investors given the depressing news about caps or severe reductions of solar FITs in France, the Czech Republic and Spain. Consequently, investors are flocking to Italy, leaving behind the closing Czech market and even the safe harbor of Germany.
“True, Italian solar installations will drop at the start of the first quarter of 2011, following the burst of the growth at the end of 2010. But the decline is set to last only weeks, rather than months, with the rate of new installations to rise rapidly again following this period,” Wicht added. “And despite the expected FIT declines, the IRR of Solar investments in Italy still will be higher than anywhere else. As a result, installations in Italy will rise to approximately 1 GW per quarter in 2011.”
Nonetheless, some signs of potential trouble may lie ahead.
For one, a potential risk to the positive market outlook exists in that the Italian government might reduce the FIT more quickly than scheduled. Yet it is unlikely that authorities will be able to change the FIT before the third quarter of 2011. Furthermore, official data from the state-run power management agency GSE could be delayed by as much as six months, resulting in the deferral of any formal assessment that would lead to FIT adjustments.
For their part, regional governments also might try to limit the amount of land used for solar, even though any such limitations must pass Italian federal law. Finally, the grid connection in Southern Italy will certainly prove more challenging than elsewhere, posing additional headaches. Just the same, if fourth-quarter 2010 figures for PV installations can rise at such healthy rates, project developers more than likely will be able to overcome difficulties in 2011.