The Althesys study on the renewables industry highlights the state of health of the sector between risks and opportunities deriving from the new EU market design. Good news for future bills and the adequacy of the Italian electricity system. Marangoni: “A sector that is growing despite global economic challenges”
The Italian renewables industry is perhaps experiencing its best moment: project investments that have almost doubled to 80 billion in 2023 compared to 41 in the previous year clearly show an excellent state of health of the sector. But the good news doesn’t end there. With the introduction of the new EU electricity market design, electricity bills could benefit from the reduction in the cost of raw materials, thanks to the contracts for difference that Italy will adopt for new installations. The adequacy of the Italian electricity system in the medium term also offers a reassuring picture thanks to the capacity market and the infrastructure development of the network manager. Over all of this, however, looms – as is known – the uncertainty caused by the Agriculture Legislative Decree, under discussion at the moment, and potentially capable of canceling a large part of the planned investments in photovoltaics. This, in summary, is the picture outlined by the Irex Annual Report 2024, the Althesys study that has been monitoring the renewables sector since 2008, analyzing strategies and outlining future trends.
MARANGONI: GROWING RENEWABLES SECTOR
“The Irex Annual Report 2024 – said CEO Alessandro Marangoni, head of the research team – shows an Italian renewables sector that has continued to grow despite global economic challenges, the high cost of money, the increases in material prices and the complexities of authorization processes. Among the characterizing elements: the reduction in the average size of operations, the development of offshore wind which, on paper, is the emerging technology in 2023 and the growing interest in storage, with the emergence of many players and projects”.
The report was presented this morning during the event “Renewables, the hour of choices” which was held at the Ara Pacis and saw the participation – among others – of Federico Boschi, head of the energy department at the Ministry of Environment and energy security, by Milena Messori, head of Italy of the European Investment Bank and Giulio Tremonti, president of the Chamber’s Foreign and Community Affairs commission.
STRATEGIC TRENDS
The initiatives highlighted by the report are 1,180 (+23% on 2022 and +170% on 2021), for a power of 50.9 GW and an aggregate value of 80.1 billion euros, compared to 41 billion in 2022. attention of the players remains mainly in Italy: they represent 96% of the total, with agrivoltaics reaching 368 initiatives, first in terms of power, having reached 15.8 GW and 14 billion, while photovoltaics, leading in terms of number of operations, recorded 12.6 GW and 10.4 billion euros. Onshore wind power with 254 initiatives marks a value of 19.2 billion for 14.1 GW. Offshore wind also has 12 operations for 8.4 GW and 28.1 billion, while overall investments for storage systems go from 3.2 to 8.2 billion.
The average size of plants drops from 48 MW in 2022 to 44, while operations smaller than 10 MW increase, the weight of which rises from 16% to 30% of the total.
The development of storage systems is also a crucial factor in enabling the energy transition with the growth of renewables. In our country, at the end of 2023, 519,000 batteries were installed, for a total power of 3,367 MW and a maximum capacity of 6,645 MWh. The most widespread technology is still lithium-based. 99% of the systems are less than 20 kW, of which the majority are less than 10 kW (91%).
The utility-scale systems in the process of authorization will rise by 34% on an annual basis to 2.4 GW in 2023. In terms of storage, Italy is characterized in Europe by the introduction of the electricity storage capacity procurement mechanism (MACSE ) aimed at ensuring the construction of accumulations that would not be feasible under market conditions. The mechanism should allow the supply of approximately 71 of the 95 GWh of new storage capacity needed by 2030, with a foreseeable predominant presence of batteries, followed by hydroelectric storage.
REGIONS AND PERMITTING
From the point of view of territorial distribution, the southern regions continue to confirm themselves as the largest recipients of the projects in terms of power, with a concentration in some regions (Sicily, Puglia and Sardinia above all). The authorization process appears to be improving but remains a critical issue. The number of authorized projects grew by 73% compared to 2022, compared to 18% in the process of authorisation. The big leap is above all in photovoltaics, while agrivoltaics remains stable. The opposite is true for onshore wind, where the projects undergoing authorization have grown more than those authorized (56.5% versus 22.7%), increasing the gap between the two. All the offshore installations surveyed are in the process of being authorized.
THE COSTS AND THE SCENARIO FOR RENEWABLES
After the price boom of the previous year, 2023 marks a significant reduction in electricity prices in Europe. The average stands at 96.1 €/MWh (-54% compared to 2022), in which Italy always has the highest values (127.2 €/MWh), while the Scandinavian countries have the lowest. The LCOE values (i.e. the average cost per unit of electricity generated) have instead grown significantly and updating tariffs has become essential for the success of auctions throughout Europe. The LCOE of offshore wind varies between 82.1 €/MWh in the North Sea and 121.1 €/MWh in the Mediterranean; in photovoltaic the average LCOE value of commercial plants stands at 107.4 €/MWh (+9.8% on 2022), while industrial-sized plants have an average cost of 77 €/MWh (+10.6% on 2022). The report also offers some scenario forecasts for 2024 with the prices of raw materials for the construction of wind farms which will see differentiated variations: aluminum and copper increasing, ferrous materials decreasing, cement for foundations stable. The effects will be a more contained decrease in LCOE for onshore (nothing or up to 5%) and more marked for offshore (-10%/-15%). For photovoltaics, pressure on components should lead to further reductions, with the cost of modules falling by 10-15%.
MARKET DESIGN, BILLS AND SYSTEM ADEQUACY
The renewables sector, and more generally the energy markets, will soon no longer be the same: this year – it was recalled during the meeting – the reform of the European Union electricity market will come into force, the introduction aims to stabilize capacity remuneration mechanisms for resources capable of guaranteeing the adequacy and use of difference trading for renewables (and nuclear). All this will lead to the decline of spot markets and will facilitate a path of different tools to set price signals: the main role will no longer belong to the markets but to the States through competitive procedures such as auctions or registers capable of generating stable revenue flows for the operators. At that point, however, it is necessary to set appropriate auction bases to guarantee the effectiveness of the support measures for renewables.
Price limits below the levelized costs of the technologies would not allow the quotas to be exhausted, also creating delays in market initiatives. Althesys’ NET modeling analysis shows opportunities and risks of the future design of the Italian electricity system. The contracts for difference envisaged by future decrees could severely limit the space for market initiatives, including PPAs, given that the capacity that will be the subject of the auctions will have to cover what is needed to achieve the 2030 objectives. One thing, however, emerges: the contracts for difference could also be good for your bills. The cost of the “energy” component of the bill, while varying depending on the scenarios simulated to take into account uncertainties on commodity prices and technology costs, will tend to fall due to the effect that renewable production has on spot electricity market prices.
Another positive fact: the adequacy of the Italian system in the medium term (2028) is ensured by the simultaneous presence of the contracted capacity in the 2022, 2023 and 2024 capacity market auctions, by the networks envisaged by Terna’s development plan and by the absence of further disposals, in addition to those already planned for coal.
Also due to the industrial crisis and slower-than-expected electrification, electricity consumption fell below 320 TWh. To maintain the adequate system, at least 50.2 GW of thermoelectric power must be kept in operation by 2028 and at least 41 GW by 2033. Furthermore, all the interconnections considered fundamental for the decarbonisation objective have already been authorised.
