Renewable Power’s ripe for the picking

The deployment of  renewable power across Europe is growing at an accelerated rate. This is being driven by governmental commitments on carbon emissions and structural market reforms to ensure sufficient capital is available for its development. These schemes, whilst effective in offsetting carbon emissions and driving investment, have come under criticism for their lack of transparency and potential for criminal abuse.

Renewable projects throughout Europe

Concern over climate change pollution and fossil fuel availability has led an increasing number of industrialised countries to back public financing of renewable energy. The European commission has been particularly aggressive about promoting generation from renewable sources. Today there is wide consensus throughout Europe that well-designed feeding tariff policies are the most effective way of achieving development or electricity generating capacity from renewable sources. This differentiates Europe from the United States where renewable portfolio standards have been the dominant support mechanism.[1]

The basic premise of all renewable energy development courses is that they create demand for climate friendly technologies that would otherwise not exist or not at economic a viable levels. The FIT legislations impose, amongst others, obligations upon generators and utility operators to purchase power from renewable generators and to pay a minimum price for that power. Large amounts of renewable energy deployment in Germany, Spain and Denmark are sighted as evidence of the effectiveness of FIT over alternative support schemes and this is largely due to the security the policy offers to investors.

Because FIT payments guaranteed to renewable generators are normally above the spot/market price for electricity, opponents of FITs have argued that these policies increase electricity prices. It has been argued that, given the strong rise in renewable deployment across Europe in the last decade (and forecast to increase in the next as the energy mix across Europe shifts as older nuclear and coal stations retire) that these high electricity prices will impact upon the competitiveness of the continent.

The FIT payments are entirely separate from any centralised European scheme and receive no EU money directly. They are market schemes in individual European member states.

Generation of Power in Italy

Italy banned nuclear power generation in 1987 and as a result, power generation in Italy is dominated by fossil fuel generation. The Government has been keen to reintroduce nuclear power and held a referendum in June 2011 but was defeated with 94% of the electorate voting against a return on a turnout 57%. Italian power generation in 2011 is estimated to have been 294.8TWh – up an estimated 5.6% on 2010. Thermal generation rose by an estimated 0.6%, in spite of gas-fired power being an estimated 2.5% higher. BMI calculates that 2011 saw a 2.5% decline in coal power and a 5.4% decline in oil-fired generation. There is estimated to have been a 24.6% gain in the use of non-hydro renewables over 2011.

During the 2012-2021 period, Italy’s overall power generation is expected to increase by an annual average of 1.8%, to reach 351.3 terawatt hours (TWh). Driving this growth is an annual 2.3% gain in gas fired and a 7.2% rise in non-hydro renewables-based electricity supply. Coal-fired generation is expected to fall by 2.2% per annum, with the use of oil-fuelled generation to drop by an annual average of 1.6% over the period.[2] Total installed generation capacity is 113GW with wind being 6.7GW (c5.8%)

Chart showing power generation in Italy by coal, oil, gas and wind
Generation (TWh) 2008 2009 2010 2011 2012 2013 2014 2015 2016
Coal 45.68 39.25 39.31 38.82 37.56 37.18 36.44 35.78 35.18
Gas 162.34 139.5 139.7 143.2 138.89 142.5 146.06 146.13 159.12
Oil 29.57 24.88 24.92 23.57 22.59 21.87 21.34 20.95 20.67
Wind 4.62 6.2 8 9.17 9.85 10.53 11.46 12.68 13.91
Total 294.97 272.21 279.01 294.75 291.89 296.14 300.72 308.84 320.92

Domestic prices of power faced by In November 2011, according to data from the European Energy Portal, the average household electricity price (3,500kWh per annum consumption) in Italy was EUR0.2164/kWh, compared with EUR0.1478/kWh in France, EUR0.2781/kWh in Germany and EUR0.1676/kWh in the UK.  France and the UK have suppressed power prices due to the depth of Nuclear power and the Italian price is there-or-thereabouts to equivalent economies.Since 2008, year-on-year growth of wind power has averaging c.30% but even against that backdrop, it only represents 3-3.5% of Italian generation. Furthermore, the relative proportion on wind on the Italian system is likely to flatten off as subsidies migrate focus onto Solar. In April 2012, the government was scheduled to approve a scheme that would have reduced the financial incentives available to solar power projects in Italy; however, by June 2012, the government announced that it was considering changing the incentives available. Following complaints from the industry about the regulatory uncertainly and bureaucracy that these changes would entail, as well as concerns that a reduction in incentives would limit access to finance and reduce competition, the government is considering raising the annual cap for incentives for the production of solar power from EUR500mn to EUR759mn.

Organised Crime and Italian Wind

There has been considerable discussion and investigation of corruption in Sicilian wind projects in over the last few years. 2009 saw a number of investigations over suspected collusion by mafia gangs, entrepreneurs and local officials. Italian subsidies for building wind farms and the worlds highest guaranteed rates for the electricity they produce (at the time EUR180 (USD240 per kwh) and thus it is hardly surprised that it attracted the interest of organised crime. The alleged approach had two mechanisms. The first was to fix the acquiring of permits to build wind farms (along with the public subsidies that came with them) and then to sell these assets onto Italian and eventually foreign companies.

The FT reporting that several of the farms were operational for only a few years due to shoddy construction methods. The regional governments in Sicily, as well as Calabria and Basilicata on the mainland, suspended the authorisation of new wind farms in part because of suspected criminal involvement and confusion over the real ownership of the ventures.

Most, if not all, of Sicily’s wind farms began as projects by local developers, some of whom speculated in a secondary market for permits. Once built, the majority was sold on through Italian intermediaries to multinationals. International Power of the UK is the largest wind power operator in Italy. Others include Italy’s Enel and Germany’s Eon through its purchase of part of Endesa of Spain in 2007. France’s EDF also has assets. While the international companies knew the identity of their Sicilian developers, there is no evidence they were aware of Mafia involvement.[3]

Additionally, the BBC added weight to the discussion. It detailed how the EUR350bn Structural Fund (2007-2013) distributed of 650,000 programmes and 27 countries. It indicated that a suspected EUR1.22bn was likely to have been diverted and that Sicily was going to be receiving an additional EUR6.5Bn over this period.[4] This article also added strength to the suggestions of organised crime’s involvement in wind schemes.

The initial investigations in 2009 had begun to quieten down. However in May 2012, the governmental agency CNEL issued a report warning about the potential for mafia infiltration in the booming sector of windpower. It also notes that, between January 2007 and April 2011, there have been 17 investigations on windpower plants, involving 14 Offices of Public Prosecutors.The latest of these occurred in July  2012, the Italian Guardia di Finanza ordered the closure of a windpower plant in Isola Capo Rizzuto, a town in the province of Crotone, Calabria. With its 48 power generators, the windpower plant “Wind Farm Isola Capo Rizzuto” was among the largest plants across Europe and its overall value amounts to EUR350m. The investigation, which was launched after several irregularities in the concession of the plant and in the financial acquisition of capital resulted in the arrest of thirty-one people.

Wasteful spending and corruption in energy projects is not a uniquely Italian problem and will not disappear once focus moves away from Sicilian Wind Farms. However, Scilly does serve as a useful reminder that the next wave of renewable investments need not only to be green but also transparently funded.

[1] Renewable Energy – At What Cose?   – Christopher A. Klein, M.A.(Hons)

[2] Italy power report – Q3 2012. (2012). (). London, United Kingdom, London

[3] Mafia link to Sicily wind farms probed Dinmore, GuyFinancial Times [London (UK)] 05 May 2009: 4.



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