Italian and foreign investors are challenging the legality of cuts in subsidies to the rapidly expanding solar power sector imposed by Matteo Renzi’s new government, which the industry warns will undermine Italy’s credibility in attracting fresh investments.
A government decree would cut some solar power tariff incentives by 10 to 25 per cent in the second biggest photovoltaic market in Europe. The move follows similar cuts in Spain and Greece.
The decree, which has not yet been signed by President Giorgio Napolitano, has been criticised as unconstitutional by Assorinnovabili, an association of renewable energy companies. It has commissioned Valerio Onida, former head of the constitutional court, to present a legal opinion to the head of state.
Parliament’s approval is also required to convert the decree into law within two months of the signing.
These measures would lead to the failure of a majority of the entrepreneurial initiatives of recent years,” Assorinnovabili said, warning that 10,000 jobs would be at risk.
“Needless to say this step will strongly undermine Italy’s credibility to continue to attract foreign capital for future investments,” said Federico Giannandrea, head of operations in Italy for Foresight, a UK infrastructure and private equity manager.
“We are still evaluating the final impact of the proposed cuts on our own projects. We anticipate serious consequences.”
Mr Renzi’s coalition government imposed the cuts as part of measures aimed at reducing electricity bills for small and medium businesses by a total of some €800m a year, one of the pledges made by the prime minister after taking office in February but since watered down.
The cuts would come into force from 2015 and affect some 8,600 solar plants with a capacity of over 200 kilowatts for a total equal to some 55 per cent of national installed photovoltaic capacity.
The sector has boomed on the back of high incentives, contributing to a growth in renewable energy sources that now account for about one-third of Italy’s electricity output. This has put serious financial pressure on traditional utilities running mostly gas-fired power stations.
One international investor, who asked not to be named, said major banks had a total exposure of some €20bn in the solar sector and had communicated their concerns over the planned cuts to the government.
“The measures do not hit the people who originally benefited from these incentives, as many of the plants are not in the hands of their initial owners,” he said. “Renzi is under high pressure to deliver but should have been given better advice . . . the decision will turn against him.”
Italy’s energy authority said incentives for renewables totalled €10.7bn in 2013 and are expected to rise to €12.5bn this year. Federica Guidi, industry minister, defended the government’s decision, saying the cuts would affect only a “restricted” part of the solar sector which overall accounts for 60 per cent of incentives for renewables.