Italy's renewables support schemes are set to influence pricing and liquidity in the country's power purchase agreement (PPA) market, as developers and offtakers await clarity on incentives, according to market participants.
Energy agency GSE on Tuesday said that about 70pc of bids in the first auction of Italy's long-awaited Fer-X renewables support scheme — first drafted in March 2024 — were below €60/MWh, with results expected by December.
"We believe that Fer-X could become a benchmark for setting the electricity market price, and this will eventually influence PPAs as well," a spokesperson for risk management company Optimize Energy told Argus. But PPAs carry higher counterparty risk than Fer-X-backed projects, according to the firm.
The first round of the Fer-X mechanism was highly oversubscribed, leading GSE to suggest that participants with bids above the €65/MWh target strike price contract PPAs on its upcoming platform, with GSE acting as guarantor of last resort.
PPAs signed through the platform must run for 5–10 years and include guarantees of origin to certify the renewable source of the electricity. They will be standardised, with forward contracts traded on the forward energy market (MTE), enabling positions related to each year of the PPA to be progressively transferred to the MTE.
But market participants expect limited use of the platform as most utilities do not require a guarantor. But some believe that producers excluded from the Fer-X mechanism may turn to low-priced PPAs, increasing competition in a market that could soon face saturation. A standard 10-year PPA is currently selling at about €66-67/MWh, with power producers already struggling to make a profit, Argus has heard.
But if PPAs fall below €55/MWh, projects will become unsustainable and require incentives to continue, a market expert told Argus. A possible solution would be to introduce tax relief, keeping prices competitive enough for consumers while preserving a reasonable profit margin for producers.
The Italian PPA market is heavily influenced by incentive schemes, and recent delays to the Energy Release tender results have stalled the market, market participants said.
The Energy Release mechanism offers capped electricity to energy-intensive users in exchange for commitments to develop renewable capacity and return equivalent power over 20 years. The European Commission recently revised the mechanism to include a claw-back clause, and the updated draft decree is now awaiting registration by the court of auditors, with contracts expected to be finalised by year-end.
"The Energy Release would have been a great boost for PPAs, as it would have been possible to sign agreements with a flexible tranche that could be used during thepowerreturn phase," a market participant said. "Now everything is on standby, as producers do not know if they will be able to take on the return burden."
Additionally, solar PPAs are becoming less attractive because they often lead to hours with excess power, a market participant noted. Instead, PPAs combining solar and wind or solar and battery energy storage systems could become increasingly popular.
About 17 PPAs have been signed so far this year in Italy, totalling over 600 GWh/yr of contracted supply, according to data compiled by Argus — see European Power Purchase Agreements. Of this, only 185 GWh/yr came from solar photovoltaic projects, compared with 524 GWh/yr over 2024.
