Frequent regulatory changes implemented by the Italian government in the past few years, including the latest decree attempting to tackle high energy prices, have created uncertainty for developers and investors, possibly holding back the country's renewable sector, market participants have said.
Rome plans to strip out EU emissions trading scheme (ETS) costs by offering gas-fired power plants compensation for emissions costs that they would otherwise pass through to final users in bills. But the EU will need to review the proposal and grant final approval.
The intervention on gas ultimately pressures the marginal price of electricity, often set by thermal power plants, which in turn affects the profitability of renewables and battery energy storage systems (Bess). The constantly evolving regulatory scene and the geopolitical landscape create a significant challenge for projects, which have multi-year development cycles and are directly affected by these changes, participants said.
"It's not that developers lack appetite; it's that they want to understand how this regulation will affect prices. They're somewhat on standby — the interest is there, but they need to see how prices will evolve," Optimize Energy country manager Pablo Lopez de Rego Lage told Argus on the sidelines of the Key Energy Expo in Rimini last week.
Lopez de Rego Lage compared the Italian case to the Iberian gas price cap mechanism, introduced in 2022 to protect consumers from spiking energy prices.
A key difference is that the Spanish measure was temporary, whereas the Italian one is designed to be long term. But similar initiatives in other countries — such as a power price compensation measure adopted in Germany and Austria to support businesses with their emissions costs — could create a broader European trend, according to Lopez de Rego Lage, which might mean that such measures would no longer be considered state aid.
The ambiguity surrounding the future profitability of renewables is also reshaping the view about existing incentive mechanisms. "If [gas] prices fall, so will revenue from renewables," energy supplier Alpiq Italia's vice-president Massimiliano Bignami told Argus. "In that case, the Fer-X scheme could become more attractive to the market; but it is difficult to make medium to long-term decisions in this period."
Italy held the first transitional Fer-X auctions at the end of last year, but the energy ministry has not yet shared a timeline for future tenders.
Regulatory uncertainty has also led to a "stall" in the power purchase agreement (PPA) sector, according to the head of origination of an Italian utility.
Selling 10-year PPAs has become increasingly difficult in an environment of high volatility, as the absence of a stable trend makes long-term products challenging to market, he said. As a result, the PPAs are effectively at a standstill.
Project development cycles of three to four years mean that regulatory and market changes under way can upend initial assumptions. On top of that, the transitional Fer-X tenders held last year provided a reference price that is "much lower" than previously expected, he added, pushing PPA price targets down in line with the general decline in market prices.
But some companies could take advantage of the general "panic" following the US/Israel-Iran conflict to sign more PPAs, Alens energy analyst Michele Soldavini told Argus.
Calendar 2027 shed nearly €15/MWh across last month following the news of the energy decree, bottoming out at €86.25/MWh. But the regional war has since driven significant gains, with the front year last assessed by Argus at €101.85/MWh.
