1. The conflicting case of the energy transformation at times of austerity in Italy Tommaso Rondinella and Elena Grimaccia Istat

2. Green economy trends GDP. Greenhouse gas emissions, energy consumption and material consumption (indexes 1990=100) Source: Elaboration on Eurostat data

3. Energy consumption Production, net imports, consumption in Energy Sector in Italy - all products (Million tonnes of oil equivalent -Mtoe) Source: Eurostat

4. Energy intensity Gross inland consumption of energy divided by GDP – 2000, 2010 (chain-linked volumes - reference year 2005) - kilogram of oil equivalent (kgoe) per 1000 euro Source: Eurostat

5. Energy intensity ODEX Index (1990=100) Source: Enea elaborations on MSE data

6. Electric energy mix Shares of electric energy production by source. 2000-2011 (%) Source: GSE

7. RES 20/20/20 objectives Source: Eurostat Share of energy from renewable sources by sector and 20/20/20 strategy objectives (percentages on energy consumption)

8. RES future perspectives Source: SEN 2013 Expected evolution of electric energy production from renewable sources (TWh per year, estimates)

9. Austerity Source: Ministry of Economics and Finance (2013a) *Cumulated effects of laws and decrees (DL 112/2008, DL 185/2008, LF 2009, DL 5/2009, LF 2010, DL 78/2010, LS 2011, DL 98/2011 e DL 138/2011, LS 2012, DL 201/2011, DL 95/2012; DL 9/10/2013) Principal measures affecting the state budget since 2008 (million euros)

10. Green austerity Expenditures for environmental protection (million euros, percentage of total public expenditure, percentage of GDP) Ministry for Environment from 1.6 billion to 470 million (-70% bw 2008-2013) Mission “Energy and energy sources diversification” from 100 million in 2008 and 2009 dropping to only 8 million in 2010 and 6 million in 2012. Public R&D from the state budget aimed at environment, transport and energy, dropped respectively by 28.5, 90.3 and 72.1 %. Overall it dropped by 42.2%. Private investments in env protection (air, water, waste): -29% Source: Eurostat (Cofog) and MEF

11. Green energy incentives Source: Elaborations on AEEG data and reports, and GSE. Produced energy and cost of the system of incentives for renewable sources of electricity in Italy – Years 2008-2012 INCENTIVE REGIME Energy (TWh)Cost (Million €) 2008200920102011201220082009201020112012 CIP 6 (only renewables) 7,86,96,34,774,9948810780880457 Green Certificates 10,517,421,227,431,76151.2961.5802.0491297 Fixed “all-in” tariff 0,20,71,22,43,336112212441959 Energy Account (photovoltaic) 0,20,72,010,918,51103038263.9306.293 Total 18,725,730,745,558,41.7092.5213.3987.3009.006 Of which in A3 9481.8722.7586.6329.163

12. Green energy incentives Expected evolution of the costs for the development of electric renewable sources – 2012-2020 (billion of euros) 170 billion during the 15-20 years of incentives the SEN foresees that starting from 2016 it would be possible to support further incentives for 0.5-1.5 billion a year. Strategy hopes a partial covering of these future incentives through the introduction of a carbon tax at European level In case of overcoming of national objectives, which is about to happen, it is possible to consider the hypothesis of selling of excessive production through the mechanism of statistical transfer foreseen by the directive 2009/28/CE Source: SEN 2013 Notes: 2012 base does not include auctions assigned between 2012 and 2013

13. Energy prices Electricity prices components for industrial consumers (€/KWh) Source: Elaboration of Eurostat data Average of the MWh consumption classes (less than 20, 20-500, 500-2000, 2000-20.000, 20.000-70.000) 2012 saw an average annual increase of electricity prices of 14%. The electricity price index saw its first reduction at the beginning of 2013 after seven consecutive years of increase. The overall A3 component costs 30 euros/MWh. Only PV incentives: 2006: 2 €cents/MWh consumed. 2008: 32 cents. 2012: over 20 euros

14. Energy efficiency incentives Tax incentives for both service enterprises and the building sector. 55% detraction in income and corporate taxation for all intervention: efficient structures and materials, adoption of solar panels for water heating and new generation boilers and heating systems. Now is 65%, to be lowered to 50% in 2015-16 and 36% afterwards. White certificates for the industrial sector. At mid-2012 had covered 14.8 Mtoe saved by (mostly) energy service enterprises. A fund for subsidized loans (interest rate at 0.50%) called “Kyoto rotating fund”, is established for financing investments for a total of 600 million euro. A large number of initiatives for sustainable transport. The most relevant has been a fund for sustainable mobility of 239 million euros between 2007 and 2009. The combined effect of these measures allowed between 2007 and 2010 the saving of about 4 Mtoe per year of final energy (and about 6 of primary energy) fulfilling the objectives fixed for that time of about 3,5 Mtoe (SEN, 2013).

15. Energy efficiency incentives Effects on state budget Personal taxes due to increased employment4,555 Corporate taxes2,312 VAT due to increased consumption18,302 Public incentives-22.817 VAT and duties due to less energy consumption-17,781 TOTAL-15,492 Economic impact on energy system Economic value of saved energy*25,616 Economic value of saved CO2**5,190 TOTAL30,806 OVERALL IMPACT ON COUNTRY SYSTEM 15,377 Effects on industrial development Increased demand130,118 Increased production238,427 Increased employment (thousands of FTE)1,635 Overall effects of energy efficiency measures in 2010-2020 (cumulated effects, million euros) Source: Agenzia per la diffusione delle tecnologie e per l’innovazione, 2013 *considering oil price at 0.75$ per barrel and Us$-Euro exchange rate of 1.25 **considering a value of 25€ per tCO2

16. Fossil fuel subsidies Direct subsidies (4,7 billion): in 2012, the non-renewable CIP6 financed 2.34 billion of incentives to fossil fuel plants (from 3.4 billion in 2001). “Assimilated sources” cost about 38 billion since 2001 (within A3); 1.6 billion to energy consuming industries for their availability on a sudden energy interruption in case of need or emergency (100-150 thousand € /yr/MW); subsidies to road transport amount for about 500 million every year including direct transfer, reduced highway tariffs and reduced insurance premiums; incentives for old fuel oil centrals to be activated in case of emergency needs without any environmental constraints. 250 million in 2013 (A3). Indirect subsidies (4,3 billion): 3 billion euros for investments in new roads and highways; and the very low royalties for oil drilling (10%, while in the rest of the world they vary between 20 and 80%). Should be applied 50% royalties, they would have generated revenues for 1.3 billion euro. Source: Legambiente

17. Photovoltaic incentives PROS: Reaching of 20-20-20 objectives. Reduction of CO2 emissions. Fostering of energy security by the reduction of imports of fossil fuels. Activation of relevant investments and the generation of fiscal revenues. Occupational effects. Spreading the culture of energy sustainability. CONS: Unfair redistributive effect allowing huge profits for foreign investors. Important hidden taxation in times of crisis. Inefficient strategy for greenhouse gas reduction. Lack of development of a national industry.

18. Electricity sector 20-20-20 objective reached 8 years in advance: 93 out of 100 TWh from RES (13 GW of PV power installed since 2010, reaching 19 GW). Reduction of imports of fossil fuels by 2.5 billion euro a year. Flattening of the demand curve on wholesale markets for a value of about 400 million euro a year. Investments to install over 19GWp of photovoltaic panels have activated several billion euros of investments which amounted in 2011 to about 1.5 percent of Italian GDP. Fiscal revenues for 1.7 billion a year (less the eroded shares of traditional production). In 2011, the whole sector employed more than 100.000 people, of which 18.000 new ones (7.000 in components production and 11.000 in marketing and installation). Another 40-45.000 can be attributed to ancillary industries. PROS

19. Too generous incentives, nearly no risk, predictable profits Efficiency issues The boom: marginal Ebit of 20% or more. …and the bubble along value chain: LAND: rent 20 000 €/ha during 20 years (sold before for 5 to 10 thousands euros). PERMISSIONS: reached the value of 400 thousand euros per Megawatt. Even 100 times higher. FIRMS: charging 20% over their costs PANELS: halved their price in 2013 Incentive tariffs, 3kW roof plant vs. 1MW ground plant, 2008-2013, €/KWh SOLAR: RoE of more than 7.5% guaranteed by 70 €/MWh incentives, they now pay 89.7 €/MWh (KPMG)

20. Equity issues NumberMWM€ 1-20 MW88.3%15.4%14.9% Over 20 MW11.7%84.6%85.1% 1-200 MW97.6%36.6%23.3% Over 200 MW2.4%63.4%76.7% Total478,33116,4206,036 Share of the installed plants for different power classes - 2012 Hidden taxation during a domestic demand crisis: Every year at least 1 billion (6,5 billion*0.2 Roe*0.77) is transferred from 29 million households and enterprises towards big investors, often foreigners.

21. Disproportionately high level of expenditure per Kilowatt- hour of renewable energy produced Photovoltaic 2008550 €/MWh Photovoltaic 2012: 333 €/MWh All-in tariff (small wind and hydro) 260 €/MWh Green Certificates (High power wind and hydro) 82 €/MWh Residential tax benefits 65€/MWh White Certificates (92€ per avoided toe = 8 €/MWh) All available resources used for non optimized technologies: Grid parity reached in southern regions already in 2013 Efficiency issues

22. 80% of components distribution and of plants install. 50% of modules and inverters. 6% of silicon wafers. Industrial development Share of national industry on whole life cost (investments, operative costs and fuel, %) ComEx: Photosensitive semiconductor devices; light- emitting diodes (Million €)

23. Which Green Jobs?: Without the development of a photovoltaic industrial sector, jobs limited to bricklayers assemblers and electricians who made the connections. Maintenance is then limited to the cleaning of the panels and the grass- cutting of the dedicated area. Without investments in a national industry, this kind of incentives supporting only the demand side and not the supply side, then never really creating green jobs. Lower but longer term incentives, together with related R&D, may have fostered the birth of a national industry in a sector with secure future development. Industrial development

24. With the progressive reaching of the grid parity these infrastructures are more and more needed for an efficient exploitation of renewable sources. Smart grids are particularly urgent in southern regions where the power installed is already higher than the peak demand (25 GW vs. 21 GW). Pilot projects started. Fast increase of traditional lines, with the national asset boosting from 45 thousands to 64 thousands kilometers between 2008 and 2009. (Smart) grids Even if not made smarter, the grids has been widely enlarged. Assets of national transmission network – 2000-2012

25. Conclusion Italian energy production and consumption is greener and less import dependent The system of incentives: Based on a hidden taxation Too generous (with a few) Too quick (to exploit more efficient technologies, to let a national industry develop) Need to push on efficiency Need to be further decarbonized Lack of RnD and Smart Grid Investments

26. Thank you. rondinella@istat.it elgrimac@istat.it