Solar Subsidies in Italy

Michael Giberson

Carlo Stagnaro, writing in the European Energy Review, finds that Italy’s generous feed-in tariffs for solar power are creating challenges for both the Italian budget and the Italian energy market.

In terms of investments, Italy’s experience with solar power is definitely a success… Only Germany has more PV capacity. Indeed, Italy has more solar capacity than Japan, the US and China together.

But the success of Italian solar power came at a cost. It is built on Italy’s very generous incentive scheme, based on an extremely high feed-in tariff that is awarded to PV-installations (at least, to installations that were built before the end of June 2011). In addition, distributors are required to accept and dispatch “green” energy with top priority, regardless of the volumes offered. The combination of a guaranteed high price and virtually unlimited supply created the grounds for the boom.

Not only has government support for solar power led to high costs (€3.9 billion in subsidies in 2011 alone), it has also had another unforeseen effect: it has undermined the very market design that, until recently, had worked remarkably well, and had made Italy one of the most competitive electricity markets in Europe.

Stagnaro works for the Istituto Bruno Leoni, based in Milan.