Attached you could find the Blue Report executed by PRINCIPIO energy regarding the close announcement of the Italian Government concerning the new feed in tariffs and regardless policies for the second half of 2011 and successive years, or IV Conto Energia, the topic of the report is Italian IV Conto Energia – IRR sensitivity where is analyzed the new photovoltaic projects trend, their costs, and their profitability evolution.

1. PRINCIPIOenergy
Blue Report
Italian IV Conto Energia – IRR sensitivity
may 2010 teaser
ENG
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sharing experience

2. PRINCIPIO energy consulting .01
EXECUTIVE SUMMARY
Italian government has recently introduced the new The horizon for medium and large size ground fixed
policies that regulate the access and the new feed in systems for late 2011 and 2012 is forced to conclude,
tariffs, or IV conto energia, for those projects to be forcing a heavy reduction of investment and
connected to the power grid form June 2011 to operation costs, also considering the new policy
December 2012 and for the successive years. introduced late March 2011 that limits the PV
Moreover, a new bonus for an increment of 10% on development in agricultural lands, could be said that
the FiT is introduced for those projects whose at such segment of projects are to disappear. However,
least a 60% of the equipments value is supplied from the market opportunity is to take advantage on the
European Union Manufacturers. current lower prices and even negotiate lower EPC
costs, in order to connect the plants before Sept 2011
The new IV Conto represents a depreciation of a 4% (IRR +20%).
(form May to June) and then a monthly progressive
depreciation from a 5% (during the 2Q2011) and a The new trend in the market will be the development
depreciation of 10 to 16%, according to the type of of small top roof facilities , defined in the new Conto
project, for the last months of 2011 and early 2012. as -1MW projects, for which, following the expected
costs depreciation, the Investment Rate of Return
This FiT depreciation implies a drastic reduction of will be still interesting (IRR 15-25%). Even after 2012
the Rate of Return for the Investments that with prices near to 1 €/W of PV modules.
consequently should force a reduction of all the costs
involved in the PV plants development chain, as PLA The bonus over the FiT for using European
costs, EPC costs and specially PV modules costs. And equipments manufacturers will be particularly
subsequently to achieve more efficient O&M interesting. Pending to the evolution of the prices of
procedures to reduce the running costs. this products and no EU evolution prices, and
payment terms, it includes an increment of the Rate
Italian Photovoltaic market won’t be anymore a of Return of approximately 10 and 30%, according to
market with high margins which must be the CapEx amount, the type of the project and its FiT
progressively reduced. tariff access date.

3. .02 PRINCIPIO energy consulting
Photovoltaic ground fixed power plants for a achieving an interesting IRR.
medium (-1MW) and large capacity (-5MW) as the one
simulated in the Figure 1., will suffer a drastic For the 2012 period and the following, even
reduction in their profitability after the introduction considering a significant reduction of the costs and
of the IV conto energia , specially for those projects achieving the awaited €/W parity for the PV modules,
connected to the grid, then those projects that get the expectations for the IRR are realistically limited.
the subsidies late 2011 and during 2012. Added to the policies introduced in March 2011 and
the three months cap introduced in the IV Conto, the
The current value of such projects could be estimated development of such kind of projects is forced to
in a CapEx 1 of 3.4 2 €/W which represents a IRR of end.
around 16%. This segment of projects should suffer a
relevant reduction of the cots to achieve attractive The use of European Union manufacturers, which
rates of return (shall be considered that the below adds a bonus of 10% on the FiT, represents that the
simulation includes a bonus on the FiT for the utilize subside for those projects connected in June 2011 is
of EU manufacturers equipments). rarely higher than those connected in May 2011. To
install this kind of equipments will become a market
Assuming a realistic depreciation of the costs for the must in order to get an attractive IRR, pending on
next months, the business opportunity for such the evolution of the related costs, its use represents
projects is to connect them within September an growth between a 10 and 30% on the IRR, in terms
before the highest depreciation of the FiT taking of investment costs , represents o.2 €/W in the CapEx.
advantage of the reduction of the prices, still
Notes
1 CapEx – Capital Expenditure, includes PLA · EPC · connection prices
2 cost of a connected PV plant
Figure 1.- Equity Partner IRR sensitivity
Ground Fix Photovoltaic Plant – Power Capacity 1 < P < 5 MW – BoP EU manufacturers
CapEx
IRR 60,00
2.0
2.2
50,00 2.4
2.6
2.8
40,00
3.0
3.2
30,00 3.4
3.6
20,00
IRR (20yr) 13%
10,00
0,00 Date
Apr-yy
May Jun-yy 11
11 June Jul-yyAgo. Sep-yy Oct 11
11 Nov-yy Dec-yy
Dec. 11 Feb-yy
1S 2012 Apr-yy May-yy
2S 2012 2013 Jul-yy
Assumptions – Project 2 MW · 1350 kWh/kWp PR79 · 4 Ha Financials Project Leasing Scenario · 20 / 80 · Euribor 1,21% · Spread
2.55 · 15 yr Running Costs Maintenance 30k€/MW · Operation 20k€/MW · Insurance 12k€/MW · 10k€/yr Management ·
5k€/Ha/yr

4. PRINCIPIO energy consulting .03
On the contrary, the trend for Top Roof PV projects is
promising and considering the depreciation of the
prices it is possible to achieve likable Rates of Return.
Also considering that the medium size of such kind of
projects is normally bellow to -1MW since the
required free surface is significant, the FiT is higher
in front of larger capacity projects. Furthermore, top
roof projects under 1 MW are considered in the IV
Conto as small facilities, thus they are not subjected
to the three months cap, which definitely supports
their development.
The below Figure 2.- simulates the aforesaid kind of
project, as showed even with a lower depreciation of
the PV system costs and late FiT access, the rates of
return are still interesting, achieving realistic values
around 15% late 2011 and 2012.
Figure 2.- Equity Partner IRR sensitivity
Top Roof Photovoltaic Facility – Power Capacity 200kW < P < 1 MW
CapEx
IRR 60,00
2.0
2.2
50,00 2.4
2.6
2.8
40,00
3.0
3.2
30,00 3.4
20,00
IRR (20yr) 15%
10,00
0,00 Date
Apr-yy
May Jun-yy 11
11 June Jul-yyAgo. Sep-yy Oct 11
11 Nov-yy Dec-yy
Dec. 11 Feb-yy
1S 2012 Apr-yy
2S 2012 May-yy
2013 Jul-yy
Assumptions – Project 700 kW · 1330 kWh/kWp PR76 Financials Project Leasing Scenario · 20 / 80 · Euribor 1,21% · Spread 2.55 · 15
yr Running Costs Maintenance 25k€/MW · Operation 10k€/MW · Insurance 10k€/MW · 10k€/yr Management · lease 20k€/MW

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