With a total energy production of 875 MW, Italy is the world’s fifth largest producer of geothermal energy – after the United Sates, the Philippines, Indonesia and Mexico – and Europe’s largest producer of underground energy: the turnover reached 630 million Euros in 2011, equal to 13% of the European business, and according to Unione Geotermica Italiana [Italian Geothermal Union], 2012 production reached 5591 GWh. These are important figures for an industry that is largely concentrated in Tuscany: all of the 33 functioning installations are localized in areas of Larderello, Travale, and Monte Amiata; and the Lardarello site is one of the world’s five largest geothermal installations, with a power of over 590 MW.
The “Another kind of green” report elaborated by Unicredit focuses on infrastructures and energy, synthesizes the sector’s potentials as well as the risks and commitments that those who decide to invest in the Italian geothermal sector. To begin, the sector’s outlook – calculated by REF-E research company for energy and environmental markets – estimates approximately 3% yearly increase in productive capacity between now and 2020: at the end of this period, Italy’s productive capacity should reach 940 MW, thanks to the thrust of the Tuscan industry during the first half of the decade, to which an additional contribution could come from other regional enterprises. According to the Unicredit study, the driver for expansion comes, primarily, from the advanced binary cycle plants that allow for the exploitation of medium temperatures (80-180 degrees Celcius) thus far only used for thermal and hydrothermal purposes. The other front constitutes of the use of low to medium temperature heat, especially for domestic heating, urban district heating [teleheating] and for uses in the industrial and agricultural fields. The peculiarity of low temperatures is their vast diffusion throughout the territory (at an average depth of 5 km), and this is the reason that it is creating a strong interest in Italy, confirmed by the high number of requests for underground exploration presented in Regions throughout the country: Tuscany is once again at the forefront, accounting for 54 of the 120 currently pending requests.
Alongside these growth potentials and the maturity reached by geothermal technology, private investments in this sector carry risks that should be seriously evaluated. Projects in this sector are not easy to finance – the Unicredit report notes – “The high risks during preliminary phases (geological risks, for example, or the possibility that the exploration not lead to satisfying results), the necessity of consistent initial investments for exploration and drilling operations as well as the long development cycle for the project (with the first earnings only “visible” beginning after six years)” could make this type of investment less attractive to private investors than investments in other categories of renewable [energy] sources. The combination of these factors requires financiers to apply a high rate to the cost of the loaned capital and to demand vast guarantees. Additionally, if the “debt” financing typically covers approximately 60-70% of the project’s cost, the initial phases require an equity commitment on behalf of the investors themselves.
The support allowed by the vast majority of developed economies’ governments, which translates in warranties on loans and tax credits on investments is usually a good starting point, as are development banks which have, in the past five years, provided more than 50% of financing for geothermal projects. In Italy especially, the report concludes, the best perspectives are to be attributed to plants [producing less] than 20MW, which benefit from a higher tax incentive.
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