Italy is looking to catch up with other European countries in offshore wind, with several gigawatts of development planned. But further clarity on regulation and other areas will be needed for the plans to translate into reality.

In the shallow waters of the southern Italian port of Taranto stand a handful of wind turbines known as Beleolico: Italy’s only offshore wind farm in operation, a EUR 80m project developed by Chieti-based firm Renexia and financed by Natixis. Despite its local significance, the 30 MW project is dwarfed by the plethora of much larger projects in operation elsewhere in Europe.

The Beleolico project looks meagre by comparison with for example the UK’s 13.8 GW of installed capacity and Germany’s 8.1 GW.

But with authorities promising long-needed regulatory changes and international investors expressing growing interest, the country finally seems on the verge of its own offshore wind revolution. Over time, this could result in hundreds of gigawatts of capacity and billions of euros of potential investments, if the right measures are introduced.

Unlike elsewhere in Europe, the focus is expected to be almost entirely on floating offshore wind which, according to a strategic report published earlier this month by think tank The European House Ambrosetti (TEHA), has a “strong energy potential and limited environmental and social impact”.

Given the scale of these potential projects, even the possibility of Italy’s target being increased to 5GW by 2030 seems underwhelming. A source at a company interested in investing in the sector agrees with ANEV that “Italy should set a more ambitious objective than its current one to incentivize investors.”

Regulatory requirements

More fundamentally, for major projects to move beyond the planning phase, clarity is needed about the regulatory steps they will need to go through, how projects will be tendered and what subsidies will be available for the wind farms.

Under legislation approved on 31 January, the Ministry of Environment and Energy Security (MASE) will adopt a set of guidelines to start the authorization process for floating offshore wind farms.

Also, the Italian coast guard has been tasked with overseeing all activities related to the development of the floating offshore wind platforms, which is important because it means that there will be a specific body dedicated to the inspections of offshore wind activities under the instruction of the MASE.

The hope is that this will lead to “an acceleration in the authorisation procedures, with clear and transparent rules so as to ensure the competitiveness of the market”, says Watson Farley & Williams’ head of Italy Eugenio Tranchino.

The new rules form part of legislation approved following last month’s conversion into law of decree 181/2023. Tranchino, who is one of Italy’s leading legal experts in renewables and advised on the Beleolico project, says this new legislation contains “urgent provisions” for the country’s energy security, including selecting at least two ports in southern Italy for creating a “national strategic pole for the design, production and assembly of floating platforms and electrical infrastructure functional to the development of the shipbuilding sector dedicated to the production of offshore wind energy”.

It is one of the measures aimed at achieving energy autonomy by creating a national floating offshore wind supply chain, rather than relying on industries abroad. As of today, none of Italy’s ports meets the requirements needed to build a floating offshore wind project with turbines of up to 250 metres. To adapt the current ports, hundreds of millions of euros of investments are needed, according to TEHA.

The MASE is expected to launch a tender to identify these ports within weeks, allowing local port authorities to submit their candidature. The winning port authorities will receive subsidies to make investments at their ports to support the logistics industry linked to the floating offshore wind sector. The ports of Taranto and Brindisi in Apulia and Augusta in Sicily are said to be the most likely candidates, according to local reports.

Creating a local supply chain for the industry is likely to improve the economics of the offshore wind projects, but subsidies will ultimately play a major role in the viability of the projects and clarity is needed on this.

“There is an urgent need to define incentive systems at country level to enable competitive development of floating wind power”, says one source at a major renewable developer.

This mirrors the view recently expressed by the chairman of ANEV, Simone Togni. Following Italy’s first offshore wind summit in Rome in December, Togni said that investors need complete clarity about what their return on investment is going to be, before committing hundreds of millions of euros to projects.

According to the current draft of long-awaited legislation introducing incentives for renewables, known as FER 2, the subsidy should be a feed in tariff equal to EUR 185 per MW/h, which shall not be indexed for inflation, notes Tranchino. The latter point would need to be reconsidered in order to encourage investments, he says.

Also, as noted by TEHA, the proposed subsidy is short of levels in the UK, where CFDs for upcoming floating wind projects are being increased from EUR 143/MWh to EUR 218/MWh. The TEHA report argues that it’s crucial that the Italian government announce better tariffs than the current level – which is 27% below the UK – to support the development of this technology in Italy.

Two ongoing auctions in France for large-scale floating wind farms off the coast of Brittany and in the Mediterranean due to be awarded this year are also likely to be a bellwether of prices in the industry. The previous three small-scale pilot projects in France, of about 25 MW each, were backed by higher tariffs of EUR 240/MWh, awarded several years ago.

Italy’s FER 2 is still draft legislation which authorities have yet to finalise and approve, so it is not fully clear how the incentives schemes will work. TEHA as well as the Association for Offshore Renewable Energies (AERO) have asked the government to speed up its adoption and unlock the incentives mechanism. AERO has specifically asked the government to link incentives for floating offshore wind projects to inflation, “in order to avoid that the current uncertainty that worries investors slow down and then block investments”, while TEHA asked to ensure that future auction tariffs are constantly updated, in line with inflation and market trends, to ensure competitiveness of projects.

Technology risk linked to floating offshore wind also needs to be part of the equation. While floating offshore wind’s potential is indisputable, “rapid growth entails certain risks for operators and insurers”, says Tranchino. These include extreme weather conditions and the fact that the technological maturity of new construction methods, operations and turbines is still limited, he says.

Once the technology and the supply chain reach their maturity, however, this would result also in lower costs compared with fixed bottom technology, which is currently cheaper.

According to TEHA, capex for floating offshore wind projects in Italy is currently projected to be around EUR 5bn/GW, compared with EUR 3.3bn/GW for fixed bottom technology, but the former is estimated to drop to EUR 2.8bn/GW by 2040 and EUR 2.5bn/GW by 2050, effectively halving the current capex estimates.

The cost of electricity from floating offshore wind is expected to be the same as fixed-bottom offshore at EUR 105/MWh by 2040, thanks to technology optimization, scale, and supply chain maturity, TEHA says. The estimates take into account the involvement of the Italian steel, cable and shipping industries and the development of a domestic supply chain.

Financing appetite

If Italy does manage to create an environment where developers start to move their projects towards the financing stage, vast sums of equity and debt will be needed.

European Energy’s country manager for Italy, Alessandro Migliorini, believes that when projects are ready to be financed, they’ll attract a long list of investors, “be they pure financial partners, funds, banks or utilities.” European Energy is active in Italian solar and is keen to be involved in its offshore wind plans having developed projects in the sector in other markets.

According to an investment banker following offshore wind developments in Italy, there is definitely going to be appetite from lenders, but the projects currently in the pipeline will only reach a financing stage in two or three years, so “it is still a bit premature to discuss figures, especially without first clarifying uncertainties about subsidies”.

But if the number and size of the projects emerged so far is confirmed, “the opportunities will be bigger than what we have seen so far in northern Europe”, he predicts. There will need to be a joint effort from banks and from the capital markets, he says: “These are sizes that the current market doesn’t understand yet, but it will eventually. In a few years, we’ll be submerged by these financings.”

Another source confirmed banks’ interest in floating offshore wind, saying they have begun preliminary discussions on the more advanced projects, as they are keen to be involved from an early stage.

It might still take time, but the recent legislative moves appear to be steps in the right direction and floating offshore wind is seen as the “only opportunity”, together with photovoltaics, to reach Italy’s renewable energy targets, Migliorini says.

It is time for Italy to “make up for lost time and gigawatts”, he says.