The next decrees on renewables, well behind schedule and with a modest budget, will in all probability be the last. This dynamic fits into the new RES target of the Integrated National Energy and Climate Plan which provides for the installation of approximately 40 additional GW of wind and photovoltaic power by 2030. It therefore appears unavoidable that the achievement of these ambitious objectives passes through the development of RES plants without incentives and that is in grid parity.
The term grid (or market) parity refers to the situation in which the price of the energy produced by a RES plant is equal to the purchase cost of energy from the grid, which instead is mainly based on the production of electricity from fossil sources (at least Italy). Currently, the condition of grid parity appears to be limited to photovoltaic and wind power.
For operators, the development of grid parity plants implies a greater effort than in the past in reducing costs and increasing production efficiency. This in all phases of the project: development, financing, EPC, O&M and energy management.
But that's not all: grid parity involves a radical change in the operators' business models. If with the incentives all the attention was concentrated on the investment phase, today an integrated management of the assets is required, with a renewed focus on the issue of trading and the sale of energy. These two points, for plants with variable costs tending to zero such as PV and wind, become central and not easy to manage, also because on the one hand, the experiences of grid parity are not particularly numerous on a global level and, on the other, they differ from country to country (industrial structure, rate of development, legislation and regulation influence the development of a project in a determined way).
The possible approaches to the emerging segment of RES in grid parity identified by a study by the OIR Observatory are the following:
- Merchant vertical integration. The first approach is based on the vertical integration of all stages of the supply chain, from the development of the RES plant to the sale of electricity to customers.
- Build, Sell and Operate (BSO). Develop, build, sell and manage: this is the foundation of the second model, which is based on the subsequent construction and sale of part or all of the asset so as to limit the use of capital in an asset rotation perspective. In particular, the group sells shares of the plants it owns but remains, at the same time, responsible for their operation and operational management.
- Pure asset owner. Here the typical operator is an investment fund or an IPP which, making use of external developers and builders, becomes the owner of a plant. At the same time, a PPA is stipulated between the investment fund and a market operator (typically a utility or a trader), who undertakes to withdraw the plant's output. In this model, the fund or IPP owns the plant, while the offtaker assumes the role of manager of the energy produced.
- Sale on the Power Exchange. Related to the previous approach, a new model is being developed by investment funds, based on the sale of energy on the Power Exchange. The operation envisages that the fund purchases/develops a plant in full equity with no prospect of future sale of the asset and that it sells the electricity produced directly on the Power Exchange.
- “Spurious” asset owner. A model linked to the previous one is the "spurious" asset owner. The typical operator is a company in the electricity supply chain (downstream or upstream) which, unlike the previous model, continues to hold the asset, however managing only some activities.
- Offtakers. The typical operator is a utility or a trader, who enters into a PPA with the holder of the asset for the purchase of electricity which will then be sold to his own customer portfolio and/or on the stock exchange.
- Build, Sell and O&M (BSO&M). The BSO&M business model is similar to the BSO, with the difference that, following the sale, the market player is limited to the technical O&M function of the plant.
- Vertical integration with internal offtaker. Large industrial groups, as well as some large Oil & Gas companies, in order to achieve their decarbonisation objectives, are increasingly acquiring, for internal consumption, electricity produced from RES, both through plants built on their own and through purchases from external operators .
“What emerges from the OIR study is a light and dark context for the development of grid parity – says Marco Carta, Chief Executive Officer of AGICI and Director of the OIR Observatory - The positive factors consist of several factors: the ambitious government targets, the expected increase in electricity prices, the decrease in prices of the main components of wind and photovoltaic plants, the large potential for efficiency improvements of existing plants, the closure of coal-fired plants by 2025, as well as the opening of the MSD market to RES”.
“However, there are elements that could hold back the market – adds Andrea Gilardoni, President of AGICI - In particular, substantially stable electricity demand, competition from thermoelectric plants, which are often modern and efficient, and declining energy prices during peak solar hours. However, we believe that the positive aspects outweigh the negative ones and therefore expect a significant development of grid parity installations. This forecast is confirmed by our surveys on the pipeline of projects presented by the various operators in Italy which exceeds 2 GW by 2023".
