Italy's Terna to Invest $450 Million on Solar Power Infrastructure by 2010

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Researched by Industrial Info Resources (Sugar Land, Texas)--Italian energy transmission operator, Terna SpA (Rome) recently announced plans to invest about $450 million (320 million euros) by 2010 on solar power projects in the country. Terna has also proposed to set up a new company, Sungrid, which will oversee the development of projects with a total power generating capacity of 70-100 megawatts (MW). Terna is confident of securing an EBITDA margin of 85% on sales of operations. The company is also confident of securing an internal rate of return of around 11-12%.

Terna plans to develop solar power projects and infrastructure, sell these projects, and use the capital gains from these sales to fund the company's grid development, infrastructure and other projects. The company estimates that Sungrid will be able to generate annual revenues of $63 million to $77 million. Terna has already initiated discussions with the Ministry of Industry and energy regulatory authorities on the solar power venture.

Terna, a leading energy distribution and transmission system operator in Italy, has 64% shareholding equity and 36% funding from foreign investors. Some of the shareholders include Cassa Depositit e Prestiti (Rome) and Enel SpA (BIT:ENEL) (Rome). Terna also owns Terna Participacoes SA (SAO:TRNA11) (Rio De Janeiro), Brazil's second largest private transmission company in the energy sector in terms of market share. Terna Participacoes operates 3,330 kilometers of distribution network, and commands a market share of 9.3% in the Brazilian energy sector.

In February this year, Terna unveiled the 'Strategic Plan 2009-2013,' which includes several grid augmentation and strengthening projects. The company has planned a capital expenditure of $4.76 billion, of which approximately 77% has been allocated for grid development schemes. These projects include:

• Augmentation of the Turin grid
• Upgrade of the power supply infrastructure at Valcamonica
• Subsea cable connectivity between the Italian peninsula and Sardinia
• Construction of the Santa Barbara-Casellina link between Arezzo and Florence
• Rizziconi-Sorgente transmission line connectivity
• Restructuring of the grid in Northern Calabria

Presently, Terna operates about 58,000 kilometers of transmission network, which includes 18,600 kilometers of network that was acquired from Enel in January this year. The network also consists of 18 interconnects, including nine with Switzerland, four with France, two with Slovenia, and submarine cable links with Corsica and Greece.

The Italian government's incentive schemes to develop solar power in the country are attracting investments from business families, automobile majors, banks and start-up entrepreneurs. This comes at a time when the growth of the solar power industry worldwide has been dampened by the economic downturn. In February this year, a start-up company, V-Energy (Biella, Italy), began operations. This company has been funded by shareholders and regional development programs. Because of the global economic slowdown, when companies such as V-Energy were facing challenges receiving financial assistance from banks, government incentive schemes were proving to be attractive.

The main aspect of the incentive scheme announced in 2007 is the 'feed-in' tariff for photovoltaic installation, which provides solar power operators up to $0.69 for every kilowatt-hour of power generated for a period of 20 years. This has tremendously encouraged investment in the photovoltaic sector. Since 2007, the government has spent about $199.7 million on photovoltaic installation incentives. The feed-in tariff is estimated to provide a return on investment of about 10% in northern Italy and 4.5% in the south. This allows investors to repay their loans in eight to 10 years, which is quicker than most of the other member nations of the European Union.

The total installed photovoltaic capacity in Italy is expected to reach 800-900 MW by the end of this fiscal year and increase to 1,300 MW by 2010. Presently, Italy has 37,000 solar power installations, generating about 450 MW of power. Industry sources estimate that with government encouragement and the renewable energy targets set by the E.U., Italy's solar power generating capacity could reach 16,000 MW by 2020.

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