Solar Systems Gain Ground in Italy as Climate and Political Risks Bite

During my first holiday back to Italy since before the start of the pandemic, one of the things that struck me while driving around the countryside outside Turin, in the northern region of Piedmont, was how many houses, farms, and commercial buildings had solar panels. This may be because the absolute number has grown in the intervening 3 years, or it may be that I notice them more now that I work for Guidehouse Insights. In either case, it felt like there were more solar panels to be seen in that rural corner of Italy than even my neighborhood in the San Francisco Bay Area.

The timing also felt important: my trip coincided with not only the worst heatwave and drought that Italy and much of Europe have experienced for decades but also the disruption in energy prices as a result of Russia’s invasion of Ukraine and subsequent moves by the European Union to cut off Russian oil & gas. The prevalence of solar panels on roofs showed one way the area was confronting climate change, though it may not be enough to make up for energy shortfalls from the war and drought.

Italy Has Been a Long-Time Leader in Building Solar Systems

Italy has long been reliant on energy imports to make up for lower amounts of its own gas and coal. The country began to explore solar installations in the early 2000s, as concerns about global warming grew. According to the Guidehouse Insights' Global DER Deployment Database 1Q22, Italy has a cumulative capacity of 1,687 MW of installed photovoltaic power as of 1Q22, though this figure may have grown substantially in the months since publication, given the current European energy crisis. The greatest number of solar plants is in the northern regions, but the southern regions generate the most energy. This is in line with solar deployments in other Mediterranean countries, like Spain.

At the same time, a relative outlined all the work they’ve had done on their house in the past year to electrify it (including adding solar, storage and a heat pump), as well as the amount of grants they’ve received in the process. The upshot is that they spent relatively little of their own money, thanks to the Superbonus program, a 110% tax credit aimed at residential building improvements targeting energy efficiency, for the tradeoff that they can’t sell the excess energy back to the grid. For more information on residential energy generation scenarios for consumers, please see the Guidehouse Insights report on Residential Distributed Energy Resources.

Capacity Needs to Increase as War and Drought Hit at the Same Time

The fact that solar installations in rural Italy are so visible in 2022 is not an accident. As mentioned, my trip took place against the backdrop of the war in Ukraine, with its concomitant disruptions to energy prices. Italy is particularly vulnerable, given that gas from Russia accounted for 20% of its energy consumption in 2020, putting it on par with Germany. At the same time, the drought in the north’s Po River valley caused reductions in hydroelectric energy, which accounts for another 20% of the country’s energy generation. 

The energy uncertainty of 2022 is an inflection point after years of increasing temperatures and demand on the electricity grid. Italy has long taken energy efficiency seriously, in line with many of its neighbors, but the dual shock of high energy prices and extreme temperature is demonstrating the need for energy upgrades even to people out in the countryside. By providing incentives like the Superbonus, Italy is also doing well to make sure these users can afford to make the upgrades once they’ve identified the need for them. The expense to the country may be notable in the short term, but making energy supplies more reliable in the future is likely to save the government money longer-term.
Other European countries are offering similar incentives, though none as large as the Superbonus. The US, or at least California, should also consider following Italy’s lead, offering an easy to understand tax credit as an incentive to make any sort of energy efficiency upgrades. For Italy itself, it is recommended to renew the Superbonus past its scheduled end in 2022: while a number of Italian homeowners have already taken advantage of it, the region can expect energy instability for a while to come, so prolonging the Superbonus will help taxpayers continue to weather the various crises.