The PV market in Greece is set to experience aggressive reductions in premium incentive rates from August 2012, with new project internal-rate-of-returns (IRR) declining accordingly. This follows a record market volume of PV registered during Q2’12.
The August regulation also limited the review of existing and new projects applications to PV projects subject to incentive-based polices (except small-roof <10 kW and Fast-Track). This effectively puts new projects based upon power purchase agreement (PPA) applications on hold.
Furthermore, additional impositions are expected – including a new tax on PV production income. This tax proposal should be enacted during early September 2012, together with other PV-related regulations.
So, taking all these changes into consideration, will the Greek PV market maintain the robust volume seen in Q2’12? And how will the market respond in 2H’12 and 2013 to the enacted and pending regulatory changes?
Market response to enacted regulations
The small-rooftop segment is poised to experience an immediate response to the incentive cuts. This will reduce the small-rooftop IRR by 50% to around 13% (including the 23% VAT paid on installation). In fact, there is another development that will impact on this market segment- the recent delay in the small-rooftop administrative process related to recent building code enactments. However, this resolution is not expected until October 2012.
The small-rooftop segment may surge to more than 150MW level in 2012, based upon building-mount PV systems with applications that are locked into the higher rates from before Q3’12. Only administrative delays and any other new impositions could constrain this market growth. New applications will decline until consumers accept the new economic terms. However, this is a difficult proposition and therefore new sales are likely to decline in 2012.
Changes in the other PPA segments are not expected to occur this quickly. These segments are dominated by the delayed response to incentive cuts that are expected to maintain high IRR’s (≈25%) for projects that were registered before Q3’12. These PPA awards have 18 to 36 months from the registry-date to be built, with a locked-in FIT rate. Also, project supply disbursements are being delayed in order to take advantage of declining prices. Most PV systems that use a PPA are expected to be installed in the end of 2013. This is likely to represent 50% to 70% of the 2.7 GW total, of which only 840 MW are currently built.
New impositions by pending regulations
However, more bad news for the PV industry in Greece is expected. For example, the proposed tax imposition is planned for resolution as soon as September. Under consideration is what tax-rate to impose, and how this will be distributed amongst renewable electricity producers. Also, the build-period that is allowed with a locked-in rate will then be decided. A nine-month period is being proposed. The retroactive and administrative implications of these new regulations are proving controversial, and the PV sector is now actively lobbying the Greek government.
The proposed tax (20% of revenue) could allow other business-related tax maneuvers for the PPA segments. The result of this would be around 10% reduction in historic income terms. The small-rooftop segment already pays 23% VAT on the installation price: however, no income tax is charged on the FIT income revenue and this may offer the government a vehicle for further taxes.
2012 and 2013 market impact
New PPA-based project starts are being halted by the new regulations. Also, other projects are effectively being halted by the aggressive rate-cuts in the small-rooftop segment.
However, each segment will enjoy a pipeline of projects (with pre-Q3’12 applications) whose build-out phase stretches through 2013. But overall market volume will depend on the other new impositions scheduled for September. The PPA market-segment will continue with robust volume through 2012 and 2013, only if potential new impositions do not drastically deteriorate the IRRs.
At the small-rooftop segment level, the immediate change from a 4-year-payback to an 8-year-payback is proving unpopular and will result in slower adoption. Other new impositions would only worsen the situation.
Historically in Greece, PV project IRR’s have been high, but these rates must be compared to other risk-weighted financial terms: e.g. the Greek public debt is currently being financed with a 20% risk premium. Investor’s perception that PV represents a good opportunity in Greece remains intact. Therefore, this should help drive the build-out of pre-Q3’12 applications.
Finally, the market for selling developed PV projects is also being impacted by the enacted and pending regulations. This includes ‘bankable’ 100 kWp ground-mount projects that are now selling for around €0.085/Wp. Those projects that are ready for immediate implementation (due by end of January 2013) will receive a FIT rate of €0.42/kWh for 20 years.