Renewable electricity costs in Italy: an estimation of the cost of operating in an uncertain world

The promotion of Renewable Energy Sources (RES) is a priority of the agenda of governments in most European countries. The target of renewable energy for Italy, calculated as a share of renewable generation to gross final energy consumption, is set at 17% for 2020 (from 5.2% in 2005). With particular reference to renewable electricity (RES-e) in Italy, its development is often burdened by costs not strictly related to the plant construction and operation, but rather to the risks associated with its development, which lead to indirect costs. This paper therefore focuses on the costs related to the risks perceived by investors in the sector in Italy and the link between risk and success of the incentive system, estimating the additional cost of capital which investors pay when operating in a risky environment. Some policy indications are given to reduce the non-technology-related costs for a faster and more efficient growth of the sector.