Italy has committed to floating offshore wind as a key solution in its energy transition. However, the FER 2 Decree, which was intended to provide a solid framework for incentivizing the development of this technology, has raised doubts among sector operators. The lack of a clear auction schedule and the absence of adequate economic guarantees are putting the competitiveness and viability of projects at risk, according to industry experts.

“The FER 2 is a fundamental framework for driving the sector in Italy, providing incentives for emerging technologies such as floating offshore wind, which has not yet reached the commercial stage but has great potential. However, the current version does not provide sufficient guarantees to operators, particularly in terms of economic competitiveness and project viability,” states Filippo Barzaghi, Offshore Wind Senior Analyst at Nadara.

A critical issue is that the operational rules of FER 2 do not establish either the capacity quota to be assigned (GW) or a defined schedule for offshore wind auctions. Barzaghi confirms in his discussion with Strategic Energy Europe that this creates uncertainty among investors and makes planning new developments more difficult.

Adding to this lack of clarity is another challenge: the absence of the Port Decree, a key element for the installation of floating wind farms. “Unlike fixed-bottom offshore wind, most of the assembly and installation of turbines in floating offshore wind is carried out in ports,” explains Barzaghi. Without this regulation, logistics and installation costs remain a significant obstacle.

Auction Price and Economic Viability of Floating Offshore Wind

One of the key challenges facing floating offshore wind in Italy is setting an appropriate auction base price to attract investment. Currently, the FER 2 Decree sets a reference tariff of €185/MWh, a value that does not reflect the rising costs of this capital-intensive technology.

In recent years, the levelized cost of energy (LCOE) for floating offshore wind has increased due to multiple factors, including:

• Inflationary pressure on key raw materials, such as steel and copper.
• Supply chain disruptions, which have raised the cost of components and logistics.
• Increased capital costs, directly impacting project profitability.

These factors have resulted in the €185/MWh base price being insufficient to ensure developers’ competitiveness. “The current reference tariff in Italy is not aligned with rising costs,” emphasizes Nadara’s Offshore Wind Senior Analyst.

To address this situation, other governments have increased subsidies for floating offshore wind. A clear example is the United Kingdom, where the AR5 CfD auction failed in 2023 due to excessively low reference prices. As a result, in the AR6 auction of 2024, the UK government increased the maximum award price by 52%, enabling the allocation of a 400 MW CfD contract to the GreenVolt project, making it the largest floating offshore wind farm in Europe to secure financing.

South Korea has adopted a similar strategy. The 750 MW Firefly project recently secured financial support with an estimated revenue range of $300-350/MWh, a significantly higher figure than that set in Italy.

“Governments recognize that financial support must reflect the real costs of floating offshore wind to achieve deployment targets, highlighting the economic benefits that outweigh state aid,” Barzaghi points out.

In this context, the Italian industry is pushing for a reassessment of the auction base price. The proposal is for reference tariffs to be adjusted to reflect cost evolution, ensuring that floating offshore wind is economically viable and can compete in tenders without compromising its financing.

Industry and Government Discussions

In response to these deficiencies, continuous dialogue has intensified between industry players, the GSE (Gestore dei Servizi Energetici), and government authorities to adjust FER 2 guidelines to market realities. Inflation, rising CAPEX, and financing difficulties are forcing a review of economic conditions for incentives.

“If it is demonstrated that the current support is no longer sufficient to ensure effective competition in auctions, the Minister of Environment and Energy Security could adjust the reference tariffs by decree,” details Barzaghi.

He emphasizes: “As industry players, we are advocating, among other things, for price adjustments that allow for project bankability and make them attractive to investors.”

From the sector, flexible financial support mechanisms are being promoted, such as inflation-indexed contracts throughout the entire financial support period (development, construction, and operation) to ensure a more competitive and equitable bidding process.

Impact of Bureaucracy on Project Development

Another factor slowing the development of offshore wind in Italy is excessive bureaucracy in the permitting and authorization processes. Unlike other European countries, Italy has not officially recognized specific areas for renewable marine energy within its Maritime Spatial Planning.

“The main problem lies in the lengthy permitting procedures for offshore wind projects. This is closely linked to Maritime Spatial Planning, which currently does not recognize the existence of suitable areas for renewable marine energy,” emphasizes Barzaghi.

The lack of predefined zones creates conflicts with other maritime activities and delays permits. In fact, the only floating wind project that has obtained a positive Environmental Impact Assessment (EIA) in Italy took more than two years to receive the environmental compatibility decree.

To streamline processes, the proposal is to create and officially recognize specific zones for offshore wind development, which would help reduce opposition from authorities and accelerate permit processing.

Competitive Advantages of Floating Offshore Wind

Despite these challenges, floating technology presents multiple competitive advantages, both in terms of costs and industrial impact.

One key benefit is its ability to be deployed in deeper waters, where winds are stronger and more consistent, increasing energy production. “Floating offshore wind farms can be deployed in deeper waters, resulting in higher capacity factors and increased energy output,” highlights Barzaghi.

Additionally, the sector is advancing in the standardization of floating platforms and industrialization of manufacturing processes, which will help reduce costs as the technology matures.

Another key aspect is logistics: unlike fixed-bottom offshore wind turbines, floating structures can be assembled on land and then towed to the site, minimizing installation costs and risks.

But the benefits are not limited to cost reduction alone. “Another key competitive advantage of this technology is the possibility of driving an ‘economic-industrial revival,’ revitalizing depressed areas and contributing to energy independence,” adds Barzaghi.

Italy’s Role in the European Offshore Wind Supply Chain

Italy has the potential to become a key player in the European offshore wind supply chain, thanks to its industrial expertise in steel production and shipbuilding.

“Italy can leverage its experience in the offshore oil and gas sector to bring transferable knowledge, accelerating cost reductions and driving innovation in offshore wind,” says Barzaghi.

Its strategic location in the Mediterranean makes it an ideal logistics hub for assembly, maintenance, and operations of future developments in neighboring countries such as France, Spain, Malta, and Greece.

However, for Italy to play a leadership role in the European supply chain, it is necessary to reduce regulatory barriers and accelerate the adoption of clear regulations, allowing investors and developers to operate in a more stable environment.