92 Int. J. Environment and Pollution, Vol. 39, Nos. 1/2, 2009 Copyright © 2009 Inderscience Enterprises Ltd. Renewable electricity costs in Italy: an estimation of the cost of operating in an uncertain world Arturo Lorenzoni* Dipartimento di Ingegneria Elettrica, Università degli Studi di Padova, Via Gradenigo 6/a, 35131 Padova, Italy; The Centre for Research on Energy and Environmental Economics and Policy (IEFE), Bocconi University, Milano, Italy Email: arturo.lorenzoni@unipd.it *Corresponding author Laura Bano Dipartimento di Ingegneria Elettrica, Università degli Studi di Padova, Via Gradenigo 6/a, 35131 Padova, Italy Email: laura.bano@unipd.it Abstract: 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. Keywords: RES; renewable energy source; electricity generation; investment risk. Reference to this paper should be made as follows: Lorenzoni, A. and Bano, L. (2009) ‘Renewable electricity costs in Italy: an estimation of the cost of operating in an uncertain world’, Int. J. Environment and Pollution, Vol. 39, Nos. 1/2, pp.92–111. Biographical notes: Arturo Lorenzoni is currently a Professor of Energy Economics at the University of Padua, Padua, Italy, and Research Director at IEFE, the Centre for Research on Energy and Environmental Economics and Policy, Bocconi University, Milan, Italy. He received his laureate in electrical engineering in 1991 and his PhD in energy economics in 1995 at the University of Padua. He obtained his masters degree in energy and environmental economics at Scuola Superiore ENI Enrico Mattei in Milan, Italy, and was a Study Fellow at SPRU at the University of Sussex in 1993–1994.