UPDATE 2-Italy approves decree capping solar incentives

* New solar decree sees transitional period to 2013

* Cap on big installations will reduce speculation

* Grid parity for solar industry seen by 2017

By Svetlana Kovalyova and Stephen Jewkes

(Adds detail, background, changes dateline from ROME)

MILAN, May 5 (Reuters) - Italy has approved a decree that caps spending on generous solar power incentives, ending a period of uncertainty which had raised complaints from international investors and operators in the sector.

Italy's solar market, the world's second largest after Germany, has boomed since 2007 when the government boosted production subsidies but Rome has sought to cut incentives to help consumers who support the scheme through power bills.

Industry Minister Paolo Romani and Environment Minister Stefania Prestigiacomo signed the decree on Thursday, the industry ministry said. To become law it needs to be published in the "Official Gazette".

Differences of opinion between Romani and Prestigiacomo had slowed down its signing originally expected at the end of April.

The new solar decree sees a transitional period with gradual cuts in incentives to 2013, after which the incentives will automatically be linked to reaching a certain level of installed capacity, the ministry said.

A cap on incentives and a registry for big installations only (above 1 megawatt on rooftops and 200 kilowatts on ground) will help eliminate speculation, it said.

The full text of the decree is yet to be published.

According to the draft decree seen by Reuters on Tuesday, Rome has tightened the planned cap on the money it intends to spend for solar power incentives in the transitional period from June this year to the end of 2012. [ID:nN03115700]

The decree seen by Reuters aims to cap subsidies for solar developers at between 6 billion euros and 7 billion euros per year by the end of 2016, when installed capacity is expected to be around 23,000 megawatts. [ID:nLDE73I1V0]

The industry ministry said the decree will allow the solar industry to reach grid parity -- when solar power becomes competitive with fossil-fuel power generation -- by 2017.

"This important document finally gives stability and long-term prospects to the market until it reaches technological cometitiveness," Romani said in a statement.

Italy's booming solar sector has attracted the world's biggest photovoltaic module makers such as China's Suntech Power Holdings Co (STP.N), Trina (TSL.N), Yingli Green Energy (YGE.N) and U.S. firm First Solar (FSLR.O). (Additional reporting by Alberto Sisto in Rome, editing by Anthony Barker)