(Corrects fourth paragraph to show period from June to end of 2011, not 2012)
* New decree lowers transitory period cap 240 mln euros
* Small plants include rooftops up to 1 MW
* Confirms 6-7 bln euro/y incentive cap by 2016
By Svetlana Kovalyova and Stephen Jewkes (Adds detail, background, stock prices)
MILAN, May 3 (Reuters) - The Italian government has tightened a planned cap on the money it intends to spend for solar power incentives from June this year to the end of 2012, according to a draft decree seen by Reuters on Tuesday.
Italy's solar sector, one of the biggest in Europe, has boomed since 2005, when state-backed production incentives were first launched.
But Italy has decided to scrap the existing generous solar incentives starting in June to ease the burden on consumers, who pay for the incentives in their power bills.
A copy of the latest draft decree, obtained from two industry and bank sources, said in the period from June to the end of 2011 a cap on incentive spending of 300 million euros ($446 million) will be introduced, corresponding to an installed capacity of 1,200 megawatts.
The decree sets a spending cap for the first half of 2012 of 150 million euros and a cap of 130 million euros for the second half of the year, equal to an installed capacity target for the year of 2,690 MW, it said.
In a previous draft decree, the government had proposed a cap of 447 million euros from June 1 to the end of this year and 373 million euros for 2012.
"The new draft is awful because it cuts incentives for 2011 and 2012, does not protect investments underway and complicates permitting procedures with a registry requirement," an industry source said.
The latest draft decree confirmed a previous version capping subsidies for solar developers at between 6 billion 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 new draft decree said small solar plants would include rooftop installations with a capacity not above 1 megawatt.
It also said plants up and running before Aug. 31 will have direct access to the new incentives, while those coming into operation after that date will first have to be booked in a special register.
To become law, the decree would need to be signed by the Industry and Environment ministries and published in the official gazette.
The sources told Reuters differences of opinion on some parts of the decree between the two ministries had slowed down signing off on the law, adding that discussions were still ongoing.
Italy's booming solar sector has attracted the world's biggest photovoltaic module makers, such as China's Suntech Power Holdings Co Ltd STP.N, Trina Solar Ltd TSL.N and Yingli Green Energy Holding Co Ltd (YGE.N) and U.S. company First Solar Inc (FSLR.O).
In late afternoon U.S. trading, Suntech was down 27 cents or 3.1 percent at $8.58, Trina $1.08 or 3.8 percent at $27.01, Yingli 52 cents or 4.3 percent at $11.63 and First Solar $2.93 or 2.1 percent at $134.60. ($1=.6726 Euro) (Editing by Gerald E. McCormick)