ROME Italy will approve new, hotly debated support scheme for solar industry on Friday extending current incentives until the end of August, despite a rejection of Rome's plan by regional leaders, ministers said on Thursday.
Italy's solar sector, one of the biggest in Europe, has boomed since 2007 when the government boosted production incentives. Italy will cut the generous support to ease the burden on consumers, who pay for the incentives in power bills.
Under pressure from regional heads who wanted the government to soften incentive cuts and asked for an extension of the current incentives, which were due to expire in June, for the whole of 2011, the government has made some concessions.
Environment Minister Stefania Prestigiacomo said the government was prepared to offer a three month extension of the current incentives, which are among the most generous in Europe.
"The decree will contain an extension until Aug 31," Industry Ministry Undersecretary Stefano Saglia, in charge of energy issues, told reporters after Italy's regional heads rejected Rome's draft proposals following a meeting on Thursday.
The government has to consult the regions before going ahead with the decree but is not bound by their view.
Industry minister Paolo Romani told reporters the decree will be signed on Friday: "I'll sign it off tomorrow." Environment Minister Prestigiacomo also needs to sign the decree for it to come into force.
The three-month extension of the incentive regime would help some investors to complete their projects but it would not trigger any new investment in the sector, said Jean-Francois Meymandi, analysts at UBS Investment Bank.
"It does not make any change in terms of new installed capacity and it just consumes more of the budget allocated to solar energy," Meymandi said.
Shares in German solar wholesaler Phoenix Solar, which has a significant exposure to Italy when compared to its domestic peers, was the top gainer in Frankfurt's technology index, up 4.78 percent at 1525 GMT.
"This (decision) also extends the current uncertainty when the Italian market needs clarity to get new projects financed," said Bryan, Garnier & Co analyst Julien Desmaretz.
U.S.-listed solar stocks were mixed following the announcement, as any benefit from an extension of the current subsidy scheme was pitted against downbeat earnings announcements from Chinese solar wafer maker ReneSola Ltd and photovoltaic power inverter maker Satcon Technology Corp
The shares of Chinese companies Suntech Power Holdings Co Ltd, Trina Solar Ltd and LDK Solar Co Ltd were all up about 3 percent, although analysts said the most important question of whether Italy would install a cap on solar incentives had yet to be decided.
"Until that is resolved, these deadlines do not mean anything," said Susquehanna Financial Group analyst Mehdi Hosseini.
The government has agreed to soften slightly the planned incentives cuts for a transition period until the end of 2012, one government source said without giving more details.
The size of roof-top installations which will be exempt from incentive caps under the new scheme is likely to be lifted to 1 megawatt from 200 kilowatt planned before, another government source said.
Rome's new support scheme would in part cap subsidies for solar developers at 6-7 billion euros ($8.8-$10.3 billion) per year by the end of 2016, when installed capacity is expected to be around 23,000 megawatts.
The scheme envisages the transition period until the end of 2012 to safeguard investments under way when the new decree is passed.
Sector operators and investors have said incentive cuts this and next year of up to an estimated 60 percent, as well as additional bureaucratic procedures were disruptive for their business strategies and would put brakes on the booming sector.
On Wednesday, a group of foreign solar power investors said it had opened legal proceedings against Italy over the planned incentive cuts.
(Additional reporting by Svetlana Kovalyova in Milan, Christoph Steitz in Frankfurt and Nichola Groom in Los Angeles)
(Writing by James McKenzie and Svetlana Kovalyova, editing by William Hardy)