Italy Solar Tariff Cuts Not as Bad as Feared

NEW YORK (TheStreet) -- The latest important European solar market to debut a plan for solar feed-in tariff cuts is Italy, and Italy's plan is different in important respects from other notable feed-in tariff decline policies.

Italy is proposing a cumulative feed-in tariff decline of 18% in 2011, but the FIT decline will be spread out across four-month periods, with 6% FIT declines in each one. Italy has been expected to implement a feed-in tariff decline at the beginning of 2011, and so, the fact that it's now moving ahead is no surprise to solar. The reduction in solar module pricing has dictated a cut in Italy's FIT scheme. There is little doubt that all the solar companies are racing to make Italy a huge market once Germany's FITs decline. Italy is already the second largest market in Europe.

The initial reaction to the Street about the Italian proposal was that even though the 18% decline in solar FITs was significant, it was less than the 25% decline that some expected Italy would propose. Italy has among the most favorable feed-in tariffs and much more sunlight than a market like Germany, and at the same time has been under the cloud of European sovereign debt pressure.

Earlier this year, in a conference call hosted by Credit Suisse, Italian solar company Kerself indicated that it expected FIT cuts of 15% to 28%.

Of course, it's important to remember that at this stage the Italian government is merely proposing the plan for an 18% feed-in tariff cut spread throughout the year. It's a long road to implementing the policy. Take Germany, where FIT reductions that have been debated throughout 2010 are supposed to go into effect in a week, and yet, the German upper and lower houses of parliament still have not come to agreement on the plan.

It's also important to keep in mind that nothing seems to be moving the fortunes of solar stocks right now other than the macroeconomic uncertainty and the de-levering of risk by investors. The European debt crisis and euro slide continue to outweigh any other solar-specific data point.

Last week, some of the major solar stocks like First Solar(FS:R) and Trina Solar(TSL) seemed like they were climbing out of the hole that investors dug for them in the previous two months, but this week has offered no sustained rally, with solar shares again selling off.