NEW YORK(

TheStreet

) -- It looks like the latest news on the Italian government proposal to cut solar feed-in tariffs is among the negatives weighing on solar shares on Monday.

On Friday, it was reported by

Reuters

that Italy would cut feed-in tariffs on solar projects of 5 megawatts and above by 30%. This 30% FIT cut proposal is well above the 18% that the Italian government was reported to be aiming for just a few weeks ago. Still, it's just a proposal and reflects expectations voiced by Italian solar companies months ago.

It's not just expectations of the Italian feed-in tariff cut increasing from 18% to 30% in a few week's time that could be exerting pressure on solar shares, but the fact that Italy is planning a hard cap on solar installations of 3 gigwatts for the next three years. As Germany is expected to decline as a solar market with its feed-in tariff declines, some solar consultants project growth for Italy of above 1 GW annually. Though expectations for Italy to reach over 1GW annually for the next three years are at the more aggressive end of solar forecasting, and there are existing estimates that peg 3 GW as a growth rate at the upper limit of what will be cumulatively installed in Italy over three years.

More on Suntech Citi: Suntech is a Dog

One important thing for solar investors to keep in mind right now is that the latest news from Italy is a matter of proposals, not law. As solar investors experienced during the lead up to the German solar feed-in tariff changes, it's a long way from proposal to law. Given the economic problems in Southern Europe, it wouldn't be surprising if Italy does create significant reductions in its support for solar. However, placing bets today on the final shape of the Italian solar legislation is a dubious enterprise.

Just a few weeks ago, Street analysts were lauding Italy's "decision" to limit its feed-in tariff reduction to 18%. On Monday, analysts were saying the 30% reduction was projects of 5 MW and above -- it's to be a reduction of 20% for smaller solar projects -- was worse than expected. Worse than expected a week ago, that is ... and next week?

>>Italy: Solar Tariffs not as bad as Feared

Earlier this year, in a conference call organized by Credit Suisse, officials from leading Italian solar company Kerself had said they expected feed-in tariff reductions of 15% to 28% in Italy, so the 20% to 20% in the latest proposal is only slightly steeper than the range that Kerself had forecast much earlier in 2010.

>>Italian Solar Expects FIT Cuts of 15% to 28%

Italy has among the most lucrative feed-in tariff levels among solar tariff schemes. Still, a 30% reduction is twice the level of the steepest cuts just passed into law by Germany this month.

A losing day for the euro on Monday after a recent rally was another negative for solar stocks to start the week.

Suntech Power

(STP)

was leading losses in the solar sector, down more than 8% on Monday morning. The general solar sector selling on Monday was compounded in the case of Suntech by Citigroup's initiation of the Chinese solar module market at a sell, and with a $7 price target.

Citi initiated coverage of

Trina Solar

(TSL)

at a buy with a $30 price target, and

Yingli Green Energy

(YGE)

at a hold with a $15 price target, but it wasn't helping on Monday to avoid a losing morning for solar stocks. Yingli was down more than 6% and Trina down close to 3%.

The solar sector was up 10% last week, doubling the 5% gain in the broader equity markets, and the typically volatile sector was showing its trading volatility on Monday.

SunPower

( SPWRA), which recently bought a major European solar project developer with Italian projects a core focus,

SunRay

, was down close to 5% on Monday morning.

The solar losses were mounting during the morning's trading session, even though the Nasdaq was only down marginally on Monday morning.

JA Solar

(JASO)

was down by more than 6% for the third largest loss among solar stocks, after Suntech and Yingli.

Reuters

was also out with a report over the weekend speculating that a recent spate of accounting scandals in the solar industry will get worse before it gets better. Though the report didn't have any concrete evidence to support future accounting investigations beyond rehashing all the accounting news already known to the market, and pointing to the fact that solar accounting is becoming more complicated as solar companies move into management of large-scale solar projects into which they feed their own solar module sales.

-- Written by Eric Rosenbaum from New York.

RELATED STORIES:

>>Italy: Solar Tariffs not as bad as Feared

>>Citi Solar Calls: Suntech is a Dog

>>Italian Solar Expects FIT Cuts of 15% to 28%

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