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.
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?
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.