(Italian solar story, updated for analyst comment)

NEW YORK ( TheStreet) -- The latest data from Italy about solar installation growth presents the classic boom/bust dilemma.

The Italian state-run electricity service agency known as GSE reported on Tuesday that installed solar capacity may reach 8 gigawatts in 2011, meaning Italy will hit its long-term solar growth target approximately nine years ahead of expectation. The 8GW cumulative solar installation level implies a 5GW year in Italy in 2011, and a growth rate of 170% year over year.

Italy has 711 MW added in 2009, and has added 1.85GW grid-connected and 4GW of unconnected solar installations in 2010.

No market has ever absorbed 5GW of solar installations in half a year, which the GSE data, while not possible to validate immediately, suggests occurred in Italy. Yet the solar market is much bigger today than it was when Spain absorbed 2.4GW in 2008, which at that time represented one-third of the global solar market, and even bigger than when Germany had its mega-year in 2010.

Nevertheless, most analyst expectations for Italian annual installation growth in 2010 has been in the range of 2 gigawatts, and for 2011, in the range of 4GW.

In light of the existing estimates, the latest data confirms the view, or fear, of many, that Italy may slow sooner rather than later, and that a cap on solar installations is possible. It makes it seem as if the 4GW that was expected in Italian market growth in 2011 occurred in 2010. The Italian data indicated that there was close to 2GW installed in Italy in the fourth quarter alone.

Stifel analyst Jeff Osbourne wrote on Tuesday afternoon that the most surprising figure in the Italian data release is the 4GW of plants that were in the process of or fully installed before Dec. 31 and waiting to be connected to the Italian grid.

"Without being able to judge the validity of the 4GW of projects waiting to be connected, if in fact all the 4GW of notices of installed equipment / completed systems result in an additional 4GW of solar systems qualifying under the old FIT, we would expect the outcome to be in increased solar subsidy cost pressures which the reduced FIT levels announced mid-year for January 1, 2011 were expected to mitigate in the first place. This, in combination with country's now rapidly approaching its 8GW 2020 target, will raise political risks to the country's current subsidy scheme, in our view, given recent moves by governments such as France, Greece, Spain, Czech Republic, etc. to cap or severely slow the industry in the face the mounting program costs."

If the 4GW was the most important, it was also the most confusing. The Italian FIT policy included a provision so that projects on the ground by year-end 2010 would still qualify for the pre-2011 feed-in tariff even if they weren't connected until June 2011, yet given the level of the frenzy to take advantage of that provision, it's likely that some people will fear that all bets are off and Spain 2008 2.0 is going to occur in Italy, if not also compounded by a new version of the Spanish 2010 retroactive FIT decline.

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