(Solar story, Italy solar story, updated for analyst commentary)NEW YORK ( TheStreet) -- The Italian government's new draft decree of changes to solar policy will not include a cap on installations at 8 gigawatts, but changes to be made in Italy's solar incentive policy in the coming months will be significant for the solar industry. Solar stocks have been in limbo this week after a big decline on Monday when the Italian government was still considering the cap at 8GW. The specific changes to be made by the Italian government are expected to include a lower feed-in tariff (FIT), a potential cumulative annual cap on installations eligible for the revised FIT, both to be implemented as early as June, as well as land restrictions and project size restrictions, as had been in the original draft decree. The exact size of the subsidy decline and FIT-linked cap to be implemented were not clear on Thursday morning and are expected to be debated until the end of April, setting a new barometer for the existing uncertainty in the Italian solar market, according to analysts. Morgan Stanley analysts wrote on Thursday morning, "We believe that it is hard to spin this news positively or negatively for the sector as there are still many unknowns. While bulls may point out to the removal of the 8GW cap, bears can point to the fact that the level of feed in tariffs beyond June 1st will be unknown for two months, which will mean that financing for projects that get interconnected after June 1st will likely be frozen until there is more clarity on the new levels. The key takeaway for us is that today's news just pushes out uncertainty for the sector by another 2 months." Of course, spinning it positively or negative began immediately, and confusion continued to be a part of the news flow related to the Italian solar policy. The Italian industry minister, Paolo Romano, for example, said in a statement quoted by Reuters "No cut, no cap, no stop to the manufacturing sector development has ever been envisaged." Trading in solar stocks on Thursday suggested a less than enthusiastic response to the Italian political developments, as solar stocks went higher at the opening bell, but quickly retreated, and on Thursday when equities were surging. Dan Ries, analyst at Collins Stewart, stated on Thursday morning that the Italian policy announcement removes the big risk of a halt to the Italian solar demand, but is by no means a free lunch. "The revised policy points to a feed-in-tariff reduction on June 1, which is potentially HIGHLY DISRUPTIVE to the solar supply chain due to the uncertainty it creates." Jeff Osbourne, analyst at Stifel, said that solar stock trading may remain volatile while Italy decides on a new solar incentive policy. The analyst wrote on Thursday morning that, "While the removal of the cap on installations is a positive, we still don't know where the Italian market is headed. In the meantime, we expect the lack of clarity will keep the pace of installations high, keeping prices for wafers, cells and modules elevated for another month or two." The Stifel analyst added, "Given there is a typical 45 day lag from shipment from Asia to installation in Europe with the majority of systems, prices generally move 30-45 days ahead of demand shifts, so pricing could change quickly a month or two from now, which we expect to be the case. The news today should benefit the Chinese solar complex as it relates to 2Q11 shipments; however, it still does not provide clarity about the second half of the year, which will likely keep multiples compressed in our view." Sam Dubinsky, analyst at Wells Fargo, wrote a similar opinion on Thursday morning, stating that Italy had more or less pushed the risk out a few months, even as it removed the worst-case scenario cap. "Solar stocks will likely bounce this morning, but we urge investors to tread carefully as the subsidy discussions are still ongoing and bank lending for Italy projects could tighten given uncertainty," the analyst wrote. The Collins Stewart analyst explained that the combination of the feed-in-tariff not defined after June 1 and the long lag time needed after a system is built for it to be registered creates a situation where a system built as early as March or April might not know what feed-in-tariff it will receive. "A system buyer that does not know what cash flow the system will generate (the FIT determines the cash flow into the system) will want to renegotiate the system price after it knows the FIT will be lower than expected. Similarly, banks that plan to lend to Italian projects may also balk at lending to projects for which the FIT and therefore cash flow is undefined.... The Italian policy change set to occur in June will have implications for module sales in the very near-term," the Collins Stewart analyst wrote.
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