First it was Spain, which capped the amount of solar power the government would subsidize each year at 500 megawatts. Then it was Germany, which is debating a cut of 17% in its feed-in tariff. Now, it’s Italy, which is proposing a cut of 18% in its feed-in tariff for 2011. These three are the largest solar power generators in Europe.
Two of the biggest players in Italian solar power generation are SunPower Corp. (NASDAQ: SPWRA), which purchased SunRay Renewable Energy earlier this year for the Israeli company’s solid project pipeline in Italy, and MEMC Electronic Materials, Inc. (NYSE: WFR), which is building a 72 megawatt plant in Italy through its SunEdison subsidiary. These two could face the same sort of hit to the bottom line that befell Yingli Green Energy Holding Co. (NYSE: YGE), LDK Solar Co. Ltd. (NYSE: LDK), and JA Solar Holdings Co. Ltd. (NASDAQ: JASO) when Spain curbed its subsidies to solar power generators. First Solar, Inc. (NASDAQ: FSLR) indicated earlier this month that it expected demand from Italy to pick up some of the slack caused by the anticipated drop in German demand.
The Italian proposal would reduce the feed-in tariff by 6% in three four-month periods during 2011, resulting in an overall cut of 18%. A previous proposal would have cut the incentives by 25% in 2011 and 6% in each of the next two years. Clearly, the current proposal is not as big a threat as the earlier one.
According to the Italian government the drop in solar panel prices has led to the decision to cut the incentives for solar plant builders. Even with the cut, though, solar projects in Italy are expected to earn returns of more than 10%.
Some analysts think that the proposed division into thirds of the Italian incentive cut will not pose too great a hardship on solar makers. More than one even thinks that if the Italian proposal is adopted it will help level out European demand, pulling more sales into the first calendar quarter of 2011 as the German cut is implemented.
One clear message here is that incentives do work in driving solar power generation, and that solar-generated power might be able one day to stand on its own without subsidies. As the cost of panels comes down and their efficiency rises, it’s not out of the question.
