By Catherine Hornby and Alberto Sisto
ROME (Reuters) - Italy will scale back financial incentives for solar and other renewable energy that have inflated consumer power bills more than expected, and also will raise national renewable energy targets for 2020, two ministers said on Wednesday.
Italy's green power industry has boomed in recent years as investors from around the world ranging from banks and private equity funds to utilities poured billions of euros into the sector, lured by generous support measures.
With incentives ballooning above expected limits, Rome has decided to cut the support, which has burdened household and industrial consumers who pay for it through power bills that are among the highest in Europe.
Under the new decrees approved by Industry and Environment Ministers, renewable energy incentives will be cut by about 3 billion euros a year below levels they would have reached under the current support scheme, the ministries said presenting the new measures.
Production incentives for solar power generation, keenly watched by investors, will be slashed by about 35 percent on average while incentives for non-solar energy sector will be cut by about 10-15 percent, said Leonardo Senni, head of the energy department at the industry ministry.
"The measures appear to be more penalizing for the solar sector and fairly neutral for other renewable energy," one analyst said on condition of anonymity.
Under the new support scheme for solar power generation, new spending on incentives will be capped at 500 million euros a year while a total cumulative annual incentives spending limit is set at 6.5 billion euros.
Incentives for non-solar renewable energy will be capped at 5.5 billion euros, according to a draft decree seen by Reuters.
Renewable energy operators had expected more generous support.
"The new measures are rather disappointing. They can undermine investments in the sector," said one solar market operator who declined to be named.
With generous incentives in place since 2007, Italy's solar market has become the world's second-biggest after Germany and was the fastest growing market in the world in 2011.
It has attracted major solar module makers such as Chinese group Suntech Power Holdings, Trina Solar, Yingli Green Energy Holding and U.S. firms First Solar and SunPower Corp.
MORE AMBITIOUS 2020 TARGETS
Betting on continuing strong growth of renewable energy, Italy expects green power generation to cover up to 35 percent of total electricity demand by 2020, well above the current 26 percent target, as Europe combats climate change.
The government's goal is to program a more balanced growth of renewable energy, the ministries said.
"The message is we believe in renewable energy and because of that we want to make a more sustainable system," said Senni from the industry ministry.
"We made some changes in the system of incentives, and the system of volume planning, prioritizing technologies that have a particularly positive impact in reducing carbon dioxide emissions and favor the Italian economic system and innovation."
Under the new scheme, geothermal and hydro-electric power plants with capacity above 20 megawatts and other non-solar power plants with capacity of more than 5 megawatts will have to go through an auction to get incentives.
The new measures for solar power will come into force once the current 6 billion euro cap on incentives for the sector is exceeded, as expected between July and October. New schemes for non-solar renewable energy will kick in from the start of 2013, the ministries said.
The decrees are yet to be backed by Italy's energy regulator and a state body overseeing relations between the central government and Italy's regions.
($1 = 0.7622 euros)
(Additional reporting by Svetlana Kovalyova, writing by Michel Rose and Svetlana Kovalyova; editing by Jason Neely)