Italy may soon become Europe's next frontier for solar energy as new incentives prompt investors to bet on higher returns than in Germany, which has less sun but is currently the hub of a growing global market.

Italy is trying to catch up in a worldwide race to find alternatives to the fossil fuels that arouse worries about security of supply and planet-warming carbon emissions.

Earlier this year, the Italian government approved new incentives to boost photovoltaic (PV) energy, which turns sunlight into power. It ordered all new buildings to have solar panels on roofs, aiming to exploit fully its abundant sunshine -- about 30 percent more per square meter than in Germany.

Italy must be more aggressive, said Winfried Hoffmann, president of the European Photovoltaic Industry Association (EPIA). We in Germany have installed 3,000 megawatt (MW) over several years, and there is much more sunshine in Italy.

One megawatt (MW) -- a million watts -- is enough electricity to power about 1,000 homes.

As a result of its new incentives, Italy aims to boost installed photovoltaic capacity to 3,000 MW by 2016, nearly 60 times more than last year.

Uwe Krueger, chief executive of Swiss technology group Oerlikon, said interest in solar power was rising as improved technology and high oil prices meant it was closer to being able to compete with traditional fossil fuels.

It gets economically viable in areas of the world where there is a lot of sunshine: southern parts of the United States, areas in Asia, the Middle East, Italy, Spain, Greece, he said.

No wonder we experience a lot of demand coming specifically from these areas. We are talking about billions and billions of dollars of investment which are lined up there for solar parks.

Italian sector specialists expect costs of solar energy generation to become competitive with traditional generation in Italy in the next 10-15 years.

German solar company Conergy, which aims to expand in Italy, expects this goal to be reached within the next 10 years, the same timeframe as in Germany.

Southern Italy is where it will happen quickest, with solar power output nearly double that of further north -- at 1,500 kilowatt hours per year per every KW of installed capacity versus 900 KW hours a year.

INCENTIVES

To lure investors, Italy in February amended its solar energy law to align it with a German incentive scheme called feed-in tariff, which guarantees above-market prices for generating solar power.

Without subsidies, solar is nowhere near conventional utility energy rates, said analyst Paula Mints of Navigant Consulting.

Under the revised Italian law, PV system operators would get up to 0.49 euro per KW hour of produced power for 20 years.

That means operators and individuals can repay investments within 8 to 12 years -- faster than the 12 to 16 years in Germany -- and get attractive earnings over the entire operations period, Conergy said.

Experts expect Italian households to buy into the idea of cutting their electricity bills, among the highest in Europe, and even profit from putting solar modules on the roofs. Some companies offer elegant roof tiles with built-in solar panels.

If investors get returns comparable to other large infrastructure projects, you will see a very serious growth, said Conergy board member Christian Langen.

Italy's biggest power utility Enel said last month it would invest 300 million euros ($417 million) over three years to build solar power installations with a total capacity of over 35

MW.

Some other experts, like Oerlikon Solar CEO Jeannine Sargent, think the cost gap could close in Italy faster and ahead of other countries that are less dependent on costly imports of fossil fuels. Italy imports 80-90 percent of its oil and gas.

FIGHTING RED TAPE

The amended Italian law also scraps limits on annual incentives to install PV modules and it boosts subsidies for households to put solar panels on roofs and save energy.

Market participants at a PV energy conference in Milan this month said the new law has triggered an avalanche of requests to install solar modules, but only a handful have obtained permits.

It is no longer an economic problem. It is rather a problem of fighting bureaucracy and boosting industrial skills, said Davide Tabarelli, chairman of energy think-tank Nomisma Energia.

Getting permits for any sizeable industrial project is a notoriously long process in Italy. It may take years and projects may be rejected if they are considered an eyesore.

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