* Italy plans to extend timeframe for solar subsidies
* Effective cut to help slice 10 pct off power bills
* Industry warns will deter investors, spark litigation
By Stephen Jewkes and Massimo Gaia
MILAN, June 23 Italy's plans to cut subsidies
for solar power producers risk alienating investors and
triggering costly legal battles, undermining Prime Minister
Matteo Renzi's drive to attract foreign capital to bolster a
fledgling economic recovery.
Renzi's centre-left government has pledged to cut power
bills by 10 percent to help struggling households and small
firms, and has tabled a set of measures that include spreading
incentives for solar power producers over a longer timeframe.
Draft legislation seen by which is set to be
signed into law soon but which could still be subject to change
- says larger solar power operators will have to extend the term
of their subsidised tariffs from 20 to 24 years, effectively
thinning them out, or accept a straight 8 percent cut.
The government says the solar industry has already profited
from one of Europe's most generous incentive schemes, paid for
by consumers through their bills, and should now do its part in
bringing end-user prices down.
But solar firms and investors say the move changes the rules
on which they based their decisions and so could scare off
long-term foreign capital and trigger costly legal action, while
generating only minimal savings.
"You can't penalize operators halfway through their
investments; they won't come back," said Pietro Colucci, CEO of
Italian-based renewable energy company Kinexia.
Renzi, nicknamed Mr Demolition Man, has committed to clean
up and streamline Italy's ways of doing business and has
introduced a raft of laws to try to make the country more
competitive. But critics say the government is too rushed and
has not thought things through.
The new rules will apply to solar plants of over 200
kilowatts, affecting around 8,600 operators that receive about
60 percent of subsidies.
In a newspaper editorial on Friday, Michael Bonte-Friedheim,
the CEO of Nextenergy Capital Group, a merchant bank to the
renewable energy sector, said Renzi probably believed his
proposal was easier than tackling inefficiencies in the Italian
energy sector and cutting high taxes on energy users.
"Maybe he's right, but good luck in attracting foreign
investors in the future. Don't come knocking on my door," he
Italy's solar power market - which has drawn private equity
firms such as Terra Firma and First Reserve as well as
bank-owned investment firms and pension funds - took off at the
end of 2010 when new rules sent production subsidies
skyrocketing: from 750 million euros in 2010 to 3.8 billion
euros in 2011 and 6.7 billion euros in 2013.
In the last five years, investors have poured more than 50
billion euros into Italian renewable energy, building around 17
gigawatts of solar capacity.
In an attempt to curb costs and stop power bills rising,
Rome capped incentives, but they will still cost Italians more
than 200 billion euros over the next 20 years.
"That's a lot of money for consumers to pay. Retroactive
cuts have happened in Spain, Greece and Bulgaria. The operators
can't not have seen this coming," said a manager at a top energy
In its present form, Renzi's plans to extend the subsidy
timeframe could force many investors to renegotiate project
finance debt with banks and rental contracts with landowners.
"Renzi is destroying a whole industry and causing problems
for the banks which will find themselves with more
non-performing loans to write off or else take over plant," said
the Italian head of a bank-backed European infrastructure fund.
A bigger potential headache for the government is
litigation. Retroactive regulatory change by Rome could
contravene Italian law and the EU's Energy Charter Treaty, some
lawyers and people in the solar industry believe.
Last year, Spain attempted a similar move with renewable
tariffs, triggering a wave of multi-billion euro compensation
claims by investors.
"Some operators will probably sue in the courts while others
could go to international arbitration courts," said Rosella
Antonucci, a partner at law firm Legance.
A source at Italy's renewable energy association
AssoRinnovabili told Reuters many foreign investors were already
on a war footing and that some had even sounded out their
embassies to bring pressure on Rome.
But for the government, the 350-400 million euros in savings
the measure is estimated to raise are a key part of its plans.
"If it doesn't intervene on solar subsidies, electricity
bills can't realistically be cut by 10 percent," said Donatella
Bobbio, analyst at thinktank Ref-E.
Yet she warned the current measures could undermine
credibility. "The perception of country risk by foreign
investors is rising," she said.
($1 = 0.7366 Euros)
(Editing by Mark Potter)