First it was Germany, then Spain—and perhaps soon it will be Italy’s turn as European solar front runner, thanks to recently implemented government solar incentives whose munificence aims to make the most of the country’s wealth of sunlight. While the Mediterranean nation currently remains Europe’s third-biggest solar power producer, with a present installed capacity of 280 megawatts (in comparison to Germany’s 5,300 MW and Spain’s 3,300 MW by the end of 2008), it has nevertheless posted the ambitious goal of raising PV installation capacity to 16,000 MW by 2020.

The Italian government aims to accomplish such a goal through generous policies such as a feed-in tariff, which it approved in February 2007, that guarantees operators up to €0.49 ($0.63) per kilowatt-hour of produced power for up to 20 years (in reality this may range from €0.35/kW-h to €0.48/kW-h, depending on the type and size of installations), as well as tax breaks for households, which, along with small and medium-size firms, account for most PV installations today. A typical family-size PV installation ranges from €18,000 to €20,000 in cost, an investment which generally repays itself in eight to ten years. (For a comparison to American solar financial incentives, see here, here and especially here.)

In light of its copious sunshine, falling PV module prices (thank you, oversupply!) and exorbitant Italian electricity rates, industry experts expect Italy to reach grid parity by 2010-14, possibly earlier than even Germany (2012) and Spain (2011), despite their head starts—though probably due in part to the sudden caps their governments recently imposed on benefits for installation capacity, thanks to the rapid growth of the solar industries in the countries, which resulted in growth that far outstripped governmental capabilities.

So what’s to stop Italy from suffering the same fate? According to the Reuters articles linked above, Italy is set for “steady growth of the PV sector,” as a consequence of an incentive scheme that places a 1,200 MW cap on capacity covered by incentives, a limit which is unlikely to be breached before 2011-12. Once that 1,200 MW cap is reached, “incentives will be extended for another 14 months under the current scheme.” Seeing as industry savants predict Italian grid parity by 2010, perhaps the industry will be able to prop itself up on two feet by that point, well before the government sees a need to strip down incentives.

Additional reasons for investors to see Italian solar as an excellent opportunity, in spite of the credit freeze and prevailing pessimism over the state of the economy? Some choice quotes from the aforementioned Reuters article:

“The market is good, despite the crisis. The main problem for the sector operators and clients is to get bank financing. But the incentives are so appealing that people go for it,” [Miriam Dase, a consultant at V-energy, a PV panel maker] said, echoing comments from other sector operators at the [renewable energy fair in Genoa this month.]

And, if you like your number-crunching:

“It is like investing in government bonds, but it yields more,” said Gianluca Bertolino, board member of [industry body] GIFI [Gruppo Imprese Fotovoltaiche Italiane,] which represents about 70 percent of the PV business in Italy.

…

Thanks to the feed-in tariff, investment in the Italian PV sector yields from 4.5 percent in the country’s north up to 10 percent in the south, according to estimates of internal rate of return (IRR) in the sector by GIFI and Intesa Sanpaolo.

That compares with a 5.38 percent gross yield for a 20-year fixed-rate government bond sold by Italy’s Treasury at the latest auction in February.

Sounds like a pretty good investment to me.