While economic gloom engulfs much of the world's solar energy industry, government incentives in sunny Italy are encouraging start-ups such as February's launch of photovoltaic panel maker V-energy.
Investors, ranging from families to Italy's biggest bank Intesa Sanpaolo, have piled into the photovoltaic market due to some of Europe's most generous incentives.
Privately-owned V-energy is betting on those to fuel solar energy demand and has not been put off by frozen credit markets.
The Italian maker of photovoltaic (PV) panels — which turn sunlight into power — is being funded by shareholders and regional development programmes.
"It was a strategic choice of the shareholders that alternative energy is a good business, the business of the future," Miriam Dase, a V-energy consultant, told Reuters at a renewable energy fair in Genoa this month.
"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," Dase said, echoing comments from other sector operators at the fair.
Italy, Europe's third-biggest solar power producer after Germany and Spain, gets less than one percent of its power from PV installations at present.
But industry body GIFI has estimated that PV capacity will see exponential growth to 16,000 megawatts (MW) in 2020 from about 280 MW in 2008, fueled by the government incentives and Europe's renewable energy targets.
"I would say (Italy's) plans are ambitious, but they are also realistic," said Thomas Gregory, senior analyst at Emerging Energy Research (EER), an advisory and consulting firm.
Italy's feed-in tariff — the main element of the incentive scheme approved in 2007, which guarantees operators up to 0.49 euros per kilowatt hour of produced power for 20 years — has made the PV sector something of a safe haven investment.
"It is like investing in government bonds, but it yields more," said Gianluca Bertolino, board member of GIFI, 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.
Sunshine and hefty incentives allow Italian PV market operators to repay investments in 8-10 years on average, faster than in many other European countries, industry experts said.
"On the annual income (from PV installations) basis, Italy has the best combination of solar resources and a feed-in tariff in Europe," EER's Gregory said.
Government incentives which guarantee a steady cash inflow over 20 years also help would-be investors open the doors of banks that have tightened project financing during the crisis.
"The feed-in tariff is a bankable contract that you can take to any solvent financial institution … A banker will look at it and say: 'Yes, it's a very good deal'," Gregory said.
As the credit crunch deepened in Italy, about 41 percent of companies reported last December that it had become harder to get access to bank financing, Emma Marcegaglia, the head of Italy's industrialists' body Confindustria, said in January.
But lending to the low-risk PV projects has powered ahead, said Carlo Buonfrate, energy desk coordinator at bank Mediocredito Italiano, part of Intesa Sanpaolo group.
Once Italy reaches grid parity — the price at which solar power becomes competitive with traditionally produced electricity — the PV sector would be able to stand on its own feet even if the government scraps incentives, experts said.
"I think the incentives are necessary for at least one more year. The point of the feed-in tariff was to encourage manufacturers to enter the sector. And they've succeeded in doing that," EER's Gregory said.
Abundant sunshine, the highest electricity prices in Europe and a sharp fall in PV module prices expected in the next few years due to oversupply, should push Italy to reach grid parity in 2010, ahead of major rivals, Gregory said.
Spain and Germany are expected to have competitive PV power generation in 2011 and 2012 respectively, he said.
Other industry experts forecast Italy reaching grid parity in 2012-2014, still ahead of many other European countries.