The Italian government’s environment and industry ministers have reached an agreement over the country’s rich feed-in tariff and solar incentives that could be presented to the Cabinet as early as Today (May 5). The country was supposed to issue a new decree as early as April, but it took significantly longer, raising uncertainty over the solar policy’s fate.

The uncertainty led to volatility throughout the solar industry, but the pending policy should help assuage investors, manufacturers and developers.

Italy was the second largest solar installation market in the world, behind Germany, in 2010. At the end of last year it had added 2.3 gigawatts of solar power into its energy mix, bringing the total amount of solar in the country to 3.4 gigawatts.

Thanks to an extension of the feed-in tariff last year, as much as 4 more gigawatts could be covered under the feed-in tariff if they’re completed and connected to the grid by the end of June.

"I think we can arrive at 7,000 megawatts at the end of June," Gerardo Montanino, operating division director of Italy’s state energy services agency, GSE, told Reuters.

Under the draft decree, the country’s solar incentives would likely be reduced between 22 percent to 30 percent in 2011, 23 percent to 45 percent in 2012 and 10 percent to 45 percent in 2013, according to Reuters.

It’s too early to definitively tell what effect the policy change will really have on the solar industry, said Shayle Kann, GTM Research managing director of solar research.

“There are still things in play,” he said.

But the preliminary news is promising, he said.

“In short, I think overall the news is quite positive,” said Kann. “They’re significantly reducing incentives, but not too much.”

Italy plans to cap the amount of incentives it offers for large-scale solar installations, according to Kann. But it doesn’t cap smaller installations, like rooftop installations at all.

“The market will migrate back to the small rooftop market—and that’s what Germany is. Given that that’s an untapped market we’ll see more of that this year,” he said. “I don’t think anyone is giving up on the Italian market yet.”

Pictured: The Montalto di Casto installation in Italy. Image courtesy of SunPower.