* Green incentives to hit 9 bln euros under current scheme
* Investments on hold pending incentive regime changes
* Foreign investors exit could hurt Monti government
By Stephen Jewkes and Svetlana Kovalyova
MILAN, April 5 (Reuters) - Italy's plan to scale back its generous renewable energy incentives will cut energy costs for families and industry but companies in the sector say the move will deter investment that is urgently needed by the government to create jobs.
Italy's green power industry has boomed in recent years as investors from around the world poured billions of euros into the sector, lured by the support measures.
But with state incentives ballooning to 9 billion euros ($11.81 billion) this year, Rome has decided to cut the support, which has further burdened household and industrial consumers who pay for it through power bills that are among the highest in Europe.
Solar incentives alone are expected to hit the 6 billion euro mark this year, four years earlier than expected. Rome says the average Italian family would have to pay 120 euros in 2012 to support renewable power, up from 30 euros in 2009.
Companies in the renewables sector say, however, that the latest decision, one of repeated changes in the system that have caused uncertainty, will pour cold water on inward investment.
"There is zero interest from foreign investors in greenfield renewable projects (in Italy now). The new cuts will block decisions to invest since there's just no certainty," Pietro Colucci, chairman and chief executive of Italian renewables operator Kinexia, told Reuters.
Funds into big renewable energy plants with capacity over 0.9 megawatts came in at 7.84 billion euros, or about 0.5 percent of gross domestic product(GDP) last year, according to energy consultancy Althesys Strategic Consultants.
An exit by foreign investors would deal a blow to the government of Prime Minister Mario Monti, who has been trying hard to regain trust of foreign investors shaken by the rule of his predecessor, Silvio Berlusconi.
"How can you expect foreign investors to invest? It's embarrassing trying to explain to our partners Climate Change Capital why the rules keep changing so often. There's just no certainty," said Giorgio Pucci, chairman and chief executive of Italian solar energy company Enerqos who attended an industry conference in Milan this week.
With generous incentives in place since 2007, Italy's solar market has become the world's second-biggest after Germany and attracted major solar module makers such as Chinese group Suntech Power Holdings, Trina Solar, Yingli Green Energy Holding and U.S. firms First Solar and SunPower Corp.
Berlusconi's centre-right government cut solar power incentives last May but the new support scheme had been meant to run until 2016.
Industry Minister Corrado Passera said on Thursday the government would very soon present details of the new support scheme for renewable energy. Separate bills on solar and other green energy incentives are expected in early April, sources familiar with the situation said.
The Monti government estimates that under the current scheme incentives could cost 11-11.5 billion euros a year by 2020 with overall costs in a 15-20 year period - the duration of incentives - of over 150 billion euros, too heavy a burden.
Major industry users are grateful for the government action.
"It's a good initiative (by Passera) and I hope it works out. Energy accounts for around 30 percent of our industrial costs. We're not against renewables but we pay for it dearly through the bills. We need a rebalancing to help us gain competitivity on the industrial front in Europe and globally," Massimo Medugno, managing director of paper makers association Assocarta, told Reuters.
Rome's reluctance to unveil details of how it is going to modify the incentives schemes has thrown the sector in disarray.
"Investments have stopped. Banks have closed financing taps," Gianni Chianetta, chairman of Italian solar industry lobby Assosolare, said, adding that the actual scale of damage would only be known once the new plans were unveiled.
Cuts to solar power generation can slash the closely watched internal rate of return (IRR) to 2-3 percent in the north of Italy from more than 7-8 percent at present, making investments into the sector unprofitable, some industry operators said.
Green energy supporters also point to the benefits in terms of jobs. According to a study carried out by research group OIR-AGICI, if renewable energy development is not slowed, jobs in the sector will rise to 266,000 in 2020 from today's 130,000.
Foreign investors are focused on brownfield renewable projects, where plant is already hooked up to the grid and incentives locked in. The government has said on several occasions the new rules will not be retroactive.
But uncertainty on tariffs and the regulatory framework has virtually stopped project financing by banks, already impacted by the credit crunch, raising the likelihood of an end to the green energy boom of the last five years.
"The renewable business is living a big impasse for the time being. On solar, the financing of new construction is frozen due to uncertainty of tariffs and there is a good deal of concern from foreign banks over long-term funding," says Massimiliano Battisti, head of project finance at SocGen.
Even bringing the European Investment Bank on board with its favourable funding rates is now more difficult.
"Because of the bank downgrades in Italy the EIB is asking for cash collateral of 100 percent to help fund projects but the banks are using all their collateral to tap cheap money at the ECB's LTRO," Colucci said referring to the institution's three-year, low interest loan programme.