Reforms are needed to streamline a system plagued by bureaucratic headaches, speculation and insufficient incentives to meet demand for photovoltaic systems, which turn sunlight into electricity, industry executives said.

"We're looking for a system more like the German system, which is much simpler," said Domenico Inglieri, spokesman for the GIFI photovoltaic industry association.

Although Italy has abundant sunlight -- about 50 percent more per square metre than Germany -- it installed only about five megawatts of power generation last year while European leader Germany built 603 megawatts.

Italy's photovoltaic output per person is a third the European Union average, according to the European Photovoltaic Industry Association.

Fabrizio Fabbri, head of the technical division of the Environment Ministry, said a decree being drafted will set initial feed-in tariff subsidies at about 250 million euros, the Dire legislative news service reported.

The subsidies will come from power bill levies aimed at boosting renewable energy.

The draft decree could be ready for approval by the centre-left cabinet next month and take effect in January, Fabbri said.

Under a 2005 plan, Italy's limit for incentives was set at 85 megawatts a year, enough to power about 30,000 homes.

Many of those winning the subsidies are speculators who plan to trade or sell their licenses, Inglieri said. His GIFI association estimates that only about a quarter of the projects approved by electric grid manager GRTN will be carried out.

Gianni Chiannetta, head of BP Solar Power in Italy, which has about 20 percent of the market, said installations could reach 200 MW next year.

"We're hoping that there will be a greater correspondence between supply and demand," he said.