Italy's Cabinet approved Tuesday a bill setting the guidelines for changes to the renewable energy incentives system, as part of efforts to reduce the cost to consumers.

The bill, if approved by parliamentary committees and Italy 's regions, would introduce the changes from 2013. The main objective of the bill is to scrap the 'green certificates' mechanism, which costs the government about EUR500 million a year.

Italy introduced green certificates more than a decade ago as a key component of its support for green-economy initiatives. Companies can either boost their clean energy production or buy the certificates.

Under the bill, facilities with a capacity of up to five megawatts will receive incentives through a tariff feed-in system, while for those more powerful it will be through an auction.

The aim of the new rules, which still need to be ironed out, is to guarantee certainties for small investors, while adding more competition for bigger investors, said the government.

"Our aim is to accompany the development of technology in favor of a productive mix which is more environmentally-sustainable, at a certainly more competitive cost," said Industry Ministry Paolo Romani in a statement.

Italy targets for 17% of its energy consumption to be supplied from renewable sources by 2020.

In July, energy regulator Alessandro Ortis criticized the country's incentives system for renewables as inefficient and warned utility bills were in danger of rising 20% by 2020 if they weren't modified.

The government was keen to note the new regime will take off with an "adequate" transition period.

The center-right ruling coalition headed by Prime Minister Silvio Berlusconi caused a stir in June when it emerged the guaranteed purchases of green certificates would be scrapped to slash costs, bringing investments in the multibillion-euro sector to a halt. The following month, the government reintroduced their guaranteed purchase following opposition from investors.

It turned out that, while intended as an incentive, the certificates played a key role as bank collateral so long as state-run energy management agency GSE guaranteed a floor price, allowing investors to receive loans based on the certainty that the GSE would buy any certificates that weren't bought on the market.

Earlier Tuesday, UniCredit analysts wrote before the government announcement that their understanding is for the new regulation to especially benefit big traditional power generation players in the short-term with the decrease of compulsory green certificates quotas.

On the other hand, renewable companies should rely on the acquisition of the certificates by the GSE, UniCredit said.

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