* Government has 6 months to set rules for nuclear relaunch

* Long-term investments are tough sell in economic downturn

* “Not in my backyard” is big obstacle

MILAN, July 9 (Reuters) - Italy backed measures on Thursday to revive a nuclear energy industry it quit two decades ago, but industry experts said the government faced an uphill struggle to find funds and sites for new plants.

The law gives the government six months to prepare rules for a revival of the nuclear sector. They will be part of Italy’s efforts to reduce its heavy reliance on fossil fuels import and cut emissions of heat-trapping carbon dioxide (CO2). Parliament approval of the law after nearly a year of debate comes as leaders of major industrialised and developing countries meeting in Italy struggled to agree on greenhouse gas reduction targets before U.N. talks this year. [ID:nL8200840]

Italy relies on oil and gas imports for about 80 percent of its energy needs. Energy experts say nuclear power would help it boost the security of energy supplies, cut CO2 emissions and trim electricity bills which are the highest in Europe.

But the nuclear-friendly government of Prime Minister Silvio Berlusconi will have to work to attract investors to bankroll new plants and overcome strong grass root public opposition.

“It is still an uphill struggle. Nuclear energy relaunch requires putting together a huge puzzle ... Italy is not good at such things,” Luigi De Paoli, professor at Bocconi University in Milan, told Reuters on the sidelines of an energy conference.

WHERE ARE THE FUNDS?

The only Group of Eight (G8) industrialised nation without nuclear power, Italy voted in 1987 to shut its plants and stop building new ones after the 1986 Chernobyl disaster. Berlusconi has made nuclear revival a priority.

But the global economic downturn has made it difficult to find investors willing to commit funds to building a nuclear plant with costs estimated at 2.5-3 billion euros per 1,000 megawatts or even more, experts said.

“On top of the difficulties the industry faces with a return to nuclear energy, with all big choices it need to make, with finding sites ... we have a general crisis now,” De Paoli said.

Italy's biggest utility, Enel SpA ENEI.MI, which owned Italian nuclear plants before the ban, was ready to take part in the nuclear revival, its chief executive Fulvio Conti said.

But experts at the conference said they doubted Enel, the most heavily indebted utility in Europe, could cough up enough of its own funds or easily get bank financing for new plants.

The government should offer firm guarantees covering up to 80 percent of investment to lure private investors who may group together in consortia to reduce risks, said Emanuele Borgonovo, director of the ELEUSI research centre at Bocconi University.

But sceptics pointed to a project by a consortium in Finland to build a nuclear plant that was once hailed as a success story by Italian backers of nuclear renaissance but which has suffered cost overruns and numerous delays. [ID:nLH305020]

With Berlusconi’s political opponents attacking the new law, experts said would-be investors would want reassurance that a new government would not scrap nuclear revival plans.

NIMBY AND NUMBY

The new law gives the government six months to come up with criteria for selecting new nuclear sites and types of plants, rules for storing nuclear waste as well as compensation measures for communities which agree to host new nuclear power stations.

Economic Development Minister Claudio Scajola said some local authorities had signalled a willingness. When the bill was being debated, some regional governors refused to host plants.

Local authorities have a final say on industrial projects’ approval in Italy. Public opinion has been generally hostile to nuclear energy and some analysts say politicians could be tempted to oppose the revival in next year’s local elections.

Scajola has said Italy needed between eight and 10 new nuclear plants to cover a quarter of its demand, but energy experts said it would be extremely difficult to find sites for new plants and waste deposits in the densely populated country.

“Now we have not only NIMBY (not in my back yard) attitude, but also NUMBY -- not under my back yard,” said Fedora Quattrocchi of the National Institute of Geophysics and Vulcanology.

For a FACTBOX on the law and some facts on nuclear energy in Italy, please click on [ID:nL936038] (Additional reporting by Giuseppe Fonte in Rome)