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By Markus Wacket
BERLIN May 11 (Reuters) - The German parliament's upper house suspended the government's proposed cuts in subsidies for the solar power industry on Friday and referred them to a mediation committee, in a setback for Chancellor Angela Merkel's conservatives.
The opposition and federal states who oppose plans to slash so-called feed-in tariffs by between 20 and nearly 40 percent from April did not get a big enough majority to reject the law in the Bundesrat, but had enough support to delay it, potentially for several months.
States run by the Social Democrats (SPD) and Greens, and some areas of Germany where solar power provides jobs and growth, defend the subsidies that have helped Germany become the world's largest market for power converted from solar radiation, or photovoltaic energy, with 25 megawatts of installed capacity - nearly half of the world's solar capacity.
"Photovoltaic power makes a considerable contribution to reducing the price of electricity," Winfried Kretschmann, the Greens premier of Baden-Wuerttemberg state, told the debate. "This law would put our success story at great risk."
Two of Germany's biggest solar companies - SMA Solar and SolarWorld posted forecast-beating results on Thursday after strong demand ahead of the subsidy cuts provided a respite in an increasingly competitive market seen as over supplied and with reduced government backing.
The Bundesrat vote is especially embarrassing for Merkel's environment minister, Norbert Roettgen, just before his bid this weekend for the premiership of Germany's most populous state, North Rhine-Westphalia. Opinion polls suggest the SPD and their Green allies will retain power in NRW in Sunday's election.
A series of poor state election results for Merkel's Christian Democrats (CDU) and their Free Democrat (FDP) allies in the national government means the chancellor has no majority in the upper house. Its approval is not required for such a law but it does have the power to block it.
Some conservatives in areas reliant on solar power firms or which get good revenue from panels used in the conversion process, in eastern Germany and Bavaria, also oppose the planned subsidy cuts, which forced the government to water down its plans earlier this year.
Merkel's U-turn on nuclear power a year ago, following the Fukushima disaster in Japan, has made Europe's biggest economy more reliant on alternative energy sources.
It was not immediately clear how long the mediation over the subsidy cuts would take, but Roettgen said the government would push for the tariff reductions to come into force "as soon as possible".
Power production from wind and solar generation rose 25 percent and 30 percent respectively year-on-year in the first four months of the year.
Investors who have already planned projects and registered their applications with local utilities before Feb. 24 would be exempt from the subsidy cuts. They will have until June 30 to complete the projects while large open field projects will have until Sept. 30 to be completed.
The government plans also envisage solar incentives only being paid for 80 percent of the electricity produced for new installations of smaller plants. For larger plants, 90 percent of electricity produced for new installations would be eligible.
At present 100 percent is purchased at above-market rates. (Reporting by Stephen Brown, Markus Wacket, Vera Eckert and Alice Baghdjian; Writing by Stephen Brown)