UPDATE 2-Threat of EU action on energy spooks German industry

Wed Nov 6, 2013 10:12am EST

* SPD: EU to probe industry exemptions on green charges

* Industry lobby wants reform to avoid EU intervention

* Warns EU action would destroy German "industrial core"

* Government denies reports it will scrap discounts (Adds environment minister, company comments)

By Matthias Inverardi and Markus Wacket

DUESSELDORF/BERLIN, Nov 6 (Reuters) - A leading Social Democrat warned on Wednesday that the European Union planned to investigate German renewable energy discounts for industry, a move that could end up hitting a raft of companies operating in Europe's biggest economy.

The VIK industry lobby for heavy energy users urged the German government to stave off EU action, warning it could saddle companies with billions of euros in additional costs and "destroy Germany's industrial core".

Hannelore Kraft, state premier of North Rhine-Westphalia, acknowledged that firms operating in Germany would need to move quickly to set aside provisions if EU Competition Commissioner Joaquin Almunia opens a probe.

Germany collects surcharges from power users to help fund operators of solar and wind power installations. Heavy electricity users such as cement, steel and some chemical plants are exempt to keep them from being priced out of the global market.

Brussels believes this could distort competition.

"We see big risks," Kraft told reporters in the state capital Duesseldorf. "If companies have to build reserves, this could cause a precarious situation for some of them."

Kraft and Environment minister Peter Altmaier, who are leading the negotiations on a new German government's energy policies, are due to travel to Brussels on Thursday to meet with Almunia and discuss the matter.

Spokespeople in Almunia's office declined comment.

Altmaier, of Chancellor Angela Merkel's conservatives, said he was convinced that Brussels shared his interest in upholding Germany's economic strength, but added that some of the 2,300 companies in the exemption scheme may not deserve the breaks.

"We must concentrate on companies that compete in the global market (safeguarding their competitiveness), but scrutinise other cases," he said.

A scrapping of the renewable funding discounts could have a big impact on manufacturing companies, which gave a mixed response to news of the Brussels plans.

Steelmaker ThyssenKrupp declined to comment while copper refiner Aurubis said it was confident it was not among candidates to be struck off the list, due to its high energy use and presence in global markets.

Chemical company Evonik said it was not building up any pre-emptive reserves as the outcome was unclear.

DOCUMENT DENIAL

A document made available to Reuters on Tuesday suggested the government was prepared to reduce the discounts by more than 1 billion euros ($1.35 billion).

The German government denied any plans to do away with the discounts, with the environment ministry describing the document as "an information paper at a technical level, which the minister did not approve".

"It was not part of (coalition) negotiations and will not be implemented in this shape," the ministry said in a statement.

Energy policy is a central theme in ongoing coalition talks between the conservatives and the SPD. Both parties agree on the need to reform Germany's renewables law (EEG), which has led to runaway energy costs for consumers.

VIK said a reform of the EEG was extremely urgent. They hope that such a reform will lower energy costs, reducing the need for industry discounts and retaliatory action from Brussels.

"State aid proceedings would force Germany to levy full renewable support charges on companies with immediate effect and maybe even retroactively," it said.

"In such a case companies would be faced with additional payments amounting to many billions of euros, which would destroy Germany's industrial core."

The green energy subsidy system has become a victim of its own success, as consumers are hit by ever rising surcharges to fund generous 20-year price guarantees to operators of renewable installations.

($1 = 0.7421 euros) (Additional reporting by Annika Breidthardt and Vera Eckert in Frankfurt, Tom Kaeckenhoff in Duesseldorf, Jan Schwartz in Hamburg and Tom Koerkemeier in Brussels; Editing by Noah Barkin and David Cowell)

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