UPDATE 2-German industrial base at risk if green energy shift fails

Tue Jan 21, 2014 10:17am EST

* New economy min to present reform of green incentives on Weds

* Gabriel attacks Brussels, says will protect German interests

* Germany's energy shift a flagship policy for new Merkel govt (Adds criticism of energy blueprint)

By Madeline Chambers and Vera Eckert

BERLIN, Jan 21 (Reuters) - Germany risks undermining its industrial base if it fails to undertake radical reform of existing incentives for the country's renewable energy sector, its new economy minister said on Tuesday.

German firms must stay competitive, Sigmar Gabriel said one day before he outlines planned changes to a renewable energy law that would make deep cuts in financial support for green energy.

"We have reached the limit of what we can ask of our economy," he told the Handelsblatt energy conference in his first major speech as economy minister with responsibility for energy policy and Germany's shift to renewables.

"The energy transformation has the potential to be an economic success, but it can also cause a dramatic de-industrialisation of our country," he warned.

Export-oriented companies have warned that a surge in power costs, caused largely by the green power incentives, will make them internationally uncompetitive and some have even threatened to move production abroad.

Industry accounts for around a quarter of Germany's economy.

ATTACK ON BRUSSELS

In a blunt attack on Brussels, Gabriel also made clear he would defend German interests against interference from the EU.

"The Commission is using competition law to 'Europeanise' national energy policy," said Gabriel, who will outline his plans to Chancellor Angela Merkel's cabinet on Wednesday.

The EU is investigating exemptions granted to Germany's energy-intensive companies from charges that fund green incentives. Apart from those with exemptions, all power consumers pay for the 'green revolution' via a surcharge added to their electricity bill.

Some 2,000 of Germany's' heaviest energy users fear they may have to repay discounts worth around 5 billion euros a year.

Markets have been waiting for Gabriel, who is chairman of her Social Democratic Party (SPD) coalition partner, to show his cards since he took office last December.

Germany switched to renewables under an SPD-Greens government more than a decade ago, but Gabriel's party has its roots in the trade union movement and is traditionally a champion of the coal industry.

Merkel gave the transition an unexpected push when she accelerated the exit from nuclear power after Japan's Fukushima disaster in 2011. The shift is one of Merkel's most significant domestic policies and is being watched around the world.

Germany faces a delicate balance to maintain a boom in renewables while also ensuring power is affordable to consumers. It wants to raise the share of renewable power to 40-45 percent in 2025 from about 25 percent.

MODEL?

"We must make the energy shift an economic success ... No one around the world will follow us, otherwise," Gabriel said, adding the cost of the support under the renewable energy law was about 24 billion euros ($32.55 billion) a year.

According to a draft proposal seen by Reuters, Gabriel wants Germany to cut the support price paid for electricity from solar and wind power generators by about a third by 2015.

Feed-in tariffs paid to renewable power generators will be cut across all technologies to an average of 12 cents per kilowatt hour by 2015 from 17 cents/kWh.

Industry has broadly welcomed the plans for the incentive cuts, which Gabriel wants to push through by the summer.

But representatives of the wind and power branches, Greens politicians and some Social Democrats have attacked the plans, especially the idea of reducing subsidies for onshore wind.

"This is like slamming on the brakes and leaving big skid marks," said Eveline Lemke, Greens economy minister in the state of Rhineland Palatinate.

Gabriel said he was open to discussions about his plan.

Although Merkel's right-left coalition has a big majority in the Bundestag, the Bundesrat upper house, which represents the 16 federal states, could delay the law. ($1 = 0.7373 euros) (Additional reprting by Vera Eckert and Christoph Steitz. Editing by Tom Heneghan)