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BERLIN (Reuters) - Germany's Economy Ministry released a paper on Thursday with a proposal to reduce the growth of new photovoltaic installations to 1,000 megawatts (MW) a year, a move that would dethrone the country as the world's largest market for solar panels.
The suggestion follows a newspaper interview by Economy Minister Philipp Roesler, leader of Chancellor Angela Merkel's junior coalition partners the Free Democrats, who said reducing new capacity to 1,000 MW, or 1 gigawatt (GW), per year would help contain costs of the incentives that utilities pay to solar power producers.
If turned into legislation, the move would effectively lead to a collapse of the German solar market, the world's biggest, and slam a sector that has already suffered from massive price declines and falling government subsidies.
A similar move has caused Spain to shrink from the world's biggest market in 2008 to an expected No.8 this year.
Shares in leading companies SolarWorld, Suntech, Yingli, Centrotherm, LKD and SMA Solar were all down, falling between 0.3 percent and 10 percent.
Last year Germany installed a record 7.4 GW of new solar power capacity, which was nearly half of the world's total of 16.6 GW installed, figures by the European Photovoltaic Industry Association (EPIA) showed.
Despite steep cuts in solar power incentives, Germany is expected to add about 5.2 GW this year.
"Reducing that to 1,000 MW per year would represent an effective contribution to limiting costs," the paper said.
The Economy Ministry paper will probably run into stiff opposition from the Environment Ministry, controlled by Merkel's conservatives, which last year reformed the feed-in tariff system to cut incentives to 28.74 cents per kilowatt hour (kWh) and is opposed to further cuts.
"Given the fact that the German Renewable Act amendment 2012 had just recently been decided ... it is assumed to be unlikely that further measures will be finally initiated in the short term," LBBW analyst Erkan Aycicek said.
The feed-in tariff will fall another 15 percent, as scheduled in the reform, on January 1, 2012.
Roesler, whose pro-business FDP party has often pushed for steeper cuts in the feed-in tariffs, told the Rheinische Post daily on Thursday: "It's the right thing to do to tackle the things that raise costs the most. And that is above all photovoltaic."
He added he would like to see the expansion of solar power in Germany cut to 1,000 MW. But he did not elaborate on how that would happen.
The pro-business wings of the FDP and Merkel's CDU have long pushed for a cap on photovoltaic power.
Michael Kauch, FDP environment expert in parliament, said in a statement on Thursday the proposal from the Economy Ministry did not seek to put a firm cap on solar power installations in Germany. He said cutting new installations could be achieved by cutting the feed-in tariff more steeply.
Additional reporting by Christoph Steitz; Writing by Erik Kirschbaum and Christoph Steitz; Editing by Anthony Barker