UPDATE 2-Germany rejects EU plan for levy on industry for green energy

* Plan could cost German industry 760 mln euros/year-paper

* Econ min warns move could lead to de-industrialisation

* A quarter of power consumed by industry self-generated (Adds comment from EU’s Sefcovic)

BERLIN, Feb 18 (Reuters) - Germany has firmly rejected European Commission plans to make industrial firms generating their own power pay a surcharge funding renewable energy, according to an economy ministry paper seen by Reuters.

In unusually dramatic language, the ministry said the plans could cost German industry 760 million euros ($845 million) per year, even if they were only implemented in part.

“Burdening self-sufficient power generation with the renewable energy levy would lead to massive inadvertent structural disruption and further de-industrialisation,” the ministry said in the paper, which is due to be sent to Brussels in the next few days.

The German economy ministry declined to comment on the paper.

Until now, many companies -- especially those in energy-intensive industries -- have been exempt from paying the surcharge, which helps finance Germany’s shift away from fossil fuels and toward renewable sources of power known as the “Energiewende”.

In 2014, the European Commission concluded that waivers granted to energy-intensive industry did not constitute unfair competition. However, it only approved an exception for power generated by industry up until 2017.

According to the paper, the EU is now demanding that firms’ own power plants pay at least 20 percent of the green surcharge by 2019 at the latest, while new power plants should pay the levy in full.

Now Brussels wants Germany to propose new rules on electricity discounts for industrial firms, European Commission Vice-President Maros Sefcovic said during a visit to Berlin on Thursday.

“We’ll then look very closely at the proposals,” Sefcovic said, adding that the Commission understood the importance of the issue for Germany.

The ministry argues the surcharge would burden the most efficient power plants and be counterproductive to climate policy since most industrial firms generate power with so-called “Combined Heat and Power” (CHP) plants and use both the electricity and heat in their factories.

In addition, the privileges are legally permissible and do not constitute state aid, the government said, while other instruments to reduce the burden on industry are not practical.

The government also noted that Germany has comparably high electricity costs.

“Burdening self-sufficient power generation would negatively impact companies compared to competitors from outside of Europe - for some massively so,” it said in the paper.

Around a quarter of the total electricity consumed by German industry is produced in its own power stations, especially in the chemicals and steel industry.

$1 = 0.8974 euros