By Madeline Chambers and Vera Eckert
BERLIN (Reuters) - Germany risks undermining its industrial base if it fails to undertake radical reform of incentives for the country's renewable energy sector, its new economy minister said on Tuesday in a clear signal of his support for industry.
German firms had to stay competitive, Sigmar Gabriel said a day before he outlines planned changes to a renewable energy law to Chancellor Angela Merkel's cabinet, which sources say will involve deep cuts in green energy support.
Export-oriented German 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 out.
"We have reached the limit of what we can ask of our economy," Gabriel said.
"The energy transformation has the potential to be an economic success, but it can also cause a dramatic de-industrialization of our country."
Social Democrat Gabriel, in his first major speech as economy minister, also made clear he would defend German interests against interference from the European Union which is investigating some aspects of the renewable law.
His comments are more strongly pro industry than either of his predecessors, conservative Environment Minister Peter Altmaier or Free Democrat Economy Minister Philipp Roesler who had joint responsibility for energy policy.
But Germany faces a delicate balance if it is to keep the momentum of a boom in renewable energy while also ensuring it is affordable to consumers. It wants to raise the share of renewable power to 40-45 percent in 2025 from about 25 percent.
Merkel gave the switch to renewable an unexpected push when she accelerated the exit from nuclear power after Japan's Fukushima disaster in 2011. The policy is one of Germany's most significant and is being watched round the world.
"We must make the energy shift an economic success ... No one around the world will follow us, otherwise," Gabriel said.
Gabriel said the cost of the incentives under the renewable energy law amounted to about 24 billion euros ($32.55 billion) a year.
According to a draft proposal seen by Reuters at the weekend, Gabriel will recommend to the cabinet that Germany cuts the support price paid for electricity from solar and wind power generators by about a third by 2015.
Under that, the feed-in tariffs paid to renewable power generators will be cut to an average across all technologies of 12 cents per kiloWatthour (cent/kWh) by 2015 from 17 cents/kWh.
He vowed to fight for German interests against the EU if necessary. The EU has opened an investigation over exemptions for energy-intensive German companies from the charges imposed on power consumers which fund green incentives.
"I am prepared to forcefully tell the European Commission ...that Germany needs to remain competitive," he said.
Industry broadly welcomed to the leaked documents on Gabriel's proposed incentive cuts.
Gabriel also said he opposed a capacity mechanism system that would include all Germany's loss-making conventional power plants in Germany, warning that costs would be too high. Some utilities have pushed for such a plan which would see them get recompensed for keeping power capacity available.
"We will certainly not put all conventional power plants into a capacity market," Gabriel said, adding smaller solutions were more likely and less costly.
He said he would start talks with the industry about a capacity market solution in the coming months.
($1 = 0.7373 euros)
(Additional reporting by Vera Eckert and Christoph Steitz. Editing by Jane Merriman)