UPDATE 1-Spain ratifies new 500 MW solar subsidy cap

(Adds details from cabinet office, background)

By Martin Roberts

MADRID, Sept 26 (Reuters) - Spain's cabinet has ratified proposals to set a new limit on subsidised solar power at a capacity level at 500 megawatts, Deputy Prime Minister Maria Tersa Fernandez de la Vega said on Friday.

The approval ends weeks of wrangling over the new subsidy cap, which is far below the 1,200 MW fixed in a current subsidy scheme expiring on Monday that helped make Spain the world's third largest solar market after Germany and the United States.

A statement from the cabinet office said the new cap for 2009 would be 400 MW -- two thirds for roof-mounted installations and the rest for ground based -- but with an additional 100 MW to ease transition from the current framework.

The total cap for 2010 will be 460 MW, which is in line with government targets to have a total of 3,000 MW installed by the end of that year.

The government has relented on initial proposals to slash the subsidy cap for next year to 300 MW, first mooted in July, after many firms protested that they could go out of business and solar power shares sagged.

Direct subsidies via "feed-in" tariffs -- designed to gradually make solar power competitive -- also will be substantially lower than a current 0.45 euros ($0.658) per kiloawatt-hour, but better than originally proposed.

The government will pay 32 to 34 eurocents/kWh for roof-mounted panels, which compares to an initially proposed 33 eurocents. Ground-based installations will receive 32 eurocents/kWh, up from 29 cents in draft proposals.

In comparison, power changes hands for the equivalent of about 7 eurocents/kWh on Spain's wholesale market <SP/BASE>.

Spanish lobby groups have said that the modified cap does not go far enough as it will be absorbed by solar plants which are already under construction but cannot be finished by the Sept. 29 deadline for current subsidies.

The government, however, says solar power has grown at an unsustainable rate and has already exceeded by four times targets it had originally set for 2010.

It hopes to have 10,000 MW installed by 2020, in line with European Union plans to derive 20 percent of all energy from renewable sources.

The government is also under pressure to cut a ballooning "tariff deficit", from forcing utilities to sell electricity at below cost. The estimated deficit for this year is 4.85 billion euros.

Spain now has about 1,500 MW of solar power plants, a jump from 470 at the end of 2007 amid a race to lock in generous subsidies. It expects to have 1,800 MW by the end of this year. (Reporting by Martin Roberts; editing by Michael Roddy)