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UPDATE 1-Threat of EU action on energy spooks German industry

Matthias Inverardi and Markus Wacket
Wednesday, 6 Nov 2013 | 6:57 AM ET

* SPD: EU to probe industry exemptions on green charges

* Industry lobby wants reform to avoid EU intervention

* Warns EU action would destroy German "industrial core"

* Government denies reports it will scrap discounts

(Recasts with SPD leader, industry comment)

DUESSELDORF/BERLIN, Nov 6 (Reuters) - A leading Social Democrat warned on Wednesday that the European Union planned to investigate German renewable energy discounts for industry, a move that could end up hitting a raft of companies operating in Europe's biggest economy.

The VIK industry lobby for heavy energy users urged the German government to stave off EU action, warning it could saddle companies with billions of euros in additional costs and "destroy Germany's industrial core".

Hannelore Kraft, state premier of North Rhine-Westphalia, acknowledged that firms operating in Germany would need to move quickly to set aside provisions if EU Competition Commissioner Joaquin Almunia opens a probe.

"We see big risks," she told reporters in the state capital Duesseldorf. "If companies have to build reserves, this could cause a precarious situation for some of them."

Kraft and Environment minister Peter Altmaier, who are leading the negotiations on a new German government's energy policies, are due to travel to Brussels on Thursday to meet with Almunia and discuss the matter.

A scrapping of the renewable funding discounts could have a big impact on manufacturing companies such as steelmaker Arcelor Mittal, cement maker HeidelbergCement and copper refiner Aurubis.

These companies, which are exempted from paying charges that are levied on all consumers as part of government-mandated incentives for renewables, may be forced to make retroactive payments and build up provisions for future charges.

The exemptions are designed to cushion industry from the rising costs associated with supporting the shift to green energy. But Brussels believes they distort competition.

DOCUMENT DENIAL

A document made available to Reuters on Tuesday suggested the government was prepared to reduce the discounts, currently enjoyed by mining, metals, cement, recycling and food companies, by more than 1 billion euros ($1.35 billion).

The German government denied any plans to do away with the discounts, with the environment ministry describing the document as "an information paper at a technical level, which the minister did not approve".

"It was not part of (coalition) negotiations and will not be implemented in this shape," the ministry said in a statement.

Energy policy is a central theme in ongoing coalition talks between Chancellor Angela Merkel's conservatives and the SPD. Both parties agree on the need to reform Germany's renewables law (EEG), which has led to runaway energy costs for consumers.

Industry consumer lobby VIK said a reform of the EEG was extremely urgent. They hope that such a reform will lower energy costs, reducing the need for industry discounts and retaliatory action from Brussels.

"State aid proceedings would force Germany to levy full renewable support charges on companies with immediate effect and maybe even retroactively," it said.

"In such a case companies would be faced with additional payments amounting to many billions of euros, which would destroy Germany's industrial core."

The green energy subsidy system has become a victim of its own success, as consumers are hit by ever rising surcharges to fund generous 20-year price guarantees to operators of renewable installations.

Export-oriented Germany must reconcile the need to shield industry from some of these excesses while also protecting households from soaring energy prices.

($1 = 0.7421 euros)

(Reporting by Annika Breidthardt, Markus Wacket, Vera Eckert in Frankfurt, Matthias Inverardi in Duesseldorf, Editing by Noah Barkin)