Subsidies for large solar farms are to be scrapped in what the industry described as a crippling blow after ministers said the projects were being built so quickly they could become unaffordable.
The energy department unveiled plans to close off funding for large farms, which have provoked protests in some parts of the countryside, under its Renewable Obligation scheme from April next year – nearly two years earlier than expected.
Companies building big solar projects will still be eligible for subsidies under a new scheme that offers long-term contracts for power generators.
But the solar companies will have to compete with other renewable energy technologies, such as wind power, to win contracts. Some say it will be much harder for them to operate as a result.
"The coalition appears to be playing politics with solar rather than praising its success in delivering significant amounts of much-needed power from safe and secure sunlight," said Ray Noble, a solar photovoltaic specialist at the Solar Trade Association.
The industry says it has brought costs down by 30 percent in the past two years, meaning solar is on track to be the cheapest source of low carbon power by 2018.
The Conservatives said last month that if they won the 2015 general election they would not subsidise new onshore wind farms that critics claim are blighting the countryside.
However, the energy department said financial concerns had forced it to rein in support.
"Large-scale solar is deploying much faster than we expected," it said in a statement. "Industry projections indicate that by 2017, there could be more solar deployed than is affordable."
"We need to manage our financial support schemes effectively and responsibly. That means that we need to ensure that the growth of the solar sector is delivered in a way that gives best value for money to consumers and allows us to offer effective support to the renewables sector as a whole."
The U.K. introduced solar subsidies later than some other EU countries and initial funding levels were relatively generous.
They spurred rapid growth in the industry, which has grown from almost nothing in 2009 to a current level of 2.7 gigawatts of solar PV generating capacity.
That is less than Germany, the EU's biggest solar market, installed in 2013 alone, however, the energy department said it still expects the UK to have 10 – 12GW of capacity by 2020.
Surveys show widespread support for solar power in the U.K..
But larger solar farms have drawn criticism from some local communities that say they are an eyesore.
The energy and climate change minister, Greg Barker, warned last year that the industry would face tougher regulation unless it was more sensitive to community concerns.
He has been pushing for solar panels on the roofs of car parks, factories, supermarkets and other sites where they would not interrupt views and could generate electricity that could be used on-site.