The cabinet of Prime Minister Jose Luis Zapatero Friday approved limits in subsidies for photovoltaic solar developments.
The government puts a cap of 500 megawatts for photovoltaic solar projects that are entitled to subsidies in 2009, the industry ministry said in a release.
For 2010, the cap will go down to 460 MW, and for subsequent years to 400 MW per year.
Spain is one of the world's hot spots for solar development, handing out generous but now ballooning subsidies to solar producers.
Despite the limit to subsidies, Spain will likely reach 3,000 MW of installed photovoltaic electricity-generating capacity in 2010, and 10,000 MW in 2020, the ministry said.
This year, photovoltaic plants in Spain will already reach a combined capacity to generate more than 1,800 MW in electricity - or five times the government's previous target for 2010, the release added.
The government also will reduce solar feed-in electricity rates from the current EUR0.44 a kilowatt-hour to between EUR0.32/KWh and EUR0.34/KWh for rooftop panels and to EUR0.32/KWh for ground-based facilities.
The lower rates only apply to new solar projects. "The strong development of the solar sector in Spain allows for a significant cost reduction," the ministry said.
The limits decided upon Friday are less severe than those the government had originally planned.
Photovoltaic industry associations had protested against the government's limit to subsidies, saying they will push some Spanish solar companies into bankruptcy and lead to the loss of billions of euros in investments.
Shares in Spanish solar power company Solaria Energia (SLR.MC) rose 2.3% to EUR4.4 at 1301 GMT, while the IBEX-35 fell 1.38%.