Spain is preparing a new cut in subsidies for renewable-energy production, a move that could drive struggling solar energy companies into default at a time of deepening recession and boost loan losses for banks that financed their projects, according to people familiar with the plan.

Under a broader energy sector overhaul to be announced as early as June 21, the government will reduce subsidies to renewable energy producers by 10% to 20%, these people said.

A spokeswoman for the Energy Ministry, which proposed the reduction, declined to comment.

Spain 's renewable energy sector includes wind and solar energy projects. The proposed cuts are a far bigger threat to solar energy investors because their projects are more heavily indebted.

Deputy Energy Minister Alberto Nadal told representatives of Spanish and foreign banks late last month the government was planning the cuts to help to reduce the "tariff deficit" that results when the electricity system brings in less revenue than it costs, according to people briefed on the meeting.

The electricity system has registered deficits during most of the past decade. By May the total accumulated deficit had reached about 26 billion euros ($34 billion). The government has promised to narrow the gap this year as it struggles to bring down its budget deficit and limit the rise of consumers' light bills.

Spain began offering large subsidies and other incentives in the late 2000s to promote the growth of solar-energy projects. Spanish banks and some foreign banks loaned the renewable energy companies an estimated EUR30 billion.

The amount of solar power capacity installed in Spain far surpassed official government targets, raising the tariff deficit.

Since 2010, the government has taken steps to curb the tariff deficit, including a temporary limit on the hours of electricity generation for which most solar energy producers can receive payment above market rates.

These producers say the limits adopted since 2010 could cut their revenue by as much as 40% this year.

Jose Donoso, managing director of the Spanish Photovoltaic Union trade association, said the subsidy cuts would also lead to a wave of defaults in the renewable-energy sector because companies managing many of the 60,000 or so solar-power installations in Spain would have trouble servicing their debt loads. He said he couldn't estimate how many were at risk of default.

Spanish banks could refinance some of those loans, but they are already facing a rising tide of corporate defaults in other industries. Earlier this year the Bank of Spain, the country's central bank, told lenders they must set aside EUR5 billion to EUR10 billion to cover potential losses on corporate loans that had already been refinanced. The new provisions come on top of an EUR82 billion cleanup of the banking industry's real estate portfolios last year.

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