Spain could cut its popular solar subsidies by up to 35 percent and limit the total size of the program to a lower level than previously anticipated, Spanish newspaper Cinco Dias reported this week.

The newspaper’s story provided the latest glimpse into what the Spanish government might eventually approve for its feed-in tariff program, which requires utilities to buy solar energy at a higher rate than conventional power.

Speculation about the program – one of the most alluring solar-incentive programs in the world – has been rampant, and has filled the industry with uncertainty. That uncertainty has made it difficult for solar companies and their customers to plan future projects, noted New Energy Finance analyst Francesco D’Avack.

The latest proposal isn’t likely to reduce their concerns. The government is considering capping the solar-electric installations at 300 megawatts for 2009 and increasing it by 10 percent the following year, according to Cinco Dias, which cited minutes from a meeting between Spain’s secretary energy Pedro Marin and the Photovoltaic Energy Industry Association.

The new feed-in tariff program could also make a distinction between panels placed on roofs and those on the ground. Utilities would pay 33 euro cents for each kilowatt-hour of electricity from rooftop systems and 29 euro cents for ground installations.

The current price is about 45 euro cents, depending on the size – not the placement – of the installations. The rate is up from the 42 euro cents last year because the feed-in tariff program allows the rate to be adjusted for inflation.

Previous proposals that Spanish officials have been considering have been more welcome by the industry. In April, Piper Jaffray analyst Jesse Pichel said Spain was looking at raising the cap to a total of 2.26 gigawatts and setting the energy price at 35 euro cents per kilowatt-hour, up from a previous proposal of 31 euro cents per kilowatt-hour up to a cap of 1.2 gigawatts (see Spain Considers Adding a Solar Gigawatt).

In a research note, American Technology Research said a yearly 300 megawatt cap would be “a major negative,”as markets in other countries aren’t mature enough to pick up the slack. The research firm expects the Spanish market to slow in the second half of 2008.

But D’Avack cautioned that the latest version could simply reflect the tough position Spain is taking during talks with solar energy producers.

“It may be that Spain just wants to take a tough position going into the negotiations, to make clear that it’s not going to bow to the demand of the sector,” D’Avack said. “That doesn’t mean the [feed-in tariffs] will be as low as what’s being proposed right now.”

Solar shares are down on the news. In recent trading, SunPower (NSDQ: SPWR) fell 5.75 percent to $62.82 per share, after decreasing 8 percent to close at $66.65 per share Tuesday, and First Solar (NSDQ: FSLR) fell 8.44 percent to $247.84 per share.

Thanks to its feed-in tariff, Spain has been a hot market for solar companies worldwide.

The program is open to anyone, prompting homeowners and businesses to place solar panels on their properties to make some good money. It has been so successful that the amount of new solar power generation capacity installed over the past year has exceeded the government’s expectations.

The current solar electricity price and capacity cap, at 400 megawatts, went into effect last year. Spain thought it would reach its cap by 2010, but by last September, the country already had seen 344 megawatts of new installations (see Is Spain Shining Too Brightly?).

Spain has modeled its program on the one in Germany, which recently voted to reduce solar-electric rates less than many had feared (see Solar Prices Set in Germany). The goal of any feed-in tariff program is to reduce the rates over time to eventually help solar prices reach grid parity, or cost competitiveness – without costly subsidies – with conventional electricity.

While Spain figures out what to do with its solar program, Japan is considering bringing back incentives to boost solar energy use in the country (see Japan Wants to Resurrect Solar Incentives).

A recently introduced bill in the U.S. House of Representatives also would create a feed-in tariff program. But the likelihood of the bill getting passed could be slim (see U.S. Proposes Feed-In Tariffs).

The renewable-energy industry has been trying to get Congress to extend the current tax-credit program in the United States for months to no avail (see Senate Blocks Renewable Incentives Bill, Solar Roundup: Another Tax-Credit Proposal, Policy Food Fight: Feed-In Tariffs vs. Tax Credits, Solar Sharpens Weapons for Incentive Battle, Renewable Tax Incentive Still at Risk and Senate Rejects Green Incentives to Pass Energy Bill).