COPENHAGEN (Reuters) - Denmark plans to make wind and solar power projects compete more equally for subsidies, a change that could boost solar panel installations.

The Scandinavian country has used its natural windy conditions to take a world-leading position in wind energy, but analysts say current subsidy schemes favor wind at the expense of solar power, for which far fewer subsidies are available.

Under new rules, agreed between the government and its ally the Danish People’s Party late on Tuesday, the government will allow both wind and solar projects to compete on equal terms in tender auctions for subsidies over the next two years.

Like other countries in Europe, Denmark also seeks to curb spiraling costs of renewable energy subsidies. As part of the new measures, it will limit total subsidies for all wind and solar projects that win tenders in 2018 and 2019 to around 1 billion Danish crowns ($158 million) combined.

The chairman of the Danish Industry Association for Solar Energy, Flemming Kristensen, said the new rules would increase solar’s competitiveness and lead to more installed capacity.

“We are not afraid of the competition ... But we think it should not be either solar or wind, but both solar and wind,” he said.

Wind power accounted for 71.8 percent of renewable energy electricity produced in Denmark last year, while solar power accounted for just 4.2 percent.

Danish-based Vestas VWS.CO, the world's largest wind turbine maker, was not satisfied with the new measures. It criticized the government's proposals to allocate only 150 million crowns to subsidize test turbines over the next three years and the 1 billion crowns in total subsidies for commercial projects. The government said the latter would allow the construction of 190 megawatts of renewable energy.

“We are disappointed with the low level of ambition in the agreement reached in terms of market volume and test turbines,” said a Vestas spokesman.

Denmark hopes to end green subsidies altogether before 2030, tracking a trend across Europe.

In Britain, where solar power capacity has soared in the last five years, the first solar power farm without a government subsidy began operations on Tuesday.

In Germany, the cost of producing solar power has fallen six-fold in the last 10 years, and the energy regulator has accepted bids to build and run wind turbines at zero subsidy costs from the middle of the next decade.

Denmark’s new rules may also increase the number of hybrid projects that utilize solar as well as wind resources to create a more steady flow of energy during changing weather conditions, Kristensen said.

Wind turbines generated 37.6 percent of total Danish electricity consumption last year, although that was down from a record 42 percent in 2015.

Solar power only accounted for a fraction of that.

For every project under the new system, state support per kilowatt-hour produced will be fixed for a 20-year period, and so will not fluctuate in line with energy prices.

That drew criticism from the Social Democrat-led opposition, which has called for a system in which the subsidy goes up when electricity prices fall. That way electricity producers receive the same amount for each produced kilowatt hour regardless of the current price - putting the risk on the government instead of the investors.

Opposition lawmakers say investors will take a hefty charge for taking on the risk of fluctuating energy prices, and Denmark will therefore get less green energy for its money than it otherwise would have.

The government said the experiences of the next two years would be used to set up a long-term subsidy scheme for the next decade.