The law changes the government's obligatory purchase of electricity produced from renewable energy generators at high, fixed prices, which has led to a jump in projects totaling over 6,000 megawatts well above the country's grid capacity.
The center-right government says that Bulgaria needs only 2,000 MW of new green energy generation to meet a target, which it committed to the European Union, of supplying 16 percent of its energy consumption from renewable energy sources by 2020.
The government aims to put a cap on wind and solar projects to keep electricity prices in the EU's poorest country at affordable levels and avoid public discontent. Power and heating bills eat up much of Bulgarians' incomes.
In a bid to unclog the system, the new law demands that investors pay a connection fee of 50,000 levs US $36,820 per planned megawatt when signing a preliminary contract.
It also calls for the preferential price to be fixed at the time that the wind or solar energy park is built, and not when a preliminary contract is signed, as the initial law draft envisioned.
It also decreases the obligatory long-term purchase power contracts to 20 from 25 years for solar energy and to 12 from 15 for wind.
Under the new law, the energy regulator will set annual preferential feed-in tariffs, which pay per unit of electricity produced from low-carbon energy by the end of June each year.
The government said the measures would scare away speculators and also encourage investors to speed up projects and not wait for solar panels and wind turbine prices to drop.
Wind and solar energy associations criticized the changes, some of which were made in the last minute in parliament, saying they will effectively block the growth in renewable energy and will put at risk projects that have already been started.
Dozens of Austrian, Spanish, U.S. and German companies have rushed to build new wind and solar energy plants, raising the wind farm capacity to 336 MW last year from 103 MW in 2008 and solar to 10 MW from 1.4 MW two years ago.
"We have lost two years, hoping that this government will support renewable energy development. What we see now is that the new law is closing the door for new projects," said Nikola Gazdov, chairman of the Bulgarian Photovoltaic Association.
A senior official from the ruling GERB party indicated that the preferential price for electricity from photovoltaic installations is likely to be cut by 30 percent in June, while the cut for wind will be smaller.
Gazdov said investors do not oppose the cut in the feed-in tariffs, but the lack of predictability and the fact they would have to build an installation before they know at what price the power will be purchased.
The new law establishes better incentives for green energy from biomass and waste disposal, which unlike solar and wind will create more jobs, officials say.
There are no biomass energy plants in Bulgaria at present.