BERLIN (Reuters) - The leader of Germany's Social Democrats (SPD) said a new government must move quickly to rein in rising energy costs in order to safeguard the competitiveness of German industry.

Speaking a day after the SPD leadership agreed to enter formal coalition negotiations with Chancellor Angela Merkel's conservatives, SPD chair Sigmar Gabriel called Germany's renewable energy law (EEG) an impediment to a successful exit from nuclear power.

"The EEG was a wonderful law when we wanted to support new technologies to make them competitive. Today, in its current form, it is the biggest obstacle for the energy shift," Mr Gabriel said on Friday in a speech at a union event in Hanover.

"We need to ensure that renewable energy is affordable. And we need to put an end to the idea that we can pull out of nuclear and coal simultaneously. This won't work."

Ms Merkel decided in 2011, following the Fukushima disaster in Japan, to accelerate a German exit from nuclear power, but her"Energiewende" is at risk because of generous subsidies for renewable energy that have sent energy costs soaring.

She has said a reform of the EEG, which fixes the incentives known as feed-in tariffs, will be a top priority for her third term. But a new government faces a delicate balancing act, reducing the incentives to help industry, while ensuring investment in renewables does not grind to a halt.

Some companies have threatened to shift product abroad if the government does not act to reduce energy prices.

Feed-in tariffs are paid for by end users via surcharges added to their electricity bills. These charges mean German consumers pay the second highest power prices in Europe.

Gabriel, a former environment minister who is expected to get one of the top cabinet posts in a 'grand coalition' led by Ms Merkel, said ensuring the competitiveness of German firms was at the top of his priority list.

"That means shaping the energy shift in such a way that costs are kept under control, that supply is secure, and that we are not fighting ideological wars over coal, gas and renewables," Mr Gabriel said.

"We need a step by step approach on the development of renewable energy, but not an approach that causes lasting damage to German industry." Coalition talks between the SPD and Ms Merkel's conservatives are expected to start on Wednesday, and last a month or more.