Chancellor Angela Merkel's cabinet agreed the draft law for the next phase of the "Energiewende", a cornerstone policy of her third term at the helm of Europe's top economy.
Under the plan, Germany plans to meet 80 percent of its energy needs with renewables by 2050 but faces also having to balance the interests of its mighty industrial sector while safeguarding jobs.
The draft law, which must still pass the Bundestag lower house of parliament, will make the rollout of renewables "more predictable" and mean that costs "no longer increase by leaps and bounds," a government statement said.
Among the reforms are caps on the production of renewable energy such as offshore wind power.
With the reform "the coalition is providing for a new start of the Energiewende. It was urgent and desperately needed," Energy Minister Sigmar Gabriel told reporters.
Merkel took the surprise decision in 2011 to scrap nuclear power for renewables in the wake of the Fukushima disaster but has faced pressure over how to pay for the clean energy drive.
Renewables currently account for around a quarter of energy production and consumption in Germany, thanks to generous state incentives for solar, wind and biogas financed via an energy tax.
But the tax has driven up energy prices, now among Europe's highest, and critics also say the development of some renewable energy sources has been disorganised and point to problems with the electricity transmission grid.
Germany has also increased consumption of cheaper fossil fuels such as coal to offset the phasing out of nuclear energy.
Gabriel, who is also Merkel's vice-chancellor, outlined dramatic cuts in subsidies to producers of renewable energy early in the year but pressure from regional states has forced the government to roll back on some points.
In the end, the reform outlines milder subsidy cuts than Gabriel initially wanted for wind and biomass.
Submitting the sector to market mechanisms is also a key factor of the reforms, and from 2017, the level of support will be defined by a tender system ensuring competition among producers.
Producers will gradually also have to sell their green energy competitively on the market rather than enjoying priority treatment with guaranteed prices.
A key part, however, still missing from the reform concerns energy price breaks for power-intensive industry which the European Commission was probing to see if it amounted to state aid and gave companies an unfair advantage.
Berlin and Brussels have now reached a compromise but it was not in time for it to be included in the reform, Gabriel told reporters.