* Merkel says Germany protecting jobs, industry
* Industry faces prospect of paying back billions of euros
* Renewables sector concerned about uncertainty (Adds context, reaction)
By Barbara Lewis
BRUSSELS, Dec 18 (Reuters) - The European Commission said on Wednesday it would open a full investigation into Germany's management of green subsidies, a decision that could lead to higher costs for industry and unsettle investors in renewable energy.
Around 2,000 German heavy energy users, including chemical and steel firms such as BASF and ThyssenKrupp , have been exempt from a surcharge ordinary consumers have to pay.
The Commission is examining whether the exemptions of around 5 billion euros ($6.9 billion) per year were unfair and should be paid back.
In a statement, the European Union executive said discounts might be justified on some occasions to prevent energy-intensive firms leaving Europe, but it still had concerns that aspects of Germany's law distorted competition.
German Chancellor Angela Merkel, speaking on Wednesday before the Commission's announcement, said Germany was seeking to remain a strong centre for industry and she did not see how the discounts could be unfair.
"This is about companies and when it's about companies, it's about jobs," Merkel said in the German parliament.
"As long as there are countries in Europe where electricity is cheaper for industry than it is in Germany, I cannot see how we are distorting competition."
The enquiry has prompted criticism from heavy industry and the renewable sector.
Representing heavy industry, the chairman of copper smelter Aurubis, Peter Willbrandt, said the company might reconsider its investment in Germany.
"My concern is above all that we hardly have any planning security here and it doesn't look like we will get this in the coming weeks or months either," he told reporters in Hamburg this week.
The renewables sector and green politicians also say the many months of investigation needed for an in-depth enquiry will shatter confidence.
"The lengthy and exhausting legal fight this will trigger risks putting renewables deployment on hold and killing off any investors' appetite," Claude Turmes, a Green party member of the European Parliament, said.
The utilities sector, which has said renewables subsidies distort the market and mean gas-fired plants cannot compete, said an investigation was necessary but any change should not be abrupt.
"There needs to be a level playing field for subsidies and a fair distribution of costs. It's the job of the Commission to investigate," said Susanne Nies, a unit head at Eurelectric, which represents the EU electricity industry.
She said, however, "radical change would be extremely negative". (Additional reporting by Madeline Chambers in Berlin and Jan C. Schwartz in Hamburg; Editing by Dale Hudson)