The Danish energy ministry said the plan is aimed at lowering energy bills by improving industry competitiveness, and to comply with EU directives.
Proposals to cut the PSO costs include a cap on the price offered for the Kriegers Flak offshore wind project, and cancelling the 350MW nearshore tender, the government said.
The government also proposes a gradual elimination of the PSO levy from 2017 to 2021.
Changing the terms of the PSO reconciles our differences with the EU, and "provides a significant tax incentive for Danish businesses and citizens to benefit from cheaper green power. The government wants the opportunity to implement ways to reduce costs and thus make the green transition cheaper," said Danish energy minister Lars Lilleholt.
The 600MW Kriegers Flak offshore project has already been delayed by two years as a result of PSO negotiations. Since then a new Danish government has been formed.
The 350MW nearshore tender in Denmark — also delayed due to bird protection concerns — was due to take place in September.
Three ventures were shortlisted for the programme: Vattenfall; a WPD-Hofor joint venture; and a European Energy-led consortium.
The Danish energy agency (DEA) planned an auction for up to 350MW of capacity, across five potential nearshore sites.
Each project can hold up to 200MW of installed capacity, except Bornholm, which has a maximum capacity of 50MW due to grid limitations.
The DEA will award the contracts to the companies that can develop the most capacity within the 350MW limit at the lowest total average price.
"It is almost unreal, the government, with the Minister of Energy at the head, proposes to cancel the coastal turbines. The work has long since begun, and international players are about to prepare their final bids based on the conditions that the minister sent out a few days ago," said Danish Wind Industry Association CEO Jan Hylleberg.
"It will be a political own goal... if implemented." Hylleberg added.