This article is more than 4 years old

This article is more than 4 years old

Owners of heavily polluting diesel generators stand to make “sky-high” profits under a government energy regime that has slashed subsidies for wind and solar, a report warns.

The annual capacity market auction – under which power suppliers bid for contracts to feed electricity into the grid – is due to begin on Tuesday. Calculations by the Institute for Public Policy Research (IPPR) suggest “diesel farm” owners can expect to make millions if they succeed with bids to supply 1.5 gigawatts.

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They could be awarded subsidies of up to £434m in the capacity market, up from £109m last year, which the IPPR said would trigger a “rapid proliferation” of diesel farms.

In a report entitled Mad Maths, the thinktank said a typical 24MW diesel installation could deliver a pre-tax profit of nearly £1m a year, thanks to the subsidies and their low costs of operation.

That spells a return on investment of about 23%, the IPPR said, or up to 38% for firms that have already qualified for tax relief. It warned that this meant taxpayers would be subsidising profits for “the dirtiest form of energy generation available, worse even than coal”.

The riches on offer are in sharp contrast to the treatment of renewable power sources such as wind and solar. The Department of Energy and Climate Change deems returns of between 5% and 8% appropriate for renewable energy.

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The energy secretary, Amber Rudd, has slashed subsidies for solar power – known as the feed-in tariff – by 87%, instead throwing her weight behind gas.

Criticism of the government’s stance on polluting power sources comes as the UK joins other major economies in Paris to thrash out a global climate settlement.

The IPPR warned further support for diesel would hamper the UK’s role in reducing CO2 emissions. “In the same week that world leaders are in Paris negotiating a climate deal, the UK government is handing out new subsidies to the most polluting form of electricity generation available,” said IPPR’s senior research fellow, Jimmy Aldridge.

“This is allowing sky-high returns for diesel investors but terrible value for money for consumers. In the long term it is also damaging UK energy security because it is preventing investment in the smarter, cleaner technologies that we really need to keep the lights on.”

The IPPR recommended that diesel generators be excluded from future capacity market auctions, under which contracts can last up to 15 years.

It also urged the government to place restrictions on emissions by those companies that have already secured subsidies. This would include forcing them to fit new technology to mitigate air pollutants and restricting the running hours of the most polluting generators.

Greenpeace lashed out at the direction that the Conservative government’s energy policy has taken. “The same ministers purporting to help consumers by slashing support for the cleanest energy sources are forcing them to pay millions to one of the dirtiest,” said Greenpeace’s head of energy, Daisy Sands.

“Subsidising highly polluting diesel generators to keep the lights on doesn’t add up to an energy policy. Ministers need to come up with a long-term plan to help build a smart, clean, flexible energy infrastructure that’s fit for a 21st-century advanced economy like Britain.”