Friends of the Earth says solar panels and wind turbines could proliferate if government improves the incentive

Small-scale renewable energy could provide 6% of Britain's electricity needs – equivalent to more than two Sizewell B nuclear stations or the Drax coal-fired plant – by 2020 if the government improves the terms of a new deal for producers due to be launched next April, Friends of the Earth says today.

The environmental campaign group used figures obtained from the Department of Energy and Climate Change (DECC) and prepared by consultants Poyry and Element Energy to show that introducing a more ambitious scheme than that currently proposed would add only an average £2.37 a year to household electricity bills over the next four years – just £1.20 a year more than the government is already proposing to add to fund the scheme.

The Guardian revealed last week that decisions on the final levels of the "feed-in tariff" (FIT) – which would offer guaranteed, above-market payments for electricity produced from technologies such as solar panels or wind turbines – have been delayed until January by wrangling between DECC, the Treasury and the regulator Ofgem.

Britain lags other countries in introducing FITs which have proved successful in kick-starting renewable energy sectors around Europe.

But the Treasury and Ofgem are worried about the potential cost and have also been lobbied by the nuclear industry which dislikes renewable energy because it sees it as a direct competitor.

FoE and other critics, such as the Renewable Energy Association (REA), worry that the government's proposed return on investment of 5-8% is far too low to stimulate mass take-up of the technologies by the public and businesses.

Indeed, the government is only aiming for 2% of the country's electricity to be generated from small-scale renewables by 2020. FoE says that if the return on investment were raised to 10%, that share would treble to 6% and lower the average cost of the electricity generated.

"Small-scale green energy systems such as solar panels on homes and businesses and community-owned wind turbines could play a crucial role in cutting UK emissions and speeding us towards the development of a low carbon economy," said FoE energy campaigner Dave Timms.

"A tiny addition to UK electricity bills would kick-start a world class scheme that would allow homes, businesses and communities to play their part in tackling climate change, increasing energy security and creating thousands of new green jobs.

"As the world prepares for crucial climate talks in Copenhagen, the government must show that it is taking this issue seriously."

The DECC figures show that a more ambitious FIT offering a 10% return on investment would lead to the generation of 25 terawatt hours of electricity by 2020 and cut UK carbon emissions by 10 million tonnes a year by then. It would also help reduce the country's dependence on fossil fuels and increase energy security.

The figures are published as 30 organisations and businesses – including FoE, the REA, the TUC, the British Retail Consortium, the Co-operative Group, the Country Land and Business Association (CLA), the Federation of Small Businesses, Unison and WWF – have written to MPs urging them to support an Early Day Motion (EDM 276) tabled by Alan Simpson MP calling for a much greater level of ambition for small-scale renewable electricity generation than the government scheme proposes.