Huhne tries to take heat out of solar debate

New limits could be placed on subsidies for households that install renewable energy as ministers look to avoid repeating the kind of last-minute cuts that have thrown the solar industry into turmoil.

The review comes as Chris Huhne, energy secretary, faces intense criticism from the solar industry and his own Liberal Democrat party over the sharp drop in subsidies due to come into effect next month.

Mr Huhne is considering scrapping the current system under which subsidies, known as feed-in tariffs, are guaranteed for a fixed period of time.

Instead, ministers are keen to set a limit on the amount of energy capacity that can be installed before the level of the subsidy automatically falls – a measure that would prevent the government having to implement hasty cuts if take-up is too high.

Mr Huhne is trying to get back on the front foot after a series of policy decisions appeared to undermine the prime minister’s commitment that this would be the “greenest government ever”, including the collapse of the UK’s only “clean coal” programme and two rounds of cuts to solar subsidies.

But while this proposal would give the industry greater certainty on subsidies, companies have warned they will only be able to build significant renewable capacity if enough money is available, something that is likely to remain contentious for the rest of the parliament as the government struggles to meet its spending targets.

Mr Huhne caused a storm among solar power companies last month by slashing tariffs for small-scale installation by over 50 per cent following a rush of new projects which ministers said threatened to drain the budget for the scheme. They argued that the rapidly falling cost of solar panels meant installing them remained economic even at the lower subsidy.

The alternative so-called “capacity trigger”, based on the German model, will be included in consultation documents to be released by the energy department before the end of the year, but Mr Huhne and Greg Barker, the energy minister, are both supporters of the idea.

Duncan Hames, a parliamentary aide to Mr Huhne, said: “It would be naive not to plan for future cost reductions in panels. We need tariffs that will mirror reality and we should look to what they have been able to do in Germany to have a smoother path on the way to solar competing with other industries.”

The limits would be accompanied by regular updates on how much capacity had been installed, but the measure could prove controversial given that energy companies will not for know how long a subsidy will remain at a certain level.

The industry is set to give a cautious welcome to the proposals however, saying it would be an improvement on the current regime.

Leonie Greene, director of external affairs for the Renewable Energy Association, which has led the fight against the government’s feed-in tariff cuts, said: “The capacity trigger could be helpful to us, as it would mean that if the price of panels doesn’t come down as anticipated, the model would account for that.”

The industry is now likely to campaign for subsidies to remain high for as long as possible and only to be reduced gradually.

Ms Greene added: “It is not ideal but compared to what we have got now it is a …thing of wonder and beauty.”

Mr Huhne is likely to float the proposal on Wednesday in the Commons as he looks to defuse anger about last month’s cut.

Jenny Willott, who resigned as his parliamentary aide over the tuition fees row, said: “I think this could have been done better. There has been quite a lot of confusion as to what is being proposed and I have had quite a few constituents contacting me with their concerns.”

Even Lord Teverson, the Lib Dem energy spokesman in the House of Lords, has told industry executives that Mr Huhne should have thought through the changes earlier and had not shown “good management” of the process.