Government criticised for 'incentivising pollution'

Diesel 'farms' are expected to be big winners from the latest round of 'capacity' auctions

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(Image credit: PAUL ELLIS/AFP/Getty Images)

The government's energy policy has come under renewed attack over claims it is incentivising the most polluting power sources.

“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,” Jimmy Aldridge, senior research fellow at the Institute for Public Policy Research, told The Guardian.

The comments come as the think thank published a report on the day the second annual 'capacity auction' gets underway, during which generators bid for contracts from the government for on-call power.

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These contracts guarantee subsidies to producers to ensure up to 45 gigawatt hours of electricity is available should it be needed over the next four years. The auction is designed to secure the lowest subsidy possible and the BBC says the payments will add around £14 a year to fuel bills.

But IPPR reckons the nature of the auctions favours cheap and speedy forms of power generation such as diesel farms, which are among the most polluting, over renewable energies such as solar or wind, or less carbon intensive alternatives such as gas.

It said diesel farms won around £109m of contracts last year – and based on stated interest this could rise to £434m.

"A 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 per cent, the IPPR said, or up to 38 per cent for firms that have already qualified for tax relief," according to the Guardian.

Energy secretary Amber Rudd has made moving to gas a key priority for the government. But the Department for Energy and Climate Change says the capacity auctions are only designed to ensure energy security and to secure power at the best price.

"Subsidising highly polluting diesel generators to keep the lights on doesn’t add up to an energy policy," said Greenpeace's head of energy, Daisy Sands.

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