The coalition is facing a revolt by back-bench Conservative MPs over a surprise rise in consumer subsidies for wind farms.
The increase was disclosed last week by the Government as part of a shake-up of the energy market.
But it caught opponents of wind farms off-guard because it came just a year after a much-publicised cut in the subsidy of 10 per cent.
Backbench Tory MPs had been briefed to expect further reductions this year, but instead wind farm developers have effectively had the full subsidy restored.
A spokesman for RenewableUK, the industry body, said that the publication of a new “draft” pricing system – called the strike price – would see payments rise from £92 for each megawatt hour of electricity produced by an onshore turbine to £100. The price is guaranteed until 2017, and will then tail off to £95 by 2019.
Onshore wind farms currently receive about twice the market rate for the electricity they supply to the National Grid, while offshore farms are paid treble.
The subsidy, which is paid for through household bills, was introduced by the Labour government to encourage investment in renewable energy.
But a huge growth in wind farms has seen the subsidy rise to about £1.2 billion this year, according to the Renewable Energy Foundation, a think tank critical of the subsidies. It is expected to rise to £6 billion by 2020 to meet targets for providing 30 per cent of electricity through green energy.
Tories had been keen for a further cut in the subsidy, which has seen a swathe of wind farms built across the UK. But Ed Davey, the Liberal Democrat Energy Secretary, has succeeded in reversing last year’s reduction.
In March, John Hayes, the energy minister, was shifted out of the Department of Energy and Climate Change after repeatedly clashing with Mr Davey. Mr Hayes had told The Sunday Telegraph that he would put “coal” back into the Coalition, only to be replaced, by Michael Fallon. Last night, Chris Heaton-Harris, the Conservative MP who has led the campaign against wind-farm subsidies, said: “If this analysis of the figures is correct, it will inevitably lead to back-bench anger. This is a major Coalition pinch point. It is not going to go away unless the subsidy comes down. If this is right then we will have to get the subsidy reduced again.”
Mr Heaton-Harris pointed out that in Spain the subsidy had been scrapped entirely at the start of the year under new austerity measures, and urged British ministers to look at it again. Mr Heaton-Harris had organised a letter signed by 100 Conservative MPs, which had led to the cut in subsidy last year.
Dr John Constable, director of the Renewable Energy Foundation, said: “Far from addressing oversubsidy to renewables to protect the consumer, as was expected and necessary, it seems that the Liberal Democrat Secretary of State for Energy, Mr Davey, has actually decided to increase subsidies to the Government’s principal pets, onshore and offshore wind.”
Dr Constable added: “The draft strike prices just published suggest that Government has foolishly decided to continue to shelter the renewables industry from the real world competition necessary to make the sector fundamentally viable. That’s good for speculative investors, but very bad for consumers and for the long-term development of renewables.”
RenewableUK said that the industry was awaiting a further announcement, due next month, on energy market reform, which the industry says will determine whether large-scale wind projects get built offshore.
The sector has promised a massive jobs boom if the Government gives guarantees on electricity prices to 2030 and beyond.
RenewableUK said that the level of subsidies meant it was “challenging” for the wind industry to make a profit.
“The most important ingredient remains investor confidence and that will take time to land,” said Maria McCaffery, chief executive of RenewableUK.
“The secret is consistent long-term support and investors seeing that government is behind renewables and low carbon generation for the long term.”
A Conservative source in the department confirmed the new strike prices, saying: “We did a review of the evidence, and it didn’t support cutting [subsidies] any further.
“Michael Fallon got the agreement that I don’t think John Hayes would have got, given the relationship he had with Ed Davey by the end.”
The source said it was disappointing that subsidies were still having to be given but added that recently announced changes to planning guidance meant that local communities would have effective powers to stop the development of new onshore wind farms.