Liberal Democrats claimed victory yesterday after fighting off Conservative demands for a 25 per cent cut in state subsidies for onshore wind farms. But green groups said George Osborne, the Chancellor, had extracted a price in return for allowing Ed Davey, the Liberal Democrat Energy and Climate Change Secretary, to limit the reduction in subsidies to the 10 per cent figure announced last year.
The Government will be open to gas playing a major role in electricity production after 2030 if it proves cheap and the Treasury announced £500m of tax relief to encourage the development of marginal fields in the North Sea.
Mr Osborne said gas was the biggest single source of energy in the UK and "a huge national asset". He said: "The Government is signalling its long-term commitment to the role it can play in delivering a stable, secure and lower-carbon energy mix."
Mr Davey also agreed to review the wind-power subsidies, although they will not change before March 2014 to give the industry some certainty.
A senior Liberal Democrat source said: "This is a good result for us. Ed Davey had to dig in on this and resist pressure to go further." He denied that there was a trade-off on gas production.
Mr Davey said the subsidies for renewable electricity could bring in between £20bn and £25bn of investment by 2017, "driving growth and supporting jobs across the economy".
The Energy Secretary insisted that Britain can keep gas in its energy mix and still meet its world-leading law to reduce greenhouse-gas emissions by 80 per cent by 2050. But environmental groups fear that a plan to make most electricity generation carbon-free by 2030 will be put at risk by yesterday's compromise.
Andrew Pendleton, a spokesman for Friends of the Earth, said: "Treasury arm-twisting has forced [Ed Davey] to give his backing to new gas-fired power stations – which is completely at odds with his fuzzy rhetoric on clean British energy. George Osborne's plans would be a costly disaster for households, businesses and the environment. It's time for David Cameron, the self-styled leader of the greenest government ever, to intervene."
The Green Party said Mr Davey had won only a "minor victory". Keith Taylor and Jean Lambert, the Green MEPs, said: "He still seems to have a fight on his hands to convince the Treasury that the UK should seriously invest in renewables."
Yesterday's changes to subsidies will require fossil-fuel power stations to fully convert units to burning renewable fuels to claim higher payments. As a result, shares in the power station operator Drax closed down 17.9 per cent yesterday. The company warned investors that its costs this year were likely to be £20m higher than expected.
The Government's climate-change advisers have said that a new "dash for gas" could lead to its targets being breached unless carbon-capture technology is advanced to reduce emissions from gas.
Caroline Flint, the shadow Energy Secretary, said Coalition infighting is harming the drive to persuade companies to invest in green energy. "The Government's shambolic review of support for renewable [energy] has done huge damage to investors' confidence in the UK as a place to do business. Edward Davey might try to spin this as a victory for the Liberal Democrats, but UK plc has lost out because the Tory-led Government has the wrong priorities," she said.
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