DTI may put a wind turbine on your roof

Minister reveals he is looking to get tough with power companies and cut domestic use

Mr Darling said energy companies would be set tough new targets to cut the consumption of electricity and gas in the home. They would have to meet these targets, for example, by requiring their customers to fit wind turbines or loft insulation, or pay a financial penalty.

But Mr Darling admitted that already soaring utility bills would have to rise even more to fund such energy-saving devices.

"We need to change the incentive, so power companies are incentivised to require - because they have an obligation - you to be more energy efficient. This may include having a wind turbine on top of your roof."

On the eighth floor of the Department of Trade and Industry's Westminster office, Mr Darling gave the most detailed outline yet of the Government's energy review to The Independent on Sunday. The first stage, led by his department, will be published before Parliament's summer recess on July 25.

Tony Blair has already all but confirmed that the review will pave the way for the replacement of the UK's ageing nuclear reactors with new reactors.

Mr Darling admitted that he used to be "deeply, deeply sceptical" about nuclear power. "The thing that is changing my mind is climate change," he added.

But it is the first time he has revealed the proposals to force energy companies and their domestic customers to cut their energy consumption.

Mr Darling, appointed Trade and Industry Secretary in the Cabinet reshuffle in May, said the plans formed part of a "radically different approach".

Government efforts to encourage greater energy efficiency have focused, until now, on offering incentives to households, rather than to companies. This has included giving away energy-saving lightbulbs, for example.

This approach has failed, according to Mr Darling. "We need an obligation which bites. The approach of encouragement is not enough," he said. "It's much easier to persuade six power companies to do something different than it is to go and persuade 27 million of us to 'do the right thing'."

He said that the energy review team had been talking to the six largest UK energy companies - Centrica (owner of British Gas), E.ON UK, RWE npower, EDF Energy, Scottish Power and Scottish and Southern Energy - as well as energy regulator Ofgem about the plans, over the past few weeks.

"We have been talking to power companies, and saying if we change it so that instead of relying on you and me to get our energy efficient light bulbs and go to B&Q to get your loft insulation," he said, "your power company will say, 'Yes, I am selling you gas and electricity but what you will also be required to do is reduce the amount of energy you use'."

He said a power company could do this by fitting homes with wind turbines or insulation.

Mr Darling stressed that no decision had been made on what type of market mechanism to introduce to incentivise companies to cut domestic energy consumption. But he did say that the up-front costs of installing loft insulation, solar panels or wind turbines in the home would ultimately have to be met by the customer.

"Obviously I am mindful of the impact on electricity prices, especially with the dramatic increase in the past couple of years. But at the end of the day, reducing people's demand is the major driver for us."

Formal targets could be set where energy companies have to cut their customers' consumption progressively every year by a certain percentage.

This could mirror the existing Renewable Obligation Scheme, he said, which requires electricity suppliers to source more electricity from renewable sources such as wind farms every year.

Under the renewable scheme, suppliers who miss their targets have to pay a penalty, the proceeds of which are distributed to companies which meet them.

"All forms of regulation have some form of cost and involve some form of redistribution," he said of the current proposals.

The scheme could also mirror the European Union's carbon emissions trading scheme that sets emission caps for industry. Applying the capping to the home would be a first. If it works, he said the idea could be replicated abroad.

"It turns regulatory thinking on its head," Mr Darling said. "Intuitively, if I'm EDF or Powergen you say 'why would I want to sell you less of the stuff [energy] rather than more?' What they are saying to us now is maybe it's time we changed our business model."