Households that install energy generation systems such as solar panels and wind turbines could be guaranteed a minimum price for selling their spare power back to the electricity networks, the regulator said today.
Mainstream electricity suppliers faced the risk of legislation unless they took action to make it easier for households to sell their surplus power, Ofgem said.
The warning came as an independent report said there were "huge obstacles" to turning micro-generation into a viable industry that could deliver massive benefits in terms of cutting carbon emissions.
There are 80,000 micro-generation units in British homes including solar panels and rooftop wind turbines, some of which will soon adorn the house of the Conservative leader, David Cameron. The figure is expected to grow after the decision by major retailers to sell units at affordable prices. Currys has started a pilot scheme selling solar panels while B&Q will sell panels and turbines.
Ofgem said it urged suppliers to make it easier for people to install the units and to sell back surplus electricity they generate. Alistair Buchanan, its chief executive, said: "Suppliers need to compete against each other to raise their games and address these issues so they can respond to the growing number of customers who want to generate their own power. If they are unable to successfully do that, new legislation could force us to set prices and terms for the sale of surplus electricity back to the networks."
Ofgem said the current arrangements were too complex and some households were not even being paid for the power they putting into the grid.
The Energy Retail Association, which represents the six main UK power suppliers, accused the regulator of "jumping the gun". Russell Hamblin-Boone, its head of policy, said there were major issues of regulation and metering that needed to be addressed. "Ofgem is jumping the gun because you have to create a business case to bring a new product to market. That is based on the technology available and you have to be quite clear what the regulatory barriers will be."
Researchers from three UK universities will warn that fundamental changes are required, including tax breaks for households, to create a level playing field with the major generators.
Meanwhile, work starts today on Europe's biggest onshore windfarm - a £300m project near Glasgow with 140 turbines. It will provide electricity to power 200,000 homes.
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