The Government is halving the budget for the Renewable Heat Incentive Scheme (RHI) to £70 million for the upcoming year.
DECC says it is cutting the subsidy for 2012-13 after initially proposing a budget of £133 million to make sure there is enough money left for the scheme next year (2013-14).
The RHI is meant to provide long term support for renewable heat technologies like heat pumps, biomass boilers and solar panels.
Defending the decision to lower the budget, Energy Minister Greg Barker said: “A higher limit for 2012-13 would leave insufficient funds available in the following year for new installations and therefore could be very damaging to the renewable heat industry.”
Analysts say the spending limits are not ideal and are likely to result in “slower growth” but could have a stabilising effect.
Daniel Guttmann, Director for Renewables and Clean Tech at PricewaterhouseCoopers said: “This approach will lead to slower growth in the industry than many would want, but it hopefully avoids a start/stop profile over the next few years, which would be unsustainable for the industry.”
He added the Government must make sure up-to-date installation and expenditure data is available to avoid “unpleasant surprises.”
Mr Barker also announced a change in the notice period for stand-by mechanisms to one week, initially proposed at one month, which Mr Gutmann said “will raise some concerns as it takes much more than a week from planning to commissioning of these projects.”