Owners of diesel generators could make “excessive” profits at the expense of billpayers due to a government policy.
That’s according to a new report which claims new diesel generators were awarded £109 million in subsidies last year under the Capacity Market auction.
Power suppliers bid for contracts to feed electricity into the grid to help meet peak demand as part of the process.
The report by the Institute for Public Policy Research (IPPR) claims the figure could rise by up to £434 million in the second auction, which opened this morning.
National Grid, which is responsible for running the programme, aims to secure 45GW of extra power capacity for 2019/20.
The IPPR claims the increasing subsidy is allowing owners of small diesel generators to earn pre-tax returns of up to 23%.
It adds that while diesel generators are able to switch on and reach full load very quickly, which is useful to National Grid in managing short term fluctuations, taxpayers would be subsidising profits for “the dirtiest form of energy generation available, worse even than coal”.
Jimmy Aldridge, IPPR’s Senior Research Fellow said: “We recommend that diesel gensets should be prevented from entering the Capacity Market and that constraints should be placed on those that already exist or have secured capacity contracts.”