Achieving the government's aim of generating 10 per cent of power by renewable means by 2010 will cost taxpayers and consumers over £1 billion, according to the National Audit Office.

The move to renewable energy is part of the government response to global warming, with the long term aim to reduce carbon dioxide emissions by 60 per cent from current levels over the next 45 years.

NAO chief Sir John Bourn said a significant increase in electricity generated from renewable sources is on course "but a number of challenges remain".

At the core of these policies is the Renewables Obligation, a scheme launched in April 2002 aiming to increase the income renewable generators receive above and beyond the market price of electricity.

The DTI has introduced capital grants to support offshore wind farms, and bioenergy power stations, and also provides research and development grants for developing technologies such as wave and tidal energy schemes.

The report found that the cost of reducing carbon dioxide emissions through the Renewables Obligation is currently significantly higher than other policy mechanisms which mainly focus on energy efficiency.

However it is unlikely that other policy tools such as a carbon dioxide tax would see the same level of impact against the target and timescale for renewable energy set.

Bourn said: "The Renewables Obligation is increasing the level of renewable generation, and thus helping reduce carbon dioxide emissions, though at a price to the electricity consumer.

"The department needs to keep track of the scheme's progress in improving the commercial viability of renewable generation and ensure that consumers benefit from reductions in generation costs."

He also warned that the DTI needs to watch the balance between industry and consumer interests and consider factors, such as any reduction in the unit costs of renewable generation, which will influence the best way to reduce carbon dioxide emissions.