Updated: Huhne urges councils to lead community renewables revolution

They already run the street lights, empty the bins and fix the roads, but now local councils could also provide homes and businesses with green energy under ambitious plans to be set out today by energy and climate change secretary Chris Huhne.

The Lib Dem minister will tell the annual conference of the Local Government Association that he is to overturn legislation that bans local authorities from selling energy from renewable sources to the grid.

"It's ridiculous that the 1976 Local Government Act prevents councils from selling electricity from local wind turbines, or from anaerobic digestion," he will say. "I want to see this repealed and by the end of the year I hope local authorities will be able to sell electricity from renewables – generating revenue to help local services and keep Council Tax down."

A number of councils have deployed onsite renewable energy systems, with government figures showing that local authorities currently generate more than 600,000KWh of wind or solar power a year with a further 33,800,000KWh coming from onsite biomass systems.

However, under the Local Government (Miscellaneous Provisions) Act 1976, as amended by the Energy Act 1989, they are allowed to sell heat and electricity from combined heat and power sources, such as biomass plants, but are banned from selling electricity that is not produced alongside heat, effectively banning the sale of power from council-owned wind turbines or solar panels.

A spokesman for the Department of Energy and Climate Change (DECC) said the ban was an anachronism from the period of energy privatisation and had contributed to the relatively low levels of renewable energy produced by councils. "We consulted on lifting the ban and there was a good response from councils interested in taking advantage of the opportunity to sell energy," he said.

The UK's renewable energy industry has long complained that a combination of planning barriers and poorly constructed incentives have meant that the country has struggled to accelerate the installation of onsite and community-scale renewable energy projects, such as district combined heat and power systems or small-scale wind farms, despite there being large numbers of suitable locations available.

The move to encourage councils to install renewable energy systems that are large enough to feed power to the grid forms part of the coalition government's strategy to increase the roll out of community-scale projects, and follows proposals to offer financial incentives to communities that take part ownership of renewable energy projects.

The proposed changes were welcomed by Juliet Davenport, chief executive at green energy supplier Good Energy, who argued that it would help councils to play a more prominent role in increasing the UK's renewable energy capacity.