People power: Tories see 1m households selling electricity back to the suppliers

· Homes and businesses would make green power
· Decentralised supply in Cameron's 'new world'

At least 1m households and businesses in Britain could be generating large amounts of electricity for the grid within a decade, but it will need an overhaul of the electricity supply industry, the Conservative party said yesterday.

The party would create a mass market for decentralised "micro-energy" by encouraging everyone to invest in their own solar power and other renewable electricity generating schemes. A guaranteed price for the electricity generated in homes would be paid, with a further guarantee to run the scheme for at least 20 years.

The "feed-in tariff" scheme proposed by the Conservatives would bring Britain into line with Germany, the Netherlands and other European countries where householders and businesses generate electricity from rooftops, gardens and buildings.

In Germany more than 300,000 solar systems have been installed in three years and micro-generation provides nearly 12% of all the country's electricity. Householders can earn 8% to 10% returns on investing in their own home systems and in some cases pay their mortgages with the income earned.

Take-up of micro-power has been very slow in Britain, where no incentives are paid to small scale electricity generators. "We need to move from a top down, old world, centralised electricity system to a bottom up, new world decentralised system," said David Cameron. The party leader has applied to instal a small wind turbine on his roof but it is not yet working.

"Historically, producing energy in Britain has largely been the responsibility of government and big energy companies. This process is heavily reliant on fossil fuel and too much energy is wasted in heat loss and distributing the power to the consumer," Cameron said.

The party launched the initiative in a green paper saying it would bring in laws requiring all existing electricity suppliers to produce contracts to buy electricity from anyone who generated it, and would relax planning laws to enable people who live in listed buildings to instal micro-power more easily.

"It will be a very simple system in which the householder, developer or organisation wishing to instal a renewable micro-generator of up to 250kW of whatever technological type will have an automatic right to sell all generated electricity to their existing supplier at a pre-set feed-in tariff", said Oliver Letwin, chair of the party's policy review committee.

He expected the move to stimulate the market and bring down the price of micro-generators to a point where everyone would be interested in investing. Much of the electricity would come from solar and wind power, but businesses and house developers could also develop combined heat and power systems which share the cost between many households.

The scheme would break the monopoly of Britain's few large electricity companies and could bring down the overall cost of electricity, said Letwin.

"We expect that the result will be the development of mass-market financing packages that will become available on the high street. This will simplify the whole proposition for householders and small businesses."

He said the scheme would be paid for initially by the abolition of all grants for the installation of renewables. "Our costings suggest that by 2020 one million homes and businesses could be producing 2GW [2bn watts] of electricity. That is just a starting point. There is no limit to the scale of what is possible," he said.

The move would bring down UK carbon emissions. "Part of the reason why our centralised supply industry produces so much carbon is that a large amount of the power it generates is wasted. A staggering two-thirds of energy used in power stations never reaches the consumer. It is lost in the wires that transmit it.

"By changing the architecture of the electricity supply industry and opening the way for decentralisation, we can open up opportunities for a range of technologies that are more carbon efficient and which waste less," he said.