Solar energy is one of the most promising technologies for reducing the greenhouse gases that contribute to global warming, yet Britain is a laggard in developing this clean energy.

Although the UK has invested £25m in solar power – £9m this year – only 10 megawatts of such electricity was produced in 2003, about the same as the output of a small wind farm and only 1% of that produced by the Sizewell nuclear power station, in Suffolk.

Lamenting Britain’s slow adoption of solar energy, Peter Hain, the secretary for Wales, argued this month that every new home should, by law, be fitted with photovoltaic panels to produce solar electricity.

However, Mr Hain’s suggestions, like his proposed panels, are unlikely to see the light of day as the government sees limited potential for solar energy in the UK.

A review of innovation in renewable published this year by the department for trade and industry and the Carbon Trust, a group that promotes low carbon use, said: “Current technology solar PV [photovoltaic] installation is expensive under UK conditions. There may be a future breakthrough in solar PV technologies which could substantially reduce costs, advancing the point at which solar PV is an economical technology under UK conditions. However, the breakthrough and extent of impact are highly uncertain.”

The government’s position receives some support from John Mogford, head of BP’s gas, power and renewables division. Too diplomatic to say that Mr Hain is full of hot air, he still makes it plain that he thinks the minister is being unrealistic.

“Solar plays different roles in different countries,” he told Guardian Unlimited, in an interview at BP’s headquarters in St James Square in London. “Even in the US, it’s different state by state. Every government should have different policies depending on climatic conditions.”

Mr Mogford is referring, of course, to Britain’s lack of sun. But Britain does have plenty of wind. The UK has more wind off its coasts than anywhere else in Europe, and the government believes that windpower holds considerable promise.

Developers have entered into agreements for leasing windfarm sites around the coast with a total capacity of at least 1,400 megawatts of renewable energy, sufficient to power a city the size of Greater Manchester.

Whichever source the government favours, the UK produces less renewable electricity – be it sun, wind or hydro – than several other large European countries. In 2000, renewables (excluding large hydro plant and mixed waste incineration) supplied only 1.3% of Britain’s electricity. That compared with 16.7% in Denmark, 4% in the Netherlands, 3.2% in Germany and 3.4% in Spain.

Notwithstanding its poor record, the Blair government has set itself the target of producing 10% of its electricity needs from renewable sources by 2010, a goal that many environmental groups think is unattainable at the present pace.

As Mr Mogford explains, a big hurdle for the UK is that it has a highly developed grid system, one of the world’s most advanced, and cheap electricity. Mr Mogford compares renewables to mobile phones. If a country had no land lines, it would make sense to go straight to mobile phones and skip the huge investment in fixed lines.

Similarly, it would be advantageous for a country without a highly developed power grid system to sink resources into solar energy. But in the UK, the incremental cost of adding another power station to the grid is less than putting money into a renewable source such as solar power.

For the consumer, a typical household system with solar panels costs between £8,000 and £30,000. It would provide approximately 35% of a home’s electricity needs, saving around £100 in electricity bills a year. Those numbers are not going to create a stampede for solar panels – although government grants can offset 50% of the costs.

Nevertheless, the global market for solar energy is growing rapidly. BP Solar, which is part of BP’s gas, power and renewables division, and is the world’s largest manufacturer in terms of production of solar-electric products, had revenues of $300m (£162m) last year and is growing fast.

Sales are growing by 20% a year and BP Solar plans to double its capacity this year, from new plants and by adding capacity at existing plants. The company’s production has grown from 34 megawatts in 1999 to 75 megawatts in 2003. Mr Mogford said BP Solar aims to reach $1bn in revenue by 2007-08. It all sounds very impressive until you remember that BP’s total revenue last year was $232bn.

In the 1990s, the market for solar-electric products, such as panels, was mostly for off-grid power in the developing world. But as more governments in the rich countries have brought in incentives for renewable energy, a bigger market has grown, minimising the risks for companies. So if the German market slows down, there are now other markets to pick up the slack.

Japan has a well-developed market for renewable energy, and the biggest makers of solar panels are Japanese – Sharp and Kyocera. It is, however, a tough market to crack because of strong indigenous competition. On the other hand, BP Solar sees strong growth in Spain and Portugal in the next few years.

“As governments have introduced incentives, people are now making investment decisions based on many markets,” Mr Mogford.

BP has come under fire for not pushing ahead faster on solar energy and renewables, an argument with which Mr Mogford is familiar.

“Yes we could do more if we spent as much on renewables as on oil,” he says. “But we’d also be broke.”