Renewable energy groups have welcomed news that the government is to undertake a major revamp of its onsite renewables grant scheme after it recently emerged that installation of microgeneration technologies has slumped.

Speaking at a Renewable Energy Association (REA) conference, Department for Business (BERR) official John Moriarty said that the government was committed to improving the Low Carbon Building Programme (LCBP) grant scheme and would make a major announcement regarding the scheme during the week of next month's budget.

The LCBP has endured a rollercoaster two years. Initially it was oversubscribed to the point where the monthly grant fund was run dry on the first day of each month, then the government cut the level of grants available and changed the terms and conditions for applicants, causing demand for grants to collapse.

Earlier this month, documents leaked to The Guardian newspaper confirmed that the number of installations through the programme had slumped and that the scheme would underspend by £10m over the next year as a result of the changes. The figures prompted anger from many within the renewable energy business, who accused the government of failing to support the embryonic industry.

Yesterday, however, Moriarty extended a conciliatory hand to the renewables sector, insisting BERR was aware of the problems with the scheme and was committed to making it work.

He also said that the new microgeneration strategy could include a "feed-in tariff", a system of renewable energy subsidy that has proved highly successful in continental Europe. It guarantees firms and households installing onsite renewables an above-market price for any energy they sell back to the grid.

His comments come just days after energy minister Malcolm Wicks announced plans to this summer launch a review the government's microgeneration strategy and the feasibility of introducing a feed in tariff as part of a wider study into how the UK can meet EU targets to deliver 15 per cent of its energy from renewable sources by 2020.

A spokeswoman for BERR confirmed that changes to the LCBP were in the pipeline. "We acknowledge that demand to the programme has fallen since re-launch, and we have been looking at ways to encourage uptake," she said. "We met with industry reps in February to gather evidence as to why demand has fallen, and are currently considering next steps."

Leonie Greene of the REA said it appeared that the government had "got the message loud and clear" regarding the failings of the LCBP. She said it was still unclear what changes BERR was preparing to announce, but added that there was renewed confidence that the government is willing to work with the industry to improve the scheme.

The REA's Andrew Cooper added that the organisation would like to see the maximum grants available raised from £2,500 to £7,500 as a minimum. "We need to get product out the door and the current levels of government grants just don;t do that," he said.