Up to 246 proposed new projects with a combined capacity of 4 GW are in line to be qualified for the subsidy of up to £800m ($980m) over 15 years.
Under the capacity market, owners of existing or proposed new plants compete to secure subsidies in return for guaranteeing they will be available to generate when needed in future winters.
The Daily Telegraph reports that the new diesel generators have been able to undercut the big, efficient, new gas-fired power stations that ministers hoped the scheme would support.
Dr Jonathan Marshall, analyst at the Energy and Climate Intelligence Unit, said the raft of new diesel plants entering the capacity market would likely result in a low price but that ‘questions have to be asked over the sustainability of offering long-term contracts to highly-polluting diesel generators’.
About 2 GW of new battery storage capacity also qualified to take part in this year’s capacity market, but Dr Marshall said this was ‘likely to be undercut by low-cost diesel’.
A spokesman for the Department of Business, Energy and Industrial Strategy said: ‘Diesel generation accounts for less than 0.1% of total energy generation and will only ever be used for very short periods of time to provide instant electricity when it is needed.
‘We are taking action on diesel emissions and all new diesel systems will have to comply with new emission controls.’