Businesses will be allowed to compete alongside electricity generators in the proposed capacity market, under measures to be included in the Energy Bill.
The government is planning to reward organisations for pledging to reduce their energy demand at peak times or in periods of system stress.
The plans, unveiled on 21 May, would allow public and private sector organisations to bid against companies offering to supply back-up power generation in the proposed capacity market. It is hoped that allowing businesses and organisations to take part in the auctions will create a trade-off between demand and supply that will reduce the need for new power stations to be built, while increasing energy efficiency and reducing power consumption across the UK economy.
The capacity mechanism, through which the plans will be implemented, could be enacted as soon as 2014. But the government is now considering testing the proposed approach in a pilot scheme ahead of a final decision.
More to come
The proposals, which formed part of the government’s response to a 2012 consultation on how best to incentivise electricity demand reduction, also noted that non-financial approaches could prove effective in cutting energy use. Options include better product labelling and providing businesses with more information on what they can do to reduce their demand. The government will report on these measures and consult on a proposal to bring in energy efficiency audits for large businesses later this year.