Electricity demand reduction (EDR) measures are set to be included as part of the capacity mechanism via an amendment to the Energy Bill.
The Department of Energy and Climate Change (Decc) has decided that a market-wide incentive for permanent reductions in electricity demand “is the best approach”.
Decc hopes adding EDR into the capacity mechanism will incentivise demand reduction at peak times, when it is the most valuable, and that EDR can compete directly with supply.
The government added that EDR as part of the capacity mechanism would be the simplest and most effective way of introducing a market-wide financial incentive, enabling demand side response and EDR to be brought together in a “single delivery vehicle”.
However, Decc is aware of some “uncertainties” surrounding EDR being part of the capacity mechanism, and is considering a pilot project.
It claims this would help to ensure any reductions can be reliably monitored, verified and delivered; while also establishing what level of financial incentive would incentivise the take up of EDR measures, and still provide value for money.
The report highlights that a successful EDR system could reduce the UK’s electricity demand by 32 TWh (9 per cent) by 2030, cut carbon emissions by 3.2 mega tonnes, and deliver net benefits of £0.7 billion to society by 2034.
Energy secretary, Ed Davey, said: “If we can seize this opportunity now the prize is significant – reduced electricity consumption can help lower bills, reduce emissions and means less generation and transmission infrastructure will be required to meet demand over the longer term.”