Half of the money has been made available to help businesses, industry, and other organisations reduce their energy demand improve their efficiency.
The Electricity Demand Reduction (EDR) pilot scheme will provide funding for projects that will provide at least a 100kW energy reduction during the winter peak 2015/16, and that would not otherwise be completed without the money upfront.
More than 300 organisations have already come forward, and the two year pilot opens for formal expressions of interest on 29 July.
The pilot scheme is being used by Decc to test whether projects that deliver lasting electricity savings at peak times could compete in the UK capacity market.
Energy secretary Ed Davey said: “I want to unlock the untapped potential of better efficiency in electricity use – so that more efficient kit can compete with building new power stations in the future.
“Our £20 million pilot will fund schemes that will help reduce our demand – not only saving businesses and their customers’ money, but reducing the amount of electricity we’ll need to generate.”
Decc also announced plans to “remove unnecessary barriers to investment” in infrastructure by scrapping rules that prevent the same companies investing and exercising rights in both generation and transmission at the same time.
The proposed regulation change would give Ofgem the ability to assess investment projects on a case by case basis, and allowing generation and transmission investment to occur simultaneously “where there are no harmful consequences”.
Davey stated this would make “attracting capital investment cheaper and easier – meaning real benefits for the British economy and British consumers”.