The move is intended to encourage low-carbon generation as the GLA would offer a 20 to 30 per cent more for the excess than a mainstream supplier. The GLA claims it could help attract more than £8 billion of investment over the next 12 years.
Mayor Boris Johnson said it would save Londoners money and drive innovation, jobs and growth. He has a target for London to generate 25 per cent of its own energy by 2025.
The scheme, due to launch in 2014, could benefit a dozen London boroughs, which have a total generation capacity of 76MW. This includes Pimlico District Heating Undertaking, the first combined heat and power network in the UK, which heats three schools, 50 businesses and more than 3,000 homes.