Boris Johnson expects the Greater London Authority (GLA) to be granted a new type of supply licence – the licence lite – which would allow it to buy and sell electricity.
The Mayor aims to be supplying electricity by 2015 and has invited companies to come forward with proposals to run the back office services for the GLA electricity supply company.
This move follows the initial application to Ofgem for the licence lite, which was made in March 2013.
The GLA would initially buy electricity from public bodies and London boroughs, for up to 30 per cent higher than they currently get from existing suppliers, and then sell it on at cost price to other public organisations, including Transport for London.
If the scheme proves successful, the Mayor plans to then extend it to private sector energy producers as well.
It is hoped the licence lite would “unlock” up to £300 million worth of investment for 22 new heat and power projects, while in the longer term generate more than £8 billion of investment over the next 11 years.
Johnson said: “Nurturing a new crop of small, low carbon energy producers across the capital is the key to a more secure, cost-effective and sustainable energy supply for us all.
“Investing in locally sourced power will keep Londoners’ fuel bills down and drive innovation, jobs and growth in the city’s burgeoning low carbon sector.”
Energy secretary Ed Davey added: “This is a significant development and I welcome that London will be the first public authority in the country to become a small electricity supplier.
“Opening up our energy market to smaller companies is good news for competition and there fore good news for customers.”