A call for amendments to the Energy Bill to enable an electricity efficiency Feed-in Tariff (FiT) to be introduced has been made by Green Alliance.
In a report published today - Creating a market for electricity savings - supported by WWF and the European Climate Foundation, it says there is a huge potential for reducing electricity demand: 'Household energy bills are rising mainly due to increasing fossil fuel prices. The 2012 Energy Bill is an opportunity to reduce electricity bills while decarbonising the power sector.

'To cut costs and meet growing electricity demand, the bill must incentivise electricity demand reduction before supporting the purchase of higher cost power stations. In its proposed form, it will do the opposite.'

The Green Alliance believes 40 per cent of electricity demand could be avoided by 2030, saving in excess of £10 billion per year.

It added: 'Without amendment, the bill will reward the building of higher cost power stations ahead of the pursuit of lower cost efficiency, and consumers will pay over the odds for their electricity as a result. The Energy Bill must place equal importance on reducing electricity demand as it does on supporting the construction of low carbon power stations.

'It is, therefore, vital that government introduces a new policy mechanism to deliver demand reduction in its electricity market reform (EMR) via the Energy Bill.'

In its report, the Green Alliance considers three possible options:

1) reform the proposed capacity market to incentivise demand reduction;
2) extend the existing energy efficiency obligation so that it requires suppliers to reduce their customers' electricity demand; and
3) introduce a new electricity efficiency FiT.

The report said: 'Our analysis has found that all three of these policy mechanisms would help to unlock some of the vast potential for electricity saving across the economy and would represent a significant improvement on the status quo.

'However, while each has relative strengths and weaknesses, we conclude that an electricity efficiency FiT would provide the best option overall for the British electricity market.

'It best fits the structure of the British electricity market because it allows for a market-based approach to energy saving, it targets the largest proportion of electricity users, provides the highest likelihood of encouraging innovation and is likely to enable new entrants to compete in the energy market. It would fill existing policy gaps and would also complement other efficiency policies already in place, such as product standards.'

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