National Grid has been given the go-ahead by Ofgem to pay businesses for cutting their electricity use and also set contracts with power stations to provide extra reserve power starting next winter.

That’s to help balance the UK’s electricity system against tighter supplies following the regulator’s assessment earlier this year. It warned Britain could possibly face power shortages towards the middle of decade as capacity could fall to 2% in 2015.

National Grid will pay businesses through its demand side product if they reduce their electricity use between 4pm and 8pm on weekdays in the winter. The amount will be determined through a tender run by National Grid next year. The costs can be passed “provided they are incurred in an efficient and economic manner”, Ofgem said.

Mothballed gas-fired power plants and other generators will also be able to compete for contracts to provide extra electricity and any plant that wins would be required to be available on weekdays between 6am and 8pm from the beginning of November to the end of February. The plants would be held in reserve outside the electricity wholesale market but would only be used by National Grid as a last resort when it needs more power and there is none available on the market.

Ofgem Chief Executive, Andrew Wright said: “Britain has one of the most reliable power systems in the world but with margins tightening there can be no room for industry complacency on security of supply. Therefore we have approved these new tools to act as an extra insurance policy that is available for National Grid to protect consumers’ power supplies.”

National Grid has estimated the impact of the services on consumer bills to be less than £1 per year for householders.

The Government published its final Electricity Market Reform (EMR) plan yesterday which is expected to attract £110 billion worth of investment and support 250,000 jobs.