Consumers could see savings worth up to £90 per household – or up to £8 billion in total – by 2030 if the UK developed a smarter and more flexible power system.
That must also be done to decarbonise the energy system and accommodate growth in wind and solar power, according to a new report.
It states new challenges are being created for the management and operation of the power system as renewable capacity has increased and the amount of conventional generation capacity has fallen since 2010.
The Policy Exchange report suggests an overhaul of the power system to encourage smarter and cleaner technologies such as storage and demand response rather than dirty diesel generators.
Some of its short term proposals for the government include clamping down on the development of polluting diesel generators by regulating their emissions and exposing them to carbon taxes and reviewing the Capacity Market rules to ensure clean technologies are able to access three-year capacity contracts.
It adds regulatory changes are needed to remove the “double-charging” of environmental levies on storage and distributed network operators should be encouraged to consider new approaches to manage their networks.
In the longer term, the report calls for a major reform of the wholesale power market to encourage flexibility and suggests moving to a ‘nodal pricing’ model, which it believes would better reflect the geographical patterns of demand and supply as well as the physical constraints within the network.
Policy Exchange also urges for a major overhaul and simplification of the balancing services managed by National Grid as well as network charging arrangements.
Richard Howard, author of the report said: “Making the power system smarter will also mean it can provide cheaper and cleaner electricity. The current set of policies is encouraging a growth in dirty diesel generators – exacerbating air pollution in UK cities and towns.
“The government needs to level the playing field to encourage the use of cleaner technologies such as demand response and storage. This approach is not only greener but could also lead to savings worth £90 per household per year by 2030.”
ELN has contacted BEIS for a statement.