Despite a “relatively smooth” start, a Decc policy to ensure the country has enough energy to meet peak demand could lead to higher bills and a focus on dirtier power stations, MPs have said.
The ‘capacity market’ aims to ensure that sufficient energy is being generated to cope with spikes in consumption.
But a report by the Energy and Climate Change Committee warns that only 5% of the £1bn capacity market subsidy - which comes from consumer bills - is being allocated to new capacity, with 0.4% spent on demand-side reduction.
The rest, it says, is being allocated to “existing, largely coal fired power stations, possibly paying them to do what they would normally have done anyway.”
However, the committee said the department had “succeeded in putting in place a robust framework for the reform of the electricity market”, and praised the “relatively smooth” start to the scheme.
"It is perhaps inevitable that some hurdles would arise when introducing a new and complex set of policies, and Decc, National Grid and the LCCC in working to anticipate industry's concerns and helping participants prepare for the new regime," the MPs add.
Responding to the report's findings, a Decc spokesperson said the department had “guaranteed energy security at the lowest cost for consumers” and had put in place “plans to enable the demand side to play a growing role in the market”.