The aim is to encourage action that will cut carbon emissions and reduce demand on the National Grid.
A £20 million budget has been fixed for the pilot scheme, under which businesses will bid for money to fund projects that would not have happened without the funding.
The first step is a £10 million Electricity Demand Reduction auction, open to all sectors of the economy across the country. It offers the chance to bid for funding for projects such as replacing old light bulbs with LEDs or improving motors and pumps.
The government is particularly interested in projects that can deliver at least 100 kilowatts of savings throughout the winter peak. DECC claims that over 300 organisations ‘as diverse as hospitals, airports and supermarket chains’ are considering participating in the auction.
The pilot is expected to run for two years. If this year’s trial is successful in delivering lasting electricity savings, the government will continue to offer such funding through the ‘capacity market’ due to be launched later this year.
The market is intended to ease pressure on the National Grid, cutting the risk of blackouts and avoiding the need for new power stations. Capacity providers will be offered a steady, predictable revenue stream in return for a guarantee they will deliver energy when needed. This is likely to result in increased bills for energy consumers, estimated at £13 per household per year.