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The government has been urged to change its energy market policy to avoid disadvantaging energy efficiency schemes bidding for government support.

Under the government鈥檚 reforms to the energy market, firms will be able to bid to get paid by the government to provide either spare power 鈥渃apacity鈥� - through energy generation schemes - or to reduce electricity demand, through energy efficiency measures.

The policy is meant to allow energy efficiency projects, such as building retrofits, to compete with projects to build new power stations.

But Tim Yeo, chair of the energy and climate change committee, has this week written to energy minister Matthew Hancock to say the current formulation of the policy disadvantages energy efficiency projects.

He said there were 鈥渟erious and legitimate concerns鈥� about the 鈥渄esign of the capacity market鈥� 鈥� as the scheme is known.

In the letter, sent on Tuesday but published today, Yeo said under the current policy plans support for energy efficiency providers was limited to one year, while power plant developers could receive subsidies over many years.

He said: 鈥淭he impact of limited contract lengths may discourage some demand side reduction providers from participating at all.鈥�

He also said a clause, contained in the policy, that allowed ministers to cut the amount of work auctioned through the capacity market introduced an 鈥渦nnecessary and damaging element of uncertainty鈥� into the bidding process.

He added: 鈥淚 also believe that it is impossible for National Grid to give objective advice to government on this issue since the profitability of their regulated UK business is directly linked to the construction of new transmission capacity, the demand for which will be cut if demand side reduction provision grows in the way it has done in the United States.鈥�

Yeo said reducing demand for power 鈥渙ffered a cheaper and greener alternative to building new generating capacity鈥�.

He cited as yet unpublished research by Nera Economic Consulting that said energy efficiency projects funded through the capacity market could reduce power bills by 拢359m a year.

Yeo said reaching the government鈥檚 goal of 鈥渆nsuring low-carbon reliable energy supply at least cost to the consumer鈥� would be greatly assisted by 鈥渁ny action鈥� to improve energy efficiency.

The Department of Energy and Climate Change has been contacted for comment.