27/01/2016 17:49 GMT | Updated 26/01/2017 05:12 GMT

Keeping the Lights on Will Require Smarter Use of Electricity - Not Just More of It

This week a report from the Institute of Mechanical Engineers (IME) said they think the "capacity gap", the difference between the demand for electricity and the likely supply, could be a massive 55% in 2025 as old coal and nuclear plants exit the system.

This 55% figure is overblown. It arises from very pessimistic assumptions about the amount of capacity that can be provided by renewable's and a forecast of much higher energy demand in a decade's time.

In fact National Grid reckons that in most scenarios electricity demand in 2025 will be about the same as it is today (although after that date increasing use of electricity for heating and transport means it will start to take off). And though the Government has scaled back subsidies for onshore wind and solar, they are still hoping to increase the supply of offshore wind in the next 10 years. Meanwhile advances in wind technologies mean that more onshore wind is able to generate more of the time. .

But elsewhere the IME report gets it right. At the moment there's a lot more certainty about the power stations coming offline in the next 10 years than about the capacity coming up to replace it. The Government has made a historic commitment to phase out the use of coal for power generation, as recommended by IPPR last year.

This is a hugely positive step, since coal is the most polluting form of large-scale electricity generation and also releases harmful particulates - the last thing we need while fighting to keep the UK's air pollution within the EU's legal limits. But what is needed to follow on from that is a much clearer plan for incentivising the next wave of clean generating capacity that the country needs. This must include the digital technology that will maximise the efficiency of the system and keep costs low for households and businesses.

The Government should start by reforming the 'Capacity Market', an auction of power generation capacity intended to guarantee enough electricity supply to keep the lights on. So far the Government has managed to set up a system that provides huge subsidies to some of the most highly polluting technologies. As well as coal, IPPR's report Mad Maths last year showed that small scale diesel generators - with emissions even higher than coal - are getting access to millions of pounds' worth of subsidies.

This is absurd. It doesn't even seem to be what the Government wants - Minister for Energy and Climate Change Andrea Leadsom recently told Parliament that really they want to see new gas plants built instead. The Government also needs to provide more certainty over its support for renewable energy into the future. As the CBI has pointed out today, renewable energy offers considerable benefits to the UK, but investment has stalled as a result of recent government policy changes.

But supplying more capacity is only part of the picture. We also need to develop the exciting new energy storage and demand-response technologies that can help businesses and consumers make better use of electricity - and get paid for doing it. For example, businesses monitoring their own energy use can automatically dial down their use when demand on the grid is high.

That way we can steer clear of sharp peaks in demand and avoid having to build big and expensive new power stations that will only be used part of the time. The 55% capacity gap by 2025 may be a doomsday scenario, but the Institute for Mechanical Engineers' report is right when it says that reducing electricity demand is the first step to keeping the lights on in the future.

Byron Orme is a research fellow at IPPR. He tweets at @byrontorme