ELECTRICITY firms are to pocket nearly £1 billion in public money to ensure enough power to meet peak demand in 2018/19, the government announced yesterday.

Energy Secretary Ed Davey said the first ever “capacity market auction” guaranteed energy supply at the lowest cost for consumers.

Electricity providers were asked to bid into the capacity auction, promising if they win a contract that they will be available to provide power when needed.

Through the auction, the government said it had procured 49.26GW (gigawatt) of capacity at a clearing price of £19.40 per kilowatt.

The cost of £960 million at 2012 prices works out at around £11 for the average household, although nothing will be paid by consumers until 2018/19.

National Grid was responsible for running the auction, which started on Tuesday and was followed by four rounds of bidding each day.

The government said fierce competition between participants had driven down costs below expected levels.

Among the successful bidders was energy giant SSE which secured agreements to provide a total of 4,409MW (megawatts) of electricity generation capacity from October 2018 to September 2019.

Mr Davey claimed the move was “fantastic news for bill-payers and businesses.”

He said: "We are guaranteeing security at the lowest cost for consumers. We've done this by ensuring that we get the best out of our existing power stations and unlocking new investment in flexible plant.”

However the Institute for Public Policy Research think tank questioned the value of the scheme, arguing that while the main aim of the auction was to incentivise investment in new plants only £47 million went to build new capacity.

Of the £956 million available £153 million will go to old nuclear power stations, £451 million to old gas stations, and £173 million to old coal plants including some biomass, it said.

IPPR Research Fellow, Jimmy Aldridge, said: “Consumers will rightfully be asking whether this billion pound handout was really required to pay energy companies to continue doing what they were already doing.

“The capacity market is a 20th Century solution to a 21st Century problem. Rather than delivering windfall payments to big energy companies running old or polluting power stations, it should be incentivising the cost-cutting and low-carbon ‘smart’ technologies that will keep the lights on into the future.”