The UK’s energy system loses over half of its generated power from source to end user at a cost of £9.5 billion a year, making it one of the least efficient grids in Europe.

The new findings come amid growing calls for the government to address the UK’s ‘energy productivity’ as a more cost-effective way of tackling the energy trilemma of supply, cost and decarbonisation.

Although some energy waste is inevitable, the research – led by the Association for Decentralised Energy (ADE) – found that £3 billion of energy could be saved if action is taken, which could cut consumer electricity bills by £116 per year.

ADE chief executive Tim Rotheray has urged the government to focus on how it can support investment in cutting energy waste, saying the unnecessary impact on consumer bills is a “national embarrassment”.

“Wasted energy reduces our productivity, undermines efforts to create a competitive economy on a global level and causes unnecessary emissions. It does not have to be this way,” he said.

Addressing energy waste would require a fresh approach to power generation, transmission and distribution, and energy efficiency in homes and businesses, according to the report.

Recovering heat from power stations could save £2 billion a year alone, but currently only 10 per cent of power plants do so.

And in terms of network efficiency the UK lags behind competing European economies including Germany and Denmark. While the UK loses almost 8 per cent of its energy through transmission and distribution Denmark loses just over 7 per cent and Germany loses just 3.9 per cent.

“If UK transmission and distribution losses were equivalent to those in Germany, the best in Europe, energy users would save £605 million a year, the equivalent of £23 per household,” the report said.

The UK’s regulated networks are required to reduce losses by Ofgem which can reward network companies by up to £32 million over the next five years.

But the report notes that the UK’s capacity market is funded by almost £1 billion, dwarfing the government’s efforts to tackle energy waste.

The government should also show greater ambition in driving energy efficiency in business. Only a third of spending targets business despite government’s own estimates showing that policy support for business and public sector energy use could be cost effectively reduced by 9TWh annually between 2012 and 2020, saving these customers more than £570 million in energy costs, in addition to carbon and competitiveness benefits.

Manufacturing association EEF policy director Paul Raynes said “the sinful waste of energy” is laying an unfair surcharge on British firms and consumer.

“We should prioritise opportunities to cut carbon emissions in ways that don’t hurt consumers or competitiveness,” he said.