©Bloomberg

One of the flagship schemes for keeping Britain’s lights on this winter has been cancelled at the last moment due to a lack of demand, illustrating the difficulties policymakers are having in balancing the UK’s electricity supplies.

National Grid had promised to pay organisations that were willing to turn off or turn down equipment this winter if there was a spike in demand or a drop in supply. The scheme proved vital last year when several power plants unexpectedly shut down — heavy electricity users such as businesses, hospitals and factories took 40MW of demand off the system in response.

But this year National Grid has cancelled the scheme, known as the “demand-side balancing reserve”, after too few users said they were willing to put themselves on standby. The move could cost the grid millions of pounds, which it expected to receive from the energy regulator to implement the policy.

The grid’s decision, which was announced in a letter to the few organisations who did apply, shows how difficult the company is finding it to keep supply and demand balanced with large old power stations rapidly reaching the end of their lives. National Grid has said it expects the margin between supply and demand at peak hours during this winter to be the lowest ever.

The letter said: “Despite National Grid amending the DSBR service via a consultation in September 2015 to encourage participation over the peak, it is clear this has not been successful.

“Following tender close on 9th June and subsequent validation of data, it has been determined that minimal volume would be available across this period.”

One reason for the move is that many organisations already avoid using power at peak times and so would find it hard to reduce their usage any further.

But some critics say National Grid has not given enough incentive for users to sign up, while at the same time overpaying highly polluting coal-power stations to remain on the system as back-up.

Last year, the company agreed to pay old coal-power stations to remain in reserve in case of another unexpected outage at a rate of up to £88,000 per MW of capacity. If they are called into action they are guaranteed to be paid up to £14,000 per MW-hour of use.

Those costs will eventually be paid by electricity customers across the country, and compare with a wholesale price of about £40 per MW/h. Plant operators say they need the higher payments because they are so seldom called into action.

One industry executive said: “They paid so much to the companies running coal-power stations that there is not enough available for those who are willing to reduce their demand. Not only is this bad for consumers, who will pay for all of this, but it is also bad for the environment.”

Last week, Ofgem, the energy regulator, said it would pay the grid £4.5m to implement reserve schemes such as the DSBR — there is now a chance some of that money will be cancelled. Ofgem said: “We are consulting on this and will set out our final decision after the consultation closes in October.”

National Grid said it remains committed to paying companies to reduce their demand, although through different mechanisms.