An overhaul of the power grid system in the UK could encourage smarter, cleaner technologies and save households up to £90 a year by 2030, a think-tank suggested.
The Policy Exchange said savings from the development of a smarter, more flexible power system could amount to up to £8 billion annually.
A more flexible system is essential to accommodate the growth in wind and solar power that is part of an increasingly decarbonised power system, the organisation suggested.
While renewable generation capacity has increased 10-fold since 2000 to 32 Gigawatts, the amount of conventional generation capacity has reduced by 23 GWs since 2010, and many more coal and nuclear power stations are due to close by 2025.
Dirty forms of power generation such as diesel generators are increasingly being used to balance the system, exacerbating air quality problems in cities and creating new challenges for the management and operation of the power system.
The Policy Exchange says an overhaul of the system is needed to encourage smarter, cleaner technologies such as storage and demand response, in which power users vary their demand to meet supply.
The think-tank proposes that in the short term the Government should clamp down on the development of polluting diesel generators by regulating their emissions and exposing them to carbon taxes.
Capacity market rules should be reviewed so clean technologies can access three-year capacity contracts on the same basis as power stations undergoing refurbishment, and regulatory charges are needed to remove the "double-charging" of environmental levies on storage.
And electricity distributors should be encouraged to consider new approaches to managing their networks, it was suggested.
In the long term, the Policy Exchange called for a major reform of the wholesale power market so that it values and encourages flexibility, including a move to a price model that better reflects patterns of supply and demand across the country.
There should also be a major overhaul and simplification of the balancing services managed by the National Grid, as well as network charging arrangements.
Richard Howard, author of the Policy Exchange's report, said: "Making the power system smarter will also mean it can provide cheaper and cleaner electricity.
"The current set of policies is encouraging a growth in dirty diesel generators - exacerbating air pollution in UK cities and towns. The Government needs to level the playing field to encourage the use of cleaner technologies such as demand response and storage.
"This approach is not only greener, but could also lead to savings worth £90 per household per year by 2030."
Professor Sir David King, special representative for climate change at the Foreign Office, added: "In order to move to a low carbon power system, incorporating more renewable energy, we also need to create a smarter, more flexible power system.
"This important report from Policy Exchange shows how Government can encourage smart technologies such as storage through changes to policy, regulation, and market design."