The Government should stop propping up the "dying" system of large-scale utilities and support new energy technologies and innovative businesses, a think tank says.
New technology such as solar panels, high-tech batteries and demand side management, alongside local generation of power could give the UK cheaper, cleaner and more secure electricity supplies, the study from think tank IPPR suggests.
But these technologies, which could produce cheaper, cleaner and more secure electricity because they do not have fuel needs or costs, are low carbon and reduce power use, are being held back by policies which favour the old large-scale system, IPPR said.
Measures are needed to reform the electricity market to support competition, such as fining the Big Six for overcharging "legacy" customers with them since privatisation, allowing them to charge new customers less and undercut new companies, it said.
A review of network regulation is needed to accelerate development of a smart grid which helps manage demand more effectively, Government should switch its support to small scale technologies and there should be large-scale deployment of solar, it urged.
Will Straw, IPPR associate director, said: "Distributed electricity technologies such as solar power, batteries and smart thermostats, give reason for great optimism but they are being held back by a bias in both policy making and regulation which favours the large-scale utility business model.
"A fundamental change in direction is required so that the innovative businesses and entrepreneurs developing these new technological solutions have a level playing field with the incumbent utilities. It is time to break with the past and embrace the brighter new future that these technologies offer."
The study points out that the costs of solar power have fallen rapidly and in countries such as Germany, Italy, Spain, Portugal, Australia and the south-west US, electricity from solar without subsidies is as cheap as power from the grid.
Barclays has estimated that solar systems with batteries to store power for use when the sun is not shining will be as cheap as electricity from the grid for 20 per cent of US electricity consumers within four years.
Even in the UK, Citibank has projected that solar power would reach "grid parity", when it is as cheap as electricity from the grid, by 2020, the report said.
Costs of onshore wind power are also falling fast, with prices approaching the wholesale electricity price in Italy, Spain, China and the UK and the technology is competing with fossil fuel power generation in Brazil.
Technologies which also include smart thermostats and appliances to manage electricity demand and highly efficient lights are disrupting the traditional large-scale systems and are set to end the dominance of the big utilities, the report said.
The market is recognising this change, with the value of Europe's top 20 utilities slashed in half in the past six years, and credit ratings downgraded, while Barclays downgraded its bond credit rating for the entire US electric utility sector earlier this year.
Projections suggest that more people using local energy sources such as their own solar panels will reduce the size of the energy market available to utilities by half in the next two decades.