A powerful parliamentary group has called for the National Grid to be stripped of its powers for balancing the energy system in Britain due to a potential conflict of interest.

The House of Commons energy and climate change committee is urging the government to transfer control for ensuring all methods are used to keep the lights on to a newly created independent system operator (ISO).

The committee report, Low Carbon Network Infrastructure, says the system needs a shake up just days after the Energy Institute complained that continual changes in energy policy were frightening away investment.

“The government should set out its intentions regarding an ISO as soon as possible, and consult on a detailed, staged plan for their implementation, so as to avoid injecting uncertainty into the energy sector,” recommends the report.

Angus MacNeil MP, thecommittee chair, said: “National Grid’s technical expertise in operating the national energy system must be weighed against its potential conflicts of interest. The independent system operator model has worked in the USA. It is time for it to be brought to these shores.”

The National Grid, a privately owned company listed on the stock market, owns the main national pipes and pylons in England and Wales but also has stakes in two interconnector power links with the continent with plans to build many more.

EDF Energy has been among those companies that have questioned whether the National Grid is conflicted. A spokesperson for the Department of Energysaid: “There is a strong case for greater independence for the system operator to promote more competition in our electricity system.

“We are working alongside National Grid and Ofgem to see how we can ensure our electricity system is as secure, flexible and independent as possible, whilst operating in the best interest of consumers.”

Facebook Twitter Pinterest Angus MacNeil, chair of the energy and climate change committee. Photograph: Michael Stephens/PA

Labour said it supported the report’s findings. “With the tech-driven transformation of the energy market that is well under way, together with legitimate concerns about conflicts of interest for National Grid, these proposals should be given serious consideration,” said shadow energy minister Alan Whitehead.

There is no recommendation in the select committee report about whether any new ISO should be privately owned, non-profit or state sector.

Critics have argued that the National Grid is unlikely to fully support demand reduction or other ways of reducing power usage in Britain because it has a commercial interest in seeing more use of its infrastructure.

The committee specifically recommends much more electricity storage and demand reduction is deployed at scale as soon as possible and warns these moves are being hampered by out of date regulations.

“Innovative solutions like storage and DSR [demand side response] to 21st-century energy problems have been held back by legislative and regulatory inertia,” said MacNeil, who represents the Scottish National party. He accepted the government was already committed to addressing some of these issues but said the committee would hold it to account.

“[The energy department] must also learn lessons from these policy lags so as to be better prepared for ongoing changes,” he said.

The committee found that small-scale generators faced long and uncertain queues to connect to the National Grid and recommended a review of connection costs.

MacNeil said: “The UK needs clean, renewable power, but it won’t be built if it is too costly or difficult for generators to connect to the electricity grid. Distribution networks have been overwhelmed at times by the challenge of integrating small-scale renewables.”

The National Grid fought back against the report’s findings, saying the recent report by Andrew Adonis, from the National Infrastructure Commission, found no sign that the grid had up till now had negatively affected consumers.

“Our priority as a system operator will always be balancing the system minute-by-minute and getting the best value for billpayers, which is what the current system provides,” said a National Grid spokesperson.

“The costs and risks of introducing further change to market structures must be proportional to any benefit. There is little evidence that an independent system operator model would provide any benefits that would justify the cost to households, potential disruption to much of the energy sector, and the risks to security of supply such uncertainty could create.”

Jonathan Marshall, an energy analyst at the non-profit Energy and Climate Intelligence Unit, believes the committee report has raised important questions. He said: “The committee is right to suggest that we have a 20th-century grid that isn’t fit for the 21st century. With the national infrastructure commission, EnergyUK and others also calling for a move to a flexible grid, it’s clear that the system desperately needs upgrading.

“The UK electricity grid is currently stuck in a mould that favours old fashioned, centralised power stations that do not allow new technologies to compete fairly. Without swift and efficient upgrades, the system will continue to favour ageing and increasingly unreliable power stations.”