Britain risks locking itself into an expensive and unnecessary programme of power plant construction under flawed new policies being pursued by the government, a key committee of MPs has warned.

Consumers could be forced to underwrite more than £350m of extra spending in the first year alone if ministers do not put more emphasis on reducing power demand rather than building more capacity, according to the energy and climate change committee.

In a letter to energy minister Matthew Hancock the committee chairman, Tim Yeo, also accuses the UK's main energy infrastructure provider, National Grid, which is playing a key role in the schemes, of being hopelessly compromised.

"It is impossible for National Grid to give objective advice to government on this issue since the profitability of their regulated United Kingdom business is directly linked to the construction of new transmission capacity," he wrote.

His committee has been taking evidence in what is called "electricity demand-side measures" to review the role being proposed for those who can help reduce the need for power.

This is particularly valuable now, when the UK is facing an energy crisis, because old coal and nuclear plants are being retired and new windfarms or gas plants are not being built quickly enough.

Yeo told Hancock that demand-side response (DSR) offered a cheap and greener alternative to building new generating capacity. He added that it should play a crucial and growing role in keeping the lights on in coming years.

He praised the Department of Energy & Climate Change (DECC), the regulator Ofgem and the National Grid for progressing initiatives but fears unnecessary obstacles are also being thrown in the way of this new industry.

"Many DSR industry representatives have expressed serious and legitimate concerns," Yeo said. Among those worries are that DSR providers can only win contracts for one year while power station builders can get deals that run for 15 years.

The £359m annual cost of building new power stations as opposed to reducing demand mentioned by Yeo is taken from a new study, also out on Friday, by NERA Economic Consulting, which is working for DSR companies such as KiWi Power.

A DECC spokesman said it was too early to comment on the NERA report but defended the role of National Grid and said the infrastructure provider was doing all it could to understand the concerns of the demand reduction providers.

"We are talking to the DSR industry to better understand the issues they face. We want to make sure the market works efficiently and offers consumers the best possible deal," he added.

In a statement on Thursday night, National Grid also defended its role, saying it "does not give advice to government on the level of DSR that should be procured in the capacity market auction. We advise on how much capacity is needed in total, but we are neutral how that capacity is made up – whether it comes from generation or demand side response."