Decentralising a quarter of London's energy would save 3.5Mt of carbon dioxide annually, according to a report published this week.
Business organisation London First commissioned Buro Happold to produce the Cutting the Capital's Carbon Footprint study, which proposes that £7bn of private funding would enable this target to be met.
The report calls for collaboration between central Government, the Mayor and his agencies, energy companies, developers and boroughs to enable London to cope with the challenge of climate change.
It said that linking large heat consumers, such as housing estates, leisure centres and hospitals, to locally-placed electricity plants would be more efficient than centralised generation, which creates huge waste heat loss from high voltage cables, roof-top solar panels and mini-wind turbines.
It added that the UK loses enough heat from central power stations to heat all the country's buildings.
London First director of planning and development Judith Salomon said: "At the moment there are few incentives in place and too many barriers preventing the success of local heat and power generation.
"We are stuck with considerable distribution losses from high voltage pylons and the occasional tokenistic roof-mounted wind turbine or solar panel. We need to bring existing high-heat-demand buildings into local networks to make the economic and sustainability case for local generation stand up."
Buro Happold chairman Rod Macdonald said: "Investment in infrastructure is critical to the continued success of London. Our proposals will deliver a good portion of the carbon savings planned by the Mayor by 2025 and position London as a leader in decentralised energy amongst major free-market cities."