London Mayor Ken Livingstone has announced plans to cut energy use in the Greater London Authority by a quarter as part of a major retrofitting programme that will also allow other public sector and private firms to sign up to projects that offer guaranteed cost and energy savings.

The initiative, which was announced last week, is based on an innovative procurement model that has been agreed between the Mayor's Office and energy services firms Dalkia and Honeywell.

Under the terms of the agreement, separate energy-saving projects for a number of different buildings will be packaged together in one deal, simplifying the procurement process and allowing the suppliers to achieve the economies of scale that will allow them to buy in bulk and deliver more expensive building upgrades such as installation of onsite renewables.

The suppliers will also agree to energy and cost-saving targets which must be met throughout the life of the project. If the targets are not met there is no cost for the initial auditing work, ensuring that there is a financial incentive for suppliers to deliver the expected energy savings.

The Greater London Authority said the deal would "guarantee" a set level of energy and financial savings over a period of years, "creating a guaranteed future income stream to fund investment in improvements such as insulation, energy-efficient building management technology, and low-carbon heating and cooling equipment".

The first projects agreed under the new terms will begin next month with Dalkia commencing work on 20 buildings owned by the Metropolitan Police Authority and the London fire brigade, and Honeywell starting work on 22 Transport for London buildings.

Livingstone said the new scheme, which forms part of the C40 large cities agreement brokered last year as part of the Clinton Climate Initiative, will make a major contribution to cutting carbon emissions from London's buildings. He added that he was committed to replicating the procurement model for other public sector buildings and commercial properties.

"The Greater London Authority Group is taking the lead, but we want all London's public buildings to benefit from this programme," he said. "That is why I will now ask my officers to plan the creation of a Low Carbon Building Unit to provide support to other public authorities. One million tonnes of carbon emissions, and millions of pounds, could be saved each year if London's municipal buildings and schools, universities and hospitals were to do this.

"If commercial building owners will also join us, these carbon emission savings could rise to 3.6 million tonnes each year – about eight per cent of the capital's total emissions."

A spokeswoman for Canary Wharf Group welcomed the proposal and said that the company would now work with the Mayor's Office to investigate if the new approach could be used to enhance its attempts to cut the carbon emissions from new and existing buildings.