Memorandum by The Energy Saving Trust
QUESTION 1: GIVEN
THE UK ON
THE UK MAINTAIN
The UK can most effectively maintain a secure
energy supply by conserving its existing energy resources; this
is achieved through energy efficiency. If demand for energy is
reduced, indigenous resources of gas and oil will be maintained
for longer, thus delaying the day when importing these resources
will be necessary. In addition, existing nuclear or coal capacity
will represent a higher proportion of demand, which will help
maintain supply diversity. By reducing demand there will also
be spare capacity in energy supply which is good for security,
and also encourages competition between suppliers. Losses from
electricity transmission and gas storage are also reduced if demand
is reduced, particularly at peak times.
QUESTION 2: IS
On occasion, there can be a conflict between
security of supply and environmental objectives. Utilising our
considerable indigenous coal reserves would be a good example
of this. However, almost uniquely, energy efficiency satisfies
the key policy objectives of conserving indigenous supplies of
low and non-carbon resources and of meeting environmental policy
objectives. Energy efficiency is the cornerstone of the UK climate
change and sustainable development policies because it:
reduces carbon dioxide emissions
from energy use;
prolonges the life of indigenous
fossil fuels and enhances security of supply;
is in consumer's interests as it
lowers fuel bills;
is the only sustainable solution
to fuel poverty, by enabling householders to stay warm while they
are protected from future energy price rises;
creates jobs throughout the UK;
saves carbon dioxide at a net benefit
to the UK economy of £150/tC.
We don't believe that the current market factors
in social, environmental or security of energy supply issues to
the extent desirable. Our view is that it should be possible to
take all these factors into account, and place a value on them,
rather than focussing on any particular aspect.
The role of Renewables
Renewables provide an indigenous source of carbon-free
energy to complement fossil fuels, and should be utilised in a
way that reflects this value. Renewables currently contribute
only 3GW to UK electricity supply (3 per cent), and the 2010 target
for renewables is 10 per cent of electricity supply. While some
proposed renewables developments have failed to gain local acceptance
in the past, we see a future for renewables in small community
based schemes where local communities will feel ownership, and
the benefits of, a renewables development. It is clear that the
trend in electricity supply over the past decade has been towards
smaller more flexible sources (smaller Combined Cycle Gas Turbines
rather than previous large scale coal and nuclear powered stations).
These are clearly more acceptable to local communities than large
scale developments). We see smaller-scale generation as the most
secure and diverse source of energy in the future.
We believe there are important regulatory and
institutional barriers to be overcome if such new sources are
to contribute to their maximum potential. It would also be important
for energy suppliers and/or distributors to be offered incentives
for encouraging embedded generation in the electricity network.
It is likely that this will entail a completely different approach
to the regulation of distribution networks, allowing them to invest
in smarter networks, capable of coping with large numbers of very
small distributed generators.
There are a number of renewables suitable for
small-scale production at community and household level. The renewable
technologies considered most economically viable in this context
Small scale wind power projects,
if planning arrangements are sensitively handled with local communities.
Energy crops. Production of energy
from biomass can be a local community-based scheme.
Photovoltaics (PV) are deployed in
domestic houses in Germany and Japan. The DTI PV project will
help raise awareness of PV technologies, but much greater effort
is needed for these to become cheaper (from mass production).
Subsidies are needed for this technology to become market competitive,
and this will include a favourable buy out rate for the electricity
generated. In commercial buildings, PV panels are already cost-effective
when compared with prestige cladding materials. In this sense,
there is already potential for 250MW PV (a small power station)
Solar thermal technologies provide
water heating for the home. This is a relatively inexpensive technology.
Denmark and Austria have extensive capital and tax support mechanisms
for this technology.
Ground source heat pumps are widely
used in the US and Scandinavia. This technology could be particularly
efficient for providing energy to households in rural regions
off the gas supply.
Support measures are necessary to overcome local
resistance to renewables development at the planning stage (providing
help for developers to gain community approval for schemes). Favourable
buy-out tariffs will be essential, as they will help in overcoming
the problems engendered by the New Electricity Trading Arrangements
(NETA) for non-firm energy sources such as some renewables and
Combined heat and power
Community CHP provides the maximum efficiency
in fuel use associated with electricity generation, with efficiency
reaching 90 per cent. With this valuable energy efficiency and
environmental benefit CHP should be encouraged, so it can make
an important contribution to UK energy supply, and to conserving
other fuel resources.
The current UK CHP capacity of 4,700 MWe is
estimated to save around 4MtC/a compared with coal-fired power
stations. The Climate Change Programme has set a target of 10,000MW
of CHP capacity by 2010. CHP is currently in crisis due to:
the high gas price (relative to electricity
prices) which are a disincentive to CHP;
the fact that electricity exports
from good quality CHP are not exempt from the Climate Change Levy;
NETA has created difficult trading
conditions for CHP.
The UK CHP target will not be met unless these
difficulties are alleviated. As an additional initiative, an energy
supplier obligation for good quality CHP could be set, expressed
in TWh/a, so the environmental benefits of this technology are
Domestic CHP (dCHP)
dCHP has been in the process of development
over a number of years and now looks set to become more available
on the market. This will provide 90 per cent efficient technology
in the home, generating electricity while providing heat. It will
cover up to 75 per cent of the needs of the household. Excess
electricity can be fed back into the network. dCHP can save between
0.3 and 0.6tC/a per unit, installed, dependent on the boiler it
replaces. These units are likely to be marketed as "replace
your old boiler, save on heating bill and generate most of your
own electricity". However to calculate the additional savings
over the Building Regulations minimum standards from 2002, the
comparison has to be made with a 78 per cent efficient boiler.
The EST believes that a realistic expectation
is that around 700,000 units could be in place by 2010, saving
around 0.3MtC on average. However uptake of these units could
grow rapidly to around eight million units by 2020 and with expected
increase of electricity output from the dCHP units (especially
if fuel cell units are used) carbon dioxide savings will rise.
Condensing boilers have struggled to gain their nine per cent
share of the boiler market, but some of the installer difficulties
are unlikely to occur because the manufacturers will train a dedicated
installation team. The technology is also attractive to energy
suppliers because suppliers have to buy electricity when it is
expensive, to cover for the peak demand hours in the evening.
dCHP will shave off some of the demand at peak times (and will
be predictable in doing so), thus reducing suppliers' electricity
purchasing costs. The long term potential for this technology
is likely to be even greater.
If dCHP becomes widely installed in houses potential
technical and regulatory difficulties in the electricity distribution
system will have to be overcome. Government and regulator activity
to overcome these barriers will also be needed to encourage householders
to take up the new technologies.
Ofgem has a critical role in the success or
failure of Government policies on energy efficiency, CHP and renewables.
The operation of NETA is just one example where policy has adversely
affected the renewable energy and CHP suppliers, particularly
for new generators. The potential impacts of NETA were clear even
before the arrangement came into effect, and Ofgem's attempt to
pass responsibility back to the government is a discouraging interpretation
of its environmental responsibilities.
Ofgem's role as regulator has a clear impact
on embedded generation issues, which will be important if domestic
and community scale renewables and CHP are to succeed. In addition,
technologies such as smart meters should be encouraged so consumers,
electricity distributors and suppliers see the benefits of energy
efficiency and power generation in the household.
QUESTION 3: WHAT
We know there is large untapped potential for
cost effective savings, and that this reduction can be achieved
without any net costs, and indeed with benefits to the rest of
the economy. The Energy Saving Trust is very confident about this
because the data on the costs and benefits of energy efficiency
are not based on forecasts for the future but stem from concrete
historical information on energy efficiency measures over a period
of years. Evidence of the cost effectiveness of energy efficiency
to the UK as a whole is underlined in the report by the National
Audit Office on the Energy Efficiency Standards of Performance
schemes in 1998.
Because there are large benefits to the economy
from energy efficiency, there remains huge scope for further energy
conservation in the UK. The benefits of energy efficiency stem
from the fact that the initial costs are far outweighed by the
benefits of reducing demand for fuel. The average rate of return
is over 30 per cent on the energy efficiency measures needed to
achieve our proposed 2010 target. In summary:
The cost of reducing demand is less
than the cost of increasing supplies.
The cost to the economy and the UK
of reducing demand is negative. In other words, the initial costs
of energy measures are outweighed by the benefit of lower fuel
The cost of reducing carbon emissions
to 2010 is negative at-£150 per tonne because carbon emissions
can be reduced without costs, and with benefits to the rest of
The cost to the Exchequer, of reducing
carbon emissions, is small because consumers contribute some of
the initial costs, given that there are significant benefits and
because there are measures available to increase energy efficiency
without cost to the Exchequer.
Energy efficiency policies are unique
in that they contribute to all the UK's key energy and environment
objectives. Energy efficiency reduces carbon dioxide emissions,
is the sustainable solution for fuel poverty, reduces consumers'
fuel bills, helps conserve indigenous energy supplies, and creates
We have recently made an in-depth assessment
of where further energy efficiency measures can be made in the
UK household sector. In our publication Towards an Energy Efficiency
Strategy for Households to 2020 (electronic copy attached, and
paper version to be circulated to Committee members) we recommend
that the Government should set an energy efficiency target for
2010, and should commit itself to introduce the measures necessary
to achieve the target. It should also set an indicative target
for 2020. We believe that the value of energy efficiency must
be reflected in Government policy priorities. A UK Energy Efficiency
Strategy is needed to create a policy framework.
With respect to the household sector, we believe
a target should be set of a 12.5 per cent reduction in energy
consumption by 2010 (from 2000 levels), and for 2010-2020 an indicative
target of a further 12.5 per cent reduction should be set.
These targets can be met through a range of
policy instruments (as currently):
Public/private incentives as in EEC.
We envisage that half of the 12.5 per cent could
be met by increasing the Energy Efficiency Commitment by 2.5 times
Energy services would contribute to meeting this
Fiscal incentives: this could include:
A widening of 5 per cent VAT to include all energy
efficiency products (condensing boilers, compact fluorescent lights,
and high performance windows) and to include DIY products. By
reducing the purchase price of these products they will be more
attractive to the customer.
Tax credits for householders who take measures
to improve the energy efficiency of their homes.
Stamp duty rebates for householders who improve
the energy efficiency of the home they purchase.
Regulation: the Government should
Require new build to be near zero emission from
2012. A clear and early signal that the Building Regulations will
require this standard by 2012, is necessary so the building industry
can develop techniques and technologies to meet the requirement.
Agree minimum standards with industry so appliances
in general, and standby mode in particular, consume minimal energy.
Ensure Ofgem makes policy decisions consistent
with UK environmental objectives.
Changing Consumer Attitudes to energy
Through a co-ordinated public awareness raising
campaign, with government, energy suppliers, the energy efficiency
industry, retailers, local authorities and housing landlords to
alert householders to the environmental benefits, and the savings
they will make themselves on their fuel bills.
We have identified a range of cost-effective
measures that could be taken (full details in the Strategy attached).
Our assessment shows that if the full range
of energy efficiency measures are taken, energy consumption in
households will fall by 12.5 per cent or 100TWh of energy per
year by 2010 (equivalent to the output of 5 CCGT power stations
each year). Without these measures energy use in households is
set to rise to 2010, and will make it even more difficult to reach
the Climate Change Target. These policies will also save 7MtC/a,
allowing the Government comfortably to achieve its Climate Change
Target. The electricity component of this reduction alone would
be sufficient to meet the shortfall in existing generating plant
for the domestic sector (20TWh) in 2010, forecast by the DTI in
their Energy Paper 68.
Beyond 2010 there will clearly be further technical
advances and new technology, such as domestic combined heat and
power (dCHP), could take off more rapidly. Energy efficiency is
likely to remain an exceptionally cost effective way of reducing
carbon emissions, and it is thus likely to be possible and well
worthwhile to secure a further 12.5 per cent reduction in domestic
energy demand below 2010 levels by 2020. For this target to be
met more R,D&D will be needed to support the development of
low carbon technologies for households.
QUESTION 4: WHAT
As outlined in our answer to question three
we do not see any adverse effects on industrial competitiveness,
indeed energy efficiency will bring benefits to industry. Energy
efficiency creates jobs in the heating and insulation industries.
Jobs in these industries are scattered throughout the country,
with demand in both rural and city areas.
In households, energy efficiency measures include
insulation (cavity wall, loft, pipes and tanks), draught-proofing,
double-glazing, efficient central heating systems (condensing
boilers) with advanced thermostatic controls, compact fluorescent
bulbs (CFLs), and efficient household appliances. With its operational
efficiencies combined heat and power at community scale, or in
individual households with the new domestic CHP boilers (dCHP),
offer the same advantages. Most of these measures require trained
installers. In the heating industry there is constant demand for
boiler repair and replacement, and indeed there are acute personnel
shortages in some parts of the country.
New technologies such as domestic-scale CHP
(dCHP) and household renewables (eg. photovoltaics, active solar
water heaters, and ground-source heat pumps) will provide new
employment opportunities as well as the potential for being "ahead
of the game" in industrial development worldwide.
In addition, energy efficiency provides the
only sustainable solution to fuel poverty. By improving the fabric
of a home, through insulation, draught-proofing and an efficient
heating system, the household is awarded greater comfort, and
at the same time will be able to maintain these improved interior
conditions even if fuel prices rise. Furthermore there are un-quantified
benefits such as overall improvements to the UK housing stock,
and health benefits for households previously suffering cold and
damp homes. It is in recognition of this that the Home Energy
Efficiency Scheme (and equivalent devolved administration schemes)
fund such measures in fuel poor households, to the sum of around
£200M/a. Under the Energy Efficiency Commitment (EEC) (from
April 2002) half the energy supplier measures to encourage energy
efficiency will be targeted at the fuel poor, to ensure a comprehensive
effort to overcome fuel poverty.
QUESTION 5: IS
Historical evidence has shown that individuals
are generally reluctant to invest in energy efficiency measures
for various reasons, and Government or energy supplier incentives
are needed to encourage uptake. We propose (in Towards an Energy
Efficiency Strategy for Households to 2020) that Government needs
to initiate an expanded effort on energy efficiency. There is
no single solution, and we recommend that the existing four methods
of encouraging energy efficiency are fully exploited.
Government, through the Utilities Act 2000,
now requires energy suppliers to offer energy efficiency to their
customers (the EEC) and we envisage an EEC expanded 2½times
to 2010 to make a major contribution. The EEC is structured to
allow energy suppliers to gain carbon credits for the energy efficiency
measures they undertake. With the right incentives in place, the
energy suppliers will respond to government policy drivers.
However the EEC will not be successful on its
own unless it is supported by a comprehensive information programme
to help householder's recognise the link between energy use and
environmental impacts. We would also need fiscal incentives, such
as reduced VAT on all energy efficiency products (including condensing
boilers, and compact fluorescent lights), stamp duty rebates for
energy efficient homes, and tax credits for energy measures taken
in the home. Another important Government policy that has a sustained
impact on the energy efficiency of housing, is the Building Regulations.
Government could declare its intent to move to near-zero emission
new build by 2012. If this is announced at an early date the construction
industry could develop technologies and techniques to meet this
requirement at the end of the decade.
20 Energy Efficiency and jobs: UK issues and case studies
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