Memorandum submitted by the Carbon Trust
(CIT 06)
1. Thank you for the invitation to contribute
to the EFRA Select Committee's Inquiry to examine the "citizen's
agenda" in relation to tackling climate change. Your invitation
for written evidence covers a wide range of issues many of which
are not central to the Carbon Trust's areas of responsibility.
We therefore propose to focus on the potential for, and barriers
to, microgeneration—in particular: their current state of
maturity, related matters concerning metering, and the opportunities
for cost reduction and increased deployment going forward. In
preparing our evidence, we have shared our thinking with our colleagues
in the Energy Saving Trust who are making a substantive contribution
to your Inquiry.
SMALL SCALE
LOW CARBON
TECHNOLOGIES—CURRENT
STATE OF
MATURITY
2. There are a number of these types of
technologies including, for example: small and micro-turbines;
solar thermal for space and water heating; solar photovoltaics
for power generation; ground source heat pumps; biomass fuelled
heating systems; and micro-combined heat and power systems providing
both heat and power. Some of these technologies—eg solar
water heating—have been around in the UK for 20 years or
more; and there are tens of thousands of installations. Others
such as micro-chp are available in relatively small numbers and
operational experience is very limited. All these technologies
are immature compared with the standard boiler and grid delivered
electricity which millions of people take as the default means
whereby they obtain heat and power for their homes. They are,
currently, costly to buy and run. That is not to say that there
is no prospect of technology improvements or cost reduction. Most
maturing technologies will, given the necessary investment and
development, continue down the cost curve and up the reliability
curve. However, the snapshot we see today for micro-technologies
is one of potential yet to be fully realised.
3. The Carbon Trust considers there is scope
to reduce capital and operating costs, improve reliability and
generally make these products more attractive to consumers. In
mature markets, product improvement is via RD&D paid for by
the profits earned by equipment owners on product sales and specified
through "learning by doing" experience of products in
use. However, in the case of high premium, low market pull products,
profits tend to be insufficient to support product development
unaided. Public support—justified by the potential for these
new and emerging technologies to contribute to public good, carbon
savings goals—is needed to bridge the gap, improve product
performance and reduce costs to the level which would attract
more customers. What we call technology accelerator projects (intelligent
demonstration projects) also have a role to play to gather independent,
impartial information on performance in use, consumer attitudes,
etc.
4. Meanwhile, it is vital that consumer
confidence is not eroded by inflated claims from manufacturers
about possible outputs/savings from their products. Not only is
this important in terms of any Government subsidy scheme in relation
to potential carbon savings, but also it could hinder market penetration
if consumer confidence is eroded by unsubstantiated, or exaggerated,
performance claims. Independent demonstration projects, working
with the key stakeholders are one way of addressing this issue.
SUPPLY CHAIN
MATURITY
5. New and emerging low carbon products
tend to be hampered by immature supply chain service providers—eg
specifiers, installers, maintenance people—who are inadequately
trained and who are not sufficiently familiar with the products
they handle. Whereas attention is often paid towards reducing
capital costs to consumers, too little attention is paid to raising
the competency of the supply chain. Unless the supply chain is
encouraged to take responsibility for the goods and services it
provides, early introduction of new and emerging products will
carry a risk of failure. Bad news travel faster than good, generally
speaking, and the reputational risk deriving from immature supply
chain players—and immature technologies—has a habit
of creating consumer distrust which in turn impedes market penetration.
It is for manufacturers to ensure that their supply chains are
fully competent throughout the range of products and services.
However, Government can help encourage positive action for low
carbon technologies by setting minimum standards of competency
for specifiers and installers wishing to become involved in Government
grant schemes to promote take-up of new technologies. In this
regard, the Government's Low Carbon Buildings Programme, with
which the Carbon Trust is partnering, is to be commended to the
Committee. This programme seeks to raise the quality of installations:
(a) by ensuring that a high standard of inherent
energy efficiency is incorporated into the buildings in the programme;
and
(b) by requiring the use of accredited installers.
6. Better training, better understanding of
the reputational risk, and tighter control of the supply chain
by the original equipment manufacturers would all help reduce
the risks outlined above. This should not be viewed as an add-on
"luxury". It should be part and parcel of a strategic
approach by the stakeholders. The stakeholders include: the product
manufacturers, the players in the supply chain, and the Government
who has a role to play to accelerate the delivery of the public
good benefits (ie carbon savings) for which consumers are unwilling
to pay a premium or take unnecessary risks.
THE IMPORTANCE
OF METERING
7. Metering has an important, generic role
to play in relation to the development of a market for energy
and carbon savings technologies—including micro-technologies:
(i) Our metering field trial has shown that
having a "smart meter" (ie a pulsed meter capable of
providing time-related consumption data) installed can itself
be a catalyst for behavioural change, over and above the specific
detailed recommendations for energy savings arising from data
analysis. Consumers with smart meters make the link between their
activities and their energy use—especially where they know
that there is a direct link between the meter data and the energy
for which they are billed.
(ii) Meters offer the means whereby energy
flows—in particular, exports to the grid—can be measured.
In some end use applications, some micro-technologies tend to
export a significant proportion of the electricity generated.
Two-way metering with fair export reward and accurate bills derived
from meter data would help encourage consumers to invest in micro-technologies.
The pace at which smart meters are rolled out, billing systems/processes
enhanced, and mechanisms for export reward made available will
all have an impact on take-up of micro-technologies.
MARKET MATURITY
8. Manufacturers, the supply chain and consumers
determine: the extent to which products are purchased; the rate
at which products make the transition from being new and emerging
to mature; and the rate at which optimum market penetration is
achieved. Measures which help de-risk new and emerging low carbon
technologies, and reduce costs, will help overcome consumer doubts
brought about through unfamiliarity. Measures which help improve
supply chain competency will also help accelerate market take-up.
9. The Government attitude towards and support
for these new and emerging micro-technologies will have a crucial
impact on the rate of technology improvement, cost reduction,
supply chain maturity and consumer take-up—ie market maturity.
In its Energy Review Report, published in July, it confirmed its
earlier policy support for micro-generation to meet energy and
climate change policy goals: "The Micro-generation Strategy
will be implemented aggressively by Government, and the powers
acquired by Government under the Climate Change and Sustainable
Energy Act 2006 will be exercised where appropriate."
10. The support framework will be most effective
if it is designed to address the "big picture" rather
than individual barriers such as capital cost. Therefore, the
Government's intention—to carry out an investigation of
the potential of distributed energy as a long-term alternative
or supplement to centralised generation, looking at the full range
of scientific, technical, economic and behavioural issues—is
to be welcomed. Only by an impartial and robust analysis is it
possible to determine the contribution which these technologies
can make to our energy and climate change policy goals. We would,
however, point out that a number of useful studies have already
been carried out—for example, the joint DTI/Carbon Trust
Renewables Innovation Review; and the Energy Saving Trust's work
for DTI on micro-generation technologies to name but two. These,
and other studies, have all informed the Government's Micro-generation
Strategy and should help ensure a good starting point for the
further technology and market-based analysis going forward.
CONCLUDING REMARKS
11. The Carbon Trust hopes that the Committee's
Inquiry will find the above contribution provides helpful insights
into the current state of micro-generation technologies, the supply
chain and the market. Looking for ways to encourage individual
action by citizens to help tackle climate change is part and parcel
of the transition to a low carbon economy. However, making impact,
at scale, is dependent upon:
(a) consumer behaviour translating into positive
action on energy efficiency and low carbon technologies; and
(b) the market's ability (and willingness)
to provide viable, affordable and effective low carbon options
which are attractive enough to displace incumbent high carbon
products. Sometimes, consumer and market interests align and change
happens. However, where these alignments do not happen fast enough,
or on a scale which will not achieve significant greenhouse gas
emission reductions, there is a need for purposeful, coherent
and consistent Government action at a scale commensurate with
the scale of the challenge. A start has been made but there is
some way to go before consumers, markets and Government(s) can
be said to be moving forward fast enough towards a common goal.
The Carbon Trust's work, through its micro-chp field trials and
other projects in train or preparation, is informing this process.
The Carbon Trust would be happy to discuss its
evidence with the Committee if that would be helpful.
The Carbon Trust
August 2006
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