Select Committee on Trade and Industry First Report

1  Introduction

1. Since January 2006, the Government has been conducting a comprehensive review of its energy policy in response to mounting evidence of the threat of climate change and increasing concern over the security of our energy supplies.[1] The next stage—an energy white paper anticipated in Spring 2007—should frame the UK's energy policy for decades to come. Due to the Review's broad scope, we have sought to focus our contribution to the debate on three specific issues, which we felt merited closer examination. These were "the particular considerations that should apply to nuclear" new build;[2] the implications of increasing dependence on imports of gas and coal; and the capacity of microgeneration and other forms of distributed energy to meet a substantial proportion of the UK's electricity demand in the medium and long term. This Report addresses the third of these topics.


2. The Government's Energy Review report, The Energy Challenge, published in July 2006, underlined the fact that there is no single or simple solution to the issues of climate change and security of energy supply in the UK. Rather, the Government concluded that the answer lies in a multifaceted response, elements of which include much greater investment in renewable energy, new nuclear power stations, low-carbon transport, and a concerted effort to use energy more efficiently. Whilst there may be debate over the contribution each of these should make, there is at least consensus on the need for action on various fronts.

3. One area highlighted in the Review as having the potential to play a significant part in the UK's energy mix in the long term is the greater use of energy produced by individuals, businesses or communities for their own consumption, be it space or water heating, or electricity. Such 'local energy' encompasses a broad range of technologies that are capable of helping to reduce carbon dioxide emissions, either because they are renewable, or because they use fossil fuels more efficiently. Examples include roof-top wind turbines, solar-heated water, and household combined heat and power (CHP) systems that generate electricity in the home and use the resulting thermal energy for domestic heating. Whilst the primary aim of such energy production is for own-use there is also the potential for surplus generation to be sold for use elsewhere.

4. The concept of local energy represents a fundamentally different approach to the current centralised mode of delivery for energy used in heating and electricity in the UK. Historically, however, it is not a new idea. In the early part of the twentieth century the UK's electricity network was characterised by the same principle, with power stations built near to the source of demand and operated on local grid networks. In the 1950s and 1960s this approach was supplanted by the structure we have today, with most electricity produced by large power stations that connect to a high voltage transmission system. This, in turn, feeds the local distribution networks that supply homes and businesses. In so doing the system exploits economies of scale, reducing the unit cost of generating electricity whilst also, its supporters claim, increasing security of supply.[3]

5. In recent years, however, changes in technology have reduced the cost of smaller scale means of energy production and made it easier for the networks to manage the connection of a larger and more diverse range of generating units.[4] Coming at a time of heightened concern over climate change and energy security, the potential for individuals and communities to make a direct contribution to tackling these issues has captured the imagination of politicians and the general public alike. For instance, the past year has seen a step-change in the level of interest and take-up of Government schemes to support local energy, as companies such as B&Q have entered the market, offering to install roof-top wind turbines and solar water heating systems. These developments have received support from all the main political parties. In November 2006, Alistair Darling, Secretary of State for Trade and Industry, said that there "is huge potential for us to make energy a local issue, involving individuals, businesses and communities."[5] In turn, the leader of the Conservative Party, David Cameron, has said that "the future of energy is not top-down, it's bottom-up".[6] This suggests there is a growing political consensus about the potential long-run importance of local energy.

The scope of our inquiry

6. In both the written and oral evidence we received we were surprised, and at times confused, by the plethora of terms used in association with local energy. The Government's Energy Challenge document uses the term 'distributed energy', although elsewhere it is interchangeable with others, such as 'decentralised energy' and 'distributed generation'. In essence, distributed energy refers to the entire range of electricity generating technologies that are not connected to the transmission network, as well as all non-gas heat sources. This is not a helpful grouping for the analysis of policy because generating units as diverse as a 100 megawatt combined-cycle gas turbine, a 10 megawatt onshore wind farm, or a 1 kilowatt household solar thermal system, may all be classified as distributed generation. The contribution that each of these can make to reducing carbon dioxide emissions, or increasing energy security, may vary considerably, as do the barriers to their wider deployment.

7. The term 'microgeneration' is used to describe small installations for generating electricity (up to 50 kilowatts) and/or heat (up to 45 kilowatts thermal). It covers a range of technologies, set out in legislation, including fuel cells, hydro, solar, wind, biomass and geothermal energy.[7] The expression is somewhat misleading for the uninitiated, given its application to both electricity and heat producing technologies. The upper limits on capacity that define microgeneration are also rather arbitrary, since they preclude larger scale community energy projects that may use similar technologies and operate under the same principle of energy being produced at the point of use.

8. The focus of this Report is on the various ways in which individuals and communities can produce their own low-carbon energy. Hence, we have used the term 'local energy' to incorporate both microgeneration and community-level energy, whether electricity or heat, that has been produced for own-use. We hope that this more accurate and easier-to-understand term might command general acceptance and recommend that it be adopted in all official government documents. In our Report we look at the range of available local energy technologies and the extent to which they may play a role in achieving the Government's energy policy objectives. Given the liberalised nature of the UK's energy markets, a significant expansion of local energy capacity will be achieved only if action takes place at all levels of society—the individual, the community, and as a nation. We examine what needs to be done in each of these spheres. We also consider the role of Government in creating the necessary industrial capacity to supply a long-term expansion in the level of local energy. Finally, we look at the implications of such a change in the energy mix for the future operation and management of the electricity grid network.

9. During our inquiry we took oral evidence from the Renewable Energy Association, the Micropower Council and the Energy Networks Association, which represent various aspects of the local energy industry. We also took evidence from the professional association, the Institution of Engineering and Technology; the advice body, the Energy Saving Trust; and Sussex Energy Group—an academic body specialising in energy policy. In addition to the 57 memoranda received as part of our work on the Energy Review, we received 12 pieces of supplementary evidence specifically on this inquiry. We would like to express our thanks to all those who have contributed to our evidence-gathering.

1   Department of Trade and Industry, Our energy challenge-securing clean, affordable energy for the long-term, January 2006; and The Energy Challenge, July 2006 Back

2   Trade and Industry Committee, Fourth Report of Session 2005-06, New Nuclear? Examining the issues, HC 1122 Back

3   Department of Trade and Industry, Distributed Energy-A call for evidence for the review of barriers and incentives to distributed generation, including combined heat and power, November 2006 Back

4   Appendix 67 (Sussex Energy Group) Back

5   Department of Trade and Industry Press Notice, 'Government seeks boost for local energy', November 2006 Back

6   Speech to the Local Government Association conference, July 2006 Back

7   Climate Change and Sustainable Energy Act 2006, Section 26 (1-3) Back

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2007
Prepared 30 January 2007