Moving towards a mass market
114. We have seen already that the various local
energy technologies available are all at differing stages of development.
Some, such as biomass heating and ground source heat pumps, are
already cost-effective. Other technologies, however, including
solar photovoltaics and micro-wind turbines, are still too expensive
to be commercially viable for the mass market. Indeed, fuel cell
CHP is still in its research and development phase.
115. Because of the relative immaturity of some technologies,
there is significant scope still for technical advances and innovation,
which will drive down costs in the long-run. Here, the Government
can play a role by providing R&D support for the sector. The
Energy Saving Trust told us, however, that not enough of the DTI's
available funding for emerging technologies was being targeted
at local energy researchless than 3% of the £320 million
available to business over the period 2005-08.
In its Microgeneration Strategy, the DTI argued that there
are sufficient funds for carrying out R&D in the sector, available
not only from central Government but also through generous tax
reliefs, and through the Research Councils, Regional Development
Agencies and European Union. One example is the New and Renewable
Energy Centre (NaREC), funded by the One NorthEast Development
Agency, which has provided an initial investment of £10 million.
The DTI has agreed to produce a map outlining all the available
funding sources, in response to evidence from its strategy consultation
that there is not sufficient information about where businesses
can seek support.
116. Other changes will occur in the wider energy
market over the coming years that could promote the viability
of local energy. These include the possible adoption of smart
metering; improved power flow management on the grid; and improved
small-scale energy storage capabilities.
Changes in fuel availability and prices could also be important
drivers, as proved in 2006, with increased interest in local energy
systems in the UK resulting from higher electricity and gas bills.
117. The consensus within the industry, however,
is that the key driver for reducing costs in the long-term will
come about through the scaling up of production and by investing
in installation infrastructure so that the sector is able to supply
a mass market.
In order to achieve this, the local energy industry told us the
Government needs to signal its commitment to the sector and the
long-term contribution it can make to the UK's energy mix, while
backing this up with a credible effort to provide incentives for
growth in the industry.
They claim that only this approach will enable firms to develop
business plans for the long-term, and attract investment to carry
them out. In this regard, the Microgeneration Strategy
has been generally welcomed by the sector as a demonstration of
the Government's support.
The local energy industry was sceptical, however, about the Government's
stated intention in last year's Energy Review Report, The Energy
Challenge, to implement the strategy "aggressively",
given the limited human resources currently dedicated to local
energy in the DTI.
118. The industry says that one area in which the
Government could further demonstrate its support for the local
energy sector is through the setting of a national target for
its contribution to the energy mix.
Such a move, the local energy industry argues, would send a clear
signal to investors of how the Government expected the market
to develop in the medium to long-term. The Climate Change and
Sustainable Energy Act 2006 gave the Secretary of State for
Trade and Industry powers to set a national target specifically
for microgeneration from November 2008, provided the Government
believes it appropriate to designate one at that time.
119. However, we have previously stated the Government
should not seek to pre-determine the proportion of the mix that
any energy source should contributebe it gas, coal, nuclear
or renewables, large or small. Rather, if its aim is to reduce
carbon dioxide emissions, it should establish a level playing
field that equally rewards all forms of low-carbon energy, and
allows the market to determine the energy mix.
Yet there may be a case for treating certain low-carbon energy
sources differently if it is believed that investment in them
will, in the long run, reduce their cost per tonne of carbon dioxide
saved. If the Government wishes to set a target for local energy
it should therefore only be on the basis that it would play a
significant role in the sector's transformation from niche market
to full cost-effectiveness, backed up by credible incentives for
its achievement. Before then, it would also be necessary for the
DTI and industry to conduct robust market analysis on the growth
potential of the market so that any target could be both stretching
120. Underpinning any target-setting should also
be the final objective of tapering the industry's dependency on
capital grants as the technologies become more cost-effective.
As noted already, one key aspect of the sector's current and past
growth has been the presence of government grants. Under previous
schemes, the Micropower Council argues, the Government failed
to set a clear expectation of how the sector should develop, and
what cost reductions it anticipated. As a result, the industry
ran into difficulties as soon as there was uncertainty about the
continuance of support.
The Low Carbon Buildings Programme has funding to run until mid-2008,
by which time the Government expects some of its "wider measures
to promote microgeneration should be taking hold, facilitating
the uptake of these technologies".
This could suggest that the Government expects to have weaned
the industry off grants by this time, although it seems to us
a very short period in which to expect the industry to have built
sufficient capacity. More likely, the closure of the current scheme
in 2008 reflects the end of the Government's current Spending
Review period. It will therefore not be known whether there will
be more grants available, or indeed a department to allocate them,
until the next Spending Review settlement is announced.
121. Key to
the uptake of local energy systems in the long-term will be reductions
in their cost so as to secure a mass market. Achieving this requires
the Government to demonstrate credible support for the sector
to give the industry sufficient confidence to invest in scaling
up its activities. Recent policy developments, such as the Microgeneration
Strategy and the Climate Change and Sustainable
Energy Act 2006, have gone some way to achieving this. However,
the small number of staff responsible for policy implementation
in this area at the DTI, and the lack of clarity as to the future
of capital grant support beyond 2008, suggest to us there is more
to do if the Department intends to fulfil its commitment to support
the sector "aggressively". A national target could help
achieve this, but should only be used if there is a clear justification
for its role in making the industry cost-effective, and if it
is underpinned by incentives for its achievement.
Ensuring the industry has the
122. While local energy systems allow households
and communities to produce their own energy, as one witness told
us, "they are not DIY technologies".
This is why many of the companies currently operating in the sector
offer installation services as part of their product packages.
We noted in Chapter 3 the importance of trained and accredited
installers in order to strengthen customer confidence in the reliability
of local energy products, for example, to ensure health and safety.
Therefore, as demand for these systems grows, so too will demand
for skilled technicians able to fit them.
However, given the industry is expected to experience, at best,
incremental growth in the coming years, the DTI's Microgeneration
Strategy argued the sector should be able to respond in developing
the skills necessary as demand grows. It cites recent work by
the Energy and Utility Sector Skills Council, which shows there
are no major skills shortages in the renewable energy sector.
However, this piece of work is now over three years old, and was
focused then primarily on the needs of the larger-scale renewables
123. If the sector is to respond to growing demand
for installers as the industry grows, companies will need to ensure
they invest in the skills of their employees. Here, our evidence
identified two skill sets as being important. Not only is the
technical know-how required to fit local energy systems, but also
installers need marketing skills to ensure the products they sell
best match the needs of their customers.
We have seen already that some local energy systems are not appropriate
in some circumstances, for example, micro-CHP in small dwellings
with a low heat demand. This is why the accreditation of installers
is important for instilling confidence amongst customers that
recommendations made to them are in their best interest. The Energy
Saving Trust told us about work it has done in collaboration to
develop a qualification regarding energy efficient central heating
boilers and control systems. It argues that a similar approach
could be used for developing skills and training in the local
The Micropower Council also called for a Government-promoted training
course for installers.
in the local energy industry is likely to be gradual enough for
the sector to be able to respond to increased skills needs. The
Government's accreditation scheme will help ensure consumers'
confidence provided they are aware of it. It is then incumbent
on the sector to regulate itself to ensure all its installers
are trained and accredited. We recommend that the Government's
role should be focused on wider workforce concerns, such as tackling
the perceived stigma attached to vocational skills and qualifications.
171 Energy Saving Trust, Potential for Microgeneration
Study and Analysis, November 2005 Back
Qq 149 an 152 (Worcester Bosch) Back
Centrica, Response to "Our energy challenge-securing clean,
affordable energy for the long-term", January 2006 Back
Q 135 (Worcester Bosch) Back
Q 264 (Energy Saving Trust) and Appendix 61 (Energy Saving Trust) Back
Appendix 36 (Micropower Council) Back
Qq 165 (Micropower Council) and 90 (Renewable Energy Association);
Appendices 36 (Micropower Council) and 61 (Energy Saving Trust) Back
Q 90 (Renewable Energy Association) and Appendix 36 (Micropower
Q 165 (Micropower Council) Back
Qq 96 (Renewable Energy Association) and 163 (Micropower Council) Back
Q 111 (Renewable Energy Association); Appendices 36 (Micropower
Council) and 61 (Energy Saving Trust) Back
Trade and Industry Committee, Fourth Report of Session 2005-06,
New Nuclear? Examining the issues, HC1122 Back
Appendix 36 (Micropower Council) Back
House of Commons, Official Report, Written Answers, 1893W,
25 October 2006 Back
Q 177 (Worcester Bosch) Back
Q 206 (Institution of Engineering and Technology); Appendices
16 (EDF Energy), 32 (Institution of Engineering and Technology)
and 61 (Energy Saving Trust) Back
Q 43 (Sussex Energy Group) Back
Appendix 61 (Energy Saving Trust) Back
Appendix 36 (Micropower Council) Back