Conclusions and recommendations
What is 'Local energy'?
1. 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.
(Paragraph 8)
2. Local energy can
be produced in a variety of ways, using either renewable or fossil-fuel
sources. Each has the potential to generate energy, whether in
the form of electricity or heat, at or very near to the point
of consumption. In many cases these are not new energy sources.
Indeed, humanity's use of biomass, wind, and hydro energy pre-dates
the use of fossil fuels. What is new today is the technology available
to harness these sources of energy and the way in which their
use in a modern context presents newly perceived benefits by reducing
carbon dioxide emissions and contributing to energy security.
(Paragraph 15)
3. Overall, local
energy currently contributes a very small proportion of the UK's
supply of electricity and heat—less than 1%—reflecting
the highly centralised structure of our energy system. (Paragraph
33)
Potential of local energy
4. Local
energy has the potential to reduce carbon dioxide emissions by
displacing the use of fossil fuels, decreasing network losses,
and increasing energy awareness amongst users. The scale of these
benefits, however, is dependent on the types of technology used
and their location. For domestic installations, local heat production
such as solar thermal systems or ground source heat pumps will
often be just as beneficial as electricity generation. There are
some situations involving micro-combined heat and power (CHP)
where local energy systems will not necessarily lead to a reduction
in carbon dioxide emissions. Moreover, local energy must be considered
as part of a multifaceted effort to tackle the causes of climate
change, in which there are other means of reducing emissions.
In particular, energy efficiency measures offer better value-for-money
in the short run. As such, the Government should remain mindful
of the underlying cost per tonne of carbon dioxide saved in developing
policies to ensure that its approach is cost-effective. (Paragraph
24)
5. Greater use of
local energy could, prospectively, increase the security of the
UK's energy supplies by drawing on a more diversified range of
fuel sources, many of which are renewable. It will still, however,
require the presence of backup capacity when local supply fails
to meet local demand, and for the time being, this is likely to
use fossil fuels. In the future more active network management
of the UK's energy systems will be necessary to balance supply
and demand and ensure that both small and large-scale generating
assets are able to operate cost-effectively. (Paragraph 27)
6. Local energy presents
additional economic benefits in terms of tackling fuel poverty
and reducing network costs. The extent to which those in fuel
poverty can capture these benefits is uncertain, though, because
of the current high capital costs of local energy systems. Also,
estimates of the total savings on network investment and operating
costs are small, and do not of themselves provide a rationale
for encouraging local energy. (Paragraph 31)
7. Local energy systems,
such as CHP, wind and solar photovoltaics, are only suited to
certain locations or consumption patterns. In addition, most local
energy technologies are not yet cost-effective, reducing the potential
for dramatic take-up in the near future. For community-CHP projects,
assessments of the potential vary. Though a large number of urban
dwellings would suit this technology, cost-effective implementation
is likely to be limited to developments of new build. However,
the UK's potential resource of local energy is large. If costs
fall, and/or prices of energy from other sources rise, and certain
government interventions are put in place, local energy could
contribute a sizeable proportion of the UK's energy mix in the
long run. One estimate, looking specifically at household installations,
puts this in the range of 30 to 40% of our electricity needs by
2050. Local energy is a developing concept with real potential,
but it cannot make a significant contribution in the next decade
in closing the capacity gap created by the closure of coal-fired
and nuclear power stations—local energy is not a panacea
that will "keep the lights on". (Paragraph 40)
Barriers to take-up: Planning and Regulatory
8. The
requirement of planning permission is a significant deterrent
to households wishing to install local energy systems to the exterior
of their properties. We welcome the Government's commitment to
grant household local energy installations 'permitted development'
status and hope there will be no significant delay in agreeing
a sensible implementation of the proposal once the consultation
is complete. (Paragraph 44)
9. Conflicting incentives
to encourage local energy indicate that there is further work
for the regulator in ensuring that households receive equitable
treatment within the regulatory framework. Ofgem has committed
itself to considering these issues as part of the next distribution
price control review to apply from 2010. The importance of this
issue will increase, however, as more households seek to export
electricity to the grid. (Paragraph 47)
Barriers to take-up: Receiving full value for
energy produced
10. If
the Government is serious about expanding the level of local energy
capacity in the UK it must provide consumers with confidence that
distribution companies will purchase exported electricity at a
reasonable price. We recommend that the Government itself by 1
August 2007 put forward options for consultation. Thereafter,
if commercial suppliers fail to put forward an acceptable, household-friendly
proposal for rewarding exports in 2007 the Government and Ofgem
should use their powers under the Climate Change and Sustainable
Energy Act 2006 to enforce an appropriate scheme post haste. We
acknowledge the regulator's preference for a market-based approach
to pricing, and the need to keep low transaction costs for commercial
suppliers and consumers. However, depending on its level, a feed-in
tariff could be used to encourage the development of local energy.
(Paragraph 51)
11. To date, it has
been difficult for households to be rewarded for the carbon dioxide
value of installing local energy systems. Although individuals
who fit renewable micro-electricity systems, such as wind turbines,
are eligible under the Renewables Obligation to receive a reward
for the carbon dioxide savings their generation brings about,
the transaction costs of doing so exceed the potential benefit.
We welcome changes to the Obligation that will make it easier
for households to receive the full value of this reward. We note,
however, that the carbon dioxide savings brought about via other
forms of local energy, for example non-renewable CHP or micro-heat,
are not valued in the same way. We recommend the Government brings
forward proposals to amend this anomaly. (Paragraph 58)
Barriers to take-up: Metering
12. If
households wish to receive payment for their electricity exports
and earn Renewables Obligation Certificates, they must have a
meter installed that provides both import and export information.
The replacement of meters for households installing local energy
systems provides the opportunity for them to install more innovative
meters, which also have the potential to promote domestic energy
efficiency measures. This could present a possible win-win situation
for households fitting local energy systems. Commercial energy
suppliers would also benefit from the installation of smart meters
in customers' homes, and Ofgem is committed to a market-based
approach to their take-up, led by these companies. The UK has
no national roll-out of smart metering, unlike other countries,
such as Italy. Therefore, whilst encouraging commercial suppliers
to offer a choice of innovative metering packages to their customers
may be the most cost-effective way to promote usage, this approach
will not necessarily lead to a rapid adoption, which is desirable
in order to cut carbon dioxide emissions. Hence, we recommend
that the Government set a deadline of 1 July 2008 for agreement
with the industry on standards and interoperability, in default
of which the Government should legislate. (Paragraph 63)
Barriers to take-up: Lack of incentives for commercial
energy suppliers
13. Many
of the practical barriers faced by households could be overcome
if commercial energy suppliers were to offer local energy systems
as part of a package of energy services to their customers that
also included energy efficiency measures. We support the moves
made to encourage suppliers to offer such services. However, because
energy efficiency measures are currently a more cost-effective
means of reducing demand and, therefore, carbon dioxide emissions,
local energy is unlikely to form a significant part of these services
in the near future if they evolve within the framework of the
Energy Efficiency Commitment. In the short term, however, changes
in such areas as the "28 day rule" and administrative
arrangements for the Renewables Obligation could encourage commercial
suppliers to offer services specifically for those households
wishing to install local energy systems. (Paragraph 66)
Barriers to take-up: Lack of information
14. Awareness
of the potential of local energy as a viable form of low-carbon
energy is currently confined to a niche market. As the market
grows, commercial motives will drive higher levels of information
provision, but if rapid uptake is considered desirable, the Government
will have to play its part in promoting the sector amongst the
wider population, targeting initially those groups that are most
likely to be able to afford and adopt the technology. (Paragraph
71)
15. For households
to make the right choice of local energy system for their home,
and gain the full benefit of investing in new technology, they
need to have reliable and impartial advice. We support the Energy
Saving Trust's move to establish a Sustainable Energy Network
to advise households on all aspects of their energy use. If the
pilot advice centres prove a success, we recommend that the Government
ensures a national roll-out of this service by 31 December 2009.
(Paragraph 76)
16. We support the
use of a self-regulatory approach by the Renewable Energy Association
in developing a Consumer Code, as well as the work of the Buildings
Research Establishment on installer accreditation and product
certification, and recognise their importance in engendering confidence
amongst consumers entering the sector for the first time. We recommend
that the Government's new accreditation scheme, with its Consumer
Code, be in place by 1 July 2008. (Paragraph 79)
Costs for consumers
17. Most
local energy technologies are currently too expensive to have
mass market appeal compared to other means of supplying domestic
energy needs. Calculation of the payback periods on these technologies
is fraught with difficulty and likely to give misleading figures.
We are concerned, however, that the published Government figures,
particularly for solar water heating panels, are far more pessimistic
than any other estimates quoted to us. (Paragraph 83)
18. The expansion
of the local energy industry is the key to reducing costs. The
Government has in place a popular capital grants scheme, which
is in danger of running out of funds before it is due to close
in summer 2008. The Government should continue to monitor take-up
of the scheme with a view to either rationing funds, or increasing
the available monies for the household stream. A stop-start approach
to funding could be damaging to the sector's growth. (Paragraph
89)
19. The Government
should also conduct a comprehensive review of the way in which
local energy is treated within the fiscal system, both at a national
and local authority level, with a view to rewarding investment
by households, businesses and large-scale generators in low-carbon
energy. (Paragraph 89)
20. However, the Government's
efforts to encourage households to invest in reducing their carbon
dioxide emissions could be undermined by the law of unintended
consequences: if improving energy efficiency raises property values,
then households may be subject to higher council tax. As a result,
we recommend that any increases in property value due to energy
efficiency measures, or local energy installations, should not
be considered for purposes of re-assessing homes for council tax.
(Paragraph 89)
The role of local authorities
21. The
London Borough of Merton has set a clear example of how local
government can show leadership in promoting the use of local energy
in new developments. However, many authorities have failed to
follow its lead. The Government should increase pressure on those
councils to implement targets for on-site renewables in new developments,
with a view to all local authorities having such targets in place
by 31 December 2009. This would create consistency for developers
and councils across the country. Progress in this area is crucial
if local government is to demonstrate its capability to respond
to any future policy instruments for tackling the causes of climate
change, such as new planning guidance. (Paragraph 96)
22. The experience
of Woking demonstrates the importance of leadership at a local
level, with individuals having an ambitious vision of how they
can directly contribute to reducing their communities' carbon
dioxide emissions. Other local authorities should seek to learn
from Woking's example in developing and implementing their own
strategies for tackling the causes of climate change. (Paragraph
99)
23. The high level
of energy consumption in London makes it an important leader in
spearheading the greater use of local energy systems in urban
areas. The London Climate Change Agency looks set to play a major
role in exploiting this potential. We believe the UK's other large
cities should seek to adopt similar strategies for tackling the
causes of climate change, learning lessons from current experience
in London, while also working to develop their own innovative
approaches to reducing carbon dioxide emissions. (Paragraph 103)
Community Heating
24. There
is some scope for reducing carbon dioxide emissions by encouraging
greater use of community-based combined heat and power (CHP).
However, while the current schemes to support such systems require
a pro-active approach by communities to take advantage of them,
a lack of awareness and co-ordination prevents many from doing
so. Also, the reward for producing low-carbon heat is much less
than that for low-carbon electricity. We accept the potential
difficulties of implementing a Renewable Heat Obligation. Nevertheless,
we recommend that the Government should look at other ways in
which it can provide incentives for local areas to move towards
community-based low-carbon heating, where it is appropriate for
them to do so. Current policy places too much emphasis on the
role of local electricity generation and not enough on the production
of heat. Renewable, low-carbon heat production is the Cinderella
of energy policy and this attitude must change. (Paragraph 109)
Developing manufacturing and skills capacity
25. The
UK's local energy industry is small and focused primarily on installation,
with manufacturing occurring mainly abroad. As a result of Government
grant schemes, there has been significant growth in recent years,
albeit from a very low base, and there are now signs that larger
energy companies are beginning to take an interest in the sector.
(Paragraph 113)
26. Growth 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. (Paragraph 124)
Further action by central Government
27. 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. (Paragraph 121)
28. Government procurement
is potentially a powerful lever for implementing its energy policy
and can demonstrate its commitment to tackling the causes of climate
change. We recommend that, as a first step, procurement policy
should seek to maximise energy efficiency opportunities. But where
appropriate and cost-effective, it should additionally aim to
incorporate local energy systems in its infrastructure investment
programmes. Public buildings and schools, for example, provide
an ideal setting in which to showcase local energy technologies,
demonstrate public sector leadership, and help engender greater
awareness of the need to reduce carbon dioxide emissions. (Paragraph
128)
29. The Code for
Sustainable Homes provides a welcome demonstration of the
Government's intentions for future Building Regulations. Standards
under the Code should promote greater energy efficiency for all
new homes built with public money. Further tightening of the Code
in the future should also provide a lever for greater use of local
energy installations in new build. We recommend that if costs
for local energy technologies fall significantly, relative to
energy efficiency measures, or relative to the cost of energy
from other sources, the Government should then establish a framework
for the incorporation of local energy into future Building Regulations,
and that any such framework must place more emphasis on the role
of local heat production than has been the case so far. (Paragraph
133)
Adapting the electricity networks
30. The
distribution networks have been designed as passive systems, taking
electricity from the transmission network and supplying it to
customers. Local energy technologies go against this traditional
approach because they have the potential to export electricity
back into the system. Yet, even for significant levels of market
penetration, the evidence suggests there are no technical barriers,
with regard to the distribution networks, to the expansion of
local energy capacity. However, to accommodate such a change in
the energy mix, network operators must invest in new technology
to develop more active network management. This will require a
significant change in approach in how the distribution networks
operate, but the expected incremental growth in any local energy
capacity should give time to respond effectively. (Paragraph 143)
31. The UK will still
require a transmission network even if there is very large growth
in the level of local energy capacity. This is because local energy
supply is rarely likely to match exactly local demand. Hence there
will be a continued need for a transmission network that can balance
electricity flows across regions and maintain security of supply.
The capacity needs of the network will depend on the sources of
electricity, although some research suggests local energy can
make a small contribution to reducing the cost of maintaining
and operating the network. (Paragraph 147)
32. Developing an
understanding of the long-term implications for the network infrastructure
of different energy technologies, including local energy, is important
for ensuring timely and cost-effective investment. This is particularly
the case given the potentially long lead times for new grid capacity.
We welcome Ofgem's commitment to publish long-term scenarios of
network development, and hope the industry will make use of these
in planning its investment programme. (Paragraph 149)
33. The argument made
by some lobby groups, however, that local energy production either
renders investment in renewing the grid unnecessary, or will be
frustrated by such investment, is not one we accept. Local energy
has a potentially important role to play in meeting the UK's carbon
dioxide reduction targets and enhancing security of energy supply,
but it will take many years to fulfil its potential. (Paragraph
150)
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