House of Commons - Trade and Industry

Select Committee on Trade and Industry Written Evidence

APPENDIX 61

Memorandum by the Energy Saving Trust

SUMMARY

1. Microgeneration is vital to the future security of energy supply in the UK and, after energy efficiency measures have reduced demand, is the only realistic option for cutting CO₂ emissions from mass market energy generation. Microgeneration can also help diversify supply, reduce wasted energy from transmission and distribution losses and help tackle fuel poverty in hard to treat and off gas network properties.

2. The recent report "Potential for microgeneration study and analysis"[15] concludes that microgeneration has the potential:

— to deliver between 30% to 40% of the UK's electricity needs with microCHP (fuel cell and Stirling engine) leading the way, followed by microwind and solar PV by 2050; and

₂

3. The report concludes that many of the technologies needed to achieve this will be cost effective before 2020 and that substantial network reinforcement is unlikely to be required up to an installed capacity of 500W/household on a typical piece of network and should not be a significant constraint on the timescales for mass rollout. Recent consumer research conducted by the Energy Saving Trust on attitudes towards microgeneration technologies also shows that more than half of the people in the UK would like to generate their own energy.

4. UK policy needs to provide sufficient support and a more favourable market framework to deliver the potential offered by microgeneration. The Renewables Obligation (RO) is already delivering substantial growth in large scale renewable generation capacity. However, the RO does nothing to encourage renewable heat and provides very limited support in practice to renewable microgeneration[16] technologies.

5. The report showed that the implementation of capital grant schemes, building regulation requirements for microgeneration and a market that ensures a fair price for electricity exports are likely to be critical to their success. As a starting point we therefore welcome the £30 million Phase 1 and £50 million Phase 2 of the Low Carbon Buildings Programme (LCBP).

6. Our submission also identifies other policy mechanisms that will help unlock the potential of microgeneration and include the inclusion of microgeneration technologies under Energy Efficiency Commitment (EEC) or a microgeneration commitment on suppliers, planning policy requirements on local authorities to encourage microgeneration and the development of microgeneration product and installer standards.

7. It is of primary importance in a nascent market to instil confidence amongst consumers, and as such we strongly recommend an accreditation and certification scheme.

8. As a first priority, we urge that the actions identified in the DTI Microgeneration Strategy "Our Energy Challenge—Power from the people" are progressed urgently.

CURRENT STATUS OF UK MICROGENERATION

9. Underpinned by Government grant-support there are a growing number of microgeneration installations across the UK, with the largest markets being PV and solar water heating. Numbers of ground source heat pumps and wind turbines are also increasing rapidly from a low starting point, with micro-CHP an important new entrant with significant technology investment. There are currently around 100,000 installations, which is a small fraction of the market potential. The Environmental Change Institute,[17] for example, estimates the potential at around 53.6 million installations by 2050 in the domestic sector alone, equating to 1.7 installations per dwelling.

10. The key barriers to microgeneration are:

— Costs—many technologies require grant support to achieve viable markets.

— Regulatory issues—planning, the value of exported electricity and lack of long term incentives for renewable heat.

— Lack of awareness, independent information and advice.

11. The Energy Saving Trust, with E-Connect and Element Energy, carried out a study entitled "Potential for Microgeneration" on behalf of the DTI, the results of which have informed this submission.

THE MODEL

12. A model was constructed to allow analysis of the potential for different microgeneration technologies under a number of policy intervention scenarios.

13. The model works by projecting capital costs for each technology for 2005-50 and then using these to calculate the cost of energy, which is then compared to cost projections for gas and electricity.

14. Market growth is modelled allowing for cost effectiveness, consumer behaviour and realistic growth rates. Total capacity of each technology, energy output and carbon savings are calculated.

15. The model works on the basis that the "rational consumer" theory is inappropriate. The model accounts for the early adopters by incorporating a proportion of the population who invest before technologies are cost-effective, with the majority following as the measures become more cost-effective than the alternative (grid electricity and gas).

16. The cost and market uptake assessment calculations are repeated against various types of policy intervention including energy export tariffs, capital subsidies, access to Renewable Obligation Certificates (ROCs), EEC support and regulations.

RESULTS

17. The results show that for uptake in 2020, regulation when measures become cost-effective, is the most effective measure. For uptake in 2030, capital grants are effective, along with regulation; and by 2050, it is clear that energy export equivalence[18] is vital. (See Annex 1 for figures showing effectiveness of different policy measures by 2020, 2030 and 2050).

18. Table 1 in Annex 1 also contains results for CO₂ emissions avoided for different microgeneration technologies in the uptake model under different government intervention schemes. The modelling shows that there is potential to reduce CO₂ emissions by 15%, with a significant contribution from fuel cell CHP and microwind by 2050.

19. A substantial percentage of UK electricity demands could be supplied by microgenerators: Table 2 in Annex 1 summarises results for microgeneration electricity production (expressed as a percentage of UK electricity demands) for the various microgeneration technologies in the uptake model under different government intervention schemes. The model shows that it is possible to deliver between 30% to 40% of the UK's electricity needs with CHP (fuel cell and Stirling engine) leading the way, followed by microwind and solar PV by 2050.

CONCLUSIONS FOR POTENTIAL OF DIFFERENT TECHNOLOGIES

20. Short-term opportunities include heat pumps and biomass, which are already competitive off the gas grid (as is micro-wind at high wind speed sites) and gas micro-CHP, which is likely to be widely available before 2010.

21. By 2020-30 microgeneration will be able to make a significant contribution to energy needs. Solar water heating and photovoltaics are likely to be cost-effective.

22. By 2050 most technologies considered are likely to be cost effective. Microgeneration in households could contribute most heat demand and more than 100% of electricity (see table below).

Percentage of household demand
Technology Electricity Heat

Photovoltaics 12% 0%

Wind 20% 0%

CHP Stirling 21% 35%

CHP Fuel cell 60% 15%

GSHP 0% 1%

Biomass 0% 3%

Total 113% 54%

Long term potentials for different microgeneration technologies (NB Figures are not additive).

23. More detailed analysis on each technology is included in Annex 2.

POLICY RECOMMENDATIONS

Key measures recommended from model

24. Taking into consideration the results of the modelling, as well as our own research and thinking, the following recommendations are made.

25. Investment can be brought forward by policy interventions, in particular early market grant support is important, as is regulation to require use of cost effective technology and a fair price for electricity exports.

Grant Support

26. In our opinion, the rate of grant for each technology supported by Government grant schemes should be based on market transformation analysis for each technology obtained from the model, which shows that capital grants are important for micro wind, PV and solar water heating in particular. Schemes should ensure that energy efficiency is supported on an equivalent basis, in order to ensure the most cost-effective and highest carbon saving measures are done first, and that microgeneration systems are correctly sized.

Export Tariff

27. We believe obligating electricity suppliers to purchase microgeneration export is vital to transformation of the market and the Energy Saving Trust strongly supports the provision within the Climate Change and Sustainable Energy Act 2006, which allows for Government to impose a scheme to reward exporters "fairly" if industry does not come up with such a scheme itself. Reaching the full potential for micro wind, PV and fuel cell CHP depend heavily on such a policy being in place.

Regulation

28. Results from the model support our view that regulation (once cost-effectiveness is reached) is essential for the development of the microgeneration market with Stirling engine CHP, fuel cell CHP and biomass the key technologies depending on this policy measure.

29. In addition, a number of other measures will help microgeneration reach its full potential.

Financial

Energy Efficiency Commitment

30. EEC is likely to become more important in the medium term but in the short term higher levels of capital grant are required. We do not believe that support under EEC should be seen as an alternative to the provision of continued grant funding for those technologies that are not yet cost effective.

31. The Energy Saving Trust considers that a Renewables Heat Obligation (RHO) would be more complicated than the existing RO (for electricity). The GB electricity market is governed by the British Electricity Technical and Trading Arrangements (BETTA) with electricity suppliers, generators, distributors and the transmission company being regulated by Ofgem through their license and it was possible to introduce new powers under the Utilities Act for the RO. It does not appear to be feasible to impose an obligation on "heat suppliers" in the way that an obligation has been placed on electricity suppliers as the generation of heat is far more decentralised than for electricity. Further, even if an RHO is deemed to be workable, renewable heat microgenerators may encounter the same administrative problems under an RHO as experienced by renewable electricity microgenerators under the RO.

32. As such, the Energy Saving Trust believes that all heat microgeneration technologies should be eligible to receive an uplift under the EEC as innovative technologies.

33. Under EEC2, micro-CHP, solar water and heat pump (space and water) technologies are eligible to receive a 50% uplift under the Energy Efficiency Commitment (EEC). To date, the only microgeneration technology to have benefited from the 50% uplift is ground source heat pumps.

34. In EEC3, biomass boilers should receive the same incentive as the other heating technologies.

35. Electricity producing technologies are currently eligible for Renewables Obligation Certificates (ROCs), although practicalities mean that few benefit from this arrangement. If issues around double counting can be resolved, it may be sensible to include these technologies within EEC. Given the costs of these technologies it is unlikely that the promotion of such technologies would play a large role in EEC3.

36. If further grant support for household installations of microgeneration technologies was made available beyond LCBP1&2 and SCHRI, we believe that the possibility of combining Government funding with supplier's subsidies (via EEC) should be given some consideration.

Renewables Obligation Certificates (ROCs)

37. Allowing microgenerators to claim ROCs by a predetermined entitlement on the basis of demand profiling determined from known data, rather than on the basis of metering output, would help electricity exporting technologies. A similar scheme is already in operation in Australia for deemed renewable energy certificates.[19]

38. As part of Project P04 of Workstream 4, the Energy Saving Trust, Government (DTI/Ofgem) and key stakeholders helped develop a scheme to enable microgenerators to claim ROCs on the basis of pre-determined estimates of output, rather than meter data.[20] This is the Energy Saving Trust's preferred approach as it reduces the administrative burden on small generators/suppliers by removing the requirement to collect meter data within a very narrow time and submit it to Ofgem and/or applying to use an estimate within the short and already busy time window at the end of the obligation period.

Product Development and Deployment

39. Over the period 2005-08, £320 million is available to businesses in the form of grants to support research and development in new and emerging technologies, however less than 3% of the total funds available supported various microgeneration projects under the April 2004 call. This is insufficient support for microgeneration technologies in comparison to large scale technologies.

40. The Energy Saving Trust believes that the Government should concentrate more effort on the deployment of those microgeneration technologies which have the potential to become commercially available and reduce carbon emissions significantly. The recently announced Energy Technologies Institute is potentially an opportunity to address the lack of support for domestic scale technologies as is the proposed Environmental Transformation Fund (details to be announced as part of the Comprehensive Spending Review 2007).

Adopting Fiscal Incentives

41. Incentivising developers to build higher energy performance standards and customers to buy sustainable properties could be achieved through two linked measures:[21]

— Introducing Stamp Duty Land Tax rebate of £1,000 for the first sale of new properties built to a high energy performance standard.

— Modifying the proposed tax on "planning gain" to reward developers who build to a high performance standard by an average of £1,000 per property.

Information and advice

42. The modeling shows that one of the key variables in anticipating update is consumer willingness to pay, ie how much they are willing to pay compared to the alternative (grid electricity or gas). This can be affected with a change in attitudes through information and advice, and promotion of the idea that microgeneration technologies are something to aspire to. For example, nearly seven out of 10 Britons now believe that homes boasting energy saving features are worth paying more money for, according to research by Ipsos Mori. This kind of attitude can be strongly affected by messages from estate agents, for example.

Consumer Information

43. The Energy Saving Trust strongly agrees with Government that consumers should be able to easily find reliable sources of information regarding microgeneration technologies and the process of installation and supports the action in the Microgeneration Strategy to "assess the feasibility of a communications/information campaign".

44. Economic incentives will play their part in the establishment of microgeneration markets, but widespread dissemination of information about products and services will be vital.

Consumer Advice

45. The Energy Saving Trust has a populated geodemographic consumer segmentation model which divided the population into 10 groups using 61 Mosaic types (based on postcodes). The groups and mosaic types have been matched according to the degree that they emit CO₂ from their homes and cars and their concern for the environment. This would allow communications efforts to be targeted on the sections of the population who are likely to be interested in microgeneration based on marketing evidence and through a one stop shop service.

46. The Energy Saving Trust is piloting the Sustainable Energy Network (SEN) concept with the creation of Sustainable Energy Centres (SECs) in three parts of the UK (two in England and one in Northern Ireland) which build upon the existing infrastructure provided by our Energy Efficiency Advice Centre (EEAC) network. It will become the key local delivery element of our carbon saving activities for UK citizens providing independent and trusted services. The EEACs currently focus on the provision of home energy efficiency advice, which has proven extremely successful and now advise 770,000 people annually. In 2005-06 the advice led to actions saving 1MtC over their lifetime at an average cost of just £6/tC.

47. Under the SEN model the provision of the advice service will be part of an integrated approach to changing consumer behaviour on a much larger scale, where each SEC will:

— Deliver defined regional carbon saving targets in their territory. Such a role will involve supporting and co-ordinating the range of existing delivery agencies and filling any gaps.

— Provide an advice service that also covers the use of renewable energy in homes and energy in road transport. This "one-stop-shop" will operate as a high profile service that can link consumers to delivery mechanisms for consumer sustainable energy, thereby making it easy and convenient for them to take action. SEN will therefore fill the current gap in the provision of renewables and transport efficiency advice to UK citizens.

— Instigate local awareness raising activity that links with national marketing and is integrated with local delivery mechanisms. This will provide a compelling and comprehensive message for citizens that is amplified, rather than confused by local messages.

48. We believe that this approach is likely to prove more cost effective than separate initiatives and if, as initial results suggest, the pilot is successful then the Energy Saving Trust would advocate that this approach be rolled out across the UK. Subject to Government funding being made available for SEN beyond the pilot project, we envisage a fully operational UK wide network in place in 2008-09.

49. In addition, the rules for distributed generation are daunting and guidance is needed on technical, commercial and regulatory issues. Non-technical audiences (such as householders and new industry players) would benefit enormously from the production of a simple guide to the practical requirements of microgeneration. A help line that provides impartial advice and guidance to microgenerators should accompany the guide. In addition, customers would benefit from an export price comparison sheet to be consistent with import price comparisons. The Energy Saving Trust encourages DTI to implement this action as soon as possible as demand for information amongst consumers is increasing rapidly as evidenced by the growing proportion of enquiries now received by the Energy Saving Trust and the EEACs on microgeneration.

Improving skills

Training

50. The Energy Saving Trust believes that building partnerships, training and accreditation of products and installers are essential drivers for mass market transformation. The Energy Saving Trust recommends that openly available "approved" training courses should be developed for each of the microgeneration technologies.

51. The Energy Saving Trust's Energy Efficiency Partnership for Homes has facilitated development with relevant sector skills councils and trade bodies and the Energy Efficiency Best Practice for Homes programme has developed a qualification regarding energy efficient central heating boilers and control systems (which is now offered as standard training for gas installers).[22] A similar approach could be used for developing the required skills and training for the microgeneration sector.

52. We have also produced, under the Energy Efficiency Best Practice Programme for Homes programme, independent guides on solar water heating systems[23] and small wind-powered electricity generating systems.[24]

Accreditation and certification

53. The Energy Saving Trust fully supports the development of an accreditation and certification scheme for microgeneration equipment and installers. It is of primary importance in a nascent market to instil confidence amongst consumers, particularly with the background of reports on the existence of rogue traders within the solar thermal industry, for example. Customer confidence of installers is paramount and attracting companies with good trading reputations is essential to the development of the industry.

Regulation

Product Standards

54. The most effective way that Government could support the development of a set of robust product standards for all microgeneration technologies is to work with industry and learn lessons from other sectors such as the gas boiler industry (CORGI's codes of practice).

55. This approach is being used to develop a set of product standards for micro-CHP. The Energy Saving Trust is developing a Publicly Available Specification (PAS) 67 facilitated by the BSI (British Standards Institute) to provide an agreed basis for "Laboratory Test Conditions" to determine the thermal and electrical performance of micro-CHP units with max capacity below 70kW. The test results are intended to feed into a higher level procedure being developed by the BRE, sponsored by Defra, to determine a Seasonal Performance Index for micro-CHP. The PAS 67 Steering Group plans to publish the specification by early 2007.

56. In addition, the British Wind Energy Association is developing guidance notes on health and safety for microwind with industry and the Health and Safety Executive. The notes will provide guidance on the manufacturing, installation, maintenance and decommissioning for both free-standing and building-mounted turbines. BWEA are also reviewing product standard development.

57. The Energy Saving Trust recommends that the Government actively work with other sectors of the microgeneration industry to encourage them to follow suite.

Permitted Developed Status

58. We support the proposal in the Energy Review that granting permitted developed status would reduce the overall cost of installation and the delays associated with seeking planning permission. Currently, householders would need to spend an average of approximately £250 to gain planning permission for a microgeneration technology.

Code for Sustainable Homes

59. Ideally, standards under the Code should allow for the installation of microgeneration and should anticipate the next round of Building Regulations in 2010. These are intended by Government to raise energy performance by a further 25%.

60. The Energy Saving Trust recommends that for maximum effectiveness in mass market transformation, the Code should be made a requirement wherever possible. The Government has already announced that all publicly funded homes must be compliant with the Code. Likewise, regional and local planning bodies should be encouraged to adopt the Code and make it a requirement. This should be backed by a consumer awareness campaign, linking in with the A-G Energy Label to be introduced for new homes.

Targets

61. The Energy Saving Trust strongly believes that the key to long term cost reduction is mass production and deployment as there is a well established link between production volume and cost. To give industry confidence that such market transformation will occur, the Energy Saving Trust considers it likely that long term targets for microgeneration will help, in order to give industry confidence that market transformation will occur. The Micropower Council is currently drawing up a specification for a project (which the Energy Saving Trust is part-funding) which will look at the viability of a target for microgeneration and what that should look like.

IN CONCLUSION

62. The Energy Review[25] states that "Cost-effective ways of using less energy will help move us towards our carbon reduction goal. But on their own they will not provide the solution to the challenges we face. We also need to make the energy we use cleaner." The Energy Saving Trust endorses this view and believes that an increase in microgeneration is vital to cut CO₂ emissions, diversify supply and help tackle fuel poverty.

63. Our work shows that microgeneration has the potential to meet between 30% to 40% of the UK's electricity needs by 2050; and to reduce CO₂ emissions by 15% by 2050.

64. We believe that UK policy needs to provide sufficient support and a more favourable market framework to deliver this potential.

65. The model shows that the implementation of capital grant schemes, building regulation requirements for microgeneration and a market that ensures a fair price for electricity exports are likely to be critical to their success.

66. We urge that the actions identified in the DTI Microgeneration Strategy "Our Energy Challenge—Power from the people" are implemented with high priority.

Annex 1

DETAILED MODELLING RESULTS

Figure 1 shows that for uptake in 2020, regulation when measures become cost-effective, is the most effective measure.

Cumulative installed electrical capacity for each microgeneration
technology under a variety of subsidy schemes (in 2020).

Figure 1

Figure 2 shows that for uptake in 2030, capital grants are effective, along with regulation.

Cumulative installed electrical capacity for each microgeneration
technology under a variety of subsidy schemes (in 2030).

Figure 2

Figure 3 shows that by looking forward to 2050, it is clear that energy export equivalence is vital.

Figure 3

Cumulative installed electrical capacity for each microgeneration
technology under a variety of subsidy schemes (in 2050).

Table 1 below summarises results for CO₂ emissions avoided for different microgeneration technologies in the uptake model under different government intervention schemes (these results are not additive).

Table 1

CARBON DIOXIDE EMISSIONS AVOIDED (EXPRESSED AS PERCENTAGE OF UK DOMESTIC CARBON DIOXIDE EMISSIONS) UNDER DIFFERENT GOVERNMENT INTERVENTION SCHEMES

	PV: 2.5kWe (Dom)	Wind: 1.5kWe (Dom)	Biomass V Elec Heating (Dom)	GSHP V Elec Heating (Dom)	Active Solar V Elec Heating (Dom)	CHP 1.2kWe Stirling— Large House	Fuel Cell— 1kWe (small house)	FC: 3kW (large house)
2003
No subsidy	0.0%	0.3%	0.6%	0.9%	0.0%	0.3%	0.2%	0.1%
Energy Export Equivalence (ie exported electricity sold for the same value as imported)	0.2%	0.9%	0.6%	0.9%	0.0%	0.3%	0.2%	0.2%
Capital subsidy of 25%, whilst costs reduce	0.1%	0.9%	0.6%	0.9%	0.1%	0.3%	0.2%	0.1%
Regulation to introduce tech in all new build once cost effective	0.0%	0.3%	0.8%	1.6%	0.0%	1.7%	1.3%	0.1%
2050
No subsidy	0.1%	0.4%	0.8%	1.7%	0.0%	1.9%	2.8%	0.4%
Energy Export Equivalence (ie exported electricity sold for the same value as imported)	2.7%	4.2%	0.8%	1.7%	0.0%	1.9%	2.8%	5.5%
Capital subsidy of 25%, whilst costs reduce	0.2%	4.2%	0.8%	1.7%	0.1%	1.9%	2.8%	1.3%
Regulation to introduce tech in all new build once cost effective	0.1%	0.4%	0.8%	1.7%	0.0%	1.9%	3.0%	0.4%

A substantial percentage of UK electricity demands could be supplied by microgenerators: The table below summarises results for microgeneration electricity production (expressed as a percentage of UK electricity demands*) for different microgeneration technologies in the uptake model under different government intervention schemes (these results are not necessarily additive).

Table 2

MICROGENERATION ELECTRICITY PRODUCTION (EXPRESSED AS A PERCENTAGE OF UK ELECTRICITY DEMANDS*) UNDER DIFFERENT GOVERNMENT INTERVENTION SCHEMES

Percentage of total UK electrical energy demand	PV: 2.5kWe (Dom)	Wind: 1.5kWe (Dom)	CHP 1.2kWe Stirling— Large House	Fuel Cell— 1kWe (small house)	FC: 3KW (large house)
2030
No subsidy	0.1%	0.4%	1.0%	0.7%	0.3%
Energy Export Equivalence (ie exported electricity sold for the same value as imported)	0.2%	1.3%	1.0%	0.7%	0.6%
Capital subsidy of 25%, whilst costs reduce	0.1%	1.2%	1.0%	0.7%	0.5%
Regulation to introduce technology in all new build once cost effective	0.1%	0.4%	5.5%	4.5%	0.3%
2050
No subsidy	0.1%	0.6%	6.3%	9.3%	1.3%
Energy Export Equivalence (ie exported electricity sold for the same value as imported)	3.8%	6.0%	6.3%	9.4%	18.4%
Capital subsidy of 25%, whilst costs reduce	0.3%	5.9%	6.4%	9.3%	4.4%
Regulation to introduce tech in all new build once cost effective	0.1%	0.6%	6.4%	10.0%	1.3%