Examination of Witnesses (Questions 240-259)
ENERGY SAVING
TRUST
31 OCTOBER 2006
Q240 Mr Weir: Would it be—I
do not want to put words in your mouth—the Government are
developing a microgeneration strategy at the moment, and should
a central part of that not be giving consumers the right advice
before installing any of these microgeneration choices?
Mr Samuel: It is a key part and
a requirement. The Energy Saving Trust at the moment is trialling
three sustainable energy centres, which bring together the provision
of renewable advice, transport advice, and energy efficiency advice
to households. We would like to roll that model out across the
UK, to replace and improve upon the energy efficiency advice centres.
With sufficient funding from the Government, we hope to be able
to do that.
Q241 Mr Weir: The Government has
set a target of a 60% cut in emissions by 2050, and obviously
15% coming from microgeneration would be a significant part of
that. Is it the whole answer or will a lot more have to be done,
along with microgeneration, to reach these targets?
Mr Samuel: Microgeneration is
only part of the overall solution. The overall solution is also
about reducing energy demand in the first place. That has to be
the number one priority. It is cost-effective already to do so.
By 2020, the Energy Efficiency Innovation Review, which is a joint
DEFRA-HMT report, has identified 24% cost-effective savings in
carbon already, plus a total of 43% technically achievable. So
as energy prices have been rising, other measures become more
cost-effective. That does not take account of additional technologies
that can be developed, such as improved forms of insulation, better
lighting, et cetera. Energy efficiency is therefore the
starting point. Microgeneration is certainly suitable for households,
and our report only focuses on households, but small businesses
and other commercial applications as well. Then you also need
to green the upstream generation capacity. In terms of a Renewables
Obligation to provide 20%, at the moment it is very difficult
for microgeneration to get Renewable Obligation Certificates and
therefore qualify under the Renewables Obligation. So that is
where another 20% can come from.
Q242 Mr Weir: On that point, do you
feel that the current electricity generators are taking enough
notice of microgeneration, and particularly the issue of feeding
any excess back into the grid?
Mr Samuel: It varies between the
energy suppliers. Some have more interest in their own microgeneration
products than others. Some, for example npower, have been investing
in ground source heat pumps under the Energy Efficiency Commitment.
E.ON has been investing in micro-CHP. Scottish and Southern have
been investing in micro-wind, for example. So it does vary across
the energy suppliers. However, what is lacking is a fair reward
for export. Ofgem, working with Government through a recommendation
from the Energy Review, is looking to put measures in place to
ensure that microgeneration will receive fair reward for export.
If those are not put in voluntarily, then they will enforce them.
Q243 Mr Weir: Finally, the question
I was supposed to ask, I suppose! It may be slightly outwith your
field but, given what you said about the level of microgeneration
and the level of energy efficiency, do you have a view on where
we expect the remaining 60 or 70% of energy to be sourced from?
Mr Samuel: As I have said, there
is great potential to reduce the energy demand in the first place.
That has to be the priority. Then you still have large-scale renewables
which should provide that, and obviously you need to look for
a balanced portfolio across the upstream generation sector. I
am not an expert in that area, so I could not say what that percentage
should or should not be; but that can include imports from continental
Europe as well.
Ms Wiltshire: We have to bear
in mind that there is the heat aspect of it, we have only been
touching on electricity. So there is an important part for microgeneration
in heat generation as well.
Q244 Chairman: Some people represent
this as an either/or: your large-scale, centralised energy production
or small-scale microgeneration. You are not subscribing to that.
You are saying 30 to 40% and the other 60 to 70 would be—
Mr Samuel: I think it is too simplistic
to have an either/or. It is like anything: you need to have a
balanced solution, and microgeneration clearly has a role to play.
Q245 Mr Bone: In your evidence I
think you were saying that you would like to see more resources—which
basically means money from taxpayers—put into government
giving advice on what would be the best product I put in my house
for microgeneration. I cannot think of any other area where I
would want the Government to advise what commercial product I
bought. Is that what you are actually arguing?
Mr Samuel: No, I think it is about
providing consumers with the right information, when they require
it, to allow them to make an informed choice. You do have that
through other means as well. We currently provide that on energy
efficiency. We signpost consumers to offers in the market. We
have a scheme called "Energy Saving Recommended", which
identifies, for example, lights that are the most efficient, the
best in class. We can inform consumers about which is most suitable
for their applications. That already happens. Yes, it is essentially
funding provided by government, and that will depend on who takes
up that level of funding. However, you then need to address equity
issues—those sectors that cannot afford to take up that
technology. There are schemes, through the Government's Warm
Front—
Q246 Chairman: We are starting to
get into other areas of questioning. Peter is asking a question
about government giving advice.
Mr Samuel: We are an independent,
not-for-profit organisation, so it is not actually government
that is giving advice. It is independent advice.
Chairman: There is a great risk of straying
into other areas, and Mark Hunter is in danger of being trumped!
Q247 Mark Hunter: I want to ask a
couple of questions. The first is about regulatory changes. In
your own analysis you have argued that to meet the 30 to 40% estimate
by 2050 there will need to be a range of different policy interventions
over that period of time and, for uptake in 2020 specifically,
you have stated that regulation is the most effective measure.
Could you tell us a bit more about what form of regulatory change
you see as necessary? Could you also say a little about to what
extent you think existing government policy addresses those issues?
Mr Samuel: We have already talked
about fair reward for exports. That certainly is the key one.
Government are also looking at improving the planning framework,
to allow permitted development status to microgeneration. That
will certainly help. At the moment, it can cost up to £250
for individuals to go through the planning process. Local authorities
are inconsistent in their guidance and decision-making, because
they do not understand the technologies and the potential impact.
Again, it is another area for awareness and training for local
authority staff. Permitted development status will certainly help
as well, however, once products become cost-effective, as with
condensing boilers, we would like to see Building Regulations
changed to mandate the requirement of a percentage of microgeneration
technologies in new buildings. Looking longer term, Government
is already looking at the potential to have a supplier's obligation,
which is essentially a carbon cap on the amount of carbon intensity
of energy supplied by the suppliers to the household sector. An
alternative to that would be a carbon cap on individual consumption,
personal carbon allowances. So if you had a framework through
the supplier's obligation, or personal carbon allowances, which
put a carbon cap on individual households, then that certainly
would be a very strong instrument.
Q248 Mark Hunter: The second part
of the question is this. In your opinion, how much does existing
government policy address these issues?
Mr Samuel: Existing government
policy does not. However, planned government policy for permitted
development status, for fair reward for export, is starting to
address these issues.
Q249 Mark Hunter: Sufficiently, in
your opinion?
Mr Samuel: It is not there yet,
so it is not sufficiently; but it is moving in the right direction,
and I think that is the key.
Q250 Mark Hunter: For uptake in 2030,
going back to your submission, you state that capital grants would
be effective as well as regulation. Do you foresee capital grant
support in the same form as the current Low Carbon Buildings Programme,
or do you have in mind some alternative approach, such as the
feed-in tariff perhaps?
Mr Samuel: At the moment in the
Low Carbon Buildings Programme, there are two streams: a £30
million and a £50 million. The £50 million does not
provide any grant support for households other than those in the
social sector. The £30 million provides £12.7 million
worth of grant funding to the household sector. Currently, within
the first year we expect to spend £6 million worth of that.
So, over a three-year programme, even with the recently announced
additional £6 million to make the £12.7 million, there
is the risk of a shortfall there. Further grant support will therefore
be required. However, as technologies become more cost-effective,
that should diminish over time.
Q251 Mark Hunter: This is the key
thing, is it not, and this is the question that Brian Binley was
trying to come in with before. Do you not think it is fair for
us to ask if we should not be expecting the industry itself to
be able to stand on its own two feet before 2030? You do seem
to be placing a great deal of emphasis on the need for that amount
of support.
Mr Samuel: Perhaps I can just
add that we expect several of the technologies will become cost-competitive
much before 2030.
Ms Wiltshire: What is key here
is to start to differentiate between different technologies. What
we have identified in the modelling is that they need different
types of support, depending partly if they are heat-generating
or electricity-generating. Obviously, if they are heat-generating,
there is no mechanism for ongoing support like a feed-in tariff.
So we think it is probably more important to have a capital grant
up-front for those. But in terms of industry standing on its own
two feet, if industry sees that there is a market and there is
support in that market, through things like ROCs or a feed-in
tariff or other kinds of support, then they can put the investment
in up-front; but if they are not sure—at the moment there
is no definite ongoing programme, there is no target for microgeneration,
there is no reward for electricity exports—it is a bit more
difficult for them to invest at the moment.
Mr Samuel: At the moment the infrastructure
is not sufficient to allow manufacturers to take those decisions.
That is why we need to have the permitted development status and
we need fair reward for export, et cetera, to set the market
framework that will allow investment to bring down the cost of
these technologies, to allow them to become cost-effective.
Q252 Mr Binley: I am concerned about
all of this, because I have now heard two statements which are
really rather loose. I have already given the first, "given
the right level of support", and the second is "once
products become cost-effective"; but I have not heard anything
that tells me that that is going to happen. I see a very fragmented
marketplace, which in fact sees what is becoming a bit of a fashion
industry as an opportunity to shovel money out of the taxpayer
into its own pockets. That is my concern about this. I put it
harshly. So I come back again and ask what do you mean by "level
of support" and what do you mean by "once products become
cost-effective"? How do you do that if you are not going
to shovel masses of money and run all the risks that that entails?
Ms Wiltshire: One of the key things
about the volume of manufacturing—and that is what will
bring the cost down, because what we have assumed in the modelling
is if you start producing things in mass production then the costs
come down—is looking at how you get that production going.
We are saying we need some kind of government support, and at
the moment it is not that clear what that level is, what is the
ideal level of grant for each technology.
Q253 Mr Binley: Yet you have made
a very big claim about the amount of the marketplace you can supply.
Your business plan does not seem to me to be very effective at
the moment, and I want to see it be more effective before I am
convinced that we are simply not shovelling money, throwing good
money after bad in many respects. Is that a fair comment or do
you think I am being unfair?
Ms Wiltshire: It is important
to realise that the report we did is not a prediction of what
is going to happen or what should happen. We have looked at the
potential: if you do certain things to the market, this is what
we believe will happen. In some ways that is not taking a view
of whether it is right to give grants; it is just saying, "If
you give grants, we expect this result. If you don't give grants,
we expect this result".
Q254 Roger Berry: My concern is that
the shovel is not very big. The Low Carbon Buildings Programme,
for example—£30 million, phase one, £50 million,
phase two—are these not piddling sums of money?
Mr Samuel: They are fairly small
sums of money when compared to—
Q255 Roger Berry: More a trowel than
a shovel! Seriously, it may be in the aftermath of Nick Stern's
report yesterday but these just seem to me . . . . I mean, what
can you do with that kind of money?
Mr Samuel: It is very difficult,
but you can actually help build up consumer confidence in the
product. But after the £80 million—and £80 million
is a small number—you still need further support for those
technologies. Some technologies will become cost-effective without
grant support, such as the biomass and ground source heat pumps,
in competition with non-gas-supply air heating sources. So you
are already there with some technologies. Over time, other technologies
will also become more cost-effective. Looking at micro-wind, micro-wind
is a very new technology. Going back to a comparison with nuclear,
following on from privatisation there was something called the
fossil fuel levy, which was set at about 10.6 or 10.7% initially
and which provided support to ease the path from privatisation.
So 10% on the electricity bill compared to £80 million—it
is a good example of the different size of the numbers we are
talking about. I think what we are saying is that there is potential
out there for microgeneration, provided it is given a fair—excuse
the pun!—wind to go ahead.
Q256 Roger Berry: When you referred
in answer to the previous question to the Low Carbon Buildings
Programme, you talked about the risk of shortfall in anticipation
that demand would exceed supply. In that situation, how do you
ration it?
Mr Samuel: It is first come, first
served.
Q257 Roger Berry: Do you think that
is the best way to ration this fund?
Ms Wiltshire: We are talking to
DTI next week about what we do with the level of grants for each
technology. The problem with that is it is not that clear-cut;
it depends what your ultimate aim is. Is it to grow the market
or is it to cut carbon now? Is it to grow markets that could stand
in the UK as opposed to ones that are worldwide? What is the actual
aim of the programme? That is fundamental to work out, before
you decide how you set the levels of grant; but it is something
we are looking at closely.
Q258 Roger Berry: The DTI has this
Low Carbon Buildings Programme but has not yet decided what it
is for.
Mr Samuel: At the moment it is
to encourage the uptake of microgeneration technologies. It is
not about picking winners. So it is very much a first come, first
served basis for the technologies that the consumer chooses or
applies for.
Q259 Roger Berry: So it is possible,
for example, without sounding divisive, that the comparatively
well-off middle class may rush along and take advantage of this
scheme, and other people, due to lack of information or whatever,
may not?
Mr Samuel: The answer to that
is yes, but it is also worth mentioning that, in a sense, we are
still at the very early stages, so it is the innovators who are
pushing this. It is the people who can afford to invest in something
that is not yet cost-effective; so you would not expect it to
be a mass market scheme at the moment.
Roger Berry: Good luck with your discussions
with DTI!
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