Memorandum submitted by Roger Brocklehurst
1. EXECUTIVE
SUMMARY
My recommendation is for the setting up of a
new "not-for-profit" national energy Distribution company,
which would act as a consolidator for locally-based Combined Heat
and Power (CHP) and renewable energy schemes operated by the public
sector, local authorities, registered social landlords (RSLs)
and social enterprises.
2. MY BACKGROUND
For more than 10 years I have been involved
at Board level with social housing and am currently an independent
Board member of Downland Housing Association and of BHT, two RSLs
within the Affinity Sutton Group (52,000 residents).
Prior to that, I had run an England-wide charity
for seven years following on from 30 years in banking and corporate
finance.
The views expressed in this paper are essentially
personal and should not be taken as representing those of any
organisation, with which I am, or have been, connected.
3. FACTUAL INFORMATION
(a) The current debate on climate change
is leading to the promotion of CHP where there is an economic
demand at local level for heat and power, in order to save energy
and reduce CO2 emissions. (CHP also reduces the "transmission"
loss-of-energy effect from which electricity supplied via the
National Grid suffers).
(b) The Government with EU encouragement
has put in place a number of measures to support and encourage
the development of CHP.
(c) There are already 1500 CHP Units in the
UK and it is estimated that by 2010 over 10% of total electricity
will come from CHP schemes. (I have not been able to ascertain
the breakdown by sector of ownership of CHP plants currently in
operation).
(d) Local authorities are becoming increasingly
involved in the promotion of CHP both as operators for their own
needs and through planning conditions attached new housing, industrial
estates etc. Notable examples of local authority involvement here
include London and Aberdeen.
(e) Housing Associations, ie RSLs, are becoming
involved as planning consents for the development of larger estates
of affordable or mixed tenure homes will often include the provision
of CHP.
(f) Currently a major barrier to the installation
of CHP units is the gap between the "export" price obtainable
for generating surpluses that are sold on to the Grid and the
"import" price paid for supplies bought in via the Grid.
(g) CHP operators individually are essentially
small players in terms of potential supply of surplus energy to
the Grid: a more collective approach would strengthen their ability
to negotiate on price.
(h) In an era of escalating energy prices,
RSLs are only too well aware of the problems of fuel poverty facing
many of their tenants. Recent estimates indicate that fuel poverty
(ie households where over 10% of income goes to meet energy costs)
affects 3.5M homes in the UK, and every 1% increase in domestic
fuel prices forces another 40,000 households into fuel poverty.
RSLs therefore already have a very real interest in better energy
conservation in the design and refurbishment of their housing
stock, but also now in the direct supply of energy to those tenants
where CHP units are being installed.
4. RECOMMENDATION
My recommendation is for the creation of a new
not-for-profit energy distribution company operating across the
UK, whose role would be to:
1. act as an aggregator/consolidator for
all locally-based CHP schemes and/or renewable energy projects
operated by its members from amongst:
2. establish a Distribution Network organisation,
so that it can sell back to those members temporarily "in
deficit" the surplus energy produced by other members.
3. explore the possibility of block energy
agreements to supply RSL tenants on better terms than currently
available to them as retail consumers. (Many tenants are stuck
on pre-payment meter tariffs).
The company would be set up as a "social"
business with the intention that surpluses would be returned to
members or reflected in lower "import" and/or higher
"export" prices than would be obtainable by operator
members going to the market on an individual basis.
This recommendation has been put to Ofgem as
a submission under their recent review ("Review of the regulatory
regime for energy markets: Distributed Energy Ref:295/07—March
2008), as changes will be needed to reduce/remove the barriers
to the creation of a new mechanism along the lines suggested above.
The purpose in establishing such an organisation
is as follows:
— to increase significantly the rate
of investment in CHP and renewable energy schemes;
— to encourage such schemes to invest
in surplus capacity, and in higher efficiency units, reducing
reliance on the national grid and the demand for new power station
capacity;
— to achieve a better balance between
the export and import prices currently obtainable by CHP operators;
— to create a new credible force within
the current marketplace, that is dominated by six major privately-owned
utility companies;
— to ensure that any profits are returned
to members or reflected in lower import prices, for the benefit
of RSL tenants/residents;
— to secure economies of scale and
other efficiencies across the CHP sector; and
— to reduce fuel poverty amongst social
housing residents.
If the Government is serious in its commitment
to a competitive energy market, to the provision of a secure and
environmentally-sustainable supply, and to its drive to tackle
fuel poverty, then it should give the proposal outlined above
its full consideration.
March 2008
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