Memorandum 53
Submission from the Micropower Council
SUMMARY
1. The Micropower Council welcomes the Committee's
inquiry into Renewable Electricity Generation Technologies. We
believe that it is paramount to shift policy focus to enable faster
development and deployment of renewable electricity technologies
and renewable technologies in general, particularly for microgeneration
within homes and small businesses.
2. In his speech to the WWF in November
2007, the Prime Minister made the following prediction:
"Globally, the overall added value of the
low carbon energy sector could be as high as 3 trillion dollars
per year worldwide by 2050, and it could employ more than 25 million
people. If Britain maintains its share of this growth there could
be over a million people employed in our environmental industries
within the next two decades".
3. Micro-electricity generation technologies
are a vital part of the growing low carbon energy sector and should
make a significant contribution in meeting future energy policy
objectives. However, the UK lags significantly behind a number
of European neighbours in both R&D spending and overall deployment.
It is unlikely that these technologies will reach their full market
potential in the UK, unless Government does more to promote adoption.
Missing out due to a lack of appropriate policy mechanisms could
slow Britain's move towards a low carbon economy and harm our
international competitiveness.
4. Policies such as Zero Carbon Homes by
2016 are extremely welcome, however more work needs to be undertaken
to address the practicalities of large scale incorporation of
micro-electricity technologies into new homes. In the future,
both the government and the house building sector should look
to engage more pro-actively with major electricity suppliers and
with manufacturers. The Calcutt Review is looking at the delivery
of affordable and sustainable homes, but we feel it needs to be
fully engaged with microgeneration manufacturers, practitioners
and energy suppliers.
5. The Micropower Council would like to
see a number of policy measures taken by Government to encourage
greater take up of microgeneration, including:
— A comprehensive financial incentives
strategy that provides a fair reward to the householder for electricity
provided back to the grid via improvements to the Renewables Obligation
or other support mechanisms.
— Greater recognition of the different
stages of development that technologies have reached so that some
funding for research and grant support for demonstration is still
available.
— Statutory targets for the take up
of microgeneration, to provide companies and their shareholders
with the confidence to invest in the means of mass production
that will help bring down the cost to consumers.
— Investment in skills and training
for microgeneration installers. Ideally, through a Government
subsidy for accredited training courses as has worked successfully
in the heating industry.
WHO WE
ARE
6. The Micropower Council is a cross-industry
body whose membership comprises electricity and gas companies,
manufacturers, trade associations, professional institutions,
not-for-profit companies, non-government organisations, charities
and private individuals, all of whom have a strong interest and
expertise in the development of the micropower sector.
7. We provide the Micropower industry's
main focal point for Government, regulators, Parliament, opinion
formers and the general public on regulation and public policy
issues affecting the production by consumers of their own sustainable
heat and power.
8. The most commonly installed microgeneration
technologies that produce renewable electricity are micro-wind
turbines, solar photovoltaic and hydro. Hydrogen fuel cells for
use in micro-CHP units also offer significant future potential.
Why Micropower?
9. We believe that microgeneration of renewable
electricity can, given the right policy framework, play an important
role in addressing the key goals of energy policy for two principal
reasons:
(a) The direct impact of the technology through
production of electricity from renewable sources. In large
volumes the potential is significant.
(b) The increased use of energy efficiency
and conservation measures as consumers and businesses become more
engaged and interested in their own use of energy, and of its
consequences.
10. Microgeneration is also at the cutting
edge of new "green technology" and the industry is already
a UK success story. Continued progress in the sector will help
to create further employment and to support the Government's core
energy policy objectives by reducing overall carbon emissions
and increasing energy security. If we don't make progress, British
manufacturing is likely to miss out to international competition
on developing and manufacturing this type of low carbon technology.
The current state of UK research and development
in, and the deployment of, renewable electricity-generation technologies
11. UK research in microgeneration lags
behind that of other leading nations such as Germany. One of the
principle reasons is the lack of targets and effective and stable
support mechanisms for microgeneration which would encourage the
private sector to invest in research. In Germany, the 100,000
roofs campaign provided companies with the confidence to invest
in research and development of solar photovoltaic products.
12. The UK has had a prominent position
in the development of small-scale wind turbines, and also in the
development of building integrated PV, but support for the deployment
of these technologies has so far been restricted to poorly implemented
grant schemes.
13. Problems often emerge for SMEs who wish
to move technology on from research stage to pre-commercial development
and they find that support dries up. This is often referred to
as the `death valley' for technologies. Support strategies such
as RO and CERT work better for existing and mature renewable technologies
such as Onshore Large Wind, than they do for embryonic technologies.
International collaboration
14. The process of knowledge sharing internationally
occurs mostly in the interactions between the different national
operations of multinational companies developing microgeneration.
At an energy supplier level, this includes pan-European companies
such as EDF Energy and NPower as part of the RWE Group.
15. There is extensive international collaboration
in the development of low carbon Micro Combined Heat and Power
(microCHP) products in the UK. WhisperGen UK Ltd, a leading company
involved in bringing this technology to market will be setting
up a large manufacturing plant in Europe during 2008. WhisperGen
Limited is itself based in New Zealand, with Meridian Energy,
one of New Zealand's leading utilities, as its major shareholder.
Other companies such as BAXI, part of Baxi Group Europe Ltd, and
Worcester Bosch part of the Bosch Group, have become much more
involved in microCHP during 2007 and are devoting resources to
developing this technology. E.ON, one of Europe's largest utilities,
has also increased its commitment to developing microCHP for European
consumers.
16. The export/import market for manufacturers
and distributors between EU member states and wider international
context is however restricted to an extent by the significant
variation in national certification standards.
Public funding, and other support, for the development
of renewable electricity -generation technologies and incentives
for technology transfer
17. The termination of householder grants
next year creates a cliff-edge situation for those microgeneration
technologies unlikely to see support levels maintained under the
recently launched Carbon Emissions Reduction Target. Earlier this
year, the Prime Minister (in his previous role as chancellor)
stated that support under CERT would surpass that provided by
the householder grants scheme. Our analysis suggests that the
current proposals will not provide sufficient uplift.
18. The Renewables Obligation has worked
well for large scale renewable electricity generators, however
microgeneration has been unable to take full advantage of the
benefits. The high transaction costs for energy suppliers surrounding
meter reading and the "hassle factor" in the application
process for the customer reduces the benefits that could be achieved.
Providing a deemed number of ROCs, rather than metering each individual
installation could provide a solution to these issues.
19. The Government should look at other
options available, including working with energy suppliers and
the microgeneration industry to look at the possibility of some
form of capitalisation of deemed ROCs. This could enable the consumer
or energy supplier to receive ROCs advance for offsetting against
the capital cost of installation.
20. Statutory targets are essential to provide
companies with the confidence to implement investment into mass
market scale production. Cost is an important factor to the take
up of microgeneration, however costs will only come down with
the introduction of mass market production techniques.
21. Consumers need to be given confidence
in the product they are purchasing. A well managed industry certification
scheme would help provide this, yet the development of such a
scheme by BRE is beset by difficulties relating to cost of accreditation
and compatibility with existing schemes
The establishment and role of the Energy Technologies
Institute
22. We welcome the establishment of the
Energy Technologies Institute (ETI) and support its remit to invest
in research and development to accelerate the development of secure,
reliable and cost-effective low-carbon energy technologies towards
commercial deployment.
23. The involvement of some of the worlds
largest energy and engineering groups will undoubtedly aid the
development of the ETI, however we urge it to not to discount
the contribution that can be made by smaller companies within
the vibrant SME energy technology sector.
Commercialising renewable technologies
24. In the face of the binding European
commitment to meeting 20% of European energy needs from renewable
sources by 2020 it is essential that effective policy support
measures are developed and implemented to allow all renewable
and clean energy sources to achieve their full market potential.
25. We have identified three broad and often
overlapping key phases in the process of moving micropower technology
from a niche market position to full commercialisation and mass
market status. The figure below demonstrates these three phases
of market transformation.
Figure 1
THE THREE PHASES OF MARKET TRANSFORMATION
Phase 1—Market start up measures for emerging
and niche technologies (short to medium term)
27. Government funded grant schemes, supported
by other early market stage enabling actions are critical to kick
starting market and as a builder of market confidence. However,
the vast majority of micropower technologies have moved beyond
this stage and, in order to continue to grow, require a more enduring
support mechanism independent of the Government and the perceived
vagaries of Government spending rounds.
28. A number of market enablers identified
as essential for phase one such as the removal of planning red
tape for micro-wind and solar photovoltaic installations still
need to be delivered.
Phase 2—Market transformation for maturing
technologies (medium term)
29. The core objective for microgeneration
in phase two—the phase that many of the technologies have
now reached—is to move to a more enduring support mechanism
that provides greater certainty for investors and the confidence
within the sector to develop and grow the market.
30. Grant schemes will still represent an
important part of the mix for less developed technologies, however,
the required acceleration in the number of installations can only
occur with the development of an enduring support mechanism (or
support mechanisms). Support currently provided by the Renewables
Obligation and proposals under CERT is still inadequate for market
transformation.
31. We support many of the Government's
microgeneration initiatives including, in particular, the push
for all new homes to be zero carbon by 2016. But neither this,
nor any other current, initiatives will address the inability
of microgeneration to reap the full benefits of the Renewables
Obligation or to provide funding to facilitate installation of
microgeneration into the largest part of the potential domestic
market—existing homes.
32. If no action is taken to avoid a major
funding gap when the householder grant scheme ends next year,
confidence could be undermined, leading to a slump in the market
and in investment, seriously hampering efforts to secure mass
production and supply chain development for many microgeneration
products. Consequently, the benefits of lower prices and greater
availability will be lost and the full potential of microgeneration
in reducing carbon dioxide emissions, improving security of supply,
and tackling fuel poverty will not be realised.
Phase 3 Mature market technologies (long term—2016
and beyond)
33. The objective of the micropower sector
is to move to a position where technologies are able to capture
the full value of the energy produced and the value of carbon
reduction and increased security of supply and become cost effective
on this basis without the need for any additional subsidy.
34. In this phase we suggest that the key
pre-requisites of successful market arrangements would be a mechanism(s)
that:
— enable the full value for energy,
diversity and carbon value, to be captured;
— are simple to understand;
— easily implemented with low associated
transaction costs; and
— create a positive incentive for "good"
behaviour and penalty for "bad" behaviour for consumers.
Government policy towards enabling existing technologies
to meet targets
35. The micropower industry is the only
energy related solution to lower emissions which does not have
a quantified government expectation of where it is expected to
fit into the sustainable energy mix.
36. In order to bring down the future cost
of microgeneration technologies, companies need to invest in mass
market production capability. This is an expensive and potentially
risky process, costing millions of pounds. Companies will not
be able to persuade their boards and banks to invest these considerable
sums of money, unless there is a reasonable expectation of a market.
This certainty can only be provided by Government, who must set
binding statutory targets for the uptake of microgeneration.
Developing the skills base to underpin the development
of renewable technology
37. The need to develop a broad base of
skilled installers is crucial to efforts to widen the market for
micropower products. Whilst demand for microgeneration products
remains low, there is little financial incentive for installers
to undertake training in these new technologies. This in turn
limits the choice for those customers who are interested and further
suppresses demand.
38. The industry has concerns over the set-up
and cost of the certification scheme currently being developed
by the Building Research Establishment (BRE) for product installers.
The Micropower Council has been at the heart of brokering the
industry's input into the scheme, and put forward proposals to
resolve some of the more contentious aspects of the scheme, some
of which have been accepted. However, the exclusive nature of
the current BRE contract with BERR is preventing competition in
certification services and not allowing the industry-led steering
group to set the compliance rules in a way that makes for a scheme
that balances properly the cost of the scheme with the need for
robust standards to protect consumer interests.
39. The Government recognised the vital
role that installers play when it developed its targets for the
installation of five million new high efficiency condensing boilers
by 2010. In order to make this objective a reality, a new accreditation
called "City & Guilds 6084 Level 3—Certificate
in Energy Efficiency for Domestic Heating' was created. Partial
financial support was made available, for a limited period, to
installers in England to undertake the qualification and over
30,000 took advantage of this offer. This successful policy demonstrates
a potential path towards expanding the number of microgeneration
installers.
January 2008
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