Select Committee on Innovation, Universities, Science and Skills Minutes of Evidence

Examination of Witnesses (Questions 260 - 279)



  Q260  Dr Gibson: How about the House of Commons, for example? How would you sort this place out?

  Mr Jones: You have got a big CHP system here running the House of Commons and a number of government buildings which are perhaps been underutilised.

  Mr Sowden: I would just like to go back to the question that Brian Samuel answered about the helpfulness or otherwise of government policy so far.

  Q261  Chairman: This is in promoting the technologies?

  Mr Sowden: Yes. It is important to acknowledge that the Government has done a number of things which have been helpful. That is not to say that it is enough or that we should not go much, much further. The Government published a microgeneration strategy two years ago which we supported strongly at the time. It contained a number of measures to reduce or remove regulatory barriers and better access to existing financial incentives. The planning issue has been referred to. We are expecting an announcement to Parliament very soon on that. That is a major step forward. It is a big barrier for the industry at the moment. In terms of aspects of current policy that have not worked particularly well, the Low Carbon Buildings Programme and particularly the Householder Grant Scheme has been plagued with implementation difficulties. In particular, the decision to introduce monthly capping about a year ago caused a lot of stop/start in the industry. We feel the answer to that is that we should be looking towards much longer-term, sustainable, market-based financial incentives than looking at a grant scheme because with a grant scheme by definition you are hamstrung by the Treasury every three years and it introduces a great deal of uncertainty. It is not particularly helpful as the industry starts to scale up in the early stages of mass-market commercialisation. It is a blunt instrument. It is very good in the much earlier stages of market development but not suitable for mass-market deployment, which is what the Government was trying to use it for. There are areas of policy which have been unhelpful, but let us not lose sight of the fact that some aspects of policy have been helpful. The evidence for that is if you look at the companies that are now getting involved in this sector and investing in it, five out of the six major energy suppliers, all with a significant microgeneration deployment capability set up, with all of the big European heating appliance manufacturers investing heavily in fuel cells, solar thermal, micro-CHP and other technologies as well. Industry and investors have responded to the signal. The industry is gearing itself up. We just need policy to take us to the next stage.

  Q262  Chairman: The Low Carbon Buildings Programme is one of the main planks of the Government's approach to a low carbon policy. Do you share the view that the current incentives are wrongly placed and we should just leave it to the market?

  Mr Samuel: As BERR's managing agent for the Low Carbon Buildings Programme, our view is that grants are helpful initially but certainly they are not sustainable in the long term and you do need to move away to a more longer-term rewards system, for example, feed-in tariffs. Feed-in tariffs do not address heat so you still need something for heat as well. I think the grants initially were perhaps too generous and then there was perhaps too much of a tightening of the grants such that they were reduced by too great a degree. So somewhere in between there probably was a better balance. We would prefer a longer-term support mechanism that is more market based but provides the right incentives and long-term rewards from microgeneration.

  Q263  Chairman: Gordon, do you share that view?

  Professor MacKerron: I do personally. I think one should make the general comment that as an instrument grants are blunt because they tend not to be performance related, you get an upfront subsidy, as well as the fact that it does not involve the Treasury to the same extent. The advantage of having a market-based system is it rewards the performance of the device, not just the fact that it has been installed in the first place. For major support programmes something that is market based works much better than grant programmes. I agree that in the initial stages kick-starting things by grants can be a very useful way forward.

  Mr Jones: I disagree with the comments that have been made. Grants have an important role. I certainly think that the original PV grant, for example, did stimulate an industry that was not there. The industry comes to depend on that grant programme and so when you make changes to that you cause severe problems with that industry and they either go abroad or they go into liquidation. If you were to do this logically, you would start out with a grant programme that was appropriate to stimulate that particular technology whilst you were phasing in much longer sustainable support programmes like feed-in tariffs so that you gradually move from one to the other.

  Q264  Chairman: At the moment you do not feel that that is happening?

  Mr Jones: I do not feel that the current programme is as good as the previous programmes.

  Q265  Dr Iddon: On the Energy Bill Standing Committee yesterday we had a wide-ranging debate on smart meters. Is metering a problem with feed-in tariffs at the moment? What is your advice to Government about meters?

  Mr Jones: You can get a meter for a domestic household that can measure both import and export electricity but it is designed for the commercial sector, for big office buildings, so the cost of that meter is out of all proportion to the amount of electricity that you are dealing with. Smart metering and the ability to measure electricity, without having to measure megawatts and all the rest of it, just a simple flow of electricity, input/output of kilowatt-hours is what is needed.

  Q266  Dr Iddon: So your advice to Government would be to get on with it for the smart meters?

  Mr Jones: Just get on with it, yes.

  Q267  Dr Turner: David, perhaps you could start by telling us your view on how effective or ineffective the ROC system is in incentivising microgeneration?

  Mr Sowden: I would like to extend the scope of that question to feed-in tariffs as well because I think there are related issues that apply to both. It is important to differentiate the level of subsidy that is provided from the deployment mechanism for that subsidy. Feed-in tariffs are much hailed as a success story in Germany. That is partly because the feed-in tariff mechanism gives the customer a long-term guarantee of the price that is paid, but a very important factor is that there is a significantly greater level of subsidy applied through that mechanism than is currently applied through the Renewables Obligation for the two technologies which are relevant here, which is PV and wind. On the Renewables Obligation itself, the process through which a customer needs to go in order to register as eligible for ROCs and subsequently to claim them is quite a torturous process. There have been some changes made through the Climate Change and Sustainable Energy Act 2006 which are a step in the right direction, but it is still the case that claiming ROCs is dependent on the customer reading the meter within an 11-day window in the middle of the school Easter holidays. The inability to do that or the forgetfulness of the customer to do that means that they lose a benefit that might be worth £50 or £100 per year. The consequence of that is that the energy supplier needs to put a system in place that reminds the customer to read the meter. As soon as energy suppliers have to start sending out reminders transaction costs start to pile up and very quickly you erode almost all of the benefit that that policy mechanism can deliver. In their current form ROCs do not work for microgeneration customers. If you talk to our energy supply members they will tell you that whilst they do reward customers to a greater or lesser extent for both exported power and for ROCs, they are losing money in doing so. They are doing it to be seen to be doing it. It is not sustainable and they cannot sustain it once we get into a genuine mass-market situation.

  Mr Samuel: The Renewables Obligation was designed for larger installations. Microgeneration is at the small end. It will only happen if the consumer accepts it. It needs to be made easier and simpler and cheaper for the consumer to install microgeneration. The Renewables Obligation and the framework to get ROCs make it harder and more difficult for consumers to do what is necessary. Therefore, it is not consumer-friendly and something else is required.

  Q268  Dr Turner: I am not remotely surprised by your answers. Let us explore feed-in tariffs in a little more detail because, as you have pointed out, Brian, we also need a method of incentivising heat as well as electrical generation. We need to differentiate perhaps between generating electricity that is consumed within the premises and electricity which is being exported to the grid from the premises. Do both qualify for ROCs or electricity being exported? These things need to be taken into account. That needs to be incorporated in the smart metering system. Could I have your views on how you would structure a feed-in tariff mechanism for microgeneration taking into account micro-CHP? Do you think we have adequate technology available off-the-shelf in order to deploy this on a large scale?

  Mr Sowden: On metering, you need to solve the data capture problem that I described earlier whether you are in a feed-in tariff world or you are in a Renewables Obligation world. That is the main challenge. That is where particularly the ability to read meters remotely can help. There are various complicated technical issues around differentiating the amount of gross generation from the level of exported generation, the difference being the demand that the consumer takes simultaneously. Certainly the feed-in tariff arrangements in Germany and in France reward the gross generation. Technically they reward the export, but customers get round that by connecting to the network on the distribution networks side. So effectively they sell it all and then buy it back from the grid at the retail price. They would not do that if the tariffs were not as generous as they are. You have to solve that set of problems whichever world you are in. Where feed-in tariffs are different to the Renewables Obligation is that if you are going to introduce a feed-in tariff you have to have an equitable cost recovery mechanism for whoever is applying that subsidy. In Germany there is quite a complex reconciliation process to ensure that the subsidy is effectively socialised through the generality of network users. We have a different type of arrangement here in the UK because we have unbundled networks from retail supply and there are various options open to you for recovery through transmission and distribution charges, ie some sort of reconciliation process between the major energy suppliers. Even the Conservative policy which they have put forward proposes that that system be funded exclusively by the Treasury where you do not introduce those sorts of complexities. A move to a feed-in tariff would require primary legislation and would require those cost recovery issues to be dealt with adequately. The Renewables Obligation on the other hand already has an inherent cost recovery mechanism built in.

  Mr Jones: This is not technically difficult. I did this in Woking. I had 80 decentralised energy sites there. I used a building energy management system in conjunction with the metering to measure the different half-hours of electricity and group them together. Electricity, although not a feed-in tariff, uses the same mechanism. It cross-traded between these 80 different sites, some of them quite small, with only four dwellings in some circumstances. It shows that it can be done. If you talk to meter manufacturers, these meters are not that expensive to make as long as they make them on a large scale. They will say to you, "We'll provide these meters if there is a demand for it". Clearly if you have a feed-in tariff that creates a demand. If everyone that puts in a microgeneration system automatically gets their metering sorted out at the same time you could at least start that market going.

  Q269  Chairman: I spoke to a company in my own constituency that is importing smart metering from China using radio frequency which is able to do both gas and electricity with absolute ease and give you a real-time reading if you want. The big problem is that the large suppliers do not want to co-operate because that interferes with the monopolising of their customer base. Is that a real problem?

  Mr Jones: I think it probably is. It may be more so with some suppliers than others. Parliament really should address vested interest, particularly when it relates to such an important issue as climate change and renewable energy. We have obviously been seeing that for some years, but if you are now convinced that that is what is going on then really Parliament should do something about it.

  Q270  Dr Turner: Could you elaborate further on how you would incorporate renewable heat into the system?

  Mr Jones: Setting aside combined heat and power from natural gas—

  Q271  Dr Turner: Including CHP.

  Mr Jones: All of these heat systems rely on a fuel input, be they woodchips or we could be talking biogases, syngases and so on in the future. The treatment of that fuel to supply that renewable heat brings forward a new form of energy that perhaps Parliament has not had to consider before and it tends to get fixed with gas and electricity. You could put mechanisms in place for the fuel going into those systems. There are some technologies that might fall outside of that like ground source heat pumps, for example. You can put support mechanisms in place, not obviously a feed-in tariff as such, but mechanisms that support the fuel providing those systems.

  Mr Samuel: One of those mechanisms would be a reward based upon the deemed heat output of any installation averaged over each technology. There are methods of doing it. It is more difficult and you would not necessarily want to meter it accurately because of the expense of heat meters. However, if you have smart metering, who is to know what will happen in the future with technology so that you can bring down those costs and make it viable? The key point is that heat is more important for microgeneration in buildings than electricity because electricity is a discretionary technology and you need to address the heat first because that is where the main carbon emissions occur in the home.

  Mr Sowden: There is an existing mechanism which supports heat technologies that comes into force at the beginning of April called CERT and it is the development of the energy efficiency commitment. It is certainly the case that two technologies in particular under what the Government is introducing in CERT actually fair better under CERT than they do under the Low Carbon Buildings Programme, those two technologies being ground source heat pumps and biomass boilers. What CERT does is it takes an average estimate of the lifetime carbon free contribution of energy from those systems and it effectively capitalises it, it brings it all into an upfront benefit. Where you have systems where it simply is not economic to put metering systems in place and I would certainly suggest that is the case at the individual household level for heat --- If it is not economic to meter solar thermal or ground source heat pumps or air source heat pumps or those sorts of outputs, then having some inherent capitalisation of that benefit is a very interesting policy to look at. Unfortunately, in the CERT proposals the Government did not go as far as we would have liked with technologies like solar thermal, which actually has seen a drop in funding compared to the Low Carbon Buildings Programme. It certainly is a mechanism that we strongly support in the way the Government has deployed it in some technologies.

  Q272  Dr Turner: The Government has already hinted that it will introduce a feed-in tariff mechanism for microgeneration, although it could in fact be incorporated in the current Energy Bill and there will be an argument about that. As soon as the legislative framework is put in place, how quickly do you think that industry could deploy?

  Mr Sowden: I think industry will certainly respond to whatever policy mechanisms are introduced. The art is to craft those in a way that is designed to bring forward investment and investment will flow when there is a clear picture of where the Government wants to go with microgeneration. One aspect of microgeneration policy where we feel it is a "poor cousin" to other areas is sustainable energy in that it lacks any form of Government target whereas all the other sectors do. We know where the Government wants to go on renewables in general, on CHP, on energy efficiency and on fuel poverty, they have either got policy targets or even statutory targets in some instances, but we do not have that for microgeneration and that makes it a very difficult ask to investors who are looking at all these other options as well.

  Q273  Mr Boswell: I would like to turn to the micro-CHP demonstration programme which the Carbon Trust is funding. This is about the effectiveness of the technology and assessing that and it identified some R&D needs which arose from it. I wonder if our experts could tell us whether they understand that similar programmes will be undertaken in different technologies around microgeneration in the future or is this a one-off?

  Mr Samuel: I think you have identified a real gap in the development of microgeneration technologies. We are pleased that the Carbon Trust is undertaking the micro-CHP trials, but that is just one technology. What we have found is that there is a lack of evidence about how microgeneration technologies actually perform in the marketplace. Also, you need to provide consumers who invest in technologies with sufficient confidence that those technologies will perform. The Energy Saving Trust has undertaken some microgeneration wind trials and we are also about to start some heat pump trials as well. However, they are not funded by manufacturers or by support mechanisms through the Government but by the energy retailers and by retailers themselves. So they can try and provide the market confidence in new products to consumers. We feel that there should be further funding in the demonstration of technologies. One of the reasons why that has not happened is because the Carbon Trust has a focus on research and development as opposed to the demonstration of commercial technologies. Perhaps under the Environmental Transformation Fund there will be opportunities in the future to trial these technologies and to help understand how consumers can best relate to them.

  Q274  Mr Boswell: Let us go on then to the BRET evidence we have received and we are talking primarily about micro-wind here. BRET identified a need for individuals planning to install micro-wind to give greater consideration to local environmental emissions. Has it been oversold? If you are in the wrong place will you make any money out of it or will you ever get the costs back? I suppose there is an environmental implication which is whether the site is appropriate and that may be both an economic and visual impact. Is there any possibility of softening the visual impact rather in the way that satellite dishes have come down in size?

  Mr Jones: I think those are interesting points you raise there. These are new technologies. One could say that they started too soon. They did not have the rigorous annual in situ programmes. There were a lot of wind tests carried out primarily up in Scotland, maybe on a Scottish moor somewhere that did not quite replicate in an urban area. I do not know if you have had evidence from B&Q at all, but you should talk to them about the Windsave wind turbine and the iterations they had to go through from the first one to their current one. We have had something similar with the Swift turbine as well. Both of them had their software reconfigured. What was happening is because they were trialed in a Scottish environment they were switching off too soon. We had that situation on our own building where the turbines were going round but disconnected from the generator. It was not that there was not enough wind, there was plenty of wind, it was the software design.

  Q275  Mr Boswell: You mean because there was a potential risk to the equipment?

  Mr Jones: No. It was simply programmed wrong. It was running off its prototyped first programme if you like.

  Q276  Dr Gibson: It was sabotaged by the English!

  Mr Jones: I think what that says is that you need to go through several iterations to refine the product. If you talked to B&Q now they would probably tell you that between a third and a half of domestic applicants, if you look at the wind map, think it has the potential. They send a surveyor onsite, but there are other factors like big trees nearby and so on that prevent the generation. This can be done, but I do not think it is a product you can just buy off-the-shelf and screw on your chimneybreast.

  Professor MacKerron: I think it is fair to say from the work that we carried out at Sussex, while one cannot generalise too acutely, there are many serious problems about a lot of urban locations for micro-wind. Clearly most people live in urban areas. One should not get the idea that all these microgeneration technologies are likely to be equally successful, which is not to say that we should not do more work on it, but perhaps for urban locations it probably is not inherently a technology that has as much legs in the long term as some of the others that we have been discussing and it is important to be realistic about that and not expect too much from one particular microgeneration technology across the whole urban landscape.

  Mr Samuel: You need to understand how the technologies perform where they are going to be installed. Coming back to Dr Gibson's earlier remark about community microgeneration, there is a lack of understanding about whether microgeneration within the home or microgeneration within the wider community is the better option and how different types of microgeneration work together, for example, ground source heat pumps providing heat in combination with passive solar for larger scale installations and also how heat technologies work with electricity technologies. There is further work needed about choosing the best solutions for the individual circumstances and they will inevitably be different.

  Q277  Chairman: That will not be a market-led solution, will it, because each of the companies has a vested interest in selling their product just as B&Q had when selling their own turbine? Who should be driving that?

  Mr Samuel: That is why you need to have the advice and information readily available, so people can take the most appropriate decision for their circumstances.

  Mr Sowden: I would like to make three very brief points. The proposals that communities and local government have come out with on permitted development, where we are expecting to see a Statutory Instrument laid down shortly, exclude conservation areas, they exclude listed buildings and Areas of Outstanding Natural Beauty. They have looked at that and of course the technology will advance the more sales pick up. Picking up the performance point, the Government together with the industry has been working on a comprehensive microgeneration certification scheme for over a year. It is not quite in the shape that it should be just yet, but we are confident that it will get there. We think that will underpin many of these concerns because companies and their products will produce what are called certified outputs which are subject to checking and audit and we believe that will introduce a significant boost to the comparability of one technology to another and therefore to consumer confidence.

  Q278  Mr Boswell: I think the message I am getting here is that more research is required in the deployment of these systems. There is an open question and I am not sure we can close it this morning about the stratification of vehicles, whether it is an individual on-house generator, whether it is a district, whether it involves CHP and is a collective effort or a combination of all those. Would it be fair to summarise by saying it is quite a complex picture which will require some planning or some advisory input at a level wider than the individual house?

  Mr Sowden: I think that is a correct analysis, but I would also say that the new build sector is fundamentally different to the existing residential sector because retrofit technologies need to be very, very easy for customers to do and politically they can be much more challenging. With new build you can introduce regulatory requirements far more easily because you have the construction industry between the customer and the Government than you can in existing residential areas where it generally is the owner-occupier who is the decision maker and the person taking the technology.

  Q279  Mr Boswell: And that would involve the planning consent process as well.

  Mr Sowden: Yes, which we are hoping will get sorted out very soon.

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