Examination of Witnesses (Questions 260
WEDNESDAY 12 MARCH 2008
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
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
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
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
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
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,
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
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
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
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
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.