Tuesday, 12 May 2015

Is energy efficiency the poor relation?

Renewable energy is glamorous and gets lots of attention, but energy efficiency is important too. The lowest cost pathway to our carbon targets on the 2050 pathways calculator is very hot on efficiency. Also, the more electricity and heat we use, the more wind farms, solar farms, biomass plantations and nuclear power stations we need – taking up land that we’d like to use for other things. However, energy efficiency is a poor relation compared to low carbon generation. It gets less money - about a third the level of subsidy – and less attention - In DECC’s Energy Investment Report from last year, energy efficiency gets 17 pages, compared to 62 for energy supply’s and network infrastructure [1].

This table shows the main sources of subsidy, for both domestic and non-domestic sectors.

Subsidy£million /year (recent figures)SourceNotes and references
Green Deal ECO1,000Energy companiesProjected for each of the next 3 years [1]
Green Deal Home Improvement Fund16Central governmentGreen Deal statistics[2]
Electricity Demand Reduction Pilot1.3 at the first auction.Central government[3] Subsidy auction for businesses investing in equipment that reduces electricity demand at peak times.
Enhanced Capital allowances for energy saving productsNegligible at the moment but expected to rise to 5 by 2016/2017 and 15 by 2018/2019Central government[4] Tax breaks for businesses investing in energy saving equipment

   Total £1,018 million

DECC says that government will spend £450 million on energy efficiency over the next three years, on schemes such as the Green Deal Home Improvement Fund [1]. So perhaps the total should really be about £1.2 billion.

This table shows the subsidies for renewable energy.
Subsidy£million /year (recent figures)SourceNotes and references
Feed in Tariffs709Energy companies[5] For solar PV panels, wind turbines and other small electricity generators
Renewable Heat Incentive (Domestic)21Central government[6] Solar hot water panels, heat pumps and biomass boilers. Based on trigger levels for 2015/2016 – after which the levels are reduced.
Renewable Heat Incentive (Non-domestic) 36Central government[7]  The same technologies as above.
Renewable Obligation Certificates (ROC) 2,683Energy companies[8] For large renewable energy installations

  Total £3,449 million

The Renewables Obligation system is being phased out and will be replaced by the new Contract for Difference (CfD) scheme . The total spending on Feed in Tariffs, ROCs and CfDs is limited by the Levy Control Framework [9]. This rises from £4.3 billion in 2015/2016 to £7.6 billion in 2020/2021

Renewable energy gets 3x the subsidy and the gap is increasing
It looks as though renewable energy gets about 3 times more support than efficiency and this gap is actually increasing, not decreasing. And yet the overall investment levels required are comparable. DECC says that £45-50 billion is needed just to properly insulate walls and roofs in our housing stock and another £18 billion needs to be spent on energy efficiency in business. This compares with £45 billion already invested on renewable energy between 2010 and 2013, and another £100 billion needed by 2020.

Renewable energy subsidies give long term price support to kick start new markets for young technology
However, investment is not the same as subsidy and the approaches for renewables and efficiency are very different. The subsidies for renewable energy are paid over 7-20 years, for energy that has been generated. They are a form of price support designed to release private sector capital and to kick start markets for new technology. They have been very successful in doing this for solar panels, where prices have reduced dramatically as the industry scales up and becomes more competitive. Hopefully the same will happen with heat pumps.

Energy efficiency subsidies are direct grants, focussed on households in need.
The bulk of the subsidies for energy efficiency are direct grants to householders. The grants are used to pay for insulation or new heating systems. If you are on benefits you may qualify for your system to be fully funded, otherwise you will be required to pay at least a part towards it. These grants are focussed towards people who really need them, either because they can’t afford their current fuel bills or because their home is hard to insulate. They are not primarily intended to kick start a new market as the systems being installed are not new technology. They have helped to build up the sector but it is not obvious that this will lead to in lower prices through increased competition. In fact some would argue that the Green Deal is very expensive to deliver.

Industry benefits, also some households. There are lots of new jobs.
There have been benefits to industry from both sides of the energy equation. Energy supply industries are expected to generate 250,000 jobs by 2020, and energy efficiency already supports 100,000 jobs [1]. Investors in renewable energy are also major beneficiaries but only people with capital to invest and, in the case of the FiTs, suitable homes. On the energy efficiency side, householders who get a Green Deal grant benefit but they are in the minority.

Energy efficiency is a poor relation even though it is cost effective.
It seems to me that energy efficiency is very much a poor relation. Just because home insulation isn’t a new market that needs babying along doesn’t mean it isn’t worth funding. Besides which, investment in energy efficiency is very cost effective. In terms of £/tonne carbon saved it wins out over most renewable electricity (except for onshore wind – see Grants and Subsidies – the cost of carbon savings) Also, grants brings back returns in taxes and savings for the NHS (see The cost to the taxpayer of Green Deal subsidies is less than you think). The non-domestic sector for energy efficiency seems to be picking up without extra support [9] but on the domestic side firms are struggling because of uncertainty and stop-start funding policies [10].

I fear energy efficiency needs a new, more glamorous face but I’m afraid that isn’t my forte. Does anyone have any suggestions?

[1] Delivering UK Energy Investment (DECC) July 2014
[2] Green Deal and Energy Company Obligation Statistics (www.gov.uk)
[3] Electricity Demand Reduction Pilot (www.gov.uk) July 2014
[4] Enhanced capital allowances schemes for energy-saving and environmentally beneficial (water saving) technologies. (HMRC)
[5] Feed in Tariff (FIT) Annual Report 2013/2014
[6] Domestic Renewables Incentive (RHI) Factsheet – Degression mechanism (DECC)
[7] Renewable Heat Incentive Annual Report 2014 (OFGEM)
[7] Renewables Obligation (RO) Annual Report 2013/2014 (OFGEM)
[8] Annex D: Levy Control Framework Update July 2013
[9] Confidence grows in UK non-domestic energy efficiency market (Green Investment Bank) 2014
[10] Struggling green firm hits out at failed government policies (Building.co.uk) October 2014

1 comment:

  1. Another great piece. I've long suspected that we're spending more on renewable energy (=supply side) and less on energy efficiency (=demand side), but it's good to see the figures. As for suggestions to sex-up energy efficiency, how about building an association between retrofit and space sciences - starting with high-tech products like aerogel?