Tuesday, 16 April 2019

A case for energy services - spreading the risk.

Recently I have completed some research into how cost-effectiveness of energy efficiency is measured and was struck by the huge differences we see, depending on context. For a householder or a small business, cost effectiveness is normally considered around financial costs and savings, with a time horizon of up to five years. In a context of evaluating national housing stock upgrades, the UKERC, for example [1], consider additional wider benefits including air quality, thermal comfort and carbon emissions, and a much longer timescale, at least 20 years. This is by no means exceptional - I found evaluations based on up to 60 years.

Risk gets too little attention.
However, it is not just the addition of non-monetary benefits and long timescales that worries me, the issue of risk gets too little attention, in my view. It is very hard to predict actual energy savings from retrofits due to a variety of factors, from inadequate understanding of the structure already present to variable installation quality. The recommendations we get on energy certificates have an allowance called the 'in-use' factor that partly covers these uncertainties - but these factors are based on averages. Also the in-use factor excludes comfort taking, which may or may not be due to actual changes in control settings by the occupants (see also my review of 'The Rebound effect in Home Heating' by Ray Galvin). This means that estimates of financial savings have a large element of uncertainty.

EnergieSprong's performance guarantee is a promising strategy.
While I would not wish to discourage anyone from installing energy efficiency improvements in their home, I would hesitate to recommend this purely on a cost saving basis, at least without an assessment of uncertainty or some kind of performance guarantee. This is why I find the EnergieSprong initiative interesting. The concept has apparently been working well in the Netherlands and is now coming to the UK, with an initial pilot in Nottingham [2].

An energy service package including thermal comfort and hot water
The idea is that instead of just a retrofit you get an energy service package with an agreed level of thermal comfort and hot water provision. For the moment EnergieSprong is targetting housing associations where energy costs are included in the rent, so the deal is with the landlord rather than the resident. However, the principle is the same. If delivery of the energy services package requires more fuel than was allowed for or costs more in maintenance the bill payer is compensated. This guarantee lasts for 30 years, or even longer.

Spreads risk across the retrofitted stock, allows for longer payback times.
The EnergieSprong approach helps to close several of the gaps in cost effectiveness viewpoints. The payback time is chosen by the landlord in as much as they can adjust the rent accordingly, but with such a long guarantee they have a lot of flexibility. The risk is spread across the whole stock of houses being fitted. Also the performance risk is taken by the solution provider, so they have a massive interest in installation quality. EnergieSprongUK are confident they can provide this guarantee because their approach is a whole-house deep retrofit based on mostly factory built components, with reliable quality. I do not believe their approach is suitable for all homes but it is a good start.

Requires monitoring of energy use, temperatures delivered and hot water use.
However, to make this system work there are extra costs, in particular in measuring the service that is delivered. For example this means monitoring temperatures in several rooms, ideally humidity too, for air quality, and volume of hot water supplied. Other aspects of the service package such as air movement and noise are normally tested on commissioning, and only monitored further if problems arise. As well as the cost issue, some might regard temperature and hot water use monitoring as quite intrusive.

Does it allow for flexibility in the comfort/energy tradeoff?
There is a difference between the energy performance of a house and the level of thermal comfort provided. Ordinarily, residents have some control over this, as they can modify the heating settings to provide more comfort or reduce energy use. This is less of an issue in rented housing where energy bills are included and hence the residents costs are already fixed. The package recommended by Transition Zero project (funded by Horizon 2020) [3] is for 21°C in living rooms and 18°C elsewhere during heating hours (12 hours/day). These conditions are generally accepted to be more than sufficient for good health even in vulnerable groups. (Overnight heating may sometimes be necessary). However, with a fixed contract price there is little incentive to economise by turning the thermostat down or limiting heating hours. In principle it is possible to make the contract more flexible and adapt the package price for greater or reduced different comfort levels - but reduced comfort would also increase payback time.

Social housing is already more energy efficient, partly due to lower transaction costs.
The social housing sector is a small proportion of the UK housing stock and is very different from other sectors. It already has better energy performance than either private rented or owner occupied housing (as of 2017 the mean SAP rating was 68 compared to 61 for owner occupied and private rented [4]. This is partly because it is a great deal easier to do business with a housing association with a large portfolio of similar dwellings than with a lot of individual home owners or small landlords. However rolling out something like EnergieSprong across other sectors might be possible.

Social benefits can be allowed for with subsidy or tax.
The remaining big difference between cost effectiveness viewpoints is around non-financial benefits. When it comes to social costs such as climate change and public health, it is possible to justify subsidies (or taxes). For private benefits such as thermal comfort, there is always going to be variation in demand and this will have to be allowed for.

EnergieSprong has 5000 homes in the Netherlands - success in the UK seems likely.
EnergieSprong is aimed at retrofit. I reported a couple of years ago on an initiative for energy performance guarantees in new build homes called iLife. Sadly I have heard little about that since. However, EnergieSprong is already gaining moment in the Netherlands, which has 5000 homes already installed and another 14,000 in planning. The pilot in Nottingham is for 150 homes. I think it is safe to expect good things to come.

[1] Unlocking Britain’s First Fuel: The potential for energy savings in UK housing. (UK Energy Research Centre) 2017.

[2] Green Alliance champions the UK to ‘go Dutch’ with the Energiesprong Approach (www.energiesprong.uk)

[3] Transition Zero: Make Net Zero Energy Refurbishments for Houses a Mass Market Reality
Deliverables 5.1 Definition of structure of performance guarantee and 5.2 Template for delivery protocol for refurbishment packages
(Transition Zero) August 2018

[4] English Housing Survey Headline Report 2017-2018 (www.gov.uk)

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