Microgeneration An Energy Revolution?

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1 Microgeneration An Energy Revolution? Jim Watson Deputy Director, RESOLVE Seminar, University of Surrey, 21 st October 2008

2 Microgeneration: An Energy Revolution? 1 Microgeneration visions & potential 2 Investment today 3 Levelling the playing field 4 A catalyst for system change?

3 Microgeneration: Visions and potential

4 Why microgeneration? Claims that it could help all four goals of energy policy some justified, others not so clear Engages consumers, helping them to be more active; with knock on effects on behaviour and demand? Fits with prevailing politics localism; partnership between the State and individuals / communities Perfect for British individualism?

5 Politics and microgeneration I want to work at making [micro-generation] the new must have gadget for your home. The ipod of the energy world. Alan Johnson, Trade and Industry Secretary, March 2006 Microgeneration and local distribution networks have the potential to capture people s imagination. Many people want to lead more environmentally responsible lives. David Cameron, Conservative Leader, December 2005

6 Politics and microgeneration It is more important than ever that reliable microgeneration offers individual householders the chance to play their part in tackling climate change BERR s own headquarters is moving towards installing microgeneration I look forward to the day when BERR joins the ranks of people and organisations that are generators of energy, as well as consumers. Malcolm Wicks, Energy Minister, June 2008

7 Microgeneration Technologies The potential Recent study by Element Energy assessed the potential for domestic microgeneration in 2020 and million units by 2020; 5.7 million by 2050 under business as usual assumptions. Mostly micro-chp and solar thermal CO 2 savings of 4.5m tonnes/yr by 2050 (1% of UK total) Adding policies could accelerate deployment up to10 million by 2020 (feed in tariffs, zero carbon homes, soft loans) Several network studies have concluded impact on grid will be marginal in short to medium term Positive contribution to grid operation in many cases

8 Microgeneration Technologies Progress to date Lots of policy activity, reports, consultations etc But slow pace of deployment: 84,000 units at the end of 2004; mostly solar hot water 95,000-98,000 units by the end of 2007 Govt claims approximately 100,000 units in June 2008 In the UK over 11 policy measures aimed directly or indirectly at microgeneration have been in place across five government departments, none of which has been designed (i.e. of sufficient scale) to promote mass market uptake Element Energy for BERR, June 2008

9 Analysing the Visions: Investment Today

10 Analysing visions Three models Co-provider Community microgrid Plug & Play Company back-up Company driven Company driven Passive consumer

11 Microgeneration Technologies Our assumptions Some real data available: Solar PV output and four different electricity demand profiles from Havant test houses Some not yet available: Models developed for micro-wind (based on wind data) and micro-chp (buildings model) Electricity price of 10p/kWh to reflect some increases ROC price set at conservative 3.9p/kWh 0.85kW Micro-CHP costs 3000; 1.5kW micro-wind costs 2200; 1.5kW PV costs 9000 O&M costs only included for micro-chp energy service contracts. Costs for micro wind and PV too uncertain.

12 Investment Today Plug & Play Minimum payback period Maximum payback period 40 Years Micro CHP (price differential 500) Micro CHP (price differential 1,500) Micro wind PV

13 Investment Today Some barriers to deployment Economic: up-front costs high; payback times long in many cases; poor payments for exports; hassle factor Technology / risks: some technologies not quite ready for market; consumers and installers cautious? Regulation: can be hard for householders to get grants and renewables subsidy; planning has been hard (getting easier); energy services hard to provide profitably Information & bounded rationality: lack of reliable, impartial advice; customer decisions based on past experience, routines.

14 Investment Today Policy action At first glance, action matches rhetoric: Microgeneration Strategy pursued aggressively Climate Change and Sustainable Energy Act Local council action (e.g. Merton Rule) Important policy changes have included: More money for grants: but organisation a mess Industry-led scheme to pay for exports Removal of planning barriers (permitted development) Renewables Obligation reform / feed-in tariff promised Stronger incentives for energy companies (CERT)

15 Investment Today How not to run a grant programme Low Carbon Buildings Programme as a key policy to try and kick start microgeneration market; reduce costs Launched in April 2006; replaced Clear Skies programme 29m over 3 years ( 6m for homes) Increased by 50m in 2006 budget - 6m added for homes. But too popular? Dec 06 budget lasted 20 days Jan 07 budget lasted 12 days Feb budget lasted 12 hours Mar 07 budget lasted 75 minutes...

16 Investment Today How not to run a grant programme Suspension / cap on grants of 2,500 from May 07 Planning permission required before application Demand fell sharply leading to large underspends Domestic programme extended to 2010 to spend money

17 Analysing the Visions: Levelling the Playing Field

18 Levelling the Playing Field for taxation and power exports Centralised Power Plant Developers get tax breaks Generators sell power into the wholesale market Electricity System Enhanced capital allowances for industry energy efficiency Domestic CHP Solar Roof Householders are taxed Householders not entitled to any payment for exports

19 Levelling the Playing Field Plug & Play micro-chp Years , , ,500 Baseline Export reward 0.05/kWh ECA 40% + SBP export + income tax Minimum payback Maximum payback

20 Levelling the Playing Field Company Driven micro-wind Year of +ve NPV Manchester (suburban, 590 kwh) Abderdeen (countryside, 1680 kwh) Baseline Enhanced Cap Allowance Reduced installation costs in 2016 Standard Cap Allowance 10% electricity price increase

21 Levelling the Playing Field Can it be done? Taxation: Environmental tax allowances for individuals are not new previous schemes for bicycles, teleworking Could use self assessment or salary sacrifice Paid for by EU ETS proceeds? Power exports: Extending settlement system is technically possible Main issues are cost and timing Preference for profiles but these are also expensive In many cases, a level playing field delivers same benefit as a grant from the Low Carbon Buildings Programme

22 A Catalyst for System Change?

23 A Catalyst for System Change? Micro-generation often seen as a catalyst for consumer behaviour change and demand reduction More visible than loft insulation; but many adopters have already implemented other measures such as energy efficiency But should it also be a catalyst for changes to regulations and infrastructures? Regulatory changes to encourage home energy services Infrastructures for a 21 st Century energy system meters, housing and distribution networks

24 A Catalyst for System Change? Energy services for households Suppliers and customers need to have a shared incentive to reduce domestic emissions, and to work in partnership to achieve this Creating this shared incentive will require an innovative policy, which changes the way the supplier views their relationship with the end consumer. Rather than selling units of energy, the suppliers focus needs to shift to the marketing of energy services. Energy White Paper, May 2007

25 A Catalyst for System Change? Energy services for households Household energy services have been anticipated for many years, but have never materialised Many reasons including incentives on energy suppliers to maximise sales, 28 day rule, costs of setting up contracts Some positive drivers: high energy prices, end of 28 day rule, high costs of attracting and losing customers greater obligations on suppliers from April 2008 (CERT); new supplier obligation from 2011 But implementation slow: eleven years from initial study for DTI in Autumn 2000 to introduction

26 An Energy Revolution? Microgeneration has huge technical and environmental potential, but has suffered from rhetorical overload Attractiveness of technologies varies by location, consumer type and building type too early to tell how some will perform Current policy welcome but misses opportunities to support micro-generation in context of broader demand side incentives Level playing field for microgeneration is as effective as grants Regulatory reforms to support energy services welcome but too slow a test case of how govt responds to urgent problems? Infrastructure is vital. Meters, networks and buildings have major impacts on scope for microgeneration and demand-side action

27 Thanks

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