by Rob Reid7 minute read
With the general election done and dusted, DECC has appointed its ministerial team to lead the energy and climate change agenda over the next Parliamentary term. Amber Rudd heads up the Department as Secretary of State, with Andrea Leadsom and Lord Bourne appointed to the roles of Minister of State for Energy and Climate Change and Parliamentary Under-Secretary of State respectively. Amber Rudd’s appointment in particular has been widely viewed as positive for the green economy.
Lord Bourne will be responsible for policies that are of specific interest to me. This includes renewable heat policy and the Renewable Heat Incentive (RHI). I have been involved in the evaluation of the RHI over the past 18 months, and it will be interesting to see how the minister uses the findings to inform his decision on the future of the RHI from 2016.
However, it’s Lord Bourne’s remit on energy efficiency policy that is the more pressing concern at the moment. The past month as not just seen changes at the top of DECC’s energy efficiency team; its Energy Efficiency Deployment Office (EEDO) was quietly disbanded shortly before the election. EEDO had been created by the Coalition in 2012 to spearhead energy efficiency policy, with a remit including the development of a new energy efficiency strategy.
What, you might well ask, are the implications of these changes for energy efficiency policy? With the ministers only just settling into their new offices, predictions about policy priorities for the next term have to be rather speculative. However, the Conservative manifesto was a little thin on green commitments, and the sole policy relating to energy efficiency was the support for low cost measures on energy efficiency with the goal of insulating a million homes over the next five years – not so impressive when you consider that over 800,000 homes were insulated in 2010/11 alone.
While this is fairly unambitious stuff, the manifesto had nothing at all to say on non-domestic energy efficiency, which seems like bad news for small and medium-sized enterprises in particular, which can struggle to prioritise and finance investment in energy saving.
Bourne of neglect
SMEs have routinely been the poor relation in energy efficiency policy, with the spotlight falling on policies that affect householders, such as the Green Deal and Energy Companies Obligation. It’s understandable – domestic policies are the surest way for the Government to reach out to the hearts, minds and wallets of the electorate through measures that set out to tackle fuel poverty and minimise the impacts of energy price rises.
Even so, the barriers to energy efficiency referred to in the Government’s Energy Efficiency Strategy resonate across both domestic and non-domestic sectors. These include:
- Embryonic markets – the market for energy efficiency products and services remains underdeveloped with relatively little expertise in energy efficiency investment;
- Information – investment decisions are affected by a lack of access to trusted and appropriate information that is tailored towards specific requirements;
- Misaligned financial incentives – most non-domestic premises are rented, and landlords have little incentive to make investments in energy efficiency when the savings will accrue only to the tenant; and
- Undervaluing energy efficiency – energy is typically a small proportion of business costs and installing efficiency measures can be disruptive, so it is rarely a priority for investment.
Even so, there are policies in place for the non-domestic sector, many of which are listed in the 2014 National Energy Efficiency Action Plan. Two of these are of particular interest.
A Bourne pilot
The Electricity Demand Reduction (EDR) Pilot provides a financial incentive to encourage reductions in energy use, and may form part of the Capacity Market in the future. The EDR Pilot allows eligible organisations to bid for resources implement electricity efficiency measures that deliver permanent reductions in electricity demand, particularly at peak times.
The EDR Pilot is close to my heart as I have been managing the project to provide technical support to DECC. This has included assessing the Measurement & Verification Plans submitted by applicants for the first auction round that took place earlier this year. I am proud to have played a part in the scheme, which awarded £1.28 million to 22 projects, purchasing 5.6MW of winter peak savings.
However, the total award was far below the £10 million budget. A second phase of the EDR Pilot is expected to take place later this year, and the challenge for DECC will be to encourage more organisations to participate. This will not only provide an indication of how organisations are engaging with electrical efficiency improvements in their businesses; it will also enable DECC to better assess the effectiveness of EDR during this pilot phase.
Another example is the Green Deal. Again, this is a policy of particular interest to me, as I’ve been closely involved in a review of the Green Deal In-Use Factors. The Green Deal was the Coalition Government’s flagship policy for energy efficiency investment. Energy consumers would be able to use the Green Deal to access capital to fund energy efficiency improvements, such as loft or wall insulation; repayments would be made through energy bills, with the cost offset by the energy savings delivered. The Green Deal has received a lot of publicity, and much of this has been negative – particularly regarding the low level of take-up of the related Green Deal (Finance) Plans amongst householders.
It would be easy not to notice that the Green Deal is also available to the non-domestic sector as this aspect of the scheme gets very little coverage. DECC’s latest statistics on the Green Deal state that over half a million Green Deal assessments were lodged by the end of February 2015. Of course, that’s good news, but the figures relate only to households. Similarly, the latest statistics from the Green Deal Finance Company, which show that over 12,000 Green Deal Finance Plans are now in progress, relate only to households.
It’s as though even the Government has forgotten that the Green Deal exists for the non-domestic sector. The Westminster Sustainable Business Forum and Carbon Connect picked up on this as long ago as 2013, publishing a report that called for action to drive participation in the non-domestic sector. Measures proposed included a national advertising campaign backed by sector specific marketing. At the level of brass tacks, it also called for lower interest rates (as part of Green Deal Plans) to stimulate demand for energy efficiency investment amongst SMEs. They are not alone in their concerns that the Green Deal interest rate is obstructively high. A report by the Energy and Climate Change Select Committee noted that many consumers with an average credit score could obtain cheaper loans elsewhere. That the majority Green Deal installations are taking place without Green Deal Plans also suggests that cheaper finance is being successfully accessed from other sources.
Bourne in mind
It’s easy to see why SMEs and the non-domestic sector as a whole could believe that they have been forgotten as part of the Government’s flagship policy. If Lord Bourne is considering changes to the Green Deal, a clear emphasis on providing a policy that is designed for the non-domestic sector could go a long way in driving greater take-up and the installation of far more energy efficiency measures during the next parliamentary term.
While I may have focused on problems, it’s fair to say that it’s not all doom and gloom for the non-domestic sector. The EDR Pilot, the Energy Savings Opportunity Scheme (ESOS) and the forthcoming Minimum Energy Performance Standards for non-domestic buildings all present real opportunities for change that could dramatically improve energy efficiency, even in the hard to reach SME sector.
However, to realise these potential gains, the Government will need to recognise the crucial role the non-domestic sector has to play if the UK is to put itself on track to meet its 20-20-20 emissions reduction target. Compared with alternatives, including some renewables, nuclear and carbon capture and storage (CCS), such approaches could provide a far more cost effective means of meeting the target.