A micro-generation manifesto

A micro-generation manifesto

“green alliance...

A micro-generation manifesto

by Joanna Collins Published by Green Alliance, September 2004, £20 Artwork and print by Calverts – www.calverts.coop Printed on Revive matt – 75 per cent post-consumer waste.

ISBN 0 9543813 7 8 © Copyright Green Alliance 2004 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Green Alliance. Within the UK, exceptions are allowed in respect of any fair dealing for the purposes of private research or study, or criticism or review, as permitted under the Copyright, Design and Patents Act, 1988, or in the case of reprographic reproduction in accordance with the terms of the licences issued by the Copyright Licensing Agency.

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A micro-generation manifesto

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The micro-generation manifesto has been developed in consultation with members of the Energy Entrepreneurs Network. For more information on this network, visit www.green-alliance.org.uk Organisations supporting the manifesto include: British Wind Energy Association Combined Heat and Power Association Energy 21 Renewable Power Association Solar Century The Micropower Council The National Trust Town and Country Planning Association UK Business Council for Sustainable Energy

acknowledgements Green Alliance wishes to thank the Ashden Trust for their generous support of the Energy Entrepreneurs Network, and of this report.

We would also like to extend our thanks to all the organisations and individuals who were involved in the project. Particular thanks are due to Sebastian Berry, Sarah Butler-Sloss, Adrian Hewitt and Dave Sowden.

Green Alliance Green Alliance is one of the UK’s foremost environmental groups. An independent charity, its mission is to promote sustainable development by ensuring that the environment is at the heart of decision-making. It works with senior people in government, parliament, business and the environmental movement to encourage new ideas, dialogue and constructive solutions.

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contents

A micro-generation manifesto

executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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the case for micro-generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4 5 6 7 8 8

behaviour change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . carbon reduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . fuel poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . security of supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . economic value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

system resistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . energy markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . mindsets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

the way forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . new build . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . local heat and power networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . energy services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

a micro-generation strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Climate Change Programme review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . consumer incentives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . capital grant schemes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . home energy ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . fiscal measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . export reward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . distribution charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Renewables Obligation Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Winter Fuel Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . supplier incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Energy Efficiency Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Renewables Obligation Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . fuel poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . developer incentives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . planning. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Building Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . advice and training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

annex A – micro-generation technologies . . . . . . . . . . . . . . . . . . . . . . . . .

9 9 11 12 12 15 16 17 18 19 19 19 20 21 21 21 22 23 23 24 24 24 25 25 26 27

existing technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ground source heat pumps. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . micro-wind turbines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . solar thermal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . solar photovoltaics (PV) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . micro-hydropower turbines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . woodfuel boilers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . emerging technologies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . micro combined heat and power (micro-CHP). . . . . . . . . . . . . . . . . . . . . . . . stationary fuel cells. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29 29 29 30 30 31 31 32 32 32 33

annex B – relevant policy agendas by department. . . . . . . . . . . . . . . . .

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annex C – glossary of acronyms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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executive summary

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Over the last year Green Alliance has coordinated the Energy Entrepreneurs network, which brings together a diverse coalition of planners, architects, entrepreneurs and energy experts. We have been making the political case for microgeneration to Ministers, advisers and officials across Government. This report presents our conclusions. We have been able to do this work thanks to generous support from the Ashden Trust.

A micro-generation manifesto

Micro-generation is the generation of low-carbon heat and power by individuals, small businesses and communities to meet their own needs. Bringing energy generation closer to people in this way will forge the vital link between our concern about climate change and our energy consumption in the home. It can help to overcome the antagonism of a minority towards renewable energy, by bringing every householder and business closer to the solution. Homes with microgeneration are also affordable homes, with low or zero energy costs. And by curbing the rising demand for imported electricity, home energy generation can avert the need for investment in large new power stations and the ageing grid network.

However, there is considerable resistance to micro-generation. Current incentives discourage energy suppliers and grid operators from bringing energy generation to the point of demand. Policy-makers are accustomed to an energy system based on big, centralised projects like nuclear or gas-fired power stations. But we now have an opportunity to start to change these mindsets and incentives, and bring micro-generation into the mainstream.

The Government has made an important commitment in the Energy Act 2004 to develop a micro-generation strategy by December 2005. This manifesto sets out a broad framework of policies that Green Alliance and the Energy Entrepreneurs Network hope will be addressed in the government strategy.

The Government already helps to promote micro-generation through capital grant programmes. However, more decisive policy action has been postponed on the assumption that the technologies will remain too expensive until 2020. Such assumptions are self-fulfilling. Niche products are always expensive. Costs will come down significantly when policies are introduced to increase demand, allowing manufacturers to move from ‘built-to-order’ to mass production. To enable this to happen, Green Alliance and the Energy Entrepreneurs call on the Government to: ●

Integrate micro-generation into new build by setting targets in planning and procurement, particularly for the growth areas in the Sustainable Communities Plan, and for the proposed new generation of secondary school buildings. Future rises in carbon emission standards for new build should be clearly signalled to drive “ the Government investment in technological innovation. has made an ● Encourage Local Authorities to plan for community-scale grid networks that supply locally-generated heat and power to new or important existing developments, bypassing the costs and inefficiencies associated with national network use. commitment ● Introduce incentives for energy suppliers to develop energy to develop a service contracts that enable existing householders to retrofit micro-generation. These should allow the upfront costs to be paid micro-generation back through bills over a long period and to be offset by tariffs strategy” that reward exported electricity. A strong incentive would come

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from a trading scheme in demand reduction certificates, which should be introduced at the earliest opportunity. ● Reform the fiscal framework to enable householders to see microgeneration and energy efficiency as an investment in their property value.

Stamp duty rebates for low carbon homes should be introduced to coincide with new home energy ratings. ● Develop the simplest possible procedures for householders and small businesses to apply for grants and grid connection. The public’s interest in home energy generation could be fatally undermined by excessive paperwork requirements.

Micro-generation offers an exciting opportunity to involve the public in tackling climate change and give householders and businesses an incentive to use energy more efficiently. The Government should embrace this opportunity and bring microgeneration into the heart of its Climate Change Programme by adopting these policies.

the case for micro-generation The UK Energy White Paper, published in March 2003, established the need to tackle climate change as one of the central aims of energy policy. It set out an ambition for the UK to reduce its emissions of carbon dioxide by 60 per cent over the next fifty years, with clear milestones in the interim. The two main routes to carbon reduction foreseen are an increase in the use of renewable energy, and a step-change in energy efficiency, amounting to a doubling of the historic rate of energy efficiency improvements. These targets are certainly ambitious, and they will not be reached without sustained action by consumers.

However, despite the evidence from opinion polls of widespread public support for policies to tackle climate change, the signs are that in practice the majority of consumers remain disengaged. Energy efficiency policy meets with apathy; wind farm proposals meet with antagonism from a vocal minority. Government has yet to confront head-on the challenge of engaging the public, both as citizens and consumers.

It is the belief of Green Alliance that both apathy and antagonism can be overcome through micro-generation. Micro-generation means building climate change solutions into everyday life, and giving individuals and communities contact with, and control over, the generation of green energy.

“ Micro-generation means building climate change solutions into everyday life”

By micro-generation we mean the generation of zero or low-carbon heat and power by individuals, businesses and communities, at or near the point of use. This includes renewable heat generation through: ground source heat pumps, solar hot water systems and wood pellet boilers, displacing gas or electric heating. It also includes on-site generation of electricity, from solar photovoltaic (PV) panels, microwind turbines, micro-hydro systems and woodchip or gas combined heat and power (CHP), which all displace electricity demand and can export surplus power to the grid. Annex A gives more details on existing and emerging technologies.

In the Energy White Paper’s official vision for ‘the energy system in 2020’ we do find an aspiration for “much more micro-generation, for example from CHP plant, fuel cells in buildings, or photovoltaics.”1

Micro-generation can deliver on all four of the central objectives of the Government’s energy policy: ●

cutting greenhouse gas emissions; securing reliable energy supplies; ● maintaining competitive energy markets in the UK and beyond; and ● ensuring that every home is adequately and affordably heated. ●

However, the current received wisdom on the prospects for micro-generation technologies is that costs will remain prohibitively high until 2020, and this ensures that policies to promote their further development are fragmented and weak.

Such assumptions are self-fulfilling. Niche products are always expensive – what is needed is government leadership to create the incentives and certainties that developers, energy suppliers and grid operators need in order to start installing them in households and businesses on a large scale. The more “ The ambitious the strategy, the quicker and bigger the payback.

If this and subsequent governments are serious about developing a secure, diverse and sustainable energy economy, then micro-CHP boilers, mini-wind turbines, solar water heating and PV arrays are destined to become familiar household fixtures. The question is when?

The case for micro-generation has five dimensions. Micro-generation could be a powerful driver for behaviour change, carbon reduction, fuel poverty, security of supply and economic value.

more ambitious the strategy, the quicker and bigger the payback”

behaviour change Micro-generation gives an unprecedented opportunity for engaging consumers in climate change solutions and influencing them to use energy more efficiently.

As consumers we often fail to relate our concern about climate change to our energy use at home. Thanks to privatisation and liberalisation, UK electricity prices have fallen by around 22 per cent since 1990 in real terms. This trend is beginning to reverse but there is still precious little incentive for adjusting the thermostat, or resisting the temptation to opt for standby rather than walking the few paces to the television off-switch. Now that many bills are being taken care of by direct debit, we lack any feedback on our level of energy use from day to day and season to season. It is not surprising that consumers struggle to gauge, feel, or understand the impact of home life on climate change.

As a result it is also not surprising that the Government is curbing its ambition for carbon reductions through domestic energy saving: the Energy White Paper forecast of 5 million tonnes of domestic carbon savings by 2010 has already slipped to 4.2 million tonnes, only one year on.

But while it may not be surprising, it is not tenable to let us consumers off the hook in this way. Neither is it generally effective to exhort people to action through the medium of TV adverts or newspaper slogans.2 A large part of the answer lies in allowing energy unit prices to rise, so that consumers have to pay more attention to their energy use to keep bills down. Better feedback in bills can also help people compare this month’s energy use with last year’s equivalent, or with their house type average, and cut out excessive use – if you can persuade direct debiters to read their bills in the first place.

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A micro-generation manifesto

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But a crucial piece of the puzzle – giving consumers a clearer sight of the bigger picture – is micro-generation. There’s nothing like generating clean, green energy in-house to help close the gap in people’s minds between the origins and impacts of energy, and the way they use it at home.

Micro-generation will make the public co-producers of climate change solutions rather than passive consumers of energy, helping to combat the “what can I do?” apathy that undermines so many well-meaning public education campaigns.

Crucially, micro-generation technologies are visible components of the climate change solution. The innovative new micro-CHP boiler, the solar panels on the roof, the micro-wind turbine in the garden, are visible acquisitions through which people can proudly demonstrate their self-sufficiency and their commitment to climate action. Unlike hidden cavity wall insulation, they can get people talking, and act as daily reminders to keep the energy use down. The bottom line is that, as visible purchases, they have far more feel-good factor and commodity value than lagging.

This is not to downplay the importance of getting the walls insulated and the windows double-glazed. Micro-generation acts as a catalyst for people to do the energy efficiency bit first, to cut the size and cost of the micro-generation system that they need to cover a good proportion of their energy demand.

“ generating your own energy gives you an immediate incentive to keep an eye on how you use it”

Finally, generating your own energy gives you an immediate incentive to keep an eye on how you use it. Once the potential is there to keep bills down to a minimum, people will try harder to match their use to their own generation capacity as closely as possible.

But our definition of micro-generation is not restricted to its use in individual households. Neither is its communication potential. Biomass heat networks for new residential developments; solar hot water and solar PV panels on new school buildings; micro-wind turbines lining local council buildings – all these initiatives bring climate change solutions into people’s everyday lives, and help them think through the origins of the energy they use.

carbon reduction Micro-generation will not only make a significant direct contribution to carbon reduction targets, it will also trigger a multiplier effect, by engaging hearts and minds, and catalysing more efficient use of energy by householders.

In combination with stringent energy efficiency standards in new homes, one or two renewable micro-generation technologies in combination can achieve zero carbon buildings (see BOX F). In existing stock, renewable heat technologies can reduce gas use or, more importantly, replace carbon-intensive electric or oil-based heating systems in the 4.6 million UK homes off the gas network.

Renewable power and gas-fired micro-CHP miss out all the energy loss associated with inefficient central generation of electricity in large power plant, with transmission from one end of the country to another, and with distribution around an ageing set of wires. New Combined Cycle Gas Turbine power stations are on average only 45 per cent efficient, compared to over 90 per cent efficiency for micro-CHP.

7 1.3 million gas boilers are replaced annually in the UK. If just one quarter of these up to 2020 were micro-CHP, this alone would deliver half the Energy White Paper’s 2010 – 2020 domestic sector carbon reductions, and provide 5.5GW of highly diversified generating capacity – the equivalent of 40 per cent of today’s nuclear capacity.3 Building 5 per cent of the new homes under the Sustainable Communities Plan to zero fossil fuel energy specification – generating their low heat and power requirements on site through renewable energy – would save 0.7 million tonnes of carbon per year more than meeting the ‘Eco Homes Very Good’ standard.This would nearly double the anticipated carbon reduction from new build under the 2005 revision to Building Regulations.

Economies of scale means these homes could cost no more than standard homes.4 Installing just six panels of solar PV on a typical new three-bedroom house built to 2002 Building Regulations standards would reduce that household’s carbon emissions by over 20 per cent. If this were repeated on every house to be built between now and 2020, the UK would have 4GW of new solar PV capacity, making us a clear world leader in this technology in line with the Prime Minister’s stated ambition.5

fuel poverty The Government has a target to eradicate fuel poverty in the UK by 2016-18, and to eradicate fuel poverty for vulnerable households in England by 2010, meaning that no household should have to pay more than 10 per cent of its income on fuel. Affordable housing is not just about house prices, it is also about living costs, and it is often the poorest sectors of the population that are burdened with draughty homes and expensive electric heating.

The Government currently spends over £1.85 billion a year on Winter Fuel Payments to subsidise fuel for the elderly. Without accompanying investment in equipping buildings to need less fuel, the annual burden on the taxpayer will only rise as the elderly population grows and building condition deteriorates. Paying now to install energy efficiency measures and micro-generation would be an investment for the medium term, and give vulnerable households low or zero energy bills over the lifetime of the technologies.

Equipping new homes with micro-generation should be another dimension of the drive for affordable homes. Where new buildings are off the gas network, ground source heat pumps linked to under-floor heating become a cost-effective investment, yielding high comfort and fuel savings.

Micro-generation is also particularly well suited to retrofitting in hard-to-heat homes. Of an estimated 23 million homes in the UK, 6 million have solid walls, which puts cost-effective cavity wall insulation off limits. 4.5 million households are off the gas network, often reliant on the discomfort and “ equipping new expense of electric heating, or oil-fired boilers. The fuel bill savings and ease of installation of micro-generation become attractive. homes with The DTI’s Design and Demonstration Unit is developing ideas for pilot projects to assess the practicality of renewable forms of energy in tackling fuel poverty. This is a useful step forward, but the lessons need to be applied swiftly because, as the 2010 fuel poverty target approaches, the Warm Homes and Decent Homes Programmes continue to commit substantial sums which could be more effectively spent.

Despite its potential application in tackling fuel poverty, it is important that the aspirational status of micro-generation technologies is retained for

micro-generation should be another dimension of the drive for affordable homes”

A micro-generation manifesto

BOX A: the power to cut carbon

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all social classes. Government policy should avoid branding them as exclusively aimed at low-income groups and the fuel poor.

BOX B: ground source heat pumps for social housing Ground source heat pumps developed by Earth Energy Engineering and produced by Powergen are being installed in hundreds of social housing projects around the UK. Housing associations are taking an interest, because the heat pumps can reduce heating bills for tenants, and are cost-competitive with oil-fired systems for new rural properties off the gas network. Metropolitan Housing Trust installed ten Powergen HeatPlant systems in March 2004, in new bungalows in Nottingham, in partnership with Westleigh Developments Ltd.The system has now been successfully installed in 60 of the Trust’s properties. Powergen aim to supply at least 1000 heat pumps for installation in the social housing sector across the UK, as part of its Energy Efficiency Commitment (EEC).

Economies of scale have reduced the average cost of the systems in this scheme by £1000.6

security of supply As indigenous energy supplies dwindle, the UK is shifting from being a net exporter to a net importer of gas and oil. This makes us potentially increasingly vulnerable to supply interruptions, due to regulatory failure, political instability, conflict and price fluctuations. Micro-generation is, of course, far less vulnerable to disruption (or terrorist attack) than large power stations or gas pipelines. But its value also lies in its diversity: a diversity of sources and suppliers of energy is the best way to maintain supply reliability.

In the case of power generation, security of supply is not just about plant vulnerability, but also the availability of power to meet peak demand. The diversified profile of power generation by micro-generators, both in terms of location and timing, should insulate networks from the impact of intermittency or one-off plant failures. The most significant gains for security of supply occur where home power generation coincides with peak demand times, as is particularly the case with micro-CHP. Micro-generators can then help to reduce demand at these times, or indeed export power to help meet it, reducing the likelihood of power cuts, and removing the need to bring marginal coal power stations on line.

economic value Micro-generation technologies can create economic value in a number of ways.

They offer consumers the chance to reduce or even remove ongoing energy costs and, for power generation technologies like solar PV and micro-wind turbines, to benefit from the value of exported electricity.

“ micro-generation is far less vulnerable to disruption (or terrorist attack) than large power stations”

They offer energy suppliers the prospect of an added value service to be marketed to consumers, to enhance per-customer income as well as improving customer retention. In a competitive market, the value of brand differentiators and value-added services like micro-generation, as a strategy for increasing market share, should not be underestimated.

This value can be further enhanced if customers are generating their energy at times of peak demand, which saves suppliers the cost of supplying them with electricity when wholesale prices are highest.

By curbing the rising demand for imported electricity, microgeneration can also defer or avoid completely the need for two types of

Micro-renewable energy systems are already often the least-cost option for offgrid applications like parking meters, bus shelters and CCTV.8 Unless you are within a few tens of metres of the low-voltage distribution network, it is not worth installing a new mains electricity connection for small levels of power demand. The smaller the power demand, the more likely it is that a new mains connection will not be the most cost-effective solution.

There are also significant opportunities for UK industry in export markets for micro-generation technologies.9 BOX C: Rural Energy Trust The Rural Energy Trust won the 2004 UK Ashden Award for Sustainable Energy, for developing supply and demand chains for woodfuel in Leicestershire. In the early 1990s, Richard Harvey and the co-founders of this project identified the potential for wood waste as an efficient and cost effective renewable heating fuel – and also its potential to create rural jobs and help wildlife habitat management. In the last 12 months, 11 heating systems have been added, along with wood chip and wood pellet supply chains. Rural Energy Trust will be developing woodchip supply for a 2.5MW district heating plant in Leicester City. With the serious recession in the farming sector (job losses are running at 15 per cent a year), a locally based sustainable woodfuel industry provides an urgently needed alternative to food production to create a thriving, sustainable rural economy. “Rural Energy Trust has been fantastic! The school now has a woodfuel central heating system and a solar thermal hot water system. Rural Energy helped us obtain grants, installed the equipment and worked with members of the student Energy Team.We could have achieved none of this without their help.�

Maxine Adams, Business Manager, Newbridge High School.

system resistance The resistance to micro-generation should not be underestimated. The main sources of this resistance lie in energy markets, where current incentives discourage energy suppliers and grid operators from promoting micro-generation; and in the mindsets of policy-makers long accustomed to big, centralised power projects, and a model of consumer protection that prioritises low energy prices.

energy markets As Catherine Mitchell of Warwick Business School argues, large technical systems like the energy system build up technological momentum, whereby established incentives

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A micro-generation manifesto

investment: first, investment by energy companies to build large new power stations, and second, investment by transmission and distribution network operators in strengthening an ageing network to carry rising power loads. The construction of traditional central power generation infrastructure requires large long-term investments. These investments are becoming increasingly risky, due to a fastchanging regulatory environment, increasing competition and the reluctance of investors to commit to long investment time horizons for large infrastructure projects. Grid reinforcement also involves significant costs. Estimates in Europe indicate that the full process of building new high voltage transmission lines takes approximately eleven years and costs as much as $10,000 per kW per mile. This translates to $10 million to ship 1MW of power for 1mile.7

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lock in institutions, companies and individuals to the status quo technologies. Such momentum is difficult to break. Despite the potential value that can be created by micro-generation for grid network operators and energy companies, there is currently no generalised business case for them to facilitate its uptake. The incentives acting on these organisations are not geared up to realising the efficiencies from bringing energy generation to the point of demand.

Currently, the energy market will reward neither exported electricity (i.e. excess power not used on-site) nor the value of reducing costly peak demand, and without policy interventions it is unlikely to do so until the number of micro-generators crosses a threshold that is currently a distant prospect.

Distribution network operators (DNOs), which are in some cases also licensed suppliers such as EDF Energy, Scottish Power, and Scottish and Southern Energy, manage the low voltage grid to which micro-power generators can connect to export electricity.

Research by Mott-Macdonald for the DTI on the System Impacts of Additional Micro-generation (SIAM)has concluded that micro-generation overwhelmingly drives network costs down.10 Some one-off expenditure by DNOs on optimising network management will be required, but this is far outweighed by the avoided costs of energy losses from centralised plant, and of reinforcing the network to carry increasing power loads to meet demand.

Despite this, DNOs currently have no incentive to help get micro-generators connected to the network. Distribution networks have in the past been developed as essentially passive systems, a one-way flow of electricity down the wires to passive consumers. This needs to change. If the Government’s 2010 targets are to be met, up to 14 GW of new renewable energy and CHP capacity may need to be connected to distribution networks. DNOs will need to manage their networks actively, like transmission networks, to accommodate two-way power flows and variable generator infeeds. While Ofgem is introducing new incentives for connecting large new renewable generation, it is not clear that DNOs yet have a clear incentive to facilitate the development of micro-generation. DNOs are still remunerated according to how much electricity flows down the wires to consumers, rather than for reducing energy losses and improving security of supply via a strategic approach to connecting micro-generation.

Both licensed energy suppliers and DNOs currently receive high-value exported energy from micro-generation without any obligation to return some of this value to the generator. It is high-value energy because it is produced close to the point of demand and will not be subject to standard energy losses in transmission and distribution; it is also high-value if it is generated at times of peak demand when much energy supplied must come from marginally economic coal-fired power stations, as is most clearly the case with micro-CHP. Much of this power exported power currently spills onto the network un-metered, so that supplier cannot take credit for it, and micro-generators go unrewarded.

“ excess generated spills into the power supply of neighbouring homes or businesses�

Excess power generated in fact spills into the power supply of neighbouring homes or businesses. This electricity registers on their import meters. The neighbours pay their respective suppliers for all their electricity, including the part generated next door, but the supplier does not have to recompense the micro-generator for their contribution.

Hence the widespread call for net metering. In net metering, the net of the electricity units consumed and generated is calculated and the customer is billed for the remainder at the usual price. This means the

Generally, it is not currently in suppliers’ interests to volunteer such a policy, except for purposes of ‘green’ branding, and to promote customer loyalty. Some suppliers, like Npower and Ecotricity, are offering payment for the energy cost component of exported power (BOX E). The new electricity trading arrangements (NETA) also discourage export payments, because suppliers can only trade the exported units of power in bulk. Until over 100,000 micro-generators are exporting power simultaneously, the value of the exported power will have to be returned to micro-generators via public policy interventions.

The Renewables Obligation on suppliers is one such intervention. Electricity suppliers are required to produce evidence of their compliance with the Renewables Obligation, which requires suppliers to source a rising proportion of their electricity mix from renewable energy, up to a level of 15.4 per cent by 2015. They can do this using Renewables Obligation Certificates (ROCs), which are issued for each megawatt generated. Alternatively, a supplier can discharge its obligation by paying the ‘buy-out’ price. The level at which this buy-out price has been set, and the requirement for a minimum daily output, has tended to prevent the Obligation from driving investment in micro-renewable power. However, following a 2003 technical revision to the Obligation, micro-renewable generators can, in theory, get some return by selling ROCs to suppliers if their total annual output is at least 0.5 megawatt hours. A generator providing between half and one megawatt hour of electricity in the course of a year will qualify for one ROC, currently worth £49 (see supplier recommendations).

Good Energy, the new brand of UnitE, has developed a business model to support micro-generation on the basis of ROC values. The supplier’s ‘home generation scheme’ offers to pay roughly 4 pence per kilowatt-hour to gridconnected micro-generators for all power generated, whether it is exported or used on-site. The company can reclaim this investment through selling ROCs.

mindsets It is not just institutional arrangements and business models that lock us into the status quo in energy markets. It is also mindsets. Policy-makers are accustomed to an energy system based on big, centralised projects like nuclear or gas-fired power stations. Despite the environmental and economic inefficiencies of “ policy-makers large power stations and long distance transmission and distribution, there are accustomed are perceived institutional efficiencies in hands-on management of a limited number of large generators. Micro-power generation on every to an energy rooftop turns this model on its head. The boundary between consumer and generator becomes blurred, and the traditionally separate fiscal treatment of system based on producers and consumers becomes problematic. Currently, producers are big, centralised companies, who can benefit from the system of government incentives for investment. If consumers become producers, will they be eligible for the projects like same incentives, such as tax relief on loans, depreciation allowances and so forth? The introduction of micro-generation will require a general nuclear power reassessment of fiscal and regulatory regimes, to ensure that householders stations” are encouraged to produce their own power, not penalised.

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customer receives the domestic purchase price for his electricity rather than the much lower retail price.11 Net metering may yet prove to be the most effective and simple way of delivering a policy of increased micro-generation. However, net metering may impose some unfair costs on the supplier, where they are not also the distribution network operator (DNO).12

Policy-makers and regulators are also accustomed to a model of ‘consumer protection’ that prioritises commodity consumption at least cost. In this model electricity and gas are products, which the ‘fuel poor’ must be able to purchase affordably. Thus Ofgem, the gas and energy markets regulator, still perceives its primary duty to be mitigation of any upward pressure on energy prices. But the average consumer is not going to worry about the price of a unit of energy in pence per kilowatt-hour. If they bother to worry at all about the cost of energy, currently at a record low, it is the bill that concerns them: and the bill is as much affected by their energy demand as by the energy price. Demand reduction via energy efficiency and micro-generation will only be driven by higher energy prices, but can still deliver affordable (or even zero) energy bills in conditions of enhanced comfort.

Energy markets need to shift away from selling and regulating electricity or gas as a product, to understanding what a customer wants from energy, namely comfort and convenience at least cost, and climate protection.

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“

Ofgem should also be taking a longer-term perspective when they seek to lower costs for consumers. Innovation is needed in new micro-generation technologies that will be cheaper and more efficient than current models. Ofgem should have a clear remit to promote innovation, and remove any regulatory barriers to emerging technologies as a matter of priority. This could also involve requiring utilities to conduct demonstrations of new technologies that have the suppliers should potential to lower costs and improve performance, as part of their license to operate. The risk of such demonstrations could be shared so be competing on that the company would not be penalised in cases of poor performance.

ability to reduce customers’ bills by providing energy services”

There is a need to reconfigure the relationship between the regulator and supplier. This should be based on working together to remove the supply company’s incentive to increase low-price electricity sales.

Instead, suppliers should be competing on ability to reduce customers’ bills by providing energy services, and investing in innovative technology, to run homes and businesses efficiently and at least cost.

the way forward The common assumption that micro-generation will remain prohibitively expensive until beyond 2020 is a self-fulfilling one. Decisive policies are needed to bring micro-generation out of its niche market.

Three areas of policy development, in particular, would help bring microgeneration into the mainstream. The first is the use of planning and procurement policies to get micro-generation designed into new build, bringing costs down through scale economies. The second is the development of local heat and power networks to capture the real economic and environmental efficiencies of local generation. The third is energy services, which would enable existing householders to pay back the upfront cost of micro-generation at an affordable rate through their bills.

new build The potential to cut micro-generation costs is not restricted to ‘wait-and-see’ technological innovation. The capital and installation costs of micro-generation technologies are artificially high due to the small scale of the current market. There

New homes and buildings can be designed to integrate micro-generation from the start, avoiding all the laboured adjustments and compromises of retrofit. And with the increased level of insulation to be required by new building regulations, or encouraged by the proposed Code for Sustainable Buildings, the systems needed to meet energy demand can be smaller, and cheaper.

So the obvious place to start to mainstream micro-generation is with new buildings. The scale of proposed government investment in new homes and public buildings is substantial. The Government’s £38 billion Sustainable Communities Plan will deliver 30,000 extra dwellings a year, bringing the total number of new homes each year to 180,000. The anticipated carbon emissions associated with these new homes by 2016 will be 4.2 million tonnes of carbon per annum.13 If the recommendations of the recent Barker review, into housing supply and affordability, are taken up, the house-building programme will double to 4.5 million by 2016, with carbon emissions up by 7.8 million tonnes in 2016.

“ the obvious place to start to mainstream micro-generation is with new buildings”

Meanwhile the Department for Education and Skills has set in motion a programme designed to rebuild or refurbish every secondary school in the country in the next 10 to 15 years. Ninety-six new acute hospitals are also in the pipeline, to be funded through the Private Finance Initiative (PFI). Every development where micro-generation or community heating is not assessed is an opportunity lost for saving carbon emissions.

If all new publicly procured buildings were designed to generate a proportion of their own energy needs, micro-generation technologies could be produced on a scale that would bring costs down substantially. The same supply chains could then make the technologies available to householders for retrofit, at greatly reduced prices. A crucial opportunity to deliver this vision lies in the new Code for Sustainable Buildings, as recommended by the Sustainable Buildings Task Force, which the Government plans to develop and roll out by early 2006. This will be a voluntary standard to benchmark best practice, but the Government can use the procurement and planning systems to ensure that its standards are widely met.

Achievement of high scores within the Code’s framework should require a significant proportion of on-site renewable energy generation and CHP. BOX D: zero energy developments Prototype zero carbon developments, such as Beddington Zero Energy Development (BedZED) achieve about one third of their carbon reduction through micro-generation.

The architect of BedZed, Bill Dunster, has calculated that, while the premium for 100 zero energy dwellings is 30 per cent, at 1000 units it is only 15 per cent, and at 5000 units supply chain efficiencies have cancelled out the premium. It follows that the greater the number of ZED specification planning briefs, the lower the planning gain that would need to be offered to cover the premium.14

Private Finance Initiative (PFI) contracts for new hospitals and schools are typically 25-30 years long, and embrace the design, construction and running of the building. In theory such long-term contracts should give contractors an incentive to invest upfront in micro-generation technology to reduce ongoing

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are also big costs associated with sizing systems to meet the heat and power demands of draughty old homes – even after a little pre-emptive loft insulation and double-glazing – and with tacking them on to roofs or plumbing systems designed in previous centuries.

energy costs. In practice, however, private finance is averse to taking on the ‘lifecycle risk’ of new, innovative technologies even when these are widely proven. The ‘completion risk’ borne by contractors – to ensure they build on time and to budget – also means that the costs of finance for the design and construction phase are higher than the costs of finance for on-going operating costs. Any savings on operating costs thus have to be proportionately higher to justify increased capital costs, which the contractor will try to keep as low as possible. If new schools and hospitals are to be flagships for sustainable development, then procuring departments and authorities will have to be more active in specifying the need for on-site micro-generation.15

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Private sector house-builders are also notoriously conservative, but not beyond the reach of carrot-and-stick regulation by central and local government in the public interest. Both Building Regulations and positive planning policies have an important role to play in encouraging use of micro-generation in new homes and development.

Positive planning policies enable regions and localities that are best placed to invest in micro-generation at this stage to lead the way, and help realise economies of scale that will enable regulations to set more demanding minimum standards in future.

The Greater London Authority has introduced a statutory policy that “the Mayor will, and boroughs should, require major developments to show how the development would generate a proportion of the site’s electricity or heat needs from renewables, wherever feasible”.16 Merton Borough Council has adopted a precedent-setting policy in its local plan, which sets an expectation that any new non-residential development over 1000 square metres should generate ten per cent of its energy requirements through on-site renewable energy. At least forty authorities, including Edinburgh and Liverpool, are currently considering the inclusion of similar policies in their local plans, in many cases extended to CHP. The clear support given to such policies in the August 2004 Planning Policy Guidance on Renewable Energy (see developer incentives) will give these authorities new confidence to go ahead.

“

One option would be for local authorities to set micro-generation targets in local plans that are proportionate to land value. This would mean that areas that could most easily afford the upfront capital costs would bear more responsibility for delivering national targets (and helping to drive costs down) than more marginal areas with lower residual land values. Where the Government building is a significant landowner, as in the Thames Gateway, site planning briefs can mitigate any ‘burden’ on developers by offering increased build regulations density or reduced land cost in direct proportion to increased costs incurred by higher targets for micro-generation and energy efficiency. have an

important role to play in driving investment in technological innovation”

Building Regulations have an important role to play in driving investment in technological innovation, to bring forward a new generation of more efficient micro-generation technologies. This will only happen if the Government clearly signals future rising standards for carbon emissions, beyond what can be met by existing technologies. The ODPM ‘forward look’ papers have begun to address this, and the new voluntary Code for Sustainable Buildings could play an important role in anticipating future minimum standards.

Micro-generation does not have to be confined to the scale of the individual household. Energy service companies or local authorities can manage communityscale networks to supply locally generated heat and power to new or existing developments with maximum economic and resource efficiency.

Given the mass transmission and distribution networks for electricity and gas already in place, such community networks can seem like an unnecessarily expensive choice. But developers generally bear the cost of extending pipelines and strengthening wires to new developments. National Grid Transco and the DNOs are having to invest ever greater sums to reinforce wires and pipelines to meet rising energy demand. These ongoing costs are passed through to consumers and any power generators that want to feed into the network. The high energy losses associated with long distance transmission and distribution of electricity also impose costs, both in terms of economic and energy efficiency. District combined heat and power, fuelled by gas or biomass, offers an opportunity to capture waste heat from local power generation and circulate this in heat networks.

Community heat or power networks are one model for making local generation more affordable and environmentally efficient, by leaving out the costs and inefficiencies associated with national network use. Woking Borough Council has pioneered private wire networks in the UK. The use of private wires enables green electricity to be sold directly to the customer, rather than exporting the electricity to the national grid and incurring ‘use of systems’ and losses charges. Woking has set up an energy services company (ESCO), Thameswey Energy, which manages the generation of heat, chilled water and power from a fuel cell CHP plant, solar PV array and absorption cooling technology. As a small generator/supplier the ESCO is able to sell the electricity, heat and chilled water directly to customers on the private wire and heat networks, rather than to a licenced supplier.

“ community heat or power networks are one model for making local generation more affordable and environmentally efficient”

There are over 600 community heating schemes in the UK, some of which already utilise CHP. Community heating provides a significant opportunity for biomass heating. Biomass energy is most economically viable when the heat potential is exploited. This is most effectively achieved by locating heat and CHP plants so that they can be linked at reasonable cost to heat-distribution networks. In Scandinavia heat distribution networks can extend economically for tens of kilometres and reach tens of thousands of homes and other premises.

BOX E: Bracknell town centre redevelopment Bracknell Forest Borough Council has formed a partnership with Thames Valley Energy, Waitrose, SEEDA, Slough Heat and Power and the University of Reading, to develop a state-of-the-art district heating, cooling and power system to serve the town centre, run on woodfuel. Waste wood thinnings from local forests and woodland will help power the energy plant in the short term, with new short rotation coppice planted to provide fuel in the medium to long term. The proposal has received a CONCERTO grant from the EU.

New-build residential areas, hospitals and industrial complexes are the most likely applications for heat distribution networks but, for existing schemes, replacing fossil fuel boilers with biomass heating boilers is a relatively simple and economically-viable option.

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local heat and power networks

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Incorporation of micro-generation into a proportion of the 180,000 new homes built each year will help transform the market, but it is important to remember that the existing stock of homes numbers around 24 million.

If micro-generation is to be taken up by existing householders for retrofit, new forms of energy contracts, or energy service packages must be developed. These could allow the upfront cost of the technology and installation to be paid back through bills over a longer period, and to be offset by tariffs that reward electricity generated and/or exported, especially at times of peak demand.

“

Energy suppliers could lease micro-generation equipment to consumers, businesses or housing associations, providing an ongoing source of revenue to the supplier and a more attractive form of payment for customers. The technology would be rented to consumers through a package including electricity energy suppliers supply and purchase of electricity exports (and possibly gas supply in the case of micro-CHP). With equipment leasing linked to supply in one contract, there is also less risk that micro-generators are not properly could lease rewarded for electricity they export.

micro-generation equipment to consumers”

Such leasing contracts would also ensure increased levels of control and service of the technology, by energy suppliers and the associated micro-generation industry, thereby avoiding potential loss of customer confidence from poor quality installation or lack of local servicing skills.

An alternative form of leasing contract would be heat and power leasing, in which a company installs micro-generation on domestic premises but retains ownership of the equipment, and probably acts as electricity supplier to the householder (and heat provider in the case of micro-CHP). The customer pays for the amount of energy/heat taken, and capital cost for the equipment is paid through a charge on the heat units delivered.

The advantage of delivering micro-generation through energy services is that energy efficiency and micro-generation investment can be optimized in one holistic package. Visible micro-generation technologies are more marketable commodities than cavity wall insulation or lagging. But suppliers can advise customers to optimize their micro-generation investment through an energy audit and baseline energy efficiency measures.

Consumer protection policy has in the past acted as a barrier to energy service packages, by suppressing energy unit prices and regulating against long term fixed contracts that would prevent customers switching suppliers at short notice: the socalled ‘28-day rule’.17 Theoretically, suppliers can offer long term contracts on ‘goods and services’ like micro-generation, but they still face the risk that the supply part of the contract could be switched away to another supplier, and this has reduced the attractiveness of this option.

Ofgem is piloting a limited relaxation of the 28-day rule to assess how great an obstacle to energy services this is in practice. It is not yet clear that suppliers perceive a sufficient business case in diversifying away from competition around least cost supply.

A contract involving micro-generation could have a wide range of potential value streams for a licensed supplier, including lease-finance, electricity supply, electricity export, gas supply (for micro-CHP), maintenance and insurance. But the transaction costs involved in energy services are higher, and the potential to improve customer share and retention is as yet unproven.

Equipment or heat and power leasing is not the only way to overcome the upfront cost barrier on micro-generation. Suppliers and finance companies are also expressing an active interest in developing new financial products, such as preferential loan rates on micro-generation investments or even new financial packages linked to home mortgages or insurance products.

Energy suppliers are unlikely to be the only players in any emerging energy services market. Familiar household names without any previous involvement in the energy industry are already lending their marketing weight to established energy suppliers. With their vast customer base and reputations, food retailers such as Sainsburys and Tesco could team up with suppliers, or form their own energy service divisions, to extend credit in support of innovative energy service offers. Engaging a range of trusted brands in energy service marketing could help increase customer confidence in energy audits and subsequent recommendations.

“ energy suppliers are unlikely to be the only players in any emerging energy services market”

a micro-generation strategy The Government has made an important commitment in the Energy Act 2004 to develop a micro-generation strategy. This section sets out a broad framework of policies that Green Alliance and the Energy Entrepreneurs Network hope will be addressed in the government strategy.

The Energy Act broadly defines micro-generation as the use for the generation of electricity or the production of heat of any plant which has a capacity below 50KW electricity or 45KW thermal, and relies wholly or mainly on biomass, biofuels, fuel cells, photovoltaics, water (including waves and tides), wind, solar power, geothermal sources, or a combined heat and power system.

In preparing this strategy, the Secretary of State has committed to considering “the contribution that is capable of being made by microgeneration to (a) cutting emissions of greenhouse gases in Great Britain; (b) reducing the number of people living in fuel poverty in Great Britain; (c) reducing the demands on transmission systems and distribution systems situated in Great Britain; (d) reducing the need for those systems to be modified; (e) enhancing the availability of electricity and heat for consumers in Great Britain.”18 The Government has already shown commitment to promoting some forms of micro-generation through capital grants programmes and improved access to the grid network. However, micro-generation is still confined to a niche market, and needs to break through with economies of scale before it becomes accessible to the majority. A wide range of policies is needed to address the market failures that prevent the value of micro-generation benefits being returned to micro-generators.

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If energy services are to be given a fair trial it will take more than relaxation of the 28-day rule. Creative public policy intervention is needed to create clear incentives for suppliers to market energy services, and to compensate for low energy prices by giving consumers tax benefits from whole house improvement via energy efficiency and micro-generation.

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The strategy should aim to join up policy between ODPM, HM Treasury, the DTI and Defra, to reward the benefits of micro-generation, realise its communication potential, and help accelerate the economies of scale needed to bring down the upfront costs.

The strategy must be published within 18 months of the Energy Act entering into law, ie by December 2005.The DTI currently proposes to consult on a proposed strategy early in 2005, with a view to publishing the final strategy by the end of 2005.

However, it is important that the Government should seek early dialogue with the micro-generation industry, local and regional planning authorities, energy suppliers and the construction industry to ensure that there is appropriate ambition in policy proposals.

The strategy should aim to generate sufficient demand for micro-generation technologies to enable significant scale economies in production. Without these scale economies, unnecessary costs will be imposed on householders, developers and energy suppliers.

“ excessive paperwork requirements could fatally undermine public interest in home energy generation�

However, policies to drive demand should be phased, according to a clear timetable, to enable the micro-generation industry, installers and developers to plan for additional capacity and training to meet this rising demand efficiently. The Government should ensure that only quality, accredited suppliers can benefit from grants, fiscal incentives or planning requirements for micro-generation. It is also vital that the Government develops simple and clear procedures for householders and small businesses to benefit from grants and other policies to encourage microgeneration and export to the grid.

Excessive paperwork requirements, or slow response and poor service by micro-generation companies, could fatally undermine public interest and confidence in home energy generation.

Climate Change Programme review In the latter half of 2004, the Government will review their climate change policies to assess whether they are on track to deliver the UK’s 20 per cent carbon reduction target by 2010. This review represents an ideal opportunity to take a fundamental look at the scope for micro-generation to engage consumers in climate change policy.

Defra is planning a climate change communications project in recognition of the fact that awareness of the serious implications of climate change is low, and that where it exists it often fails to translate into responsible energy use in the home. The domestic energy efficiency target for 2010 has already slipped by nearly a million tonnes of carbon as a result.

Instead of scaling back ambition in this sphere, the review should make consumer engagement its key aim. It should as a priority give clear political support to micro-generation as a means of engaging consumers in climate change policy, and catalysing more responsible energy use. recommendation: The Climate Change Programme review should give clear political support to micro-generation as a means of engaging consumers in climate change policy.

progress so far: ● ● ● ● ● ●

New provisions for simple import/export metering and simple connection.

Clear Skies and Major Demonstration Programme grant schemes.

Community Renewables Initiative and proposals for Sustainable Energy Centres (see advice and training).

VAT reductions on ground source heat pumps and micro CHP. Carbon Trust sponsored micro CHP field trials.

Fuel Poverty Strategy: 6000 micro CHP units to be trialled in fuel poor homes.

Public policy should reward all forms of micro-generation that displace the carbon embodied in imported electricity and gas, and lost in generation and transmission from centralised power plant. However, specific policies are also needed to ensure that power-exporting generators are rewarded in line with the value of the exported power. capital grant schemes There are currently three capital grants programmes with application to microgeneration: the Major Demonstration Programme (MDP) for solar PV; the Clear Skies programme for micro-renewables; and the Community Energy scheme for CHP and local heat networks.

The Government has committed in two White Papers to a 2002-2012 ten year solar PV Major Demonstration Programme (MDP) in line with the UK’s major competitors. The first phase of the MDP has been highly successful in bringing down costs, leveraging private sector investment and in attracting many new players to the UK solar PV market. Phase Two of the ten year programme is currently on hold, due to the Government’s decision to introduce a new capital grant programme for all building-integrated renewables and energy efficiency technologies, as recommended by the 2004 Renewables Innovation Review. However, the start date, funding and departmental sponsor of this new scheme are as yet uncertain, while the Major Photovoltaics Demonstration Programme and Clear Skies programme are both due to end in March 2005. The resulting uncertainty for the micro-renewables industry is already impeding future investment, job retention and development planning. The Government should therefore confirm a oneyear extension to both the Major Photovoltaics Demonstration Programme “ grants alone and Clear Skies at the earliest possible date. This would ensure continuity of cannot make support and allow the necessary time to develop and implement the proposed new funding scheme in 2005/6. these Grant schemes are currently invaluable in building a market for microgeneration. However, they will not be sufficient to transform that market. It takes an enthusiast to seek out these grants and shoulder the remaining upfront costs. Grants alone cannot make these technologies become an accepted norm for householders and businesses.

technologies become an accepted norm”

home energy ratings From 2007, all houses for sale will need an energy label or rating in their ‘home information packs’. This requirement has been transposed from the EU Energy Performance in Buildings Directive into the Housing Bill. Energy labelling represents a good opportunity to get 1.2 million home sellers each year interested in installing micro-generation technologies to increase their property value. Defra is still

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deciding how the ratings should calibrate to energy performance. Ratings should be designed to reward micro-generation as well as conventional energy efficiency measures like loft insulation.

If A-rated houses, for home information packs, had to generate a specified proportion of their energy requirements on-site this would help to consolidate the aspirational status of micro-generation technologies. Another approach would be to require A-rated homes to be net exporters of electricity to the grid. This could be an even more effective way of engaging consumers, as an A-rated home would represent an income-generating opportunity. However, this would promote technologies that generate electricity, like micro-CHP, over those that provide renewable heat, such as wood pellet boilers. fiscal measures If energy services are to be successful it will take creative marketing by energy suppliers and clear incentives for uptake by consumers. There is an urgent need to establish a coherent set of fiscal incentives for energy ‘demand reduction’, applicable across both energy efficiency and micro-generation technologies.

VAT reduction across micro-generation technologies is important, to remove the perverse VAT differential between energy use, at 5 per cent and demand reduction measures, at 17.5 per cent. Solar technologies already qualify for VAT reduction, and this was extended to ground source heat pumps and micro-CHP in Budget 2004.

Woodfuel boilers are still subject to the higher rate. Consistent application of enhanced capital allowances (ECAs), refused in the 2004 Budget to solar PV, is also needed to stimulate business investment in both energy efficiency and microgeneration. Given the likely importance of equipment-leasing models for microgeneration uptake, ECAs should be available for leasing payments as well as capital cost. Such measures would help reduce costs in the short term and increase the likelihood of micro-generation technologies being taken up in energy service offers or building regulations compliance.

However, where there is no inherent market for micro-generation such incremental cost adjustments may not be sufficient to drive consumer interest.

Measures are needed that will encourage a ‘whole-house’ or ‘significant home improvement’ approach to carbon reduction in the home. In other words, fiscal incentives need to be used to encourage homeowners and landlords to assess the carbon footprint of their property, and to make the necessary changes across the board, in order to increase their property value.

“ measures are needed that will encourage a ‘whole-house’ or ‘significant home improvement’ approach to carbon reduction”

The introduction of energy ratings in home information packs in 2007 is an ideal opportunity to introduce a decisive fiscal incentive to motivate homeowners to invest in micro-generation and energy efficiency. Rebates from stamp duty or council tax for homes with a good energy rating would give a clear incentive. Tax avoidance is a powerful motivator.

Surcharges for poorly-rated homes could help keep the policy revenueneutral, but low interest credit schemes are needed to make capital available for such investment among lower income groups. A welldeveloped market in energy service provision by suppliers would overcome this barrier (see supplier incentives).

The 2003 HM Treasury consultation on economic instruments to promote energy efficiency dismissed personal tax rebates or stamp duty rebates on the grounds that they “would be administratively complex and would also give weak signals”.19 However, no evidence was provided for this statement. The refusal to consider such ‘whole house’ approaches was

export reward Since 1991 Germany has rewarded export of renewable power to the grid with a guaranteed premium price or feed-in tariff. The tariffs are set for each individual technology, based on its actual generation cost. Until 2002 this premium price had to be paid by the utilities, but this obligation has now passed to the grid operators.

Similar models have been adopted in Spain, France, Austria, the Netherlands, Luxembourg, Greece and Portugal. The feed-in tariff model should be considered as one approach to overcoming some of the market failures that, in the UK, currently prevent the value of exported power being returned to the micro-generators. To make this model cost-reflective, the tariff could be set according to the standard generation and export profile of each technology.

Metering is the obvious basis for accurately measuring and rewarding export of surplus power by micro-generators. However, where electricity exports are small, some metering solutions may not be cost-effective. Net metering would secure the best deal for micro-generators but, as discussed above, is not strictly cost-reflective, and by measuring only the net export or import may make trading of exported electricity by suppliers unviable.

Currently half hourly meters are required to measure the exported electricity for systems larger than 15 KW. At a cost of ÂŁ800-1000, such meters cost more than any feasible return from settlement or ROC payments, and as such are a big barrier to grid connection. The threshold for half-hourly metering should be raised to more than 50KW and, for very small generators, settlement for electricity exports by way of export profiles may be the way forward. In the case of micro-CHP, such profiling will depend for accuracy on effective monitoring of technology performance through field trials. In the case of micro-wind turbines, simple export metering is required to reflect the variation in output profiles according to wind speed. distribution charges A new electricity distribution charging system will be finalised by January 2005, for implementation by DNOs in April 2005. Despite recent research for the DTI that demonstrates that additional micro-generation will overwhelmingly drive down costs for DNOs,20 it is currently proposed that micro-generators should pay an additional capacity charge to DNOs in common with all distributed generation. This would be counter to the principle of cost-reflectivity, which requires that distribution charges should directly reflect network costs. Therefore microgeneration should be exempt from any additional capacity charge for distributed generation.

Renewables Obligation Certificates Following a technical revision to the Renewables Obligation, micro-renewable generators can now, in theory, sell Renewabes Obligation Certificates (ROCs) to suppliers if they generate at least 0.5 megawatt-hours in a year. The average householder in Npower's pilot 'solar account' scheme, for instance, will generate sufficient electricity to be eligible for one or two ROCs each year, which would currently bring in ÂŁ49 each. However, to apply for ROCs the micro-generator currently needs to complete a 25-page application document and supply regular meter readings to Ofgem. The average householder will struggle to fill out a 25-page application scheme for ROCs. Ofgem needs to make it feasible for suppliers

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widely seen as a significant weakness in the consultation and current government position. Pilot trials of variable council tax are urgently needed to deliver an evidence base for their wider application.

to apply for ROCs on their customers' behalf. However, the cost of Ofgem-approved meters for each micro-generator may cancel out the value of the ROCs for suppliers.

The DTI should take further legislative steps to ensure that the metering requirements for micro-generators to apply for ROCs are not prohibitive, and to support supplier buy-back schemes.

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“

Winter Fuel Payments Currently, £1.85 billion is spent on winter fuel payments (WFPs) annually.

The system of WFPs could be used more effectively to encourage £1.85 billion elderly homeowners not eligible for free installations under the Energy is spent on Efficiency Commitment or Warm Front to reduce their fuel needs. As an alternative to the standard WFP the Government should offer installation of winter fuel cavity wall insulation and/or micro-generation to achieve annual bill reductions greater than the value of the standard payment, as well as payments enhanced comfort. The standard payment should be reduced to crossannually” subsidise this programme and encourage the elderly to opt for home improvement.

recommendations for consumer incentives: ●

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The Government should confirm a one-year extension to both the Major Photovoltaics Demonstration Programme and Clear Skies, until March 2006, at the earliest possible date.

VAT reductions and ECAs should be applied consistently across all microgeneration technologies, to ensure their fiscal treatment is equivalent to that of energy units.

ECAs should be available on revenue payments for leased equipment, in recognition of the likely importance of equipment-leasing models.

Stamp duty rebates for low carbon homes should be introduced to coincide with new home energy ratings in 2007.

Pilot trials should be held to assess the impact of revenue-neutral council tax banding, based on Standard Assessment Procedure (SAP) ratings, on consumer uptake of energy efficiency and micro-generation, and quantify the likely administrative costs.

Energy performance rating A in new home information packs should require a specified proportion of on-site energy generation.

The threshold size for micro-generation systems subject to the costly half-hourly metering requirement on grid connection should be raised to more than 50KW. For very small generators, export and import profiles should be developed as a basis for settlement for electricity exports.

The feed-in tariff model, which gives a premium price for exported electricity, should be considered as one approach to returning the value of exported power to micro-generators. To make this model cost-reflective, the tariff could be set according to the standard generation and export profile of each technology.

Micro-generators should be exempt from the proposed additional capacity charge by DNOs for distributed generation, to reflect their network benefits.

The DTI should take further legislative steps to ensure that the metering and paperwork requirements for micro-generators to apply for Renewables Obligation Certificates are not prohibitive.

Government should offer installation of energy efficiency measures and/or micro-generation as an alternative to Winter Fuel Payments. The standard WFP should be reduced to cross-subsidise this programme.

progress so far: ● ●

28 day rule relaxation pilot scheme.

2003 technical revision to the Renewables Obligation, enabling micro-renewable generators to sell ROCs to suppliers on basis of annual output.

Energy Efficiency Commitment The Energy Efficiency Commitment (EEC) is currently the major policy mechanism for improving the energy efficiency of existing homes. Each supplier has an energy saving target, which they can meet by encouraging householders to install energy saving measures. The Government has proposed an expansion of EEC to run from 2005 to 2012, at roughly twice its current level of activity in the second phase, to deliver carbon savings of around 1 million tonnes of carbon by 2010.

The Energy White Paper acknowledges that this level of obligation will require energy suppliers to take up a substantial proportion of the potential for higher energy efficiency in homes, but the easiest approaches have been made under the current EEC programme. Currently, suppliers perceive EEC as a burden, and seek to comply at least cost. As the Energy White Paper acknowledges, “While energy suppliers are selling energy saving measures under EEC, few have sought to develop new markets in energy services”.21 The forthcoming EU Directive on Energy End-Use Efficiency and Energy Services will require member states to provide credible incentives for energy suppliers to offer energy services and energy efficiency measures. If EEC is to be effective, householders have to take advantage of suppliers’ energy efficiency offers, and this is a challenge. The forthcoming trial suspension of the 28-day rule, which has been introduced as an incentive for the development of energy services, offers an opportunity to evaluate the commercial potential for new innovative approaches.

Energy suppliers need an incentive to market offers creatively, and to harness consumer interest by combining energy efficiency with micro-generation.

Suppliers and NGOs agree that there is an urgent need for more creative options to be proposed giving an incentive for suppliers to move beyond least-cost compliance, and permitting third party implementation of household or SME demand reduction projects. Micro-generation technologies offer more attractive marketing propositions for suppliers, and could act as a hook for broader energy efficiency investment by consumers.

But unlike the Renewables Obligation, there is currently no incentive for suppliers to compete with each other to offer the best energy services packages, because there are no certificates to be traded if they exceed the commitment.

Trading schemes, based on ‘white certificates’ for energy efficiency, are already being developed in France, the International Energy Agency is studying the potential of this model at an international level, and a number of other countries are actively considering the issue. Tradeable demand reduction certificates would give energy suppliers an incentive to apply their marketing expertise to promoting all means of reducing the carbon footprint of energy demand, micro-generation included.

The Government has indicated that it is willing to consider more market-based approaches for the third phase of EEC, for which a target will be set in 2008. In the meantime, the second phase of EEC from 2005-2008 can help support micro-

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supplier incentives

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generation technologies through ‘uplifts’, meaning that suppliers would score extra points towards their target by installing micro-generation.

A micro-generation manifesto

Renewables Obligation Certificates A customer acquiring one ROC alone will find it difficult to sell this to the market. However through a buy-back arrangement suppliers can consolidate ROCs and sell these to the market bundled together. This will give suppliers an incentive to pay householders for any renewable electricity generated, whether it is exported or used on-site. However, the commercial value of this kind of package depends on the cost of approved meters for obtaining ROCs. The incentive for suppliers and micro-generators will not exist until Ofgem approves affordable metering solutions or profile-based data for ROC applications. fuel poverty If a credible incentive mechanism is to be developed in the UK, there is also a need to evaluate the effectiveness of current approaches that merge fuel poverty and energy efficiency objectives. Fuel poverty obligations may constrain the cost-effectiveness of market mechanisms to deliver energy efficiency, and there is a need to explore how fuel poverty might be addressed alongside such instruments. The fuel rich may prove to be more responsive targets for suppliers marketing micro-generation. recommendations for energy supplier incentives: ● ● ●

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Government should develop proposals for a market-based trading mechanism in demand reduction certificates to succeed the existing EEC scheme in 2008.

Uplifts should be given to micro-generation technologies under EEC2 to support their role in energy service packages.

The DTI should take further legislative steps to ensure that the metering requirements for micro-generators to apply for Renewables Obligation Certificates will not involve prohibitive cost, and to support supplier buy-back schemes.

The potential to de-merge fuel poverty and energy efficiency policies should be explored, in order that the fuel rich might be cost-effectively targeted, particularly with micro-generation.

Ofgem should have a clear remit to promote innovation, and remove any regulatory barriers to emerging micro-generation technologies as a matter of priority.

developer incentives progress so far: ● ●

Clear support in PPS22 for local authorities requiring on-site renewable energy generation in large new developments.

Draft Part L Building Regulations introducing ten per cent carbon reduction through micro-generation as an alternative to further energy efficiency measures for commercial buildings.

In PFI contracts micro-generation paybacks become more affordable thanks to the bundling of capital and operating costs in a unitary payment. However, contractors are reluctant to propose it in one-off bids, due to risk aversion and uncertainty about its acceptability to procuring authorities. Government departments should therefore specify a proportion of on-site generation from renewable energy or CHP as a target for a group of deals, or ‘programme’. Microgeneration is particularly appropriate to the Building Schools for the Future programme, as such visible climate change solutions are a valuable educational aid for teaching science, citizenship and sustainable development. The Exemplar Designs developed for this programme are good on energy efficiency but make scarce use of visible micro-generation. The Design Quality Indicators, which will be the basis of the departmental approvals process for projects, should remedy this.22 Another opportunity lies in the Government’s Decent Homes programme. Whether through PFI or conventional procurement, £7 billion investment is earmarked to bring council housing up to the decent homes standard by 2010. One million homes are still to be refurbished. In its evaluation of this programme, HM Treasury should emphasise the role that micro-generation can play in meeting the standard and reducing energy bills for tenants, especially in hard-to-heat homes with solid walls, or those off the gas network.

“ another opportunity lies in the Government’s Decent Homes programme”

Government procurement also has a vital role to play in helping to bridge the gap between demonstration and commercialisation for emerging micro-generation technologies. Public bodies (or regulated energy companies) could make a forward commitment to purchase a significant volume of a new technology, at a defined price, if a demonstration project meets a previously agreed standard. This would attract private funding for the demonstration and, critically, allow pioneering companies to engage with their supply chains on the basis of a definite future order.

planning The Government made a welcome commitment in the Energy White Paper to examine “how to bring consideration of the use of renewables and energy efficiency in developments more within the scope of the planning system, in the context of the review of PPG22 and the Government’s wider planning reforms, and in a way that does not impose undue burdens on developers”.23 A very important step has been taken towards this goal in the new Planning Policy Statement on Renewable Energy (PPS22), published in August 2004. This confirms that “Local planning authorities may include policies in local development documents that require a percentage of the energy to be used in new residential, commercial or industrial developments to come from on-site renewable energy

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procurement The Government has accepted the recommendation by the Sustainable Buildings Task Force for a new Code for Sustainable Buildings, to benchmark performance above building regulations minimum standards. The Code will enable a consistent best practice standard to be developed, building on the BRE’s BREEAM methodology, but setting minimum standards on energy (as well as waste, water efficiency and materials use). A project group and senior steering group are developing the Code, with a view to a national rollout by early 2006. The Code framework should be developed so that achieving a high score requires a significant proportion of on-site generation of renewable energy or CHP. The Government should specify this high score as the minimum requirement for all publicly procured buildings.

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developments”. It also states that local planning authorities should specifically encourage renewable energy schemes in all new developments through positively expressed policies in local development documents.

Merton and Woking Borough Councils and the Greater London Authority have already introduced local planning policies requiring on-site renewable energy generation in large new developments, and over forty councils, including Edinburgh, Bristol, Belfast and Liverpool, are now planning to take a similar approach.

“ the Sustainable Communities Plan should be seized as an opportunity to set targets for micro-generation”

Local development policies promoting on-site renewable energy generation should also give support to community and domestic gas-fired CHP, which can achieve significant carbon savings and share the advantages of renewable generation as a means of engaging businesses and householders in co-production of energy. In line with the recommendations of the Royal Commission on Environmental Pollution’s recent report on biomass,24 we recommend that the ODPM encourage councils to require new developments to include biomass district heating and CHP wherever it is feasible.

The Sustainable Communities Plan should be seized as an opportunity to set targets for micro-generation that will enable a dedicated supply chain to reduce technology costs across the board, through economies of scale.

Where the Government is the landowner, as is the case for a significant proportion of the Thames Gateway growth area, there is clear potential for offering developers reduced land costs and/or increased build density to offset the increased capital costs of more on-site generation. This strategy is consistent with affordable homes targets, in that homes with micro-generation are insulated from the social impact of future energy price rises.

Building Regulations By helping bring prices down through economies of scale, pioneering planning authorities can help pave the way for building regulations to progressively raise national minimum standards on micro-generation.

The Government proposals for the 2005 amendment of Building Regulations Part L, which deals with energy performance, represent a useful step forward. The Energy Performance in Buildings Directive requires that Member States take the feasibility of renewable energy systems and CHP into account at the design stage of large new developments (over 1000 square metres). The Government has elected not to prescribe the incorporation of micro-generation. However, in the case of commercial buildings of any size, it is proposed that developers should deliver ten per cent carbon reductions over and above what might be achieved by a ‘typical package of conventional energy efficiency measures’, through either microgeneration or further energy efficiency investment.

There is no reason why this non-prescriptive policy should not also be applied to residential developments over 1000 square metres. The impact of this approach will depend on the stringency of the overall carbon emissions target, by floor area, that is set. The Government has indicated that the notional contribution from microgeneration will rise to 20 to 30 per cent at the next revision. The proportion should be set at a level at which it is impossible to achieve the overall emissions target without some contribution from on-site renewable energy, rather than further energy efficiency measures.

The Government is beginning to use Building Regulation reviews more effectively to help unblock the innovation chain for emerging technologies such as

recommendations for developer incentives: ●

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The Code for Sustainable Buildings should be developed so that a high score requires a significant proportion of on-site generation of renewable energy or CHP. Government should specify this high score as the minimum requirement for all publicly procured buildings.

The Department for Education and Skills should specify a proportion of visible on-site micro-generation as a Design Quality Indicator for all contracts under the Building Schools for the Future programme, to give contractors certainty across a large number of bids.

Public bodies should help drive innovation, by making a forward commitment to purchase a significant volume of a new technology, at a defined price, if a demonstration project meets a previously agreed standard.

The Government should set targets for on-site generation for growth areas within the Sustainable Communities Plan to enable a dedicated supply chain to reduce technology costs across the board through economies of scale.

Where the Government is the landowner, as is the case for a significant proportion of the Thames Gateway growth area, developers should be offered reduced land costs and/or increased build density to offset the increased capital costs of higher targets for on-site generation.

The 2005 Part L Building Regulations review should extend the option for compliance through micro-generation to residential developments larger than 1000 square metres. Future revisions should set carbon emissions targets such that it is impossible to meet them without some on-site renewable energy generation.

The Government should give clear signals of the minimum anticipated rise in carbon emissions standards over subsequent reviews of Part L, to help unblock the innovation chain for higher performing buildings and technologies. This can be achieved via the Code for Sustainable Buildings and the ODPM ‘forward-look papers’.

advice and training A number of agencies and networks have been established with the aim of enthusing and advising the public about sustainable energy.

The Community Renewables Initiative is coordinated by the Countryside Agency, and operates via a network of ten local support teams, which are partnerships between local councils and energy experts (Annex B). The teams aim to raise awareness in communities of the possibilities of small-scale renewable energy, and to help steer interested groups through the complexities of feasibility assessment, funding, technology issues and planning consent. The role that these teams can play in getting communities enthused about micro-generation is crucial in the battle against public apathy and antagonism over renewable energy. This scheme should be expanded to cover the whole of England and Wales, and to include urban

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fuel cells. The clearest possible signal is needed of the likely minimum reduction in carbon emissions required over subsequent reviews of Part L, to give a clear indication to developers, investors and the renewable energy industry that there will be a future market for higher performing buildings and technologies. The ODPM has indicated that future reviews will be conducted at least every five years, and that at each the ‘likely’ level of performance improvement sought will be in the order of 20 to 30 per cent. Further certainty could be given by clarifying the minimum subsequent performance increase. The new Code for Sustainable Buildings could also be a useful tool in signalling future mandatory standards.

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communities, where the role for micro-generation in fostering increased climate change awareness and social cohesion is just as important.

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When it comes to advice provision to individual householders, however, it is important that renewable energy advice is not a stand-alone service, but is delivered with energy efficiency advice in an integrated way. This will help harness all the ‘home improvement’ synergies between energy efficiency and renewable energy that micro-generation can foster.

The Energy Saving Trust is proposing to transform the existing network of 52 Energy Efficiency Advice Centres and five pilot Renewable Energy Advice Centres into new Sustainable Energy Centres (SECs). This more integrated approach will help ensure that advisers can combine the excitement factor of micro-generation with recommendations on basic cost-effective efficiency measures. SECs can play the role of honest broker and support people through the sometimes-demanding process of feasibility assessment, grant application, installation and operation.

“ advisers can combine the excitement factor of micro-generation with recommendations on basic cost-effective efficiency measures”

An important role for SECs will also lie in providing advice and support to local planning authorities in negotiating with developers on microgeneration requirements for new build. While local plans promoting micro-generation are still few and far between, pioneering authorities will need technical advice on negotiating and monitoring compliance.

There is also an urgent need for SECs to educate and advise local planning authorities, to ensure a consistently supportive approach to roof-mounted micro-generation. Outside conservation areas and AONBs, solar thermal and PV panels have ‘permitted development’ status – meaning that no prior planning permission is required – but this is conditional on the panels not protruding ‘significantly beyond the existing roofline.’ In practice this judgement is at the discretion of local planning officers, and eight-week approval procedures can be imposed at random. In the case of micro-wind turbines the complexity of securing planning permission is also highly variable at present, depending on the experience and attitude of local planners.

recommendations for advice and training: ● ●

The Community Renewables Initiative should be expanded to cover the whole of England and Wales, with additional funding.

SECs should have the capacity to provide advice and support to local planning authorities, both in negotiating with developers on micro-generation requirements for new build, and in dealing with planning permission for roofmounted renewables.

existing technologies ground source heat pumps Ground source heat pumps (GSHP) are in widespread use across the rural United States but until recently have had a very low profile in the UK.They operate by extracting the solar energy that is stored in the ground a few metres down at a constant temperature of 11-12ºC, and pumping this heat into the home for space heating and hot water. A chilled water/antifreeze mix circulates in a coil of pipe – the ‘ground loop’ – absorbing the ground heat.The heat pump operates like a reverse refrigerator, using the evaporation and condensing of a refrigerant to move this heat from the ground loop into the hot water tank. Electricity input is required, but for every unit of electricity used to pump the heat, three to four units of heat are produced. Heat from ground source heat pumps can therefore be said to be 75 per cent renewably sourced, and 25 per cent electrically driven. So far, 200 to 300 domestic systems have been installed in the UK, and there are 100 commerical installations of various sizes.The most significant roll-out scheme is managed by Powergen, as one route to fulfilling their EEC target. Housing associations are the main clients.

They are currently most suited to new-build schemes, for two reasons. Digging a trench or drilling a vertical borehole for the ground loop can be messy and disruptive, more suited to a building site than a garden. They also operate at highest efficiencies with underfloor space heating, because water can circulate in these systems at lower temperatures. However, new models such as the Powergen heat plant can operate through radiators. They can also raise hot water temperature to 60°C, although at lower efficiency.

GSHPs are ideal for homes off the gas network because, based on current fuel prices, a GSHP can be a cheaper form of space heating than oil, LPG and electric storage heaters. It is, however, more expensive than mains gas. Given new regulations on the siting of oil tanks, the upfront cost of heat pump “ ground source installation is now comparable to oil-fired boilers. 4.5 million households in the UK have no gas supply, and at least 1 million of these are fuel poor. heat pumps Retrofit schemes are being piloted, notably by Penwith Housing Association, and research is being directed at means to minimise the are ideal for disruption of installation.

As average summer temperatures rise, GSHPs will have another attribute: they can be reversed to deliver space cooling, from the same equipment, avoiding the need for a separate air conditioning unit.

homes off the gas network”

cost dynamics: Economies of scale in production already mean that Powergen can supply their heat plants significantly cheaper than on the open market. Half the cost of a GSHP is the installation of the ground loop: these costs already come down if a number of boreholes are being drilled on the same site, and are predicted to halve in future once installers become more familiar with the technology and if builders can be persuaded to plan ahead to minimise disruption. skills needs: Installation of heat pumps is similar to fitting a conventional boiler and can be undertaken by plumbers, although there is resistance to fitting new technologies in

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annex A – micro-generation technologies

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the industry. The chilled water technology involved in ground loop pipes may require some additional training for plumbers, and is currently undertaken by a small network of specialist installers. Vertical boreholes for the ground loops are necessary for high density social housing, and need specialist drillers: however, family well drilling businesses are still to be found in most towns around the UK, so there is a latent installation network. micro-wind turbines Micro-wind turbines make use of aerodynamic blades that harness the wind to turn a shaft inside a generator, and generate electricity for domestic use and/or export.

Current models available in the UK, manufactured by Proven Energy, Iskra Wind and Marlec, are raised on free-standing poles at a distance from the house, and due to the constraints of wind speed are predominantly for rural application, or on the edge of towns. However, two near-commercial models exist which will be roof-mounted: the Swift roof-mounted turbine by Renewable Devices, and the Windsave model.

The UK industry is already a recognised world leader in micro-turbines for battery charging applications at off-grid sites. cost dynamics: Currently the low level of demand means that micro-wind turbines are generally built to order, rather than mass-produced. Even before a volume threshold for mass production is crossed, costs will fall with increased demand due to supply chain efficiencies. Housing associations and local councils are expressing increasing interest in installations of several turbines in series, on one site, which would reduce the costs associated with installation. skills needs: The basic skills required for micro-wind turbine installation are transferable.

These skills are predominantly electrical, but basic mechanical skill is required for raising the pole, in the case of free standing models, and fitting the turbine head.

Electrical contractors are already used as distributors. solar thermal Solar thermal systems are used to convert solar energy into hot water. Collectors fitted to the roof absorb heat from sunlight, and use it to heat liquid, which releases its heat into a hot water cylinder for household use, before returning to the collector panels.

42-50,000 homes currently have solar thermal systems installed, delivering 50 MW thermal output.

The solar collector should be as close as possible to the hot water cylinder for maximum efficiency, so solar thermal systems are suited to terraced, semi-detached or detached houses rather than blocks of flats. Sixty per cent of boilers are currently ‘combi’ systems, with no separate hot water cylinder: this makes solar thermal installation more problematic, so roughly 40 per cent of homes are suitable.

Solar thermal systems, on average, supply 90-100 per cent of hot water demand in summer, 50 per cent in spring and autumn, and 10 per cent in winter, but this will vary according to patterns of hot water usage.

skills needs: Specialist installers currently dominate solar thermal installation. Although the plumbing skills required are no different from conventional boiler installation, most plumbers are unfamiliar with the technology and reluctant to undertake the roof mounting. Plumbers could help drive demand and facilitate installation by raising the option of solar thermal systems when called in to replace a boiler. solar photovoltaics (PV) The solar photovoltaic process converts solar energy directly into electricity.

Photovoltaic cells consist of two or more thin layers of semi-conducting material, most commonly silicon. When the silicon is exposed to light, electrical charges are generated and this can be conducted away by metal contacts as direct current (DC).

Multiple cells are connected together to form a module or ‘panel’. The PV module is the principle building block of a PV system and any number of modules can be connected together to give the desired electrical output.

The total PV capacity installed by the end of 2003 is 5.9 MWp., 1.8MWp of which was installed in 2002 under the first phase of the Government’s Major Demonstration Programme (MDP) for solar PV. Although rapidly growing, the UK is still far behind the installed capacity of many other countries. For instance, Germany installed 150 MWp in 2003 alone and is on course for another 200 MWp this year.

Japan’s 2010 target is 4.8 GW of installed PV capacity. cost dynamics: According to the industry, the most significant short-term cost reductions will come from standardisation, building industry capability and scale up of production.

Prices in Germany are already significantly cheaper than current UK prices. PV building products such as roof tiles and glazing are starting to be available in the UK, and have the advantage of replacing conventional cladding materials, which can represent a significant cost. Systems integrated into new build should be cheaper than standard modules, but many of the new building-integrated products are currently more expensive because of aesthetic design and the small volume of production. skills needs: Most of the necessary skills are available within the building industry, amongst electricians, cladding installers and roof tilers. However, awareness of the technology and its potential applications is low. micro-hydropower turbines Micro-hydro schemes use the force of river currents to drive a small turbine to generate electricity. Micro-hydro systems are usually defined as those smaller than 1.25 MW. There is over 11MW of micro-hydro generating capacity already in the UK. There are tens of thousands of former mill sites, with the estimated potential for a combined generating capacity of 500MW to 2,000MW.

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cost dynamics: Solar thermal technology is mature in design, but volume efficiencies could deliver cost reductions of up to 20-30 per cent. At least half the costs are attributable to scaffolding for roof mounting, and system installation. Costs will be significantly reduced if installation can coincide with re-roofing or be integrated with new build, avoiding the additional cost of scaffolding. Costs will vary according to the ease of roof access and how close the hot water cylinder is located to the solar collector.

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skills needs: The skills needed for installing micro-hydropower are basic mechanical and electrical engineering skills, for assembly, and basic civil engineering skills for the buildings and water conduit work. woodfuel boilers Modern wood fuel boilers are self-feed systems, which burn high-density wood pellets or woodchip. The process is carbon neutral, only releasing the carbon that the tree has absorbed in its lifetime. Woodfuel supply creates an incentive for coppicing of under-managed woodlands, or planting new farm energy crops, such as short rotation willow coppice, with benefits for biodiversity and rural economies.

The main challenge is currently fuel supply. Customers are reluctant to purchase woodfuel boilers when they are not confident of the supply chain. 3G Energi and other UK companies currently import pellets from the continent and sell them at a loss to maintain the market. However, the Forestry Commission estimates that the quantity of park and garden waste arising in towns and cities could total 492,000 oven-dried tonnes per year, if the resource were exploited fully. The government should offer rewards to local authorities that process their wood waste into pellets.

In the short term a central bulk purchase of pellets would help all the companies involved in the supply and installation of woodfuel boilers. However, the carbon emissions and costs associated with transport of woodfuel must be taken into account, so policies should be directed at encouraging local and regional supply.

The Clean Air Act still prevents installation of woodfuel boilers in large urban areas. This should be revised to reflect the fact that woodfuel burns cleanly in efficient new boilers and stoves.

emerging technologies micro combined heat and power (micro-CHP) There are currently two near-commercial models for micro combined heat and power units: BG Microgen’s wall-mounted Microgen unit, and the PowergenWhispertech floor-standing Whispergen unit. Market launch dates for both are scheduled for 2005 to 2007. Pilots of the Whispergen unit have been carried out in 50 UK homes over the past three years, and 400 units have been available to buy in the UK in 2004. Carbon Trust-sponsored field trials are currently being undertaken on both units.

The output of the micro-CHP units is thermally driven, i.e. it is timed to meet the demand for hot water and heating rather than power. However, peak heating and electricity demand are closely aligned, so the power generated will be displacing peak power demand whether used on-site or exported. As such the power units generated will be of high economic and environmental value, as they will help displace the need for the expensive, carbon-intensive, coal-fired power plant that is brought on line to meet peak demand.

The different seasonal and daily profiles of solar PV and micro-CHP power generation can be combined to form an effective package. Over the longer term, it is also possible that micro-CHP units will be based on fuel cells. A fuel cell microCHP system is being tested by the Carbon Trust field trials. If fuel cells are successfully incorporated into micro-CHP units, then it is likely that this will raise the conversion efficiency of the technology and expand the market rapidly.

The US and Japan are developing systems that convert gas to hydrogen for the fuel cell to produce electricity, and use the waste heat for heating. Other possibilities include reversible fuel cells that can store the power generated by wind or photovoltaics, by converting it to stored hydrogen by electrolysis, and back to electricity when it is needed. Again the waste heat from this process would be harnessed in a combined heat and power mode.

Current and planned fuel cell CHP systems include the established Woking Park 250kW system, a 4.4kW alkaline fuel cell CHP system at the Black Country Housing Group in the West Midlands installed in March 2004, and a small system for Berwickshire Housing Association which will power a new eco-house.

Moving beyond demonstration projects, commercialisation of small-scale fuel cell CHP is anticipated by 2008, with MW-scale stationary power developing towards 2010.25 Several firms that are developing fuel cell CHP systems for domestic application already have trials in the UK and the rest of Europe, or are planning trials imminently. Vaillant plans to launch its model to the market in 2008.

annex B – relevant policy agendas by department DTI & Ofgem Progress so far: ● 28 day rule relaxation pilot scheme. ● Simple import/export metering and simple connection. ● Clear Skies and Major Demonstration Programme grant programmes.

Needed: ● Simplification of procedures for micro-generators to access ROCs. ● Distribution Charges Review: fair reflection of micro-generation benefits in charging structure. ● Reward mechanisms for power export.

ODPM Progress so far: ● Part L Building Regulations compliance option to support micro-generation. ● PPS22 – clarity that local authorities can, and are encouraged to, require onsite generation in large new developments.

Needed: ● Sustainable Communities Plan: micro-generation targets for growth areas. ● Code for Sustainable Buildings: high score to require proportion of on-site renewable energy generation or CHP. ● Permitted development status for roof-mounted micro-renewables.

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stationary fuel cells Stationary fuel cells could be applied in many ways to increase the efficiency of micro-generation as well as the capacity for power storage. They will be able to provide power and heat at scales ranging from local networks to micro-grids and individual buildings.

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Defra Progress so far: ● Carbon Trust sponsored micro-CHP field trials. ● Community Energy grant programme. ● Fuel Poverty Strategy – 6000 micro-CHP units to be trialled in fuel poor homes.

Needed: ● Climate Change Programme review: look at the scope for micro-generation to engage consumers in climate change policy. ● More ambitious domestic energy efficiency aim – now 4.2MtC by 2010, compared to 5MtC in the Energy White Paper. ● Enhancements in EEC2 to provide temporary kick-starts for micro-generation. ● EEC3 from 2008 – trading in demand reduction certificates. ● New Sustainable Energy Centres should have the capacity to provide advice and support to local planning authorities on micro-generation. ● Community Renewables Initiative should be extended.

HM Treasury/ Customs and Excise Progress so far: ● VAT reductions on solar technologies, ground source heat pumps and micro-CHP. Needed: ● VAT reduction extended to all micro-generation technologies. ● Stamp duty and council tax rebates to drive consumer investment in microgeneration and energy efficiency. ● High score in Code for Sustainable Buildings to be required for all PFI building contracts.

annex C – glossary of acronyms CHP DNOs EEACs EEC GSHPs GW KW MW MDP PFI PPS22 PV REACs ROCs SECs WFPs

combined heat and power Distribution Network Operators Energy Efficiency Advice Centres Energy Efficiency Commitment ground source heat pumps Gigawatts Kilowatts Megawatts Major Demonstration Programme for solar photovoltaics Private Finance Initiative Planning Policy Statement on Renewable Energy photovoltaics Renewable Energy Advice Centres Renewable Obligation Certificates Sustainable Energy Centres Winter Fuel Payments

1 2 3 4 5

6

7

8

9 10

11

12

13

14 15 16 17 18 19 20

21 22 23 24 25

Our energy future: creating a low carbon economy, 2003, Defra, DTI, p.18.

Carrots, Sticks and Sermons, 2003, Demos/Green Alliance.

Submission to Corporation Tax Reform consultation, August 2003, BG Microgen.

From A to ZED: Realising Zero (fossil) Energy Developments, 2003, Bill Dunster architects.

Source: RPA, 2004, based on independent research carried out for the ODPM Part L review zero carbon working party.

Source: Earth Energy Engineering, www.oxfordsciencepark.co.uk/ downloads/geothermalheatpump.pdf A fuel cell vision for the UK, Fuel Cells UK, 2003, p15 www.fuelcellsuk.org/team/Library/Visionwithcovers100903.pdf Renewable Energy for Professional Applications: a guide to implementing off-grid power supplies in the UK, September 2002, IT Power.

Innovation and Growth Team Report into the Environmental Goods and Services Sector, 2003, DTI. System Impacts of Additional Micro-generation, Mott-Macdonald/ BPI, for the DTI, forthcoming.

In the UK, the domestic purchase price is roughly 6.5p/KWh, as opposed to the retail price of 2.5p/KWh. This is because the price of all electricity has two main components: the cost of energy and the cost of delivery (which is paid to the DNO). Net metering obliges the supplier to pay both the micro-generator and the DNO for the delivery cost component of exported power.

Study into the environmental impacts of increasing the supply of housing in the UK, report for Defra, May 2004.

From A to ZED: Realising Zero (fossil) Energy Developments, 2003, Bill Dunster architects.

PFI: meeting the sustainability challenge, August 2004, Green Alliance.

The London Plan, policy 4A.9, February 2004, Greater London Authority.

Consumers have the right to switch supplier at 28 days notice.

Energy Act 2004, Clause 129.

Economic instruments to promote domestic energy efficiency, 2003, HM Treasury.

System Impacts of Additional Micro-generation, Mott-Macdonald, BPI, 2004, forthcoming.

Our energy future: creating a low carbon economy, 2003, Defra, DTI, p39.

PFI: meeting the sustainability challenge, August 2004, Green Alliance.

Our energy future: creating a low carbon economy, 2003, Defra, DTI, p51.

Biomass as a Renewable Energy Source, 2004, RCEP. A Fuel Cell Vision for the UK, 2003, Fuel Cells UK.

35

A micro-generation manifesto

notes

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