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A recent speech by former Environment Secretary Owen Paterson followed by an article from Telegraph columnist Christopher Booker, urged an increased role for demand management and combined heat and power to more cost-effectively deliver a low-carbon, secure energy system, while lower business energy costs.
CHP's value arises from it capturing and using heat that is otherwise wasted in cooling towers and demand response by moving demand away from times of high demand (and higher pollution) to times of lower demand.
What was curious was that the support for these technologies was linked with scrapping the Climate Change Act. But it is not the Climate Change Act that prevents us using more cost effective emissions reductions tools like CHP and demand response. It is the way we make energy policy.
In fact, the Climate Change Act should drive uptake of efficiency measures and more cost-effective carbon abatement. But instead, time and time again, the most cost-effective options for more secure, lower carbon energy are missed in favour of old, simple approaches: More centralised plant, more generation. In fact, a DECC research paper this year found a number of ways that the most cost-effective demand-side options are often missed in policy making.
And this waste of money continues to occur. Despite DECC’s analysis showing that supporting CHP would reduce consumer and taxpayer costs by millions of pounds, there is a very real risk they will not support the policy, despite a commitment to do so in the 2013 Heat Strategy.
And despite demand side response providing the most cost-effective way to provide the flexible capacity the grid needs, DECC’s designed their Capacity Market scheme around building new, expensive power plants.
Consumers are looking to Government to ensure we are achieving our goals in the most cost-effective way. We need to decarbonise and, if we are to retain the support of voters, we must do so at lowest cost.
In order to change this broken record and a long history of doing things more expensively than we need to, a new Government should rebuild taxpayer and consumer trust by committing to meet our energy policy aims for a secure, decarbonised system at best value. At the CHPA, we call this commitment a ‘Consumer Value Guarantee’.
Under the Consumer Value Guarantee, Ministers would be required to test all energy policies, as part of their Impact Assessments, against alternative demand side options. If a proposal is to build more of a particular generation technology, Ministers would have to compare the cost and benefits of doing something different, such as investing in better building efficiency, and force ministers to ask “Is this the most cost-effective way for us to meet our commitments?”
By taking a new approach, opportunities like demand response, demand reduction, heat networks, waste heat recovery and yes, CHP, will be able to compete on their respective merits and against the only metric which should matter: How we meet our commitments in the Climate Change Act for least cost.
Two weeks ago, the Government reported progress on a part of its flagship Green Deal scheme - the catchily entitled Green Deal Home Improvement Fund (or GDHIF for short). The Government reported that of the total £120m budget, £43m had been spent in the first six weeks and over £50m worth of vouchers had been applied for[i]. The government said it would pay attention to budget uptake and continue to report. Just one week later, the Government announced that the GDHIF was closed with immediate effect. The reason - the entire remainder of the budget, some £60 million, had been spent in just two days[ii]. That is an astonishing 29 fold increase in uptake.
So what happened? It seems that a large number of applications for funds were made speculatively by companies on behalf of unknowing householders. All a Green Deal installer needs is their reference number and an Energy Performance Certificate number which can be obtained from the Landmark register. There is no need for the homeowner's approval.
It looks like companies have speculative applications so that they can approach a homeowner and say that they already have a grant of £6,000 to help them improve their home. Of course, the homeowner can refuse and so there is a real likelihood that all the money that has been claimed will not get spent.
The criticism that has been levelled at the government for creating a stopstart policy preventing the establishment of a stable, sustainable industry may be vey misplaced. The trigger of the stop-start seems to be that some companies figured out a clever way to block book the budget for themselves. Whilst they may feel very pleased with their ingenuity these companies are fuelling a growing problem: The erosion of trust between government and industry.
When the intent of a policy gets abused as seems to be the case with the GDHIF, the inevitable result is that Government will become more wary of industry and seek to design policy with ever increasing safeguards. Those safeguards translate into administrative bureaucracy and cost for industry, Government and taxpayers, with more checks and more evidence. The result? Less investment is made for greater cost.
Of course, those that took advantage of the loophole may say 'we have done nothing wrong, we have acted within the law'. But, it feels rather similar to the companies who say they pay the legally required amount of tax. Those who seek to squeeze the most out of policy risk are doing their own industry a disservice. It is all too easy to point the finger of blame at government but as we increasingly rely on policy solutions to correct market failures, especially for energy efficiency investments, perhaps on this occasion the industry needs to look at itself.