microgeneration an energy...

Sussex Energy Group

SPRU - Science and Technology Policy Research

MicrogenerationAn Energy Revolution?

Jim WatsonDeputy Director, Sussex Energy Group

RESOLVE Seminar, University of Surrey, 21st October 2008

Sussex Energy Group


1 Microgeneration visions & potential

2 Investment today

3 Levelling the playing field

4 A catalyst for system change?

Microgeneration:An Energy Revolution?

Sussex Energy Group


Microgeneration:Visions and potential

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Why microgeneration?

• Claims that it could help all four goals of energy policy –some justified, others not so clear

• Engages consumers, helping them to be more active; with knock on effects on behaviour and demand?

• Fits with prevailing politics – localism; partnership between the State and individuals / communities

• Perfect for British individualism?

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Politics and microgeneration

I want to work at making [micro-generation] the new ‘must have’

gadget for your home. The iPod of the energy world.

Alan Johnson, Trade and Industry Secretary, March 2006

Microgeneration and local distribution networks have the

potential to capture people’s imagination. Many people want to

lead more environmentally responsible lives.

David Cameron, Conservative Leader, December 2005

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Politics and microgeneration

It is more important than ever that reliable microgeneration offers

individual householders the chance to play their part in tackling climate change

BERR’s own headquarters is moving towards installing

microgeneration … I look forward to the day when BERR joins the ranks of people and organisations that are generators of

energy, as well as consumers.

Malcolm Wicks, Energy Minister, June 2008

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Microgeneration TechnologiesThe potential

• Recent study by Element Energy assessed the potential for domestic microgeneration in 2020 and 2050

–1 million units by 2020; 5.7 million by 2050 under ‘business as

usual assumptions’. Mostly micro-CHP and solar thermal

–CO2 savings of 4.5m tonnes/yr by 2050 (1% of UK total)

–Adding policies could accelerate deployment – up to10 million by 2020 (feed in tariffs, zero carbon homes, soft loans)

• Several network studies have concluded impact on grid will be marginal in short to medium term

• Positive contribution to grid operation in many cases

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Microgeneration TechnologiesProgress to date

• Lots of policy activity, reports, consultations etc …

• But slow pace of deployment:

–84,000 units at the end of 2004; mostly solar hot water

–95,000 - 98,000 units by the end of 2007

–Govt claims ‘approximately 100,000’ units in June 2008

In the UK … over 11 policy measures aimed directly or

indirectly at microgeneration have been in place across five

government departments, none of which has been designed (i.e. of sufficient scale) to promote mass market uptake

Element Energy for BERR, June 2008

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Analysing the Visions:Investment Today

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Co-provider

Passive consumer

Company back-up Company driven

Analysing visionsThree models …

Community microgrid

Plug & Play

Company driven

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Microgeneration TechnologiesOur assumptions

• Some real data available: Solar PV output and four different electricity demand profiles from Havant test houses

• Some not yet available: Models developed for micro-wind (based on wind data) and micro-CHP (buildings model)

• Electricity price of 10p/kWh to reflect some increases

• ROC price set at conservative 3.9p/kWh

• 0.85kW Micro-CHP costs £3000; 1.5kW micro-wind costs £2200; 1.5kW PV costs £9000

• O&M costs only included for micro-CHP energy service contracts. Costs for micro wind and PV too uncertain.

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0

10

20

30

40

50

60

Micro CHP (price

differential £500)

Micro CHP (price

differential £1,500)

Micro wind PV

Years

Minimum payback period Maximum payback period

Investment TodayPlug & Play

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• Economic: up-front costs high; payback times long in many

cases; poor payments for exports; ‘hassle factor’

• Technology / risks: some technologies not quite ready for

market; consumers and installers cautious?

• Regulation: can be hard for householders to get grants and

renewables subsidy; planning has been hard (getting easier); energy services hard to provide profitably

• Information & bounded rationality: lack of reliable, impartial

advice; customer decisions based on past experience, routines.

Investment TodaySome barriers to deployment

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Investment TodayPolicy action

• At first glance, action matches rhetoric:

–Microgeneration Strategy pursued ‘aggressively’

–Climate Change and Sustainable Energy Act

–Local council action (e.g. Merton Rule)

• Important policy changes have included:

–More money for grants: but organisation a mess

– Industry-led scheme to pay for exports

–Removal of planning barriers (permitted development)

–Renewables Obligation reform / feed-in tariff promised

–Stronger incentives for energy companies (CERT)

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Investment TodayHow not to run a grant programme

• Low Carbon Buildings Programme as a key policy to try and ‘kick start’ microgeneration market; reduce costs

• Launched in April 2006; replaced Clear Skies programme

• £29m over 3 years (£6m for homes)

• Increased by £50m in 2006 budget - £6m added for homes.

• But too popular?

–Dec 06 budget lasted 20 days

–Jan 07 budget lasted 12 days

–Feb budget lasted 12 hours

–Mar 07 budget lasted 75 minutes ...

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Investment TodayHow not to run a grant programme

• Suspension / cap on grants of £2,500 from May 07

• Planning permission required before application

• Demand fell sharply leading to large underspends

• Domestic programme extended to 2010 to spend money

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Analysing the Visions:Levelling the Playing Field

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• Householders are taxed

• Householders not entitled to

any payment for exports

Levelling the Playing Fieldfor taxation and power exports

Electricity System

Domestic CHP Solar Roof

Centralised Power Plant

• Developers get tax breaks

• Generators sell power into

the wholesale market

• Enhanced capital allowances for industry energy efficiency

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Levelling the Playing FieldPlug & Play micro-CHP

0

5

10

15

20

25

£500 £1,500 £500 £1,500 £500 £1,500

Baseline Export reward £0.05/kWh ECA 40% + SBP export +

income tax

Ye

ars

Minimum payback Maximum payback

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Levelling the Playing FieldCompany Driven micro-wind

0

2

4

6

8

10

12

14

Manchester (suburban, 590 kWh) Abderdeen (countryside, 1680 kWh)

Year

of

+ve N

PV

Baseline Standard Cap AllowanceEnhanced Cap Allowance 10% electricity price increaseReduced installation costs in 2016

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Levelling the Playing Field Can it be done?

• Taxation:

–Environmental tax allowances for individuals are not new –

previous schemes for bicycles, teleworking

–Could use self assessment or salary sacrifice

–Paid for by EU ETS proceeds?

• Power exports:

–Extending settlement system is technically possible

–Main issues are cost and timing

–Preference for profiles – but these are also expensive

• In many cases, a level playing field delivers same benefit as a grant from the Low Carbon Buildings Programme

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A Catalyst for System Change?

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A Catalyst for System Change?

• Micro-generation often seen as a catalyst for consumer behaviour change and demand reduction

• More visible than loft insulation; but many adopters have already implemented other measures such as energy efficiency

• But should it also be a catalyst for changes to regulations and infrastructures?

–Regulatory changes to encourage home energy services

– Infrastructures for a 21st Century energy system – meters,

housing and distribution networks

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A Catalyst for System Change? Energy services for households

Suppliers and customers need to have a shared incentive to

reduce domestic emissions, and to work in partnership to achievethis … Creating this shared incentive will require an innovative

policy, which changes the way the supplier views their relationship

with the end consumer. Rather than selling units of energy, the

suppliers’ focus needs to shift to the marketing of energy services.

Energy White Paper, May 2007

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A Catalyst for System Change? Energy services for households

• Household energy services have been anticipated for many years, but have never materialised

• Many reasons including incentives on energy suppliers to maximise sales, ‘28 day rule’, costs of setting up contracts

• Some positive drivers:

–high energy prices, end of ‘28 day rule’, high costs of attracting and losing customers

–greater obligations on suppliers from April 2008 (CERT); new

‘supplier obligation’ from 2011

• But implementation slow: eleven years from initial study for DTI in Autumn 2000 to introduction

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An Energy Revolution?

• Microgeneration has huge technical and environmental potential,

but has suffered from rhetorical overload

• Attractiveness of technologies varies by location, consumer typeand building type – too early to tell how some will perform

• Current policy welcome but misses opportunities to support

micro-generation in context of broader demand side incentives

• Level playing field for microgeneration is as effective as grants

• Regulatory reforms to support energy services welcome but too

slow – a test case of how govt responds to urgent problems?

• Infrastructure is vital. Meters, networks and buildings have major impacts on scope for microgeneration and demand-side action

Sussex Energy Group


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