Dr Philip Webber, SGR, assesses the lessons for UK energy policy from a series of award-winning programmes using micro-renewable energy technologies and domestic energy conservation measures in West Yorkshire, and from new academic research on city-level sustainable energy programmes.

Article from SGR Newsletter no.41, autumn 2012 (advanced online publication: 3 September 2012)
 

Designing low carbon plans – theory or practice?

How do you design a low carbon plan? With so many possible technologies and other options to consider, a standard financial tool is a marginal abatement cost curve (MACC). This is a plot of the cost per tonne of carbon dioxide saved, against the total amount of carbon removed for each action. An example is shown in Figure 1. An ‘ideal’ programme starts with the most cost-effective actions (on the left) and works through the list until you reach the carbon reduction target (dotted line).

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Figure 1. An example marginal abatement cost curve. The measures towards the left-hand end tend to be energy efficiency improvements (e.g. home insulation, energy efficient lighting), which have a negative cost over their lifetime because the cost of the energy saved is greater than the cost of installing the measure. The measures towards the right-hand end tend to be the more expensive supply-side options, such as nuclear power or solar photovoltaics.

Based on these graphs, energy efficiency measures that are estimated to lead to a cost saving over their lifetime would be carried out immediately, while the more expensive supply-side measures would be carried out last. But generally even the most cost-effective measures are not installed without some external help. There are many reasons – mainly that energy saving is not high on people’s personal spending agendas but, even when it is, many people distrust installers, and this can be compounded by negative media coverage.

In my own experience in leading large-scale low energy programmes for over a decade, we did not follow a MACC analysis. This was mainly because the public funding mechanisms during the period created a series of incentives to install solar photovoltaics (PV) before insulation, for example, rather than the other way around. This highlights the importance of taking account of the practical experience, as well as the economic and technical research, when developing workable policy options. Unfortunately, as I discuss later, this is what current UK energy policy is failing to do. Before coming to this, I will outline our work in Kirklees, West Yorkshire.
 

Sustainable energy programmes in Kirklees

Table 1 gives a brief summary of the main programmes^1,2 that we undertook in Kirklees between 2000 and 2011.

Table 1. Kirklees low carbon community programmes 2000 – 2011

SunCities Solar Villages

When we started the first project ‘SunCities Solar Villages’ in 2000, the solar industry was in its infancy, and the UK government and the EU were offering grants for large-scale PV piloting and testing. One key aim of the project was to purchase PV modules at a large scale to stimulate the market, create jobs and reduce the price of the technology. This project funded the installation of around 2,000 PV systems in Germany, the Netherlands, and Kirklees. I reported on this programme in an earlier SGR Newsletter.³

What difference did the solar panels make? The PV and solar thermal panels were an ‘add-on’ for a number of local housing projects, including new-build houses, a housing refurbishment programme, a new ‘carbon neutral’ development, some electrically heated housing for older people, and a few care homes. In a significant number of cases, the solar panels helped combat fuel poverty and were also part of new, good quality, cheap-to-rent-and-run housing where formerly there had been very poor housing with associated crime and community problems. The extensive consultation process created a real sense of community. In some areas, people became very enthusiastic about reducing their electricity bills and seeing how much money they could save by using appliances when the sun was shining. What the PV did – because it was highly visible – was create a ‘buzz’, something that was a subject of local discussion, media attention and even a royal visit. The fact that the new housing was much better insulated did not. Another key factor in the success of the scheme was that no-one had to pay for any of the new appliances – either the PV was 100% funded by the project, or it was paid for by the landlord (the council or the housing association). The housing association was also very supportive due to the reduced running costs. But the carbon reductions due to the PV were small compared to those due to improved home insulation, and the insulation was much more cost-effective.

Another point to note is that the price of PV fell by a factor of four over the period of the project. Obviously, this project only played a small role in helping to bring technology costs down but, nevertheless, this shows the rapid rate of cost reduction in this area.
 

Warm Zone

The next big project in Kirklees was Warm Zone. This was a £21m investment to install free cavity and loft insulation in any home that wanted it, and where it was technically feasible. This was easily the largest UK insulation programme at the time (and still is one of the largest). By the end of Warm Zone, over 50% of the approximately 180,000 houses in Kirklees had been insulated with loft and cavity wall insulation. We also referred people for boiler upgrades via the Warm Front scheme (another grant scheme). Households were also offered free debt, care and benefits advice, a free carbon monoxide monitor, low energy light bulbs, security advice via the police and smoke alarms via the fire brigade. Via the Primary Care Trust, we fast tracked households with those suffering from severe illness or disability.

The free service included scaffolding, cutting of new loft hatches for access, and even, in extreme cases, a loft clearance service to enable the insulation to go in. We would also top up loft insulation (which many other schemes would not do).

The benefits of Warm Zone were many. We achieved the highest take-up rates of any similar project in the UK. We delivered a very large energy and money saving for householders. However, much of the impact of this was hidden by energy price inflation. Our door-to-door advice service made a big difference to many disadvantaged people’s lives, including some in severe financial hardship. We helped them to access not just adequate insulation, but a whole range of measures to help lift them out of poverty. The project also helped in stopping several gas leaks and instances of low-level carbon monoxide poisoning.

The Warm Zone also demonstrated substantial regeneration benefits.^4,5 We counted over 100 direct jobs created with associated economic benefits. The health benefits of warmer, drier housing includes reduction in the severity of many illnesses (respiratory conditions, angina etc), and increases in children’s educational performance. Typically, the insulation paid for itself in around five years via savings on heating bills, but economic assessment shows that the wider benefits are much greater. These include up to 40 years of energy savings due to the insulation products, 15 years of health-related benefits, and four years for job creation and contribution to the local economy. Our estimate was that the total benefits by around 2050 would be around £250m from an investment of £11m from Kirklees Council plus £10m from the energy industry via the national Carbon Emissions Reduction Target (CERT) scheme.

However, despite our high take-up rates, significant numbers of properties remained uninsulated. In total, this included about 35,000 houses with cavity walls, and a similar number with solid walls or very thin or irregular cavities that we could not fill. This demonstrates the limitations of a voluntary marketing approach – even with a free product and extensive local publicity, including radio and TV coverage, billboards, buses and community organisations.[ibimage==212==Original==none==self==ibimage_align-left]

 

The Kirklees Warm Zone team

RE Charge

Over roughly the same time period, we offered free renewable energy installations up to the value of £10,000. RE Charge gave grants for PV, solar thermal, biomass, heat pumps and even a micro-hydro plant. A condition was that the property had to be insulated with cavity and loft insulation. The installations were paid for via a council interest-free loan only repaid at property sale (so typically after several years). Advertising was minimal, but we quickly built up a large interested customer base, which was addressed on a first-come first-served basis until the money ran out. Clearly, this highlights the much greater cost of renewable installations at around £10,000, compared to the simplest insulation, which costs typically under £500.

In implementing this scheme, the key issue was the choice of which renewable energy technology to install. Householders received a free assessment of the best ‘fit’ to their lifestyle. In 85% of cases, we found that the most cost-effective technology fit was actually PV. We had problems with the domestic biomass systems available. Often there were hidden costs in upgrading flues and also problems in ensuring that people knew how to operate the boilers (which are obviously very different to gas appliances), including lighting and cleaning.
 

Lessons

One of the main conclusions I take from these schemes is that large numbers of householders (and landlords) remain unconvinced even by cheap, reliable, and easy-to-fit cavity and loft insulation with a lifetime guarantee backed by a coalition of reputable local public bodies. Insulation is invisible, silent and not ‘fashionable’ so it does not really advertise itself. Unlike a PV panel, there is no meter clocking up the energy saved. In contrast, in quite poor housing areas where the council upgraded homes with external wall insulation (block insulation plus render), this was extremely popular. Houses looked brighter, as well as being quieter and warmer. The popularity was such that those not eligible for free external wall insulation were willing to pay several thousand pounds to have their home as good as their neighbours! Clearly appearance and perceived status can be a more powerful driver of change than cheaper non-visible solutions.

This echoes a common view within marketing – that larger numbers of people are motivated by status or fashion rather than by moral or environmental reasons. Others still – the so-called ‘hard-to-reach’ groups – will only listen to trusted ‘leaders’ within their community. This highlights the importance of a range of publicity, engagement and marketing processes, including capitalising on attributes of a given technology that appeal to individuals’ sense of status.
 

Current UK energy policy: ignoring the lessons

An important factor in the success of the Kirklees Warm Zone programme was the Labour government’s CERT scheme. This mandated carbon reduction targets for energy companies, which they had to achieve through supplying ‘subsidised’ insulation for householders. However, because a relatively low price was put on each tonne of carbon saved, the effective subsidy for even the cheapest energy saving measures was only around 50%. In Kirklees, this was matched by the funding from the local council – hence the ability to carry out a much larger and more successful programme. Much more could have been done across the country if the funding through CERT had been higher. Indeed, the emissions reductions under CERT funding (about £1.3bn/year) had a 30% underachievement against target by summer 2011.⁶ Despite this, CERT was fairly successful at getting homes better insulated via the simplest and cheapest measures. But the Coalition government will stop CERT (and Warm Front etc.) by the end of this year and launch a completely new programme – the Green Deal – accompanied by a new grant scheme called ECO (Energy Company Obligation), which will be used to subsidise approved measures under the programme.

The Green Deal will offer householders (and small businesses) loans up to £10,000 to pay for efficiency measures identified in a whole house/building assessment, as long as predicted energy savings exceed loan repayments each year of the loan period (up to 20 years). Repayments will be paid via the electricity bill and will stay with the property not the householder. The idea is that, if the cost is balanced by savings, there is no net cost to the householder or the government. Also, the carbon saving from reduced household energy consumption will not be gobbled up by extra spending on (say) a high carbon flight abroad. The problem with this is that offering something at zero cost is not generally a sufficient incentive to achieve high take-up rates. Also people are wary of signing up to long term agreements based on uncertain future predictions. In fact, the government’s own impact assessment⁷ predicts a massive reduction in the amount of efficiency measures deployed because of what it calls the ‘hassle factor’ (the process of signing up to a loan agreement etc). In addition, support for micro-renewables through the Feed-in Tariff and Renewable Heat Incentive has been limited to a few hundred million pounds per year.⁸

It seems that key lessons from the Kirklees programmes and elsewhere are not being taken on board by the current government. As we have seen, there are many non-monetary obstacles to households taking even cost-effective action on energy conservation. Additional financial incentives are therefore critical in kick starting such programmes. Significant upfront finance is also needed to support micro-renewables programmes. Yet when sufficient investment is provided to a well-organised domestic sustainable energy programme, many obstacles can be overcome, and the benefits – economic and social, as well as environmental – can be huge. Personally, I think that the primary reason for the new government approach is a narrow ideological focus on market-base ‘solutions’ regardless of the evidence. In my view, the very clear benefits of domestic sustainable energy programmes make them a prime candidate for direct government support at scale.
 

City-level low carbon programmes

At the start of this article, I discussed the role of MACC curves in guiding investment in carbon reduction measures. While they have to be used with care because of the practical limitations, they are still very valuable in helping to guide energy policy. Recent MACC-based analysis has estimated what could be done using finance at commercial rates across the housing, business and transport sectors for several large city regions in the UK. These studies have yielded intriguing results. For the Leeds city region (with a population of three million), funding of £5bn would pay for itself from energy savings over four years. Funding of £13bn would pay for itself in eight years – and generate nearly 9,700 jobs while leading to carbon reductions of 19% by 2022.⁹ Scaling this to the UK, low carbon initiatives in the region of £100bn to £260bn would be self-funding over periods of four to eight years and create about 200,000 jobs.

This scale of spending dwarfs government low carbon plans by 30 times or more but is comparable to the scale of spending that government identify as required for more conventional infrastructure investment (such as Crossrail). Government is beginning to offer direct funding for such projects. The city-level studies show that there is a strong case for government to offer direct funding for at least one city region to pilot this concept. It would be, and should be, part of a comprehensive infrastructure modernisation programme for the UK – especially given the major potential to create jobs in the local economy.

But finance in the £100bn-£300bn range is out there in the economic system outside of government, and looking for somewhere to invest. Ironically, the continuing financial crisis and extremely low interest rates mean that pension funds, which routinely look for investment packages of £500m a time and which have several billion looking for a good home, are struggling to secure safe long-term returns. They would settle for a rate of return as low as 2-3%. Low carbon programmes can easily deliver rates around 12%. I am part of a Leeds-based group of researchers and practitioners who are currently exploring ways to link the city-level studies and the finance together so that investment will be forthcoming. Apart from the Leeds city region, big local authorities such as Birmingham, Manchester and Southampton are also designing low carbon programmes.

If even one of these schemes happens, it might start to change the current government’s less than enthusiastic position on the potential of green economy, as well as addressing some negative attitudes within the public at large. I see this as the only positive light on the green horizon in the UK at present.

Philip Webber was head of the Environment Unit at Kirklees Council from 1990 to 2011. He is Chair of SGR and a visiting professor at the University of Leeds.

References

1. Kirklees Environment Unit (2011). Kirklees Council Warm Zone – Learning for the future. http://kirklees.gov.uk/community/environment/energyconservation/warmzone/warmzonemenu.shtml

2. Kirklees Environment Unit (2012). Kirklees Council renewable energy projects.  http://kirklees.gov.uk/community/environment/renewable/renewable-projects.shtml

3. Webber P (2007). Sustainable energy at the local level: making it happen. SGR Newsletter, no.33, p.1. /publications/sgr-newsletter-no-33

4. Edrich et al (2011). Kirklees Warm Zone: Final Report 2007-2010. http://kirklees.gov.uk/community/environment/energyconservation/warmzone/WarmZoneReport.pdf

5. Liddell et al (2011). Kirklees Warm Zone: The project and its impacts on well-being. University of Ulster. http://kirklees.gov.uk/community/environment/energyconservation/warmzone/ulsterreport.pdf

6. Ofgem (2011). A review of the third year of the Carbon Emissions Reduction Target (CERT). 25 August. http://www.ofgem.gov.uk/Sustainability/Environment/EnergyEff/Pages/EnergyEff.aspx

7. DECC (2012). The Green Deal and Energy Company Obligation Impact Assessment. p.17 http://www.decc.gov.uk/assets/decc/11/consultation/green-deal/3603-green-deal-eco-ia.pdf

8. DECC (2011). Control Framework for DECC levy-funded spending.  http://www.decc.gov.uk/assets/decc/11/funding-support/fuel-poverty/3290-control-fwork-decc-levyfunded-spending.pdf

9. Gouldson et al (2012). The Economics of Low Carbon Cities: A Mini-Stern Review for the Leeds City Region. http://www.lowcarbonfutures.org

10. The Guardian (2012). Financing low carbon cities: reconciling needs and expectations. 17 August. http://www.guardian.co.uk/sustainable-business/financing-low-carbon-cities-reconciling-needs-expectations