An energy efficiency feed-in tariff (FiT) could save consumers £2.4 billion a year by 2025, as well as remove the need for new power generation capacity to be built, according to a report out today.
The Policy Exchange report identifies a series of potential initiatives that could make a lasting effect on domestic energy efficiency levels, but also suggests policies that could have a significant impact on the commercial sector.
The notion of an energy efficiency FiT was proposed by the Green Alliance last year and was also included in the Liberal Democrats’ election manifesto. It proposes a similar support scheme to the one used to increase deployment of renewable energy technologies, such as the recently reduced incentives for small scale solar.
The policy outlined in the new report would offer payments to homes, businesses and local authorities installing energy efficiency measures at an agreed level for the MWh of energy saved. It claims that energy efficiency offers cheaper decarbonisation opportunities than renewable energy, using the Energy Company Obligation scheme as an example.
The current scheme, which requires energy suppliers to deliver energy saving measures to their domestic customers, is estimated to cost around £33/MWh. In contrast, Policy Exchange claims the cumulative cost of the renewables FiT is £230/MWh, with the cheapest form of renewable energy (onshore wind) having a lifetime cost of £75/MWh.
In its simplest form, the proposed energy efficiency FiT would be available only for electricity demand reductions, although Green Alliance suggested the scope could be extended to achieve reductions in heat demand.
Despite complications of making this fit alongside others existing policies, the report suggests there is potential for 6.4GW of electricity demand reduction by 2030. This could save consumers an estimated £2.4 billion per year and reduce the need for expensive new generation facilities.
However, as recent cuts to renewable feed-in tariffs have shown, the key barrier to a scheme like this would be available funding from central government. If it were funded through a levy on bills similar to existing policy, the energy efficiency FiT would only add to the already stretched Levy Control Framework (LCF). The report claims forecast budgets for the LCF have already been allocated to 2020/21 and suggests that despite government efforts to curb spending the LCF will still be breached by around £1.4 billion by the end of the current period.
Speaking to Clean Energy News this morning, Richard Howard, head of environment & energy at Policy Exchange and author of the Efficient Energy Policy report, said: “The issue with the feed-in tariff is where do you get the money from? It could be a levy funded policy but we know the LCF is spent to 2020 so there’s no scope to do that. It could be paid for through general taxation but DECC doesn’t have the budget to do that either.
“It’s a nice idea in theory but the reality is that there isn’t money that you could easily allocate to this. If you wound back the clock you could have done less large scale renewable build and done more energy efficiency instead but we are where we are.”
Other issues affecting any possible FiT to be considered after 2020/21 relate to the measurement and verification of savings offered by energy-saving products. Despite increasingly advanced monitoring technology, the report suggests it is still far more complicated to measure actual savings from installed measures due to other factors included how people use buildings, changes in weather and electricity prices.
The alternative would be for energy savings to be “deemed” whereby demand reduction associated with each measure would be set by government. However, the report claims there is a risk this would be offset by other changes in energy consumption patterns, known as the “rebound effect”.
Despite the issues surrounding an energy efficiency policy like this, its potential to provide savings make it an area that remains worthy of attention. However, as Howard explained, it would take a change of focus from the government to realise this potential.
“There seems to be a perennial focus more on the supply side than the demand side; I don’t know why that is. Maybe it’s the fact that it attracts big chunks of investment [into] something like Hinkley Point whereas energy efficiency generally tends to be more difficult, involving lots and lots of people doing small things to their homes and businesses. It’s not what we generally think about when we think about infrastructure,” he added.
“If you look at things like Amber Rudd’s reset speech, the government is interested in promoting energy efficiency; it’s a win-win. People are saving money, they’re reducing carbon and it’s improving security of supply so it’s a really good idea but DECC is quite clearly looking at ways of doing this without it involving large chunks of public money.”