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Why we must not forget demand-side measures

ImageTwo highly successful energy-saving programmes may be under threat in the Government’s Energy Review as a result of a fixation on supply-side measures

If it ain’t broke, don’t fix it. So why on earth is anybody involved with the government’s present Energy Review even considering reining back on government energy saving programmes – just about the most effective around?

Consider the two main flagship programmes for energy saving, for heavy industry and for the residential sector. Both have been so much more successful than anybody was predicting – even as recently as spring 1983, when the Prime Minister launched the first new Energy White paper in a generation.

Let us take the Climate Change Agreements. These are the deals negotiated with 43 separate sectors of the economy. These offer whopping 80% discounts on the business energy tax (called the Climate Change Levy). In exchange for commitments to reduce energy consumption.

When the White Paper was published, it was anticipated that these would be delivering a reduction of 2.5 million tons of carbon by 2010. That estimate has turned out to be far too modest. Actually the levels of investments in energy savings stimulated have been working out at practically that rate of saving every single year. So that just in the first two-year period of the Agreements, they were found to be delivering at the rate of 4.5 million tons – almost double the anticipated rate.

All of the savings programmes were based upon energy saving investments that returned the capital invested within 30 months. And that was at the old energy prices. In practice, every single sector that delivered on these agreements is benefiting in two very pertinent ways. They save on their tax bills. And they save significantly on their fuel bills at the same time.

Consequently there is very little, if any, moaning from participants about the impact of these negotiated agreements. On the contrary, they are saving everyone concerned a lot of money.

Granted, in strict economic terms, it could be argued that all of these investments SHOULD have been undertaken anyhow: they all made perfect economic sense. But as we all know, in the real world, that is far from what actually happens. Else there would be no need for all the legions of the energy services consultants, now augmented by a further 50 on-the-ground assistants employed by the Carbon Trust, to persuade companies to do what is already in their best interests to do.

A similar pattern can be seen with the flagship programme for householders. In its first three years, the Energy Efficiency Commitment delivered 40% more savings than originally anticipated. It did so at a lower cost than forecast by government – 1.3p/kWh for electricity, and 0.5p/kWh for gas than anticipated (and at significantly lower cost than the 1.75p/kWh of its predecessor Standards of Performance programme).

Most low-income households, and approaching half of all British households, have directly benefited from the programme. The market for wet and refrigeration appliances is now transforming. The growth of condensing boiler sales and associated installation experience gave the government confidence to make such boilers mandatory under the Building Regulations, thus completely transforming that particular market too.

The second phase of the EEC is now just as successful, with demand by householders for help with installing energy saving items quite outstripping supply. In consequence, all the “targets” set for the second three-year phase would have been met by the end of this year, not much more than halfway through the Commitment period. Hence the urgent announcement by the Chancellor in last month’s Budget that agreement had been reached to insulate at least 250,000 more homes than anticipated before April 2008 (see news pages).

Launching that 2003 Energy White Paper, the Prime Minister described energy efficiency “as the cheapest, cleanest and safest way” of addressing all of the UK’s four key energy policy objectives: cutting carbon emissions; maintaining reliable energy supplies; promoting competitive markets; and abolishing fuel poverty.

In the interim, we have established the truth of that soundbite: witness the success of the two programmes instanced above. To which can be added the establishment of a market price for carbon emissions, via the launch of the European Trading Scheme.

To realise the full potential that demand-side measures offer, a long-term framework must be applied on a scale that is commensurate with supply-side solutions currently dominating the present Energy Review.

Even at current levels of activity, the economics of saving energy consistently shine when compared with conventional generation options. Rather than devoting resources to meet costs associated with limited liability insurance, safety and security arrangements, public policy should concentrate upon reducing dependency on energy consumption, reducing fuel bills, and creating more profitable businesses and comfortable homes.

The correct conclusion for the present Energy Review is obvious. It must ensure that a wholehearted commitment is given. This will shift from the hitherto modest – if supremely effective – schemes operating on a modest scale. To schemes that will be hugely successful, but this time on a huge scale.

 

 

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