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Best Practice,Buildings,Energy Efficiency Finance,Evaluation

Financing energy efficiency in buildings: an international review of best practice and innovation

ACE Research, in partnership with Joanne Wade, was commissioned by the European Council for an Energy Efficient Economy (eceee) and the French Environment and Energy Management Agency (ADEME) to identify and review a wide range of energy efficiency finance schemes from around the world for the World Energy Council (WEC). The research is part of a suite which informed 2013’s World Energy Congress in Daegu, South Korea, this October.

You can download the full report including national case studies here. An overview of what we addressed in the review follows:

Energy savings are among the fastest, highest impacting and most cost-effective ways of reducing greenhouse gases emissions. Low cost energy efficiency measures have long been regarded as the ‘low-hanging fruit’ in delivering a clean energy economy.

However, the groundswell of general interest observed does not in itself produce specific, bankable energy efficiency investment opportunities without other factors being in place. Even with high and volatile energy prices, energy security issues and awareness of climate change policy drivers, there is a mixed picture of actual demand for energy efficiency from both private and public sector clients. Despite the proven cost-effective opportunity to reduce energy consumption, a significant proportion of the energy efficiency improvement potential is not being realised.

A key reason for this relates to the financing of energy efficiency. Barriers to financing mean that, in the past, energy efficiency has not been able to attract significant amounts of private capital.

These barriers take a range of well-recognised forms. The Buildings Performance Institute Europe reported in 20101 that information failure, high subsidies, lack of technical expertise, uncertainty over savings, and externalities still characterise the energy efficiency market, while ‘split incentives’ discourage both building owners and occupiers from investing in energy efficiency measures if direct benefits are not perceived. Financial barriers include the initial cost barrier, high transaction costs, long payback time, and risk exposure. Furthermore, lack of knowledge among finance providers about energy efficiency prevents customers from accessing capital, and the absence of standardised measurement and verification practice further increases transaction costs.

To examine these and other barriers in greater detail, eight case study schemes – from a range of different economies and contexts, targeting different sectors and employing different financing methods – were selected for systematic evaluation and to understand how such barriers are addressed in a wide range of different contexts – covering schemes in China, Estonia, Germany, India, Japan, Kenya, New Zealand and the USA.

The analysis of the case study finance schemes encompasses a comprehensive barrier analysis, highlighting the ways in which schemes have addressed and overcome typical barriers to energy efficiency take-up and finance provision. The barriers identified can be identified as falling into four distinct groups: Finance; Institutions and Stakeholders; Measures and Buildings; and Consumers and End-Users.

Given the diversity of the case studies assessed, and the breadth of the World Energy Council’s membership, recommendations for decision-makers and practitioners in energy efficiency finance are necessarily non-prescriptive. In order to accommodate this breadth and diversity, we highlight broad contextual considerations – in addition to the barriers analysed – that must be taken into account in the design and operation of any finance scheme. These relate to the nature of: political, legal and institutional contexts; social and demographic context; economic and industrial contexts; the built environment; and climate and geography.

To facilitate systematic thought about finance scheme design and operation for a wide variety of different purposes and in a broad range of contexts, we provide an energy efficiency finance scheme ‘decisions map’. This takes the form of a matrix containing conclusions and recommendations for each of the main barriers, mapped out across each of the areas of context. It illustrates the importance of a thorough approach to energy efficiency finance which builds on the vast wealth of experience already accumulated from around the world, and is designed to facilitate this type of approach.

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DECC,Updated Emissions Projections

Explore how predicted carbon savings are evolving

Every year in September/October, the Department of Energy and Climate Change issues its latest CO2 emissions projections. Presently, these project emissions forward to 2030. This tool compares the savings projected to come from policies which reduce CO2 emissions in the electricity generation sector, as well as policies which reduce emissions in the end-use sectors (agriculture and waste; commercial and public services; industry; residential; transport). Please note that this tool is not intended for use on its own. It should be used in conjunction with the reports and annexes published alonside each year’s UEP that is compared in this tool (2011, 2012 and 2013). Links to these resources are provided in the downloadable tool, including instructions on how to use it. What this tool enables you to do swiftly is to pinpoint differences between UEPs and more easily find the assumptions underlying any changes in the accompanying UEP resources.

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Energy Advice Tool,Smart Metering

Smart Metering Advice Project

The Energy Saving Trust Scotland commissioned us to design a tool for their Smart Metering Advice Portal. This tool combined our Dynamic Engine’s capabilities with real energy use data to provide relevant advice at key times and saving figures matched to the households exact energy usage.

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Demographics,ECEEE,Green Deal,Housing

ACE Research papers well-received at Europe’s largest energy efficiency conference

ACE Research presented two papers at the European Council for an Energy Efficient Economy‘s biennial Summer Study a fortnight ago. One investigates the energy efficiency implications of an ageing population in the context of constricted housing supply. The other examines the history of the Green Deal’s development to date. Continue reading to find the abstracts, along with links to the full papers and their presentations.

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Energy Advice Tool,Green Deal

solent green deal

Solent Green Deal Wizard

A group of local authorities in Hampshire commissioned us to produce a “Green Deal Wizard” to encourage residents to take advantage of their new Green Deal services, this tool includes information about paying for energy efficiency improvements through the Green Deal and other finance mechanisms.

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Energy Bill Revolution,Energy Efficiency,Europe,Fuel Poverty

Fact-file: The Cold Man of Europe

Fuel poverty is a major social crisis in the UK. There are over five million households in fuel poverty needing to spend more than 10% of their income on energy in order to keep warm. This number will increase significantly if gas prices rise as the Government expects.

This fact-file compares fuel poverty and energy efficiency in the UK to 15 other European countries with comparable levels of prosperity and heating need. It ranks these countries against six key indicators for which consistent and recent European data are available to assess the energy efficiency of the UK’s homes. The UK is ranked lowest for energy (or fuel) poverty out of 13 western European countries and near the bottom of the other league tables on affordability of space heating (14 out of 15), share of household expenditure spent on energy (11 out of 13), homes in poor state of repair (11 out of 15), thermal performance (6 out of 8), and the gap between current thermal performance and what the optimal level of insulation should be in each country (7 out of 8). Overall, no other country of the 16 assessed performs as poorly as the UK across the range of indicators.

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Energy Bill Revolution,Energy Bills,Families,Fuel Poverty

Fact-file: Families and fuel poverty

It is widely recognised that fuel poverty has severe effects on some of the most vulnerable people in society. However, while attention has focussed on older people in fuel poverty, families and children have been relatively neglected.

Channel 4 © 2013

Channel 4 © 2013

Until now, the scale of the problem for families has been poorly understood. Some evidence comes from a Barnardo’s survey in which over 90 per cent of their staff said they worked with families in fuel debt. To pay their energy bills, many families were cutting back on essentials such as heating and food.

It is clear that fuel poverty can have severe and life-long effects on children. Studies show that long-term exposure to a cold home can affect weight gain in babies and young children, increase hospital admission rates for children and increase the severity and frequency of asthmatic symptoms. Children in cold homes are more than twice as likely to suffer from breathing problems, and those in damp and mouldy homes are up to three times more likely to suffer from coughing, wheezing and respiratory illness, compared to those with warm, dry homes.

What’s more, struggling with high energy bills can impact adversely on the mental health of family members. Fuel poverty may even affect children’s education, if health problems keep them off school, or a cold home means there is no warm, separate room to do their homework.

It is vital that we understand the problem of fuel poverty for parents and children, and that future policies provide the support that these vulnerable families urgently need. This fact-file, prepared with the support of the Energy Bill Revolution, Barnado’s and Save the Children, provides a snapshot of families and (dependent) children in fuel poverty at the start of this year. It provides high-level estimates for the UK, England and the Devolved Nations. It then goes on to explore the nature and composition of fuel poverty amongst families and children, specifically in England. The fact-file and other resources can be downloaded below.

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DECC,Fuel Poverty

How should we measure fuel poverty?

Improving the Hills approach to measuring fuel poverty

In March 2011, Professor John Hills was appointed to lead a review of the Government’s fuel poverty definition and target. The final report, published in March 2012, found that there were significant flaws in the way fuel poverty was measured.Professor Hills proposed an alternative approach, which defined a fuel poor household as one with a low income and facing high costs.  ACE Research has engaged extensively with the Hills fuel poverty review in recognition of its profound implications for low income consumers, Government fuel poverty policy and wider energy and welfare policies.

DECC propose to adopt the Hills approach as the Government’s new definition of fuel poverty, and ran a consultation on this from September to November 2012.  ACE’s response to this consultation can be accessed here.

Consumer Focus also commissioned ACE Research to further investigate the Hills proposals and to put forward alternative suggestions. The result was a report entitled “Improving the Hills approach to measuring fuel poverty”.  In this research we follow the overall Hills framework but propose improvements that better reflect the ability or otherwise of low income households to afford their energy services.

The research concludes that Professor Hills has made a valuable contribution to our understanding of fuel poverty by:

  • Reasserting the importance of fuel poverty as a serious and urgent problem that is distinct from general poverty.
  • Recognising the serious impact of fuel poverty and cold homes on physical and mental health, well-being and premature mortality.
  • Confirming the central role of capital investment in energy efficiency as the long term sustainable solution to fuel poverty and the need to complement such investment with fuel price, tariff and income measures.
  • Re-defining ‘low income’ within the fuel poverty equation such that the definition is now consistent with other poverty definitions and recognises the logic of excluding fuel costs.
  • Recommending a new indicator (the ‘gap indicator’) that measures the severity of fuel poverty, as well as the number of households in fuel poverty. We have made use of a gap indicator, based on the current definition, in a number of our reports and submissions to Government in the past.

However, we have serious concerns about Hills’ proposed definition of high energy costs, both with respect to its failure to reflect fuel affordability and with respect to the fact that it makes ‘it almost impossible to literally eradicate fuel poverty’. Indeed the Government recognises this feature of the Hills definition itself and is considering changing legislation to reflect the proposed change.

In the report, we put forward practical proposals for addressing these flaws, focussing on technical improvements to the Hills approach, and showing how these improvements could improve targeting. We believe that these proposals develop the Hills approach considerably and provide us with an indicator far better suited to capturing the reality of fuel poverty.  The research also provides an extensive analysis of fuel poverty and its relationship to vulnerability, cold homes, household characteristics and many other consumer circumstances.

Download the full report here:

Improving the Hills approach to measuring fuel poverty

Download ACE’s response to the DECC consultation here:

Fuel Poverty Consultation Response

 

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Consumer Focus,Domestic Energy Consumption,Energy Bills,Energy Policy,Fuel Poverty

Who Pays? The impact of energy policy on consumer bills

Two reports for Consumer Focus on the impact of environmental and social policies on consumer bills

As part of Consumer Focus’s “Who Pays?” programme, ACE Research was commissioned to produce two reports about the impact of environmental and social policies on consumers’ bills.

With energy prices rising, fuel poverty becoming more widespread, and households struggling to afford their energy bills, some have sought to blame energy and climate change policies that often result in a direct or indirect levy upon energy bills. A lack of transparency over the magnitude and distributional impact of these costs has made it difficult for stakeholders to make considered judgements.

Government and the Committee on Climate Change have responded by publishing assessments of the impact policies currently have on energy bills, and the likely impacts by 2020.  Such assessments depend upon a range of assumptions. Using a combination of housing stock and household models, the report entitled “Impact of future energy policy on consumer bills” presents evidence on the potential range of energy bills under different assumptions, the structure of the costs that are passed through to consumers, and explores the distributional impacts of bills in 2020.

The principle of recovering the costs associated with UK environmental and social policies via consumer energy bills or taxes is not a new one.  The report entitled “Past and future trends in environmental and social levies seeks to quantify the historical costs and average cost per household associated with such policies from 1990 to 2010 (see Figure 1), and forecast future costs from 2010 to 2020.  In light of the controversy around the Government’s proposal to reduce the support for small scale renewable electricity (Feed-in Tariff rate for photovoltaics), this paper also explores the cost implications of two different tariff scenarios investigated by Government.

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