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Runaway success requires Government commitment

ImageThe Energy Efficiency Commitment has produced over 40 per cent extra savings than anticipated. It’s time for the Government to ensure that the scheme is taken to the next level

This November the UK government will finally publish its review of its climate change programme. Concentrating specifically on what needs to be done over the next fifteen years. Given the relentless rise in overall carbon dioxide emissions during this decade, it must seem to be a truly Sisyphean task, pushing heavy boulders endlessly up hill.

So let me turn the spotlight this month onto one boulder that is even now running down the other side of the hill far faster than expected – an energy saving initiative which is saving far more carbon than forecast. Which, if it is judiciously managed, should go on to deliver even more climate change benefits than anybody anticipated. All whilst being lauded by the National Audit Office as highly cost-effective. And not costing the Exchequer a single penny.

The scheme is called the Energy Efficiency Commitment. It has only statutorily been in existence since 2002. But its provenance dates back a decade earlier, when the then gas regulator Sir James McKinnon announced that he was requiring British Gas, then the sole company providing gas to householders, to spend a certain amount of money each year on installing energy saving measures in customers‚ homes. He did this following some work he had commissioned from my own Association, which showed how US state regulators had mandated similar schemes by many American utility companies.

A similar scheme was later introduced for electricity customers, and then formalised for multi-fuel utilities under the Energy Efficiency Standards of Performance scheme. This scheme was still measured by the amounts spent on installing energy saving measures. And was already being celebrated by government as an effective means of delivering savings in greenhouse gases.

However the then regulator, Sir Callum McCarthy, made the not unreasonable point that it would be better if the exact levels of activity be decided by Ministers, rather than by an unelected regulator. He also proposed that the better measurement of achievement would be in terms of terrawatt hours (TWh) saved.

The government agreed. It legislated for the Energy Efficiency Commitment (EEC). In April 2002 each of the companies providing gas and/or electricity to householders was allocated a specific target of TWh to be saved over the ensuing three years. Meeting these targets – in all worth 62 TWh- could be via installing any energy saving measures the companies chose: different savings levels were deemed to be achieved by different energy saving measures. The only requirement was that at least half the work had to be done in low income homes.

After the scheme had been running for a year, the Prime Minister launched the first Energy White Paper for 36 years. Within that was an assumption that the EEC would double in the next three-year phase, delivering one million tonnes of carbon saving by 2010. It would then rise by a further 50% after 2008, delivering 3 million tonnes more by 2020.

Negotiations began concerning the exact allocations for TWh savings post-2005. The White Paper had suggested that, in particular, cavity wall insulation would become even more critical as an energy saving measure: a figure of 4.5 million installations was cited. Many of the energy suppliers expressed concern as to whether it would be possible to find either the competent installers, or the willing householders, to see this realised.

At the same time, the insulation installers were concerned to avoid the feast-and-famine, which had for years bedevilled their marketplace. They were particularly anxious that the close of one phase of the scheme did not lead to a tapering down of activity before the next phase began: this was had always occurred with the earlier, non-statutory schemes. Installation teams without work tend to be switched to other fields (like household security), and cannot easily be “reclaimed” for energy saving.

The regulatory body OFGEM, which oversees EEC, agreed that there could be a carry-over, to smooth transition between the schemes. In the end, the energy suppliers took full advantage of this concession, which coincided with an alteration of the relative rewards deemed to accrue to the two favourite energy saving measures. Effectively, compact fluorescent lamps reduced in value; cavity wall insulation increased.

Consequently by April 2005 all of the suppliers had overshot their savings target. The total achieved was not 62 TWh, but 87 TWh, a 40% overshoot. Officially the new three-year target was to be 130 TWh. But because of the overshoot, and because each cavity wall insulated is now deemed to deliver more savings, the actual target reduction between 2005 and 2008 is to be just 95TWh. All of which means an easily manageable 10% increase, rather than the anticipated doubling.

Indeed so far ahead of target are some of the suppliers that the insulation industry is now reckoning that the entire 50% non-low income quota will have been met before the end of 2006. Which is going to leave that industry high and dry during 2007 and early 2008. Unless of course the government gets its skates on and determines both how many TWh savings they will mandate between 2008 and 2011. And then allows the energy suppliers again to start earning credits for early action, well before April 2008.

This way, everybody wins. The energy suppliers can plan well ahead. So can the insulation installers, confident of avoiding the stop-go marketplace of the past. And the government can actually bank the ensuing TWh, and hence carbon, savings much earlier and in greater amounts than before. But only so long as decisions on the exact post-2008 EEC requirements are taken earlier, rather than later.


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