BG Group article for conference edition PARLIAMENTARY MONITOR
Energy efficiency its time for Government action
By Steven Evans, Chief Executive Officer, MicroGen.
It is widely acknowledged and wholeheartedly endorsedby Government in its Energy White Paper that household energyefficiency improvements are key to achieving a zero carbon economy for Britain.Micro combined heat and power (MicroCHP) is one of the mostefficient energy sources to be developed yet, although there has been much talkof support to this new industry, to date this has not been backed by action..
Encouragingly,the Government Performance and Innovation Unit report into UK energy policy in February2002 stated that MicroCHP was by far the most cost effective of all the carbonabatement methods. The danger is that, without policy support, this technologymay not fulfil the huge potential it has to deliver large reductions in CO2 emissions.
The currentgovernment consultation Economic instruments to improve household energyefficiency highlights the fact that a continuation of current policies to 2010will only deliver half of the Climate Change Programme carbon savings expected. Clearly, the gap needs to be filled by newpolicies.
Developers have to date investedover 100min developing domestic MicroCHP technology. Powergen will be installing 400units in 2004, and BG Groups MicroGen Energy Limited install some 50 unitsthis year, with a view to launching next winter.
MicroCHPcan fill the carbon savings gap - indeed it delivers all four energy policygoals:
Itreduces CO2 by at least 1..5 tonnes per household per annum
Itprovides a highly diversified generation source, reducing winter peak demand onthe grid and enhancing security of supply
It addresses fuel poverty byreducing energy bills around 150 per year for a typical household
Itprovides adequate and affordable home heating even in hard to heat homes.
With 1.5m domestic gas boilers installed every year, ofwhich 800,000 are replacement purchases, the opportunity for environmentalbenefits is huge. Reductions of more 19 million tonnes of C02 emissionsevery year would be made if all 13m suitable UK homes were converted.
It is widely accepted- and acknowledged by government in the Treasury Consultation - that a numberof market failures both prevent take-up,and constrain the market share, of energy efficient products. The challenge is toimplement a package of measures to drive a market transformation towards energyefficiency. MicroCHP is key to thattransfomation. The value of millions ofconsumers producing their own power cannot be understated!
The industry -andhundreds of other organisations and MPs without a vested interest- agree thatthe following package of measures is crucial if MicroCHP is to fulfil itspotential to transform the domestic energy market:
15% VAT on all MicroCHP installations
The government acknowledges in the consultation that the existingapplication of VAT, whereby domestic customers currently pay 5% VAT on energy,and 17.5% VAT on energy saving devices is a disincentive to save energy andthat the EU VAT Directive is not abarrier to changing this.
2 Introductionof Enhanced Energy Efficiency Commitment (EEC) support for MicroCHP
EECrequires electricity and gas Suppliers to achieve targets for encouraging andassisting domestic consumers to make improvements in energy efficiency. If enhanced credits against EEC targets wereavailable for installing MicroCHP, this would provide an efficient way of kick-starting themarket and building volumes. In its consultation,the Government suggests that a combination of support through EEC together witheconomic instruments and regulation could be the way to drive markettransformation.
In her speech to the heating industryin June, Margaret Beckett confirmed that, therevision of the Building Regulations in April 2005 will raise minimumboiler standards to the most efficientA and B-rated condensing boilers. Enhanced EEC would incentivise customers to go a step further and install themost efficient heating systems available MicroCHP systems.
3 Enhanced Capital Allowances (ECA)
The Consultationpoints out that ECA for leasing energy efficient equipment could help HousingAssociations to more affordably heat their homes.
Last years Treasuryconsultation on Economic Instruments to Improve Household Energy Efficiencyprovided those in the energy industry with an opportunity to put forward ideasfor improving energy efficiency. In the follow-on consultation, which closes inOctober, it appears that those ideashave been heeded. Perhaps we arefinally on the verge of progress.
We all look forward to seeing the results of the consultation reflected insupporting measures for MicroCHP in the Pre Budget statement this Autumn.Perhaps then the MicroCHP revolution can truly get underway.
(MicroGen is a BG Group company)
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