20-20-20 Vision - Tackling Climate Change

Updated: 18th July 2011

The UK’s continued reliance on oil and gas, and other pressures caused by the uncertainty of a changing and unpredictable global energy market, have prompted the development of measures designed to create a future in which both carbon reduction and energysecurity are assured. The effectiveness of these measures depends on individual and organisational behavioural changes. 

The European Commission introduced the 20-20-20 targets in 2008 to encourage Member States to be more efficient in their energy use.In short, the targets (to be achieved by 2020) are to:

• reduce greenhouse gas emissions by 20% from 1990 levels
• generate at least 20% of energy from renewable energy sources
• reduce energy consumption by 20% through improved efficiency.

As part of its commitment to tackling climate change, the UK has introduced incentives for more efficient and effective production and use of energy: feed-in tariffs (FITs) and smart metering, both intended to engage energy customers directly in this challenge. In March 2011, the government announced the details of its Renewable Heat Incentive (RHI) scheme – the first in the world – which will provide long-term financialsupport for renewable heat installations. The legislation is expected to be enacted by the end of the year.

In the meantime, how effective are measures designed to motivate customers to change their behaviour with regard to energy use and production? Economic incentives do have a significant impact on consumption, particularly in times of financial hardship – though this may not demonstrate any commitment to reducing carbon emissions in this case. Also, the state must ensure the policies and schemes it endorses are effective both economically and environmentally, since failure to meetemissions targets will result in financial penalties.

Under the Green Deal, from autumn 2012, private firms will be able to offer consumers energy-efficiency improvements to their homes and businesses at no upfront cost and recoup payments in instalments through their energy bills. Such incentives present opportunities for both providers and consumers of energy. However, Ofgem recently concluded that energy-pricing practices among the ‘big six’ (Scottish Power, NPower, EDF Energy, Scottish and Southern Energy, E.ON UK and Centrica’s British Gas) were ‘complex and unfair’. With customers producing their own energy via FITs – or at least beginning to understand how the tariffs work – energy companies will need to produce bills in which information about tariffs and usage is presented in a clearer, more comprehensible fashion.

Policy developments such as these demonstrate that the UK government is being proactive in dealing with potential problems related to energy, while the number of areas covered and the timescales involved demonstrate that developments in the energy sector will impact on all those supplying, maintaining and using energy. Surveyors need to be aware of policy developments as they happen, ensure they are up to date with the technologies available and understand how these changes will impact on their work.  

Behavioural change:

Consumers need to understand their energy bills (which are often their only point of contact with providers) and be much more conscious than they are of the cost of consuming energy. Then, depending on the degree of their awareness of energy issues, their attitudes to environmental issues and their willingness to make improvements and spend money to reduce consumption, they might move towards behavioural change.

FITs will have an impact on energy consumption, but ultimately, it is a sense of cause and effect (i.e. consumption = cost) and of control over the extent of the cost that will change behaviour. This means suppliers moving beyond estimate bills. Awareness of environmental challenges will also influence behaviour, but only in a certain sector of the population.

Changes in behaviour on the demand side will help to reduce energyconsumption, but might also expedite the adaptation of new ‘greener’technologies that will have cumulative effects on energy consumption inthe longer term – for example, through the purchase of energy-efficient appliances and the more energy-efficient use of devices. Part of the purpose of incentive schemes is to make citizens more aware of theirenergy use and the associated environmental impact, though such growthin awareness is difficult to quantify.  

The transformation process that is visualised, and the timescales involved, pose challenges to all market participants. Suppliers will need to segment the market and target customers who are most likely to change their behaviour. Regulation will need to reflect foresight and Energy consumption planning, so that it supports the market as it develops. Producers, distributors and grid operators willneed to improve efficiency and adaptability in order to react to, and support, much more sophisticateddemand-side requirements. In the next 20 years, many developed countries, including the UK, are likely to face a deficit between energy supply and energy demand which, theoretically at least, may lead to blackouts and even prolonged energy shortages. Such events would bring into stark relief ourprofligate use of energy resources and potentially have enormous socio-economic impacts. However, if usage rates and patterns can be managed effectively before this worst-case scenario, everyone will benefit.

Feed-in tariffs

The FITs scheme was introduced in the UK on 1 April 2010, aiming to increase the amount of locally produced sustainable energy in the country’s overall low-carbon energy mix. It incentivises the installation of micro - generation plants, such as photovoltaic (PV) solar panels, anaerobic digesters AD),micro-combined heat and power (CHP) plants and wind turbines. Households and communities that produce electricity through micro-generation using small-scale installations (up to 5MW of peak capacity), are entitled to claim payments for the low-carbon electricity produced. This is the case even if the electricity produced is used by the producers themselves. If the electricity generatedexceeds consumption, further payments are made for surplus electricity fed into the national grid. These payments are additional to savings made through energy bills as a result of reduced need to buy electricity. The scheme applies to all installations commissioned after 15 July 2009, when the scheme was announced. Effectively, consumers still pay for the energy they use, but through the FIT scheme they now have the capacity to earn money for the energy they produce, and more for theenergy they do not use.

FIT schemes are operating in 63 jurisdictions worldwide and are broadly considered to be the most effective mechanism for stimulating the rapid development of renewable energy sources (RES). However, it has been suggested that the rates set for UK FITs are not high enough to encourage the initial capital investment required. Regular reviews are planned to deal with such issues, with the first review scheduled for this autumn.

Furthermore, it has been argued that FITs do not address the issue of fuel poverty and create a divide between those who struggle to meet their energy costs and those who can afford the generally substantial capital investment required to take advantage of the scheme. However, many companies, including British Gas, have developed ‘rent-a-roof’ schemes for the installation of solar panels on private buildings. The panels are installed at no charge and customers rent them from the company and benefit from clean energy and reduced costs. The company receives the income from the FITs (increasing in line with inflation) for a guaranteed time period of 25 years. 

Customers may have their utilities bills cut by up to £1,000 a year through these schemes (less than the return on installing the technology themselves), but such schemes are not appropriate for most urban dwellers, many of whom do not have sufficient land area, or do not possess entire properties with the space (inclusive of roof space) required for the installation of many FIT technologies. The schemes are also not open to all, as the location of a property has a major bearing on participation and, in the case of the British Gas scheme, the number of successful applicants is capped at 1,500. The dual benefit of FITs is that people who generate their own electricity are less inclined to waste it, thanks to the financial incentive. It could be argued that those who invest in micro generation are likely to have been environmentally aware anyway, and thus more inclined to react to opportunities to reduce theirenergy consumption.

It is envisaged that up to 750,000 domestic/community small-scale installations will be operational by 2020 if the FIT scheme achieves its aims. Germany has had a FIT scheme since 1991 and is currently considering the introduction of a feed-in premium option parallel to the fixed tariff scheme – i.e. the option to sell electricity from renewable energy sources directly via the electricity markets and receive a premium payment on top of the basic payment. However, the evidence is that neither instrument offers an optimal return to energy consumers/producers.

Smart metering

Smart meters monitor energy consumption, displaying this information for the user and remotely transmitting the data back to suppliers for billing purposes. They have been in use commercially since the 1970s, but only recently has effective metering technology begun to reach domestic customers in the UK. Following a consultation process in 2009, the Department of Energy and Climate Change (DECC) started working with the Office of Gas and Electricity Markets (Ofgem) on the roll-out of domestic electricity and gas smart meters to all homes in the UK by 2020.

Advanced metering technologies empower consumers to understand and control their own energy consumption, but they have a positive impact on demand-side management only if customers are correctly engaged, incentivised and educated. Given that reductions of 10% to 20% in annual domestic energy consumption are achievable by modifying behaviour through financial incentives alone, there is no doubt that real-time, unambiguous information on day-to-day energy consumption can be effective and could help the UK reach its carbon emissions reduction targets.

Take-up

Those who actively engage in energy-saving behaviour are likely to see most benefit from the roll-out of smart metering and FITs, whereas vulnerable and less well-off groups in society are less likely to benefit. The initial investment required, the physical location of a premises/ dwelling and the user’s attitude to engaging with new and developing schemes will influence take-up. Although there will inevitably be problems getting these schemes accepted, installed and operating in all domestic and commercial premises, there is no doubt that the commercial and environmental opportunities they have created are enormous.

This article first appeared in the RICS Land Journal June-July 2011 and is reproduced by the kind permission of it's author: Ruairi Cavanagh - who has recently completed an MSc in Environmental and Earth Resource Management at Kingston Univerity

For more information please contact Ruairi via email: ruairi.cavanagh@gmail.com

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