The consultation recites that the current 'delivery model' of reducing energy consumption in homes is the CERT. The CERT has seen energy suppliers under an obligation to achieve certain emissions reductions, which have mainly been achieved by subsidising simpler energy efficiency measures (for example loft and cavity wall insulation, high efficiency appliances and low-energy lightbulbs). The Government is proposing that this continues until 2012. However, beyond this, they intend to use a more coordinated, community-based approach. The proposed new Community Energy Savings Programme (CESP) to be launched this year, will be a pilot for this more coordinated approach.
Alongside the Heat and Energy Strategy consultation, consultations have been launched on both the CERT and the CESP. The CERT consultation proposes a 20% increase in the current scheme, expanding the help available to customers and increasing the money available to extend the number and variety of measures used to reduce energy consumption.
The CESP consultation outlines plans to provide 'whole-house' help to around 90,000 homes in low-income areas, backed by an expected £350m in funding from energy suppliers and generators.
The consultation outlines an intention to encourage the installation of 'smart meters' in every home. This will be achieved through CERT, which will provide incentives for energy suppliers to mandate the installation.
FINANCING ENERGY SAVING AND LOW CARBON ENERGY
Low interest loans
It has been acknowledged that the financial support to householders under CERT is not enough to encourage energy savings measures which have higher upfront costs. Consequently, under the proposals laid out in the consultation, householders would be offered low interest loans to cover the cost of green refurbishments. Miliband said that importantly, repayment of the loan would effectively be linked to the property rather than the resident. "People only live in their homes for an average of nine years, [and] when we talk about up-front costs of £4,000 or £5,000 [for green refurbishments] they would not recoup the cost in saved energy bills [before moving]," he said, adding that under the scheme the next resident would be able to continue to make the repayments from the continued savings on their energy bills. The loans are expected to be provided by a range of different entities, including energy companies, local authorities and, potentially, loan providers such as banks and supermarkets.
Miliband admitted that the Government had not yet looked at the regulatory regime that will govern the loans, but he said that several local authorities had already expressed interest in offering green home financing schemes and predicted that private sector companies would be interested in a lending model that guarantees them a reliable revenue stream.
Renewable Heat Incentive (RHI)
The Government has previously consulted on a RHI in the Heat Call for Evidence in January 2008 and the consultation on the Renewable Energy Strategy (RES) in June 2008. Now that the broad enabling powers to establish the RHI are in place, by virtue of the Energy Act 2008, the Government intends to develop the detailed regulation and administrative systems to underpin the deployment of the RHI.
The consultation indicates that the RHI will take broadly the form that was set out in the consultation on the RES. There is a request for feedback on how the scheme should provide differing levels of support across the renewable heat sector, given that the incentive will apply to eligible renewable heat generators at all scales, whether it is in households, communities or at industrial scale. The logistics of funding the RHI are also raised, the consultation indicating that a levy will be applied to suppliers of fossil fuels for heating. There will be a full consultation on the details of the RHI, including levels of any banding, later this year.
Energy Service Company (ESCO) model
Another financing model which the Government proposes promoting is service charging for energy efficiency and low carbon energy equipment. Already operative across the country in a number of schemes, the ESCO model would be based on companies packaging together the different Government subsidies available, including CERT and the RHI, in order to offer energy service contracts to consumers covering the installation and ongoing maintenance of the equipment. The consultation suggests the contract could also set out the expected energy bill savings which should net off against the monthly service charge.
The consultation indicates that the Government intends to work through the 'regulatory' issues involved in the promotion of ESCOs, including ensuring the structure of subsidies and incentives allows competition, ensuring there are regulatory safeguards for consumers and ensuring it is possible to pass on service contracts as with other utilities (such as water).
ESCOs and Distribution Network Operators (DNOs)
A further suggestion put forward in the consultation, is the utilisation of DNO network charges. Currently, a proportion of customer's energy bills are a pass through cost from DNO's for electricity suppliers' use of the electricity network, together with any costs for infrastructure investment.
If a householder agreed to the installation of an energy efficiency or low carbon energy package, an additional element could be collected with the network charge appropriate to the property, potentially making it more straightforward to pass on to future occupiers.
The consultation envisages that either DNOs could conduct the work themselves or ESCOs could be permitted to do so, the DNO's role limited to providing a finance stream. It is highlighted that DNOs could potentially access cheaper capital (being a low risk regulated monopoly), meaning that the cost to householders could be reduced.
The consultation does also highlight, however, that such an approach would raise 'significant issues and risks' and would require changes to primary legislation, DNO licence conditions and industry codes to reflect the new areas of operation for DNOs.
COMBINED HEAT AND POWER (CHP)
The consultation highlights that CHP generation is supported by a number of policies, such as the EU Emissions Trading Scheme, exemption from the Climate Change Levy and the Renewables Obligation. The Government wish to ensure this range of carbon pricing mechanisms provides sufficient support to CHP and state that they are open to any further proposals to improve this framework.
The consultation also highlights that the Government is focused on ensuring that there are long-term, stable price signals for investors and certainty about heat demand to ensure that investment is made into CHP.
The Combined Heat and Power Association, commenting on the consultation, said that overall it pointed in the right direction for the development of a strong and vibrant market for all CHP technologies and local energy supply. However, the association noted that there were some serious limitations, including the lack of explicit funding for heating infrastructure and a lack of focus on the opportunity to exploit industrial CHP.
The responses to the Government's proposals have been mixed. Shadow energy and climate change secretary Greg Clark said the Government was:
"delaying rather than getting on and adopting our scheme immediately, when it is desperately needed."
That sentiment was echoed by Philip Sellwood, chief executive of the Energy Saving Trust (EST), who said the time for talking is now over.
"We are not short of ideas; we just need action and now. Armed with the knowledge that 70% of our current housing stock will still be around in 2050, we know we need to be bold."
According to Greenpeace UK, a programme to upgrade the housing stock alone would require £3.5-£6.5bn per year until 2050. Nathan Argent, head of energy solutions at Greenpeace, said:
"Tackling energy efficiency is the fastest way to cut emissions, boost our energy security, revitalise the economy and create tens of thousands of jobs. And, obviously, this will cut household bills too. But this plan needs much more investment right now. The Government needs to put their wallet where their mouth is."
The deadline for responses to the consultation is 8 May 2009.