Tag Archive: Green Energy

Will the lights stay on ?

Ambitious green energy targets have forced many coal and gas fired power stations to close, reducing the UK’s generative capacity.  By 2015 maximum capacity will possibly exceed demand by as little as 2%, according to recent Ofgem figures – leaving little margin for error.  Against a backdrop of reduced energy generation, Britain’s energy security relies on “enticing” homes and businesses to become more efficient, however the lynchpin of the government’s strategy “the Green Deal” shows little sign of success with just 2 households having joined since the scheme’s inception in January.  There is even discussion of offering financial incentives for energy-hungry businesses to switch off during periods of peak consumer demand.  Who would fund this scheme ?  Consumers, of course.  Energy bills seem destined to continue their journey ever upwards….

Will the lights stay on ?

Is the Green Deal stagnating ?

Prior to its launch in Jan 28th 2013, Climate Change minister Greg Barker described the Green Deal as “the biggest home improvement programme since the Second World War…”  Unfortunately last week the Parliamentary Select Committee on Energy and Climate Change criticised ministers for having no clear targets for the scheme.  It is easy to understand why – in the first month just 1,803 Green Deal assessments were requested.

A May 2011 report “Financing the Green Deal” predicted minimal take-up of the Green Deal unless loan rates are subsidised down to 2% (they are currently near 8%).  Competition amongst the 50 lenders of The Green Deal Finance Company shows little sign of improving rates by natural means.

The Green Deal scheme is intended to increase the uptake of energy efficiency measures, particularly in households who would otherwise struggle to raise the capital sum outright.  In order to discover if a property is eligible, an assessment is required.  A recent Guardian survey discovered these assessments cost between £95 and £150 – a significant investment for lower income households, particularly with no guarantee of recouping the outlay.  Moreover, an April 2013 survey by Which magazine discovered that 46% of prospective house purchasers would insist that any outstanding Green Deal loan be paid off before proceeding with the purchase.  This could prove a fatal flaw – property owners must purchase an assessment without knowing whether it will be beneficial.  If it is not, they have wasted the assessment fee.  If it is, it may suggest a long term loan which will hamper any future sale of the property.

Is the Green Deal stagnating ?

Renewable energy shots it’s own foot

England is the windiest country in Europe, therefore wind turbines are our favoured large-scale renewable energy source (solar PV in the domestic market).  Because no fuel source is required, once installation and maintenance costs are repaid the resulting power is “free”.  Carbon-fuelled electricity generators must increasingly compete with an opponent whose marginal cost of manufacture is close to zero.  This threatens future profitability and consequently credit rating agencies and banks have begun to selectively downgrade carbon-heavy electricity suppliers.  The knock-on effect will be to increase their borrowing costs and negatively impact their share price –  in turn threatening their future profitability, and so on…

This would not be such an issue if we could dispense with conventional generation with impunity – however the wind doesn’t always blow and the UK still needs carbon-based generation on standby.  Power stations are most economic when running at full capacity – keeping them idling on standby is expensive and undermines the benefits of the renewable capacity they support.

The downward price pressure caused by the ingress of “free” power causes a further problem –distribution.  “Free” power becomes saleable only when distributed to the customer via cables, wires and sub-stations.  In some areas of the UK this distribution network is at full capacity and financially attractive renewable energy projects are stymied by insufficient local infrastructure with which to export their output to the grid.  Ironically, the damage might be self-limiting -without investment the grid will lack the capacity to accept additional renewable energy generation.

Further information concerning the progress of “green” generation in the EU can be found here.

Renewable energy shots it’s own foot

Before you fit a new boiler…

Education Item:

The UK government wishes to encourage the use of renewable energy sources in the home.  It subsidises renewable electricity production via Feed In Tariffs (FiTs).  The Treasury will subsidise certain types of heating from renewable sources.  These subsidies are called Renewable Heat Incentive (RHI) payments.  Unlike FiTs, RHI payments will be paid for by the government – FiT payments are recouped from energy customers.  RHI payments  for commercial installations are already available, but domestic RHI payments have been postponed with an anticipated start of spring 2014.  However, households who have installed eligible technology after 15th July 2009 will be eligible for domestic RHI payments when available.

Although yet to be finally decided, eligible technologies are likely to include ground source heat pumps, air source heat pumps (that heat water), biomass boilers and solar thermal systems.  The equipment and the installer must be accredited under the Microgeneration Certification Scheme (MCS).  Householders face two further hurdles to qualify:

a)      They must obtain an Energy Performance Certificate including a Green Deal assessment.

b)      They must install any insulation measures (excluding solid wall insulation) identified by ‘green ticks’ under the Green Deal assessment.  ‘Green Tick’ measures are those which would pay for themselves within 20 years and therefore qualify for Green Deal funding.

The Energy Saving Trust website describes the extent of the domestic RHI payments as follows:

“Payments for householders over seven years for each kWh of heat produced for the expected lifetime of the renewable technology and based on deemed heat usage.”

Until 31st March 2014 a “one off” government voucher of between £300 and £1250 is available towards the cost of installation, called the Renewable Heat Premium Payment (RHPP).  Recipients of RHPP can also claim RHI payments.  Further details can be found here.

Before you fit a new boiler…

Yet another surcharge on your energy bill

The Green Deal has begun.  It is a self-funding initiative to encourage householders and business owners to fit energy efficiency measures and reduce bills.  The Deal’s “Golden Rule” is that the cost of any measures should always be less than the monetary savings they bring.  The scheme has had a tenuous start – allegedly the first 3 months of the scheme saw only 5 applications nationally.

Many households simply cannot afford the capital outlay necessary for improvements.  In addition, certain houses (mainly older solid-wall properties) would benefit greatly from insulation but these “hard to treat” buildings are expensive to insulate.  By failing the “Golden Rule” they become wholly or partially ineligible for the Green Deal.  A subsidy scheme called the Energy Companies Obligation Order (ECO) has been created to assist these sectors.

Phase 1 of ECO began on 5 December 2012.  It places a legal obligation on major energy companies to subsidise the installation of insulation/economy measures for certain low income or vulnerable households.  ECO has three main strands:

a)      60% will be spent on the Carbon Emissions Reduction Obligation, intended for remedies that fail the Green Deal “Golden Rule” such as solid wall insulation or hard-to-treat cavity wall insulation.

b)      15% will be spent on the Carbon Saving Community Obligation, to subsidise insulation measures for domestic energy users in low income areas.  Measures include wall/loft insulation, double glazing and boiler replacement.

c)       25% will be spent on the Home Heating Cost Reduction Obligation, to assist low income and vulnerable households to economically heat their homes (mainly social housing sector).  Any measure is potentially eligible provided it cuts heating bills.

ECO will add an estimated £1.3 bln per year to consumer’s energy bills.  Eligibility is complex and depends on location, individual financial circumstances and an EPC survey.  Information on how to apply can be found here.

Yet another surcharge on your energy bill

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April Fools Day for electricity prices

The EU’s Emissions Trading Scheme (‘ETS’) requires the union’s 11,000 power stations and major industrial installations to buy permits for each tonne of carbon they emit.  The quantity of permits issued will be gradually reduced year by year, progressively increasing both scarcity and price.  The intention is to “squeeze” the cost of conventional high-carbon fuels and drive investment towards low-carbon alternatives.  Unused permits can be retained for future use or sold.  They have real cash value – in 2011 hackers stole € 30 million worth of emissions allowances from government repositories.

ETS has now entered Phase 3 which runs from Jan 2013 to Dec 2020.  The quantity of permits issued in 2020 will be 21% fewer than when the scheme began in 2005, however the recession has reduced demand even faster.  Permit prices fell steeply from £25.50 in 2008 to £2.39 in Jan 2013 – hardly a strong disincentive.  Best estimates suggest that ETS permit prices would have to return to £25 to have any real effect.  The only recourse would seem to be to drive prices upwards by temporarily restricting supply.  On Jan 24th 2013, MEPs in the EU’s Industry, Research, and Energy (ITRE) committee voted against temporarily restricting issuance to support the price.

The decline in ETS permit prices carries a sting in the tail for the UK.  George Obsorne’s 2011 budget contained a commitment to maintain a carbon “floor” price of approximately £16 per tonne of CO2 from April 1st 2013, increasing to £30 by 2020.  ETS permits contribute towards this requirement.  When this strategy was formulated in 2010 ETS permit prices were expected to rise steadily, so any “top-up” would be modest (the Carbon Floor level actually set for April 1st is £15.70 per tonne).  But as explained above, ETS permit prices are minimal, and considered by some to be heading for zero.  The top-up required between an ETS permit price of £ 2.39 and a Carbon Floor commitment price of £15.70 could add 20% to UK electricity prices1 in 2013, and almost double them by 2030.

1 Daily Telegraph “George Osborne’s CO2 tax will double UK electricity bills” 29th September 2012

April Fools Day for electricity prices

What are Smart Meters ?

Conventional utility meters are stand-alone units which measure cumulative consumption, sometimes for separate time periods (‘Economy 7’).  They must be read physically.  ‘Smart Meters’ have the ability to record second-by-second consumption and send that data to a wireless home display so that consumers can monitor their usage (this facility is already available via products such as the Owl).

More importantly, a Smart Meter can transmit consumption data via a SIM card or the internet, and receive data or instructions via the same method.  This will enable utility companies to monitor consumption on a minute-by-minute basis, and potentially vary tariffs with equal rapidity.  Each Smart Meter will have the facility to be remotely switched between credit and pre-payment modes, or even remotely disconnected.  This will give energy companies far greater leverage over their customers.

The term ‘Smart Meter’ is a catch-all term for a modern meter which can transmit data.  The Department for Energy and Climate Change (DECC) prefers to use the term ‘ADM’ (Advanced Domestic Meter).  This is because, once specifications are agreed, the term ‘Smart Meter’ will have legal meaning as a meter compliant with a precisely defined technical specification.  As yet no universal specification has been agreed amongst meter manufacturers / energy suppliers.  In Sept 2012 the EU approved the most recent draft of technical specifications, named ‘SMETS’ (Smart Metering Equipment Technical Specification) without enforcing conformity.  In short – there is currently no guarantee that an ADM supplied by one energy company will maintain its ‘Smart’ functionality when switching suppliers.  Whereas the UK’s Smart Metering Programme seeks to enforce interoperability, a November 2012 OFGEM decision fell short of imposing this as an obligation.  Instead it imposed the requirement that energy companies forewarn potential new customers of any loss of Smart functionality before switching suppliers.

When will I get one – must I have one ?

In July 2009 the EU set a target that 80% of households must have a Smart Meter by 2020 (they have been compulsory in Sweden since 2009).  Some UK utilities are already supplying ADMs for all installations.  The UK has 53 million electricity and gas meters across 30 million locations, and large scale replacements with Smart Meters are due to begin in 2014 and be completed by 2019.  The government requires that Smart Meters are available by end 2019 even in rural areas, but currently no legal obligation will be imposed on householders to accept one.  The Public Accounts Committee has described the challenges posed by this implementation as “huge”.  Government projections assume a 97% uptake, which currently seems unlikely – a recent government consultation discovered that 50% of UK inhabitants have never heard of Smart Meters, so a Central Delivery Body is being created to orchestrate the roll-out.

Where will the savings come from ?

Estimates anticipate the roll-out will cost £11.5 billion but deliver benefits of £18.6 billion.  It is unclear where the £7bln “savings” will be realised – or by whom.  The new meters will be paid for by consumers via energy bills.  The energy companies will make significant cost reductions by removing the need for meter-reading operatives, and have far better information with which to run their businesses.  Incidences of non-payment will dramatically reduce.

Renewable energy from sources such as wind and sunlight are unpredictable.  This, coupled with variable demand, make balancing the two an onerous task.  More accurate data from Smart Meters will allow energy companies better control of generation.  The greatest opportunities will occur not from electrical engineering – but social engineering.  The ability to send datasets to each Smart Meter to amend tariffs on a minute-by-minute basis will influence consumer behaviour.  Where possible, customers will adjust their energy usage away from expensive peak times, partially balancing demand and supply.

Additional information from: House of Commons Library Note SN/SC/6179 Author: Dr Patsy Richards

What are Smart Meters ?


Feed-In Tariffs (“FiTs”) are the government’s second-tier mechanism to stimulate domestic/small commercial renewable electricity generation.  Since its introduction on 1 April 2010, 285,000 installations have been registered of which 91% are Photovoltaic (“PV”) and overwhelmingly domestic (70%) – (the period April-June 2012 saw PV comprise 99% of new registrations).  Wind, PV, biogas and hydro energy generation plants are potentially eligible provided their specified maximum capacity does not exceed 5MW (plus a pilot scheme for domestic scale microCHP).  All installations must be accredited in order to qualify for FiTs – most sub 50kWh installations can receive automatic certification under the Microgeneration Certification Scheme (MCS) provided approved suppliers/equipment has been employed.  Anaerobic digestion installations of any capacity, hydro installations up to 5MW and other installations between 50kW and 5MW must apply for ROO-FIT accreditation.  Plants with outputs between 50 kW and 5 MW can elect instead to join the RO scheme.

FiT tariffs vary according to the plant’s eligibility date and, for solar PV, the host property’s Energy Performance Certificate (EPC) rating.  Generators are permitted to sell their output to a FiT licencee (usually an electricity supplier) at rates set annually by the Gas and Electricity Markets Authority.  Major energy suppliers are legally bound to pay FiTs and most smaller suppliers have followed suit.  Generators receive two FiT payments:

a)    for power generated and consumed, at set rate per kWh of electricity, guaranteed for the period of the tariff (up to 20 years) and index-linked (current tariffs range from 7.1p/kWh to 35.8p/kWh)

b)    for power generated but exported to the grid, (currently 4.5p/kWh)

Most domestic installations lack the “smart” metering required to monitor exported power so an export percentage of 50% is assumed – for systems above 30kW an export meter is obligatory.  FiTs are taxable, however in the case of domestic systems where generation does not greatly exceed consumption some concessions are available.

Licensed Electricity Suppliers make FiT payments to renewable generators from whom they purchase power, and contribute to Ofgem E-Serve’s Levelisation Fund in proportion to their market share.  Ofgem administers periodic levelisations to correct imbalances between market share, fund contributions, and FiT payments already made.  Suppliers then recover their costs by surcharging business and domestic energy bills – current levels are in the order of 0.118p/kWh.