Energy: Efficiency

Baroness Worthington Excerpts

Monday 10th December 2012 Lords Chamber

[Baroness Worthington]

My Lords, I am grateful to the noble Lord, Lord Teverson, for initiating this debate which gives us an opportunity to discuss the Government's energy efficiency strategy. A number of noble Lords have commented on the fact that to date this has probably not received its due attention. It is a shame there are not more noble Lords in the Chamber, which again reflects the fact that the strategy is not receiving the attention it deserves. Energy efficiency and the management of our demand for energy should have a special place in energy policy as that is the only policy which directly addresses all three elements of the energy trilemma: namely, that we seek to reduce carbon emissions while increasing the security of supply and keeping costs low. Reducing our demand for energy meets all of those objectives. One would therefore assume that it would take centre stage in the newly published Energy Bill. However, a quick search of the Bill reveals that energy efficiency is not mentioned once and that demand reduction is only mentioned twice. This compares to nuclear which is mentioned 350 times. I acknowledge that this is a crude methodology, but it gives a clear indication of where the Government's priorities lay in the formation of that Bill. Nuclear may help to reduce carbon, and it does help to diversify our energy sources, but if press reports about the strike price are to be believed, it may not be cheap. Recent reports of yet more budget overruns in France, where EDF is building a reactor of the same design as that proposed for Hinkley Point, are not encouraging.

The one area of the Bill that talks about managing demand for energy is under the capacity market mechanism described in Chapter 3. This section is, however, merely enabling and there is no plan to introduce the mechanism before the end of the decade. A consultation document published alongside the Bill shows just how far we are from a well-thought-through demand reduction policy. Consultation on details is not expected until late 2013. Surely, if we are interested in meeting our carbon budgets and security supply objectives at least cost, this should be the first policy pursued. Why is it taking us so long and why do we not have a more clearly defined strategy? The answer is that, just as the department’s budget is dominated by spending commitments on nuclear waste and decommissioning, its intellectual capacity has also been absorbed with the question of how to ensure there is investment in a new fleet of nuclear power stations. I am not saying that those are not needed but we need to have balance in our policy. We really ought to be doing more on energy efficiency.

Chapter 3 sets out the carbon market mechanism. That at least provides an important stepping stone towards the valuation of services that reduce our demand for energy but there is no rationale for delaying implementation of this element. The sooner we start to work on how to manage our energy the better. Only then will we be able to ensure that we are building the capacity we need, not simply the capacity that we imagine might be needed. My friend in the other place, Alan Whitehead MP, has written extensively and eloquently on this topic and recently suggested that we should use the Bill to introduce a market for decapacity payments as soon as possible. This is an interesting idea worthy of greater exploration.

How we define decapacity payments would obviously need discussion but it could be that they are for those activities which deliver permanent and active demand reduction measures. This could help us to focus particularly on activities which reduce our peak demand. At the moment, we have a very difficult demand profile with big spikes in demand on winter evenings. Our supply system has to have enough capacity to catch these peaks, which means we always have a large surplus in capacity during the remainder of the year. This oversupply is currently at very high levels. When Ofgem warns that our supply capacity could fall to 4% above demand, it is quoting capacity in excess of peak, not demand in the intervening periods. If we can reduce the peak, we will not need to build as much replacement capacity to maintain that margin of error, saving everyone money.

The sorts of activities that could qualify for a decapacity payment include those which currently fall between the stools of existing energy efficiency policy. One example I have seen at first hand is voltage optimisation, which can be very effective. I visited Chaucer Technology School in Canterbury and saw how it had reduced its electricity bills by 13% through voltage optimisation, saving £8,000 per year. It is going to invest that money, alongside money saved by fitting a biomass boiler, in LED lighting. That is another technology that could be supported as a decapacity measure.

That investment by the school was facilitated by the Salix finance facility, a very successful policy introduced under Labour by the Carbon Trust. It provides zero-interest loans to public-sector buildings to invest in energy efficiency and demand reduction. To date, it has funded over 9,000 projects, valued at £194 million, which over the lifetime of the projects will reduce emissions by 4.5 million tonnes. The initiatives currently facilitated by Salix must be encouraged and incentivised across the country. It is quite notable that the Government’s energy efficiency strategy barely mentions Salix. It is there but only in an annex. Is the Minister aware of the work of Salix? Could she outline the department’s plans for it in the future?

To return to decapacity, as mentioned before, a number of technologies could be very usefully brought forward by such a mechanism. I talked about LED lighting and voltage optimisation. There is also smart metering, and efficient pumps and motors. These make up a big portion of our non-domestic electricity demand and should be incentivised more.

My noble friend Lord Whitty mentioned the use of tariffs. It is definitely true that with the advent of smart meters we should be able to have a much more flexible demand profile, moving our demand away from peak times and increasing the efficiency of our system. Those time-of-use tariffs could, when aggregated, have a very big impact on our system and should be supported as a priority. Could the Minister comment on the idea of the early introduction of a decapacity incentive mechanism in the context of Chapter 3 of the Bill? This could receive widespread support and we would encourage DECC to deploy more resources in this area.

In speaking about energy efficiency, it is usual to focus on the end use of energy and this evening noble Lords have, indeed, talked much about the numerous policies that exist in that area. I would like to focus a little on upstream energy efficiency which is an overlooked area of policy which we should take seriously. The efficiency with which we convert primary fuels—that is coal, oil and gas—into electricity is very important in defining how efficient we are in carbon terms across the whole system. Electricity generation is still the biggest source of CO₂ and how we make it is therefore important. During the last dash for gas in the late 80s and 90s, we made significant reductions in our emissions because we replaced ageing coal plant with new, cleaner, gas plant. Not only was the fuel cleaner but the stations burning it were more thermally efficient. This is a very important point and there has been no progress in policy terms on it since then. So we find, in 2011, that the thermal efficiency of our gas plant is close to 50%, whereas our coal fired stations are only 35.7% efficient. In 2011 we relied on, and in 2012 are still relying on, these inefficient stations more than on gas because of high gas prices while coal stations are still operating at high load factors. Much of our old coal will come off the system but 20 gigawatts of old coal capacity will remain on the system, much of it built in the 1960s. We lack any direct strategy that addresses the energy efficiency of upstream electricity generation. The one policy that did exist—the IPPC directive—was lost when there was deregulation in favour of the EU Emissions Trading Scheme. That and other efforts to price carbon have so far, sadly, failed to provide a strong incentive. Will the Minister give assurances that the Government will include upstream energy efficiency in power generation? Can we expect measures to be brought forward that will help to improve the situation now and in the future?

I have spoken for some time without mentioning the policy which the Government consider to be the game-changer in respect of energy efficiency: the Green Deal. The noble Lord, Lord Teverson, mentioned it and I am grateful to my noble friend Lord Whitty for introducing it to the debate. I am not fully persuaded that this is the right policy to unlock these savings. I have worked in this area for a number of years and I have not noticed a huge demand from people asking for new loan structures to enable them to invest in energy efficiency. My fear is that, given that the interest rates are going to be relatively high and there will be penalties for early repayment, this might not deliver as we would hope. I hope I am wrong and time will, of course, tell. I agree with the comments of noble Lords that it needs a much more concerted effort to communicate this policy to members of the public and businesses. I am told that very many businesses simply assume that it does not apply to them. We have a very big education job ahead of us if this policy is going to succeed. I urge the Government not to become overly confident or complacent in expecting that the policy will deliver. It is entirely based on the desire of people to take it up, so we should not be using its existence as a reason not to look at other policies in this area. I noted a statement in the consultation document on demand reduction that there was a strong case that we do not need any more measures in the domestic sector because of the presence of this policy. I would urge caution, because it certainly has not delivered yet and we should still be looking at broad-based measures for demand reduction across all sectors.

I am running out of time, but I will finish by saying that we do not yet have an energy efficiency strategy: we have a very nice document, a lovely MACC curve and lots of fine words about the potential but, echoing the words of the noble Lord, Lord Teverson, we still do not know how the Government are going to get on and deliver. I urge them to do so.