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COLUMN-UK review of energy efficiency scheme shows desperation: Wynn

Source: Reuters - Thu, 17 Oct 2013 12:09 GMT
Author: Reuters
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By Gerard Wynn

LONDON, Oct 17 (Reuters) - British government plans to review payments for making homes more energy-efficient are political posturing - an attempt to show concern over rising electricity bills, but sounding more like desperation.

Efficiency should be the centrepiece of efforts to curb households' energy costs, not a victim.

Prime Minister David Cameron was "reviewing" the country's main energy savings programme, under wider efforts to ease family budgets, the Financial Times reported last week. Cameron's spokesman was not available for comment on Thursday.

Centrica, one of the country's biggest suppliers, on Thursday raised prices by an average 9.2 percent, following a similar increase by SSE last week.

Opposition leader Ed Miliband's proposal to freeze energy bills if he wins the next general election in 2015 has presented a problem for a government whose hands are tied.

HANDS TIED

Britain has among the highest wholesale power prices in Europe, but residential bills that are below the EU average. (Charts 1 and 2)

The high wholesale price reflects a dependence on gas-fired power and a recently introduced carbon tax.

The most obvious tack to reduce bills is to lower or eliminate the tax.

But the main purpose of the tax is to make nuclear power economic: the government is poised to announce a deal for a power purchase agreement with French state utility EDF to build Britain's first new nuclear plant in nearly 30 years.

Without the tax, Britain would have to pay more under the deal, an unpalatable option since the government has said it will not subsidise nuclear power.

Britain is in no position to slash support for renewable power, given it is miles behind mandatory European Union targets for renewable energy in 2020 (presently at 4.1 percent of all energy compared with a target of 15 percent).

And that leaves efficiency payments.

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Chart 1:

Chart 2:

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EFFICIENCY OBLIGATION

Under Britain's 1.3 billion pound ($2.1 billion) annual Energy Company Obligation (ECO) scheme, utilities must cut their customers' energy consumption through home retrofits, focusing on low-income households, and whose costs are passed to all energy consumers.

The policy, introduced this year, is in line with an EU efficiency law which last year required member states to establish obligation schemes.

Under the EU Energy Efficiency Directive, larger suppliers will have to help households and businesses cut their consumption by an amount equivalent to at least 1.5 percent of their annual energy sales.

Utilities can achieve the savings themselves, for example by distributing free low-energy light bulbs to customers, or pay into a central fund used to retrofit homes.

Under the directive, Britain could replace its obligation scheme with another policy that achieved equivalent savings, such as a carbon tax, and so the government could argue that it does not need both its carbon tax and the ECO programme.

"Member States shall notify to the (European) Commission, by 5 December 2013, the policy measures that they plan to adopt," the directive states.

The existing obligation scheme is working well, government data shows, compared with other initiatives, making the idea of reviewing it more perplexing.

In May, some 33,765 efficiency improvements were made under the ECO programme (from new boilers to loft insulation), compared with 2,973 in June under a "Green Deal" retrofit scheme that also started this year and is available for all households.

The difference probably reflects the fact that under the Green Deal more of the costs will be borne by the beneficiary rather than passed on to all consumers.

IEA

Countries outside Europe are also introducing energy obligation schemes, according to the International Energy Agency (IEA), which published its first energy efficiency market report on Wednesday intended to complement its long-running oil market reports.

The IEA reported that China requires electricity supply companies to cut power consumption by 0.3 percent annually through end-use efficiency and upstream savings, for example along transmission lines.

And ratepayer-funded energy efficiency has been a pillar of U.S. efforts since the late 1990s, the IEA said, with spending growing to $7 billion in 2011.

"Energy savings from ratepayer-funded electric efficiency programmes (are) projected at 210 TWh (terawatt-hours) to 255 TWh in 2020, equivalent to 6 percent of projected electricity consumption in that year," it said.

"Depending on electricity sales growth over the period, these annual energy savings levels could result in a net decline in electricity sales."

RELATIVE

Subsidised efficiency schemes are the best way to bring down energy consumption and bills in the short and long term.

It would be extraordinary if Britain decided to scale back its biggest home efficiency scheme against the guidance of such basic energy economics.

But the fact that the senior party in the ruling coalition is reviewing whether to do just that, shows how rattled it is by the opposition's pledge to freeze bills.

At present, Britain does not have high household electricity prices compared with the rest of Europe, something the government could emphasise.

The country's household electricity prices last year ranked 12th among the 28 European Union countries, according to data from Eurostat, the EU statistics office.

Bills will rise, however, as the country deploys more renewable energy, including expensive offshore wind, and as its carbon tax increases over time, as scheduled.

At least a freeze in the carbon tax would make sense, if the country's pro-nuclear policy allows it.

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