Energy policy: Striking the right balance

The public spat between an energy minister and his secretary of state over the issue of wind power has once again raised questions about how ‘joined up’ UK energy policy really is. However, it does reflect a widely‑held misperception that energy policy should be about the supply side – how the UK can provide ever greater amounts of secure energy for its future needs.

Given that we waste more than 20 per cent of our energy supply, this approach is like increasing the flow of water through a leaky hosepipe: as the leak gets worse, so the flow has to be increased to get the required amount of water onto the garden at the other end.

Now, faced with that situation, most people would repair the hose as a first step. Stopping the leaks is an eminently practical and sensible response. But what is obvious at a practical level seems to escape policymakers somehow. Both the UK Government and the European Commission believe that energy savings of 20 per cent are cost‑effective using today’s available and economically‑viable technologies. The EU has set a target for a 20 per cent
improvement in efficiency by 2020. As E F civil servants are not known for setting over-ambitious targets, it can be safely assumed that a 20 per cent target is on the conservative side (with a small ‘c’). Indeed, ESTA’s own experience would suggest that much larger savings are routinely achievable.

The supply mix
In all the noise about the supply mix, the simple truth about the benefits of minimising demand is once again struggling to be heard. Now it may be that for politicians improving the energy efficiency of large numbers of homes and businesses across the country is not as appealing as being able to point to a new power station and say ‘I made that happen’. And the energy efficiency industry does not have the resources of the big utility companies for lobbying or buying advertising space in the media.

Yet it seems strange that policymakers and utilities do not realise the benefits to UK plc from reducing energy demand. The supply and demand side options are not mutually exclusive. In one sense they are not even two sides of the same coin as this seems to imply they face in different directions. Energy efficiency, as successive Government White Papers recognise, is an essential pre-condition for a fully-functioning, economically-efficient energy industry. In any well-run organisation, value for money is extremely important. It is essential to deploy available resources to achieve the greatest impact. Yet this does not seem to apply in the case of national energy supplies.

What is going wrong?

Energy is not something that is useful in its own right. It is used to achieve particular ‘goods’: heat, light, power to operate equipment, etc. If these goals can be achieved for less energy – and therefore at lower cost – surely that must represent greater value for money? So what is going wrong?

Part of it may be the way that energy – and energy management – are incorporated into the overall energy market. Energy efficiency initiatives generally have to be funded by the organisations that want to implement them. This normally involves up-front investment with a calculated payback period. By contrast, big supply side ventures – whether nuclear power, gas stations or offshore windfarms – are not paid for directly by individual consumers. The cost is spread over many years amongst large numbers of consumers, so any specific organisation does not feel the impact of this expenditure. In this way, the debate remains almost academic for many people.

When action on energy efficiency requires real expenditure by the end-user, but building new energy infrastructure is hidden away in other supply side costings, is it surprising that the energy efficiency message is not taken seriously? Office shelves are full of reports from (largely free) energy surveys which have not been implemented. Why? Because they involve direct expenditure as much as for any other reason.

Green deal
Ironically, the Government has recognised this: the Green Deal is an attempt to eliminate the upfront investment with a long term loan buried in the energy bill. It is, if you like, an attempt to level the playing field. However, the Green Deal is long in coming and seems to be getting weaker with every successive consultation. Some technologies are ruled out even though they are cost-effective, in much the same way as the approved technologies eligible for Enhanced Capital Allowances (ECAs) were heavily circumscribed.

If the Government were serious about creating a level playing field, then we would need a great deal more transparency as well as some rigorous, evidence-based decision‑making. All the additional costs surrounding supply-side programmes would need to be costed in and made clear. Users would benefit greatly from transparency of costing on their bills too. For instance, figures showing thousands of jobs being created in a proposed nuclear power construction programme omit to mention that many of these are specialist roles for which the skills no longer exist in the UK – although separate Government announcements highlight the lack of skilled engineers and welders. So the people to fill these roles would need to come from abroad and would likely return there afterwards. In contrast, jobs created in the energy efficiency industry tend to be UK-based. That has implications for tax going to the Government and investment being ‘returned’ to the UK economy.

The fundamental issue
But the fundamental issue is that we all pay for energy in one way or another. So how much does an extra kW cost to supply and would it be cheaper to eliminate the need for it through better energy efficiency? Which would be the better investment?
The efficacy of energy efficiency has been shown in study after study, many commissioned by the Government or its agencies. In fact, the Government has repeatedly argued that the cheapest unit of energy is the one a consumer does not have to buy. In actual fact, that unit of energy is often the most expensive in practice – it is an unproductive and ultimately unnecessary purchase. Until we know what the exact requirement for energy supply is, it will be impossible for the Government to put an accurate figure on the cost of replacing the UK’s aging power generation capacity. But let us assume that we can save at least 20 per cent through energy management and energy conservation measures. The resulting reduction in generating capacity required is actually more than 20 per cent. A 2007 document from the Parliamentary Office of Science and Technology estimated that over one-fifth of generated power was lost in transmission and distribution, getting electricity from the power station to the consumer. So a 20 per cent increase in energy efficiency reduces production requirements by more than that.

Energy efficiency is thus even more cost‑effective than a simple like-for-like comparison would indicate. And of course, energy efficiency measures can be carried out in a large number of individual projects rather than in very expensive construction projects over a short period of time. This has the added effect of spreading the risk of failure or delays e.g. a major very expensive complex project involves much greater risk than thousands of smaller local improvements.

Consumer benefits
Energy efficiency has a direct benefit to consumers, it is cost-effective and it re‑invests in the UK economy. So, even if the Government does not appear to be interested, energy consumers can still benefit from taking action. Indeed, a number of energy efficiency initiatives do not require any financial investment, but most of those that do will pay back in anything from a few months to a couple of years. And that investment brings benefits to the UK overall. If enough people take the issue seriously, the country could reduce its need for new electricity generation dramatically.

Further information
The Energy Services and Technology Association (ESTA) represents over 100 major providers of energy management equipment and services across the UK. For more details visit the website at www.esta.org.uk

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