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Regulation is doing some serious backseat driving

30 May 2019

Changes to little-known rules and regulations are threatening progress on emissions reductions, warns Tim Rotheray from the Association for Decentralised Energy.

Esoteric, seemingly non-political regulation is driving the direction of the energy system from the backseat and some major changes, affecting millions of homes and businesses, are moving through with very little attention. Government remains absorbed in Brexit but it must take control of the wheel and show some leadership from the front to avoid undermining homes and businesses delivering the low carbon energy transition.

Take a couple of examples - have you heard of the Standard Assessment Procedure (SAP) or residual network charges? The chances are you haven't, and nor should you have. These are areas of regulation deep in the bowels of the system known well by only a small group of specialists. However, regulatory changes to both SAP and network charging which are underway now will significantly drive up carbon emissions from new homes and damage the business case for local generation, efficiency, storage and demand-side response. 

SAP is the tool government uses to assess the energy and environmental performance of buildings. It is used to produce Energy Performance Certificates which you get when renting or buying a home. That's probably the closest most people ever get to it. Already pretty dry and niche. Within this tool is a set of carbon factors which set the emissions from different energy sources like the grid, gas and onsite generation. Even drier. But those carbon factors impact what energy system goes into those new homes. 

The government plans to halve that carbon factor to reflect the dramatic reductions in emissions from electricity production. Great. But for one thing. House builders follow the money; mercilessly. The recent Committee on Climate Change (CCC) report highlighted that new buildings were not meeting even current regulations. Why? It's all about cost. Driving down the spend per new home. This is alarming because, as the CCC stated, we need to be building very low carbon homes - a policy that, after years of development, was scrapped in 2015. Recent research by the ECIU found that scrapping zero carbon homes increased householders bills by £200 a year. Everything is done to drive down the cost of a new home with scant regard to the cost to the householder of running the home. 

The government's plans will lead to new homes being installed with electric panel heaters. Why? Because they are cheap. They cost a lot to run but that is not the housebuilders problem. Not only will it drive up the cost to heat new homes, it will also increase carbon emissions as these panel heaters are switched on when electricity generation is its dirtiest. New power demand at peak time calls for more gas and coal power stations to run driving up emissions. A policy designed to capture the benefit of emissions reductions will, ironically, push them higher. 

A second impact it will have is to ban efficient combined heat and power systems supplying heat networks. Great you might think, let's get rid of gas. Of course we must reduce gas use, and sharply. But the government's energy security policy, the Capacity Market, is paying people to build the exact same gas power stations but with no heat recovery. So the government is planning to ban efficient gas that captures waste heat and then pay companies to build the same plant and waste the heat. Carbon is carbon wherever it connects to the system. We need leadership from government to craft a conscious, coherent policy on the most efficient use of gas at all scales as we decarbonise. 

Next, let's consider residual network charging, the methodology used by Ofgem to recover from customers the costs of the networks used to transport electricity. It's an area of regulation so niche that it makes specific carbon factors within SAP look decidedly mainstream. You won't find residual charges on an electricity bill. In fact, the only place you can find these charges currently is as a side note in National Grid's forecasts for the Transmission Network Use of System. Now, hundreds of pages of almost impenetrable regulatory speak from Ofgem have been written setting out their case for radically reforming them. At this point, you are probably thinking that network charges are more likely to send people to sleep than keep them awake at night. However, the changes will significantly undermine the business case for local generation, storage and demand-side response. 

With well over half of emissions arising from equipment on site of homes and businesses, it is the end user that needs to change the way they generate and use energy if we are to ensure government's own binding emissions commitments are met. As everyone gets increasingly excited about the prospect of digitisation enabling a more democratic and people-orientated energy system, Ofgem is setting off in the opposite direction. The case for reforming the way we charge for power networks is strong, but we need to do it in a way that captures the potential for energy customers to be part of the solution to climate change, where they are rewarded for keeping the system secure or cutting carbon. 

So why are we here, with new building policy driving up carbon and energy waste, and regulation undermining homes and businesses driving the energy transition? The lack of a clear uniting strategy of how we achieve our vision. The great strides in electricity emissions reduction have hidden the fact that no major energy policy decision has been made since the end of the coalition government. The clean growth strategy has yet to see major policies to tackle transport and heating emissions. 

We have ended up with different parts of government pushing on with their changes - not coherent and causing all kinds of unintended outcomes. As an industry, it can feel as though we are constantly firefighting on the next big reform to be announced whilst trying to keep the day job going. As for government, it's no secret that the policy agenda is preoccupied by Brexit and will be for some time. But the climate is not on hold. On both sides, we need to step up and set out how we will implement the Green Growth Strategy's vision for a fully decarbonised energy system and the role of the energy user in it. 

After all, no one likes a backseat driver. 

Tim Rotheray is director of the Association for Decentralised Energy (ADE) 

This article originally appeared as a blog on the Business Green website on 12 March 2019

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