Saturday 14 June 2014

Picking Through The Wreckage of Zero Carbon Homes

The policy that categorically does not do what it says on the tin

It all started out so well in those early years.  There was a sense of shared endeavour in the construction industry.  When, in 2006, the government announced that by 2016 all homes built in the UK would have zero net carbon emissions, no one thought it would be easy, but many in the industry were eager to rise to this inspirational challenge.

The concept was that we should stop building new homes that would only need to be upgraded later to be properly energy efficient. Building these homes fit for the future would stimulate a mass-market for energy efficiency measures and renewable energy technologies and result in tradespeople and designers developing skills that could be carried over into the upgrade of our existing stock of buildings.

Well, here we are in 2014 and how has it fared?

In the run up to the Queen’s Speech, Stephen Williams, a Liberal Democrat MP and minister at the Department of Communities and Local Government (DCLG), began briefing via the Lib Dem website that he’d ‘saved’ the Zero Carbon Homes (ZCH) policy from those nasty Tories.

From information in his article its possible to piece together how ZCH will work.  So let's peer through the smoke drifting around and have a look at the train wreck we’re left with.

It seems like all housing developers will have to build homes that are equivalent to the Code for Sustainable Homes level 4, which is only a 44% improvement on the so-called regulated carbon emissions of a 2006 home.

However, even this overstates the ‘achievement’.  As I have covered before in this blog, the definition of zero has been adjusted to include only regulated carbon emissions (those from heating and hard-wired lighting).  All energy used by plug in electrical appliances (white goods, gadgets, audio-visual) have been removed from consideration.

Add back in the average emissions from plug in electrical appliances and the picture is even less flattering.  The original vision of Zero Carbon Homes has been diluted to such an extent that the achievement of which Stephen Williams is so proud is that a home built in 2016 will be allowed to produce fully 71% of the carbon emissions of a home built in 2006.

The average energy bill for one of these ‘Zero Carbon’ homes will be similarly unimpressive.  I calculate that a 3 bed semi-detached ‘Zero Carbon’ home would have a combined energy bill of £800/year whereas one built to 2006 standards would have a combined energy bill of £1080/year.

The political sleight of hand that Mr Williams is using to justify his hyperbole was announced in the Queen’s Speech and is the creation of legislation to enable an element of ZCH called ‘Allowable Solutions’.   This could be better called ‘Buying Carbon Offsets’ because it means that instead of pushing the performance of the building itself from Code level 4 to Code level 5 (zero regulated carbon emissions), the developer can choose instead to pay into a government-managed fund.  What this fund will be used for is, as yet, undefined, but seems likely to be spent on upgrading existing buildings.

Allowable Solutions was first proposed as a means of helping more challenging homes (for example flats with limited roof area) make it over the line by allowing carbon offsetting for that difficult last little bit.  What was supposed to be the mint chocolate with the coffees has now become the main course of the meal, potentially accounting for 56% of the regulated emissions.

The circularity of this is mind-bending.  Instead of building efficient homes in the first place, we effectively collect a tax from the developer, leaving the house-buyer with largely unchanged energy bills and putting the money into a pot which may or may not at some unspecified future point be used to improve existing buildings.

The opportunities for double-counting the benefits are also clear.  It's hard to imagine ministers avoiding the temptation to take credit for both the new homes being zero carbon and for whatever measures the fund is spent on at the same time.

Furthermore, there is to be a provision for ‘small developments’ to be exempt from reaching Code 5.  Again, it is not yet clear what small means in this context, but Barbour ABI has estimated that if small means a development of 10 or more homes then around 10% of new homes would be exempted from the policy, whereas if developments of up to 50 homes were to be considered small, then this figure would be around a third of new homes.

Which Tin?

In his article, Stephen Williams says that Zero Carbon Homes “does exactly what it says on the tin”

This astonishing claim doesn’t even get close to passing the ‘reasonable person’ test.  Someone offered a home described as Zero Carbon would have a reasonable expectation that the carbon emissions from the home would be zero and energy bills would be extremely low.

After ten years of backtracking, what we’ve actually got is a policy where new homes will produce more than 70% of the emissions they started with, coupled to a carbon-tax that might apply to only 2/3 of new homes built, and energy bills for the house-holder reduced by only 30%.

This policy "does exactly what it says on the tin" only as long as the tin in question is labelled "Business as Usual for Property Developers"

DCLG has succumbed to the enticingly simple argument that a proper ZCH policy would impose higher costs on developers and slow the rate of new build, thus threatening the economic recovery. The reason this argument is bogus is that if build costs rise, then the price a property developer would be willing to pay for land will drop.  Building to higher standards simply reduces the wind-fall to the land owner.  The only time the burden of building to a higher performance falls to developers is when they have speculated that legislation will be watered down and over-paid for their land bank.

It is not clear that this “world-leading” policy even meets the wooly definition of the European Directive on the Energy Performance of Buildings that the UK must comply with by 2020.  This requires all housing to be ‘nearly zero carbon’.  It may be that this is tested in the European Commission, indeed a number of renewable energy associations are already considering just such a move.

All is not Lost

A properly designed structure for the Allowable Solutions might just get this train back on the rails.  The price per tonne of carbon should be set to encourage the use of now common on-site measures such as higher levels of thermal insulation, heat pumps, solar water heating and solar PV.

One opportunity would be to set the price per tonne in a tiered structure, with an increasing marginal cost.

Code 4 is a 44% reduction in the emissions compared to a 2006 home, leaving 56% emissions available to offset under Allowable Solutions.  What if the chunk from 44% to 72% was priced at £120 a tonne, and the chunk between 72% and 100% was priced at £30 a tonne. Developers would have a strong incentive to drive efficiency up towards the 72% level (broadly equivalent to the old 'carbon compliance' level) using improvements to the building.

A developer who built to business as usual (Code 4) and paid the entire carbon offset would have an average cost to bear of £75/tonne.  By contrast a developer that improved insulation levels or installed renewable energy on the homes to bring down emissions below 28% of 2006 levels could reduce their average cost of carbon offsets down to £30/tonne.

A policy designed like this would be responsive to a changing market. If the housing market continued to improve and government decided that landowners could bear more of the costs of the policy, then the relative width of the bands could be adjusted.

Come on Mr Williams, all is not yet lost. You've still got time to make the reality of Zero Carbon Homes match your rhetoric.

Tuesday 3 June 2014

Slow Burner - how will the Domestic RHI Take off?

How much can the first year of the Feed in Tariff tell us about uptake for the Domestic RHI

How it went for the Feed in Tariff

A number of people (including the solarblogger himself) tried to temper expectations for the domestic RHI with the argument that the Feed in Tariff (FIT) took a bit of time to get going. The logic goes that it takes time for the public to become aware, for installers to work out how to market it, and especially for housing associations to get organised. 

I thought I'd take a look at the numbers to check whether they supported this idea. 

I wanted to compare the take up of PV in domestic installations before and after the introduction of the FIT. There is a wealth of data available from the Department of Energy and Climate Change (DECC) on the levels of PV deployment  under the FIT, but much less for the years preceding it. I relied upon this report on the Low Carbon Building Programme (LCBP) to build a picture of deployment rates before the FIT. 

Under LCBP phase 1 (the domestic stream) there were 4,428 installations of PV. The average size was 2.18kWp, for a total capacity installed under the scheme of 9.7MWp. 

Since the report doesn't disclose the deployment in each period, I estimated PV deployment based on overall scheme expenditure.  I then combined this with FIT data for systems below 4kWp, most of which is likely to be domestic. 

The results are very interesting. 

When you look at the plot of the overall data, it sure does seem that all the action started in year two of the scheme. But this is a trick of exponential growth. Look at the lower plot, where I have shown the data only up to the end of year one. The first year was spectacular. 

The level of deployment grew from round 700 installations a quarter before the FIT to 11,000 a quarter at the end of the first year. Before the FIT subsidy, solar thermal systems were being installed at a rate around 10 times higher than solar PV. By the end of the first year, solar thermal had declined slightly, but solar PV installations outnumbered them by almost double. 

And so to the Domestic Renewable Heat Incentive

There are a number of reasons why the domestic Renewable Heat Incentive won't take off like the Feed in Tariff did. 

1.  The Feed in Tariff.  

When the FIT was launched it was the only show in town. The grant scheme for renewable heat was derisory by comparison. As the domestic RHI launches, people interested in investing in their homes to reduce energy bills have the choice of both FIT and (I suppose) the Green Deal. 

2.  Installation complexity. 

With the exception of solar thermal, all the domestic RHI technologies replace an existing heating system, rather than being an add-on. People will be more cautious about installing a new technology when they worry that the impact of it not working is a cold house and no hot water.

Renewable heating installations are generally more intrusive too. A heat pump may require the replacement of radiators to cope with lower heating temperatures, biomass boilers can require a lot of space. New products such as this one which simplifies the installation of solar thermal to levels approaching that for solar PV may help overcome this barrier, at least for solar thermal where there's always the backup heater. 

3. Off Grid Target Market

The domestic RHI tariff levels were intended to stimulate a market in the 20% of homes that are off the gas grid. For sure, the returns are better when heating with oil or electricity, but returns for solar thermal on gas can also be good, as this analysis has shown

4. World First

The UK feed in Tariff followed the implementation of similar schemes in other european countries. Businesses could see the rapid take up of markets that had resulted and anticipating a similar trajectory for the UK, were pumped and ready once the scheme launched. By contrast the RHI this a genuine worlds first. There's no equivalent to look at to predict uptake. The many, many false starts for the scheme also didn't help. Many installation companies I spoke to weren't even willing to spend time thinking about it until they were absolutely sure it had launched. 

5. The Feed in Tariff (again)

My final reason is perhaps the most important. The way the government managed the Feed in Tariff has led to the widespread belief that as soon as any renewable energy scheme is successful it will be ruthlessly hacked back. The shadow that the treatment of the FIT scheme casts is long and pervasive. 

For all this, the scheme offers a level of financial support beyond anything that renewable heating technologies have benefitted from before. My plea to the industry is to give it a while before judging the success or otherwise of the scheme. 

It may take time to take some time to warm up, but warm up it surely will.