Energy Market Reform

Posted on October 25, 2013 by Doug King

This week’s news has been full of hot air about energy prices.

The Chief Executive of Npower suggested that consumers should use less energy if they want lower bills. Actually, that’s very sound advice, but it came on the back of the recent energy price hike and so of course the media and politicians have been up in arms over this ‘affront to the public’.

Shadow Energy Secretary Caroline Flint said that energy companies shouldn’t lecture customers when thousands are struggling with bills and Labour Leader Ed Milliband said that this was more evidence of ‘a broken market’ and reiterated his call for an energy price freeze.

Meanwhile the energy companies are desperately dissembling; trying to blame Government subsidies and levies for the price hike, when in reality these represent a very small percentage of bills. Maybe that’s what led to the spat between Deputy Prime Minister Nick Clegg and Prime Minister David Cameron over green taxes.

I guess that politicians and energy companies alike don’t want the public to know just yet that we are on the fast track to ever more expensive fossil fuel (see my oil price infographic) that will likely make the strike price for nuclear electricity agreed this week look like a bargain in 2023.

There is of course one simple measure that could be taken right now:

Instead of the cost of energy reducing as you use more, it should more expensive.

Imagine if the first 1000kWh or so of energy you used each year were free of charge. That would equate more or less to the winter heating allowance paid to pensioners, but would benefit all vulnerable households reducing fuel poverty across the board. Then the next 1000kWh would be charged to cover the cost of production, the next 1000kWh would cost more and so on. We could pitch it so that by the time you get to the UK average consumption the overall bill remains the same as it is now. Then the cost could increase rapidly with further consumption, allowing the energy companies to make their profits at the expense of profligate consumers.

At a stroke you’d address fuel poverty, rebalance the energy market, encourage energy efficiency and penalise the wasteful. This would re-balance the energy market in exactly the way that the politicians keep saying that they want to achieve.

So why are they not doing it? This is, after all, the way in which road duty is applied to cars – the more polluting the higher the charge, and council tax is applied to housing – the larger the home the higher the charge. Unfortunately our political parties of all shades are now firmly capitalist and rebalancing the market through taxation would be anti-capitalist.

The market will not deliver such change either, since no single company dare move to a new pricing system in isolation and concerted action by all the energy companies would be classed as collusion and anti-competitive!

It is not simply the energy market that is broken, it is our political-economic system.

Allowable Solutions Response

Posted on October 14, 2013 by Doug King

The following is my complete and unexpurgated response to the Allowable Solutions Consultation for anyone who is interested.

Response by:
Prof. Doug King FREng FInstP FCIBSE FEI HonFRIBA

This is a personal response and not on behalf of any organisation
Business Sector: Building Services Consultant
Business Size: Micro

You will receive responses to the consultation from a number of institutions and other bodies which will go into detail addressing the specific questions you have asked. I have contributed to some of these, but I feel that there is a larger issue that needs to be addressed and hence this personal response. Since it does not easily conform to the questions asked in the consultation I trust that you will forgive me for not using the response form in this instance.

The underlying aim of the legislation is surely to help deliver the requirement of 80% reduction in carbon dioxide emissions from the UK. The danger in addressing such overarching goals with piecemeal legislation is in creating unforeseen precedents and perverse incentives which actually make it harder to achieve the ultimate goal. I would like us to keep the ultimate goal in mind when formulating the present legislation.

The zero carbon standard for housing that we define now will have to be valid and robust to serve us for the next four decades. By defining a zero carbon standard now which includes a high level of small scale renewable generation and Allowable Solutions we will set a precedent for the approach to be taken in zero carbon non-domestic buildings and in near-zero carbon refurbishment of the existing building stock (domestic and non-domestic).

In order to achieve the overall target we will likely need to make several incremental improvements in building energy performance. How can we define a standard for housing performance that is beyond zero carbon? That would be meaningless. Thus, if we now define a zero carbon standard that does not genuinely address zero carbon we risk depriving ourselves of any viable mechanism to reach the ultimate goal.

The combined fabric efficiency standard and carbon compliance, as proposed, will deliver a present day carbon reduction from new housing of around 70%, averaged across the stock, against the 1990 baseline.

However, the carbon compliance standard could be met by the installation of small scale renewable electricity generation. Whilst such renewable generation represents a carbon offset in the present day, the value of this offset will diminish over time, until it is close to zero, as the UK electricity supply is decarbonised in line with the national targets.

Thus, the only sustainable carbon reduction for zero carbon housing delivered by the proposed approach is actually that which is achieved by the fabric energy efficiency standards. This must be our focus. The combination of carbon compliance and Allowable Solutions must be discounted if we are to achieve a robust solution which is still delivering valid carbon reductions in 2050.

We cannot assume that carbon reduction measures which are deliverable at a reasonable economic cost in this decade or the next decade, will be sufficient to meet the 2050 carbon target alone. In fact it is becoming increasingly apparent that appropriate short-term measures to reduce carbon emissions in the next two decades may be different from the ultimate solutions in 2050 and beyond.

It is therefore vital that legislation introduced to reduce carbon emissions in this decade does not nullify opportunities for the further actions that will be necessary to meet our overall target.

The Green Construction Board’s ‘Low Carbon Routemap for the UK Built Environment’ identifies that: “It is technically possible to deliver the government’s target of an 80% reduction in carbon emissions in the built environment; however, this would require maximum uptake of technically viable solutions in all sectors, including implementation of technologies that at present do not have a financial return on investment over their lifetime.”

It should be noted that in modelling the GCB Routemap scenarios, it appears to have been assumed that all new buildings are truly zero carbon as far as emissions from the built environment are concerned. It seems that the offsets from Allowable Solutions and small scale renewable generation are delivered outside the built environment model. In other words it will require the maximum uptake of technically viable solutions within the built environment sector plus offsets from Allowable Solutions without any overlap.

Clause 2.4(c) of the Consultation Document states that “The carbon savings deriving from Allowable Solutions should be additional and over and above the carbon savings that would have been delivered without the availability of Allowable Solutions.”

We need to ensure that this is not only true for this implementation of legislation, but future ones too. We must avoid double accounting for Allowable Solutions offsets if we are to achieve the ultimate goal.

In order to deliver near zero carbon buildings across the stock it is likely that further legislation will be required in the future. The standards that we then set for zero carbon non-domestic buildings and near zero carbon refurbishments will inevitably follow the precedent we set now and we must allow them to include Allowable Solutions. Where are these Allowable Solutions to come from?

If the standard for zero carbon housing set now includes the opportunity for carbon offsetting from the existing building stock through Allowable Solutions then we risk creating a paradox when it comes to refurbishing the existing stock.

Further, under such a scenario the task of completely refurbishing the existing building stock to near zero carbon standards becomes much harder and will probably require substantial financial support. A great deal of building refurbishment can presently be funded directly as it will achieve a return on investment. However, if all the simple, low cost interventions have already been allocated against Allowable Solutions for zero carbon new buildings this will make the task of undertaking the residual refurbishment much harder and more expensive.

In summary I suggest that the structuring of Allowable Solutions is fraught with difficulty unless it is made very simple indeed.

We should not delude ourselves that achieving 80% reduction in carbon emissions by 2050 can be delivered at low cost. I reiterate: delivering this target will “require maximum uptake of technically viable solutions in all sectors, including implementation of technologies that at present do not have a financial return on investment over their lifetime.”

It is a mistake to consider that the housebuilding sector is somehow exempt from taking real action on the issue of carbon reduction simply because it is considered too expensive. This is an issue that we all have to face together. The precedent set now will have repercussions on all future legislation in the built environment sector.

The penalty that the UK will pay for the construction industry not delivering on-site carbon emissions reduction will be the need to deliver greater overall low carbon generation capacity. This deficit will simply grow as Allowable Solutions are extended to new non-domestic buildings and thence to refurbishments. Simply allocating emissions reduction from one part of the built environment sector to another through Allowable Solutions will not increase the overall reduction achieved by the sector.

Logically this argument can be extended to cover any sector of the UK economy. All sectors have to achieve the same target reduction in the end. Achieving these targets will require decarbonisation of the energy supply. Thus, the only allowable solution for zero carbon or near zero carbon buildings should be direct investment in large scale, low carbon generation capacity.

Further, since the only sustainable carbon reduction will be that delivered through fabric energy efficiency standards, the calculation of offset required from grid scale low carbon generation should relate to the discounted future value of offsets of on-site electrical generation by renewables in addition to the Allowable Solutions level set in this legislation.

Consultation for Whitewash

Posted on September 6, 2013 by Doug King

The government is currently consulting us, the great unwashed public, on Allowable Solutions for ‘Zero Carbon’ homes. The scope and extent of these consultations makes it clear that the term ‘Zero Carbon’ is about to become pretty meaningless. I do hope that we are not being asked to consult on a whitewash.

The working definition of ‘Zero Carbon’ has been prepared by the Zero Carbon Hub. This definition includes three components: fabric energy efficiency, onsite Carbon Compliance (Renewables & LZCTs) and finally allowable solutions. The first two components are presently regulated under Part L of the Building Regulations. Allowable Solutions is essentially an offsetting scheme, which allows house builders, where necessary, to make up the final gap to ‘Zero Carbon’ by funding offsite Carbon mitigation measures.

This structure is entirely logical and should have been workable had it been developed as a complete system. Unfortunately, as in so many other aspects of energy policy, the policymakers do not understand the importance of systems. The ‘Zero Carbon’ working definition was broken down into its three components and each was subject to separate consultation and agreement.

Fabric Energy Efficiency was the first to be considered. However, rather than adopting a challenging new standard for British construction, such as the Passivhaus fabric energy standard, this working party backed off, presumably under pressure from the builders. But that was felt to be OK as the Carbon Compliance layer would surely ensure that the overall Carbon reduction targets were achieved.

The debate around Carbon Compliance unfortunately also fell short of what should have been possible in an enlightened construction industry. The final proposal was that Fabric Energy Efficiency & Carbon Compliance together should achieve a 60% reduction below 2006 Part L. This was felt to be a target that could be achieved by 90% of house builders by 2020, four years after ‘Zero Carbon’ becomes a requirement. Hardly a challenge sufficient to promote step change in working practices.

But this did not matter, as the consultees were certain that the Allowable Solutions would be drawn sufficiently tightly to encourage on-site Energy Efficiency and Carbon Compliance to at least this level.

Since then of course we have had the long delayed announcement of the 2013 Part L revisions (now only coming into force in 2014). This sets the Target Carbon Emissions Rate for housing just 6% below the 2010 Part L (cumulatively 29.5% below 2006 Part L). So in 2016 ‘Zero Carbon’ will comprise 29.5% cumulative reduction in Part L emissions to date, a huge step of 30.5% reduction in the 2016 Part L, with the expectation that 10% of the industry will still be unable to comply four years after that, and 40% Allowable Solutions.

Now we are beginning to see the true picture of Allowable Solutions as well. The Government feels that house builders who are unable to build low carbon housing should not be penalised by the expense of Allowable Solutions. Thus the cost of abating a tonne of Carbon will be capped. This means that the builder may not have to pay the actual cost of abatement or may not achieve the full abatement required, depending on the abatement methods available.

One of the suggestions to overcome the price barrier is that Allowable Solutions ‘Providers’ will spring up to take money from house builders to deliver aggregated abatement projects. That sounds like a great opportunity for bankers who are already making a great deal out of the Green Deal and the renewables incentives. Further, in order to ensure that Allowable Solutions are available at the lowest cost it is proposed that they could include abating Carbon emissions from existing buildings.

What?! I hear you ask.

Yes. Under these proposals it could be possible for a very ordinary new house, without substantial improvement in energy performance to be classified as ‘Zero Carbon’ if some money is spent on improving an existing, worse performing building.

But surely, in order to meet our 2050 Carbon budget we need ‘Zero Carbon’ new homes in addition to ALL existing buildings becoming Nearly Zero Carbon too. Does this suggestion not simply lead to double counting of Carbon abatement whilst actually achieving very little?

Well, actually, yes it does.

I thought that the point of gradually tightening the performance standards of buildings through the Building Regulations towards ‘Zero Carbon’ was to encourage the construction of better performing buildings and stimulate innovation and improvement in our industry. Now I see it for what it is:

House builders will be able to continue with business as usual. They will take a bit more money from house buyers on the sale price to funnel into offsetting schemes. The offsetting schemes will be arranged by financiers to invest in profitable, easy energy efficiency retrofits in existing buildings. The bankers will harvest the profit that should have been financing these measures independently in the first place. House builders, Government and the Banks all win. The only buildings that will be left out of the abatement gravy train are those that are classified as hard to deal with. These will only get refurbished under the Green Deal ECO mechanism and subsidised by – you’ve guessed it – energy bill payers.

Zero Carbon or EcoBling?

Posted on August 8, 2013 by Doug King

By now, everyone should be aware that the UK is committed to reducing carbon dioxide emissions 80% below 1990 levels by 2050. Most people reading this blog will also be aware that carbon dioxide emissions arising from energy consumption in the buildings accounts for around 45% of the total.

Thus, one of the headline policies in the UK is that all new buildings should be constructed to zero carbon standards by 2020. However, by the time 2050 comes around new zero carbon buildings will only account for around 20% of the building stock, the remaining 80% are already in use today. The low carbon refurbishment of some 20 million existing buildings presents an even greater challenge for the construction industry than that of zero carbon new buildings. Further, in order to meet the commitment we will need to deliver over 2,000 low carbon building refurbishments every working day starting today.

Unfortunately, a number of recent studies of both low carbon housing and low carbon non-domestic buildings have shown that there is still a wide performance gap between the expectations of the construction industry and its clients and the ability to deliver real carbon savings. It is therefore vital that we embark on this journey of decarbonising the built environment with a clear understanding of what it will involve and which approaches deliver the best abatement at the lowest cost. Otherwise, we risk wasting time and money on initiatives that fail to achieve the end goal of reducing the overall amount of carbon dioxide emitted to the atmosphere.

Recently, the conjunction of local planning policies demanding on-site renewable energy generation and the generous financial incentives available for these technologies have created a perverse new market for small scale generation in urban locations. The most common approach now being taken to low and zero carbon housing is to use an electric heat pump in the winter and then provide the building with sufficient renewable generation to offset the electricity consumed by the heat pump over the course of the whole year. What we are seeing at the putative cutting edge of new building design will no doubt become the default approach for refurbishment too unless we do something about it.

Incentives encourage the installation of renewable technologies even where they are inappropriate.

In some instances I am even hearing now of projects that are abandoning super insulation and other passive energy conservation measures in order to pay for the revenue earning technologies. Under the right circumstances an owner could now be paid to generate heat that is wasted in a less well insulated building and paid again to generate renewable electricity to offset the wasted consumption and still qualify as zero carbon.

Subsidies aside, this approach to zero carbon, whether applied to new build or refurbishment, may not actually lead to zero emissions, as the assessment of carbon abatement does not take into account the different times at which the generation and the demands occur. The carbon intensity of grid-supplied electricity varies depending on the mix of generation required to meet demand. Generally, in the winter the carbon intensity is higher as more fossil fuel generation is brought into the mix to match the demand, whereas during the summer, when building attached renewables will be generating at their peak, the carbon intensity is low anyway.

Taken to the extreme, if we try to address low carbon refurbishment to meet our national targets using a mix of heat pumps and small scale renewable generators then we will simply exacerbate the problems. As more and more renewable generation is added to buildings, the carbon offset available for each individual generator will get lower and lower. On the flip side, a wholesale move to electric heating in the winter, even with the purported efficiency of heat pumps, will require a vast increase in generation capacity. Even if a substantial proportion of this demand can be met from large-scale renewables there will still be a requirement for backup generation to cover the intermittency of the renewable generators.

Then we need to consider the actual performance of heat pumps in practice. Ground source heat pumps provide pretty consistent performance throughout the year, but are expensive and require large areas of land for heat extraction. The performance of the more popular air source heat pumps depends on the external air temperature. The performance figures that are typically used to assess the carbon abatement potential are seasonal averages corresponding to outside air temperatures of 5°C to 7°C. With well designed, well insulated buildings there should be little demand for any space heating at these temperatures. In the future, heat pumps will be required to work mostly at outdoor temperatures below 0°C, when their performance drops rapidly. Thus, the instantaneous electricity demand from heat pumps during the winter could be much higher than anticipated at a time when the grid has higher carbon intensity.

A further problem with adopting small-scale renewable heat technologies to refurbish British buildings is that we have a history of building buildings that leak. The UK’s relatively benign climate means that, historically, we never really had to bother with insulation before energy conservation became such an issue, whereas our damp weather quickly leads to mould problems in buildings without good ventilation. Our standards of construction therefore reflect these very real drivers. However, this means that our buildings are generally too expensive to heat continuously, as the heat just escapes. Consequently we have adopted a pattern of intermittent heating following occupancy in homes and non-domestic buildings alike.

Intermittent heating requires a high intensity heat source such as a gas boiler, and a heating system that responds quickly, such as the traditional radiator. Low carbon and renewable heating systems work best when they are configured to deliver low intensity heat continuously to a well insulated, airtight building. To size a heat pump to deliver similar peak output to a boiler would be prohibitively expensive and lead to significant problems in its operation.

Dealing with the poor state of the fabric of our buildings must be the priority in refurbishment, before we ever start to think of bolt-on technologies. Insulation and airtightness do not have the “EcoBling” attraction of small scale renewable energy, but will require just as much thought and ingenuity if we are to get it right.

When we try to retrofit high levels of insulation and air-tightness to traditionally constructed British buildings we can quickly run into problems with indoor air quality, condensation and even rot within structural timbers, not to mention bronchial health problems relating to mould. Improvements to insulation and airtightness therefore need to go hand in hand with provision for protection against condensation and controlled ventilation with heat recovery. Thus, an apparently simple measure actually introduces a whole family of additional requirements in order to maintain a safe and healthy internal environment. Is a serious mistake therefore to try and skimp on consideration of issues relating to the building fabric in order to pay for the low carbon technologies.

Therefore, when it comes to retrofit, we must not allow ourselves to become distracted by the apparent financial attractiveness of bolt on renewable energy technologies. It is conceivable that the conjunction of zero carbon buildings, the feed in tariff and renewable heat incentive could actually lead to higher emissions overall, whilst not addressing the root of the problem. The approaches we take in order to meet policy goals in the short term may not in fact be the most sustainable approach in the long term.

The problems facing us in dealing with the building fabric issues in our stock of existing buildings will require considerable effort, expense and innovation. Failing to deal with the building fabric issues will result not just in higher than expected emissions, it could exacerbate health problems and other social issues such as fuel poverty. We need to be aware that the directions we are taking now through expedience may not lead us directly to our hoped for destination and that we may have to change direction several times before we can reach our ultimate goal.

We would be much better off focusing our efforts on building refurbishments that address the fundamental issue of consuming less energy to create comfortable and productive internal environments, rather than continuing to delude ourselves that we can simply bolt expensive technology on top of already failing buildings. That way, the cost to decarbonise our energy supply, the only real way to achieve a low carbon economy, will be reduced in line with the energy we save.

Race to the Bottom

Posted on June 19, 2013 by Doug King

The built environment is of vital importance to the creation of a sustainable society and construction needs to be considered as being for the public benefit. Decarbonising the UK building stock will not be easy or cheap and it requires concerted effort and co-operation across the supply chain. The capitalist free market is no longer an appropriate mechanism for the construction industry if we are to deliver the new paradigm.

Despite numerous spectacular failings in the delivery of IT and defence projects, our political leaders persist in their faith in the free market. Thus least first cost tendering is now applied across all aspects of public procurement for construction, from initial design right through to the regulatory functions. Where the Government leads the private sector will surely follow.

Open competition certainly does drive down prices but it is equally clear that it does not deliver real value or quality.

Any student of economics can tell you that people respond to incentives and that competition creates perverse incentives. Consider the case of the exam board official caught out last year feeding prior knowledge of exam questions to teachers at a training event. When schools are judged by exam results and exam boards compete to attract schools to use their examinations, they will do whatever is necessary to capture business. The market has created an incentive for perverse behaviours by exam boards including dumbing down the questions and advising teachers which areas to focus on during revision.

Nowadays even Local Authority Building Control has been forced into competition with approved inspectors. There is no longer any protection for the regulatory function. Developers will select their inspection services based not only on fees, but also on who is likely to give them the easiest route to compliance. So, just as with the competing exam boards, there is an incentive for building inspectors to be lenient in order to encourage future business. Any inspector who rigorously applies the regulations is likely to be quickly out of work. How can we therefore expect the statutory regulation function to be rigorously and impartially executed?

So, if our system of statutory oversight is compromised, can we rely on the supply chain to deliver the quality and performance improvements we need? I don’t think we can, as I said in a previous article ‘The Root of the Performance Gap’.

When I started as a young engineer, the practice I worked for had a policy of disregarding the lowest tender when we were evaluating mechanical and electrical subcontracts. You could almost guarantee that the lowest bidder had cut his cloth too thin and that performance on site would suffer, leading to poor quality and a continuous battle over proper completion of the works.

These days however, I find that clients not only appoint the lowest tenderer for every service, but that they also try to negotiate the price even lower. Yet it is clear that lowest cost tendering incentivises suppliers to deliver the lowest level of service that they can get away with. I contend that this actually leads to increased overall cost due to the additional management and supervision required to ensure that the bare minimum requirement of the specification is fulfilled.

However, given the urgent need to decarbonise the UK building stock, simply achieving the bare minimum of the specification is not enough. Every party in the construction process needs to deliver over and above. We need an industry in which every individual actively contributes to achieving a long-term vision rather than being focussed on short term financial goals. We need an industry in which selection is on the basis of performance and lifecycle value.

I suspect however that the public sector is still wedded to competitive tendering and we won’t see the necessary leadership for some time to come. In the interim, a step change in construction performance and value could be achieved by simply changing tender rules. There are lots of clever ways to structure competitions to achieve best value rather than lowest cost. However, a simple first step would be for the public sector to commit to taking the second lowest bid in any tender. At a stroke this would remove the incentive to bid at unrealistically low levels. The construction industry would then be able to concentrate on delivering value rather than recouping its losses.