Energy efficiency is cheapest energy reform, say top UK Government officials

 Chris Pook, Deputy Director of Green Economy, at the Department of Business Innovation and Skills (BIS)

Energy efficiency was affirmed by Government officials from two departments on Tuesday as being by far the cheapest way of meeting the UK’s climate commitments and decarbonising its electricity grid.

Speaking at The Energy Event at Birmingham's NEC, Trevor Hutchings, Head of Strategy and Delivery, DECC, and Chris Pook, Deputy Director of Green Economy, at the Department of Business Innovation and Skills (BIS), both referred to sources of research, including studies by McKinsey, which show that most measures to reduce energy usage have negative costs, compared to building more energy generation plant or carbon capture and storage.

Trevor Hutchings said that DECC's Energy Efficiency Deployment Office (EEDO) is still compiling its evidence base, since its formation earlier this year, and will publish its recommendations in the autumn.

The key challenges, he said, were how to drive innovation to cut costs of both manufacturing and installation, and how to speed up installation.

Thinking up ways of getting the public onside and engendering behaviour change to make it the social norm for people to save energy, is also part of EEDO's work.

Hutchings said that he regarded it as an early success that the UK had played its part in the negotiation of the Energy Efficiency Directive.

This deal, struck in June, was formally adopted by the European Parliament yesterday in Brussels. It clears the way for the Directive to enter force by the end of October, and sets a voluntary 20% energy saving target for the whole of Europe.

However, earlier this month, Greg Barker cast doubt on whether the UK had really signed up to a 20% target, when he responded to a Parliamentary question from Zac Goldsmith by saying that the target “applies to the European Union as a whole. The UK does not currently have a target to reduce primary energy consumption by 20% by 2020 relative to business as usual.

"Under article 3 of the Energy Efficiency Directive, the UK is required notify the European Commission of its indicative target for final energy consumption in 2020 by 30 April 2013."

EEDO will play its part in overlooking the implementation of the Directive, Hutchings said.

The Coalition for Energy Savings believes that the Directive is only a first step towards making energy efficiency the prime consideration for European energy policy. It believes it can secure at least 15% energy savings by 2020, up from the currently projected 10%.

“It is the first time that the EU has established binding annual energy savings targets, combined with a broad range of new energy efficiency improvement requirements covering the whole energy system, from energy generation and distribution to consumption and building renovation," said Stefan Scheuer, Secretary General of the Coalition for Energy Savings.

Speaking for BIS, Chris Pook said that the department had signed up to the carbon budgets set by the Committee on Climate Change. "It aims underpin our policies, but determining those policies is complex," he admitted. “Electricity market reform, the Green Deal, and the carbon price floor, are all problematic."

The division in Government over energy policy is even more apparent since the Cabinet reshuffle, with Vince Cable's speech on his industrial strategy yesterday overshadowed by calls from business leaders to get the rest of the Cabinet on his side, if he wants it to be a success.

At this week's Energy Event, energy-intensive users expressed delight at the recent ministerial appointments. Andrew Bainbridge, Chairman of the Major Energy Users’ Council, said that at last they might "see some sense" in government energy policy. These users are worried that a planned carbon price floor will raise their electricity costs above those of European rivals.

The MEUC is encouraging its members to take on board energy efficiency, however, and launched yesterday the third in a series of workbooks linked to training sessions, called How To Accelerate Your Energy Efficiency Training Programme, written by Dr John Ryan.

Why does this government spend less on the environment than culture, media and sport?

Here are some interesting facts about government spending.

The Department for Energy and Climate Change (DECC) is just about the smallest government department of all.

Its annual budget is £2.52 billion, but it has to spend 48% - £1.2bn - of that on nuclear decommissioning and nuclear waste management.

Therefore the amount of DECC's budget which it is able to spend on policy is a mere £1.32bn a year.

To put this in perspective, benefit spending in Great Britain is over 100 times more at £147.7 billion.

With 1% of the benefits budget, DECC's minister, Chris Huhne, is trying to save the planet and keep the lights on.

At the same time, DECC is hamstrung by the Treasury's Levy cap, which says that its approval is needed where policies could set a "potentially expensive precedent", amongst several other conditions.

The Department of the Environment Farming and Rural Affairs, DEFRA, is also one of the government's lowest spenders at just under £3 billion annually.

This means it receives less than consultancy Capita, the Government's favourite, single largest outsourcing firm (it received £3.3bn of contracts over the first five months of the Coalition Government alone).

Together, DECC and DEFRA's combined budget is less than that of the Department for Culture, Media and Sport's £6.97 billion.

Think about that: to this government, culture, media and sport is worth more than energy, environment and climate change.

Together, these departments are therefore pitching above their weight against the contrary inclinations of their main adversaries: the Treasury officials, with a budget of over £40 billion; and BIS, which has £26.25 billion to spend every year.

(Let's recall that the Treasury's last Budget was labeled the "blackest in living memory" by George Monbiot, and 79% of BusinessGreen website users agreed.)

In last year's Spending Review, Defra eagerly volunteered to deliver savings of £661m by 2015.

The budget for its arm's-length bodies was slashed by over 30% and led to the merging of WRAP and Envirowise with a 37.5% reduced budget and just 11 remaining ALBs.

WRAP and (DECC's arm's-length-body) the Carbon Trust are to have all their direct funding cut from April next year and have to bid competitively for contracts to do their work.

Is this the greenest government ever?

Solar PV and marine energy may be avoided by Green Investment Bank

Marine energy developers will have to wait until after 2015 before they can take advantage of finance from the Green Investment Bank, and solar power developers are currently confused about whether they will be able to use it at all.

The Department of Business, Innovation and Skills (BIS) has released a progress report on the principles under which the bank will be able to lend, citing a wide range of sectors including especially offshore wind, non-domestic energy efficiency and waste, but not mentioning solar PV.

The priorities are still being worked out, including whether domestic energy efficiency measures under the Green Deal will be eligible, since the Government wishes this to be primarily a private-sector led scheme.

But reading between the lines, it seems that the bank will be cautious, not proactive, in its lending, regarding itself not as a source of capital funding for projects whose profitability is some way into the future, but as venture capital for market-ready technologies.

BIS’s Vince Cable has been in disagreement with Chris Huhne at DECC over what the bank should finance, with Huhne arguing that horizon technologies such as marine and anaerobic digestion should be favoured.

It seems that Cable has largely won this tussle, especially since BIC will be the only shareholder of the bank - leaving DECC out of the picture in decisions over what will be financed.

Various groups immediately criticised this narrow remit, expressing, like regional renewable energy trade body Regen SW, that “for the bank to be truly effective it's important it doesn't take the simple option of investing in safe projects that would simply compete with bank finance."

Its chief executive Merlin Hyman added, "It must focus on leveraging the required private capital by financing commercially-viable projects at the earliest stages, where the highest risks are inherent."

Manufacturers’ organisation EEF demanded more detail on the type of projects that would be eligible for funding from the bank. Tony Sarginson, its North-east regional manager, said: “The big question of what will be its funding priorities is yet to be answered."

But BIS says the bank's operating principles will include making a significant environmental impact as well as financial returns; operational independence from Government; partnership with the private sector, and the minimisation of market distortions.

The bank will evolve as follows: from April next year, subject to state aid approval, the Government will be able to make direct financial investments is self to priority projects. After this, when the bank is a stand-alone institution, it will lend according to the criteria in the document published by BIS this week.

Following April 2015, it will be able to borrow money, assuming public sector net debt is falling as a percentage of GDP, and therefore radically increase its activity. But what if it is not?

Wind power, particularly offshore wind, nuclear, transmission networks, energy efficiency and waste are cited as being particularly urgent, although nuclear is not seen as particularly relevant to the remit of the bank, whereas the provision of rolling stock and marine energy are.

If the bank does lend to nuclear operators then a close watch has to be kept that there are no further liabilities for taxpayers.

In the area of waste management, novel technologies such as anaerobic digestion could be an opportunity for the bank.

BIS does to its credit point up the importance of energy efficiency, saying “many users are unaware of the potential savings or how to capture them and therefore invest less than the optimal amount in upgrades or building fabric, fittings, plant and machinery", so sees a role for the bank in promoting this.