UK residential energy efficiency policy: taking stock

By Peter Mallaburn and Ian Hamilton, UCL Energy Institute

Over the past 25 years, the UK residential sector’s energy efficiency policy has primarily been directed through a combination of: programmes requiring energy suppliers to retrofit efficiency improvements; building regulations; appliance efficiency standards; and more recently a short-lived market-based approach, the ‘Green Deal’.  These programmes have had multiple aims: to reduce general consumer exposure to rising energy prices (sometimes with other benefits eg. warmer and/or quieter homes from double-glazing); to reduce national energy dependence and environmental impacts; and to protect vulnerable customers.

With energy policy once again in a state of flux, it is worth now briefly reviewing some of what has happened within the residential energy policy landscape over the past 25 years, and offer some insights for future policy.

A brief history

Following the energy deregulation of the 1990s, energy suppliers were obligated to run programmes to improve the energy performance of their more vulnerable customers¹. Initially the Energy Efficiency Standards of Performance (EESOP) scheme required suppliers to improve the energy performance of their household and business customers. The scheme focused on assisting ‘disadvantaged’ customers along with determining supplier capability for delivering energy savings and their related environmental benefits.

By comparison with what followed EESOP was tiny, delivering measures estimated to have saved 18.5 TWh (lifetime savings) across the UK residential sector: its successor, the Energy Efficiency Commitment (EEC) (2002-2008), had a similar rationale in terms of achieving multiple benefits, delivered about ten times as much energy savings target (192 TWh of lifetime savings). This is the equivalent of reducing the UK’s total annual energy demand by 1% for 15 years, or turning Drax power station off for 7 years.

These different policy threads (i.e. building and appliance regulations, supplier obligations and market-based mechanisms) ran separately but in parallel until the mid-2000’s when they began to interact – initiatives such as the ambitious zero carbon homes policy were shaped partly in the context of the growing push to tackle CO₂ emissions, that culminated in the Climate Change Act of 2008.  The implication of the 80% mid-century reduction target enshrined in the Act is that some sectors (including the residential sector) would need to almost completely decarbonise to account for those that could not.  The residential sector was identified as having many cost-effective abatement opportunities, though this has since been recognised as a greater challenge to achieve than some expected.

Subsequent energy efficiency programmes were consequently oriented to focus on carbon emission reductions in line with climate change mitigation goals, as well as energy efficiency. The supplier-led successor to EEC, the Carbon Emission Reduction Target (CERT) (2008-2012), raised the scale further, and was complemented by the Community Energy Saving Programme (CESP) (2009-2012) which focused more on community/vulnerable households. Based on the modelled  impact of measures implemented, these delivered an estimated lifetime savings of almost 300 MtCO₂ –  equivalent to around half the UK annual emissions or taking all passenger cars off the road for four years – and these programmes resulted in a number of improvements, including energy savings, greater thermal comfort, and wellbeing.

Whilst it is difficult to state the precise improvement, adding insulation into lofts and cavity walls and replacing standard with condensing boilers will mean that housing need less heat energy to meet a desired indoor temperature.   We know that these retrofits have resulted in energy savings ^{2, 3}, and after more than three decades of almost stable household energy use, the decade since 2004 has seen energy consumption per household fall by about 20%, with gas and electricity following a similar trend, as detailed by DECC in Energy Consumption in the UK (2015).

These obviously are considerable savings. Yet, many have not achieved the saving levels as predicted by the modelling.  It is not clear whether this apparent ‘delivery gap’ is because of consumer choices, poorly installed measures, or poorly calibrated models.  Very likely it is a combination of all three. Evidence from a number of government-sponsored and independent evaluations have shown that these programmes have impacted on more than energy performance, including increasing indoor temperatures and improving wellbeing ^{4, 5}.  Many of these retrofits were delivered to vulnerable households, many of whom may have had unmet needs for heating and could be described as living in energy poverty.  If this is the case, it is very likely that the models used to estimate the potential savings were not calibrated to estimate realistic energy (and CO₂) savings – the DECC 2014 Prices and Bills report revised down its estimate of consumer savings from the programmes significantly in the light of these findings –  but some of the benefits emerged in other ways.

During this same period, the building regulations that focused on energy performance were incrementally increased in order to reduce heat losses through the building fabric and glazing and sought improvements in heating system efficiency.  The more stringent improvements were initially driven by a 2006 policy announcement that set a target of ‘zero carbon’ for all new dwellings built by 2016, which required 25% and 44% improvements in energy performance standards by 2010 and 2015 respectively, with Passivhaus standards (a voluntary standard for building a high performance building that requires very little (c. 15 kWh/m²/year) space heating or cooling) being approached by 2015.

The third thread of energy efficiency policy in the UK (along with the supplier-led programmes and building standards) over this period was implementation of improved appliance energy standards, which have largely been driven by EU legislation on minimum performance requirements.  For example, in the mid 1990’s, any domestic white good refrigerated appliances sold were required to achieve an energy rating of A-C, which achieved a 15% improvement within 15 months of implementation and a drop in consumer prices⁷.  The delivery of these product standards required the efforts of forward thinking legislators, leading product manufacturers, and consumers.  In this instance, each entity acts in an interactive and inter-dependant manner that leads to a shift in the market place, with regulation being one of the most powerful tools available to enable the transformation⁸

Recent developments and lessons

During the last Parliament, these programmes in turn were succeeded by the Green Deal (2012-2015), which aimed to empower consumer-led efficiency with financing package for costs to be recouped through long-term deductions from energy bills; and an Energy Company Obligation (ECO) (2012-present) to focus on deeper and more expensive retrofits like solid wall insulation.  However, take-up of the Green Deal was dismal (only 15,000 had been installed or near completion when the Green Deal Finance Company was shuttered), though the change to include direct grants through an ‘Improvement Fund’ were quickly over-subscribed but limited in availability, and delivery of ECO was smaller than anticipated and the programme was substantially scaled back in 2013.

Whilst the EC-led standards on appliances continue, the new government has closed the Green Deal, announced fuller reviews of energy efficiency including ECO (and programmes for business energy efficiency), and abandoned the targets associated with ‘zero carbon homes’, with the main concern being cited as both the cost and challenge of achieving the target on-site energy efficiency standards.  Concerns were highlighted early on when the performance standard targets were initially set out⁶, and that government needed to focus on: improving skills, knowledge transfer and procurement mechanisms within the construction industry, achieving greater inter-government department cooperation, and more closely aligning carbon target with building regulations.  These needed to be supported through research and rapid evidence base development using more in-depth and project planning-development and operation lifecycle research.

What have we learned from the above programmes and policies? First, we know that energy efficiency is not a simple economic process that responds easily to either straightforward price signals (like general energy prices) or even to measures addressed purely to financial barriers (like the initial form of the Green Deal, which had dismal levels of take-up).  Delivering energy performance improvements into the housing market through millions of retrofits is itself a complex process involving numerous actors and stakeholders.  Yet, the evidence shows that these measures can be delivered and do have a real impact on energy performance, thermal comfort and wellbeing.

We know that many of these retrofits under the supplier-mandated programmes were the “low hanging fruit”, such as loft and cavity wall installation and boiler replacement, and that future retrofits will be more complex and require greater changes to the dwelling.  However, this knowledge has only been achieved through a combination of directed and ad-hoc evaluations. If a greater understanding of both the direct and indirect impacts are to be known, future policies must explicitly include both implementation and final impact and process evaluations, whether they are government of industry led.  Evaluations are an essential part of understanding what works and what does not, they can help to avoid potentially millions of pounds spent on delivering ineffective efficiency retrofits or to improve ineffective delivery of sound efficiency retrofits.

We know that markets will respond to clear and challenging but achievable regulations when there is a large market available, such as the case white good appliances.  We also know that incentives can work, such as the highly over-subscribed Green Deal Home Improvement Fund, which offered up to £4000 for solid wall insulation.  However, achieving long term energy efficiency market stability through rebates is problematic given dependence on direct pubic finance. Delivering very challenging energy performance and CO₂ targets without the necessary regulation, skills and supply chains can lead to uncoordinated efforts that are easily disrupted.  Energy efficiency markets need both incentives to transform but should be supported through regulation that can avoid markets from becoming reliant on subsidy.

In moving forward, where will residential energy efficiency policy go?  The recently announced end of the Green Deal Finance Company means that the only energy efficiency policy remaining is the ECO, which will itself be subject to major changes.  And, with the build regulation targets no longer being clearly defined, there needs to be a clear signal sent to the market and stakeholders for how the government expects to meet the climate change commitments.

For housing, we know that the primary concern, as stated in the HM Treasury report Fixing the foundation: creating a more prosperous nation, is to build ‘more homes that people can afford to buy’.  It can be presumed that the central reasoning behind this statement is the perceived risk that the cost of delivering low-energy and low-carbon housing risks placing an undue burden on developers and thus home buyers. However, we can not leave energy performance improvement to millions of existing homes to market forces alone.  The evidence shows that most people when choosing to retrofit their home do so when they are planning otherwise considerable disruptions, e.g. selling or expanding their home, and that energy performance is not necessarily high among their motivations⁹.  What is clearly needed is some mechanism that brings value to improving the energy performance in housing during these change points through clear and cost-effective means.

What does UK residential energy policy need to look like going forward? ‘Horse for courses’ is an appropriate aphorism for what prospective UK energy policy must respond to.  First, programmes funded directly by government should be more highly focused in their targeting, such as highly vulnerable households that may not benefit from broader eligibility programmes. Second, policies acting through energy suppliers should be flexible enough to allow for some discretion for how savings are delivered but specific enough to ensure that actual results are achieved across a wide number of households.

In support of this, evidence of accountability, transparency and efficacy are essential to understanding the impact of those activities.  And still, an independent and accountable market of energy efficiency installers and funders who are able to compete in a well-balanced market must be allowed to develop.  This means installers must see sound technical installation and high-performance as part of their value proposition and ultimately impacts their business activities. We must also ensure that households and funders see the value in investing in energy performance that pays through both operational savings but also through improved asset value over the medium to long term.

Energy performance must realise its value to homeowners, which means putting in place mechanisms that clearly incentivise actions that prioritise more efficient dwellings.  Supporting  funding at low interest rates to reduce energy demand and CO₂ emissions offers social and environment benefits that offset these costs, but this is not sufficient on its own. This means sending messages out to where they are most likely to be well received, for example, those who are going to retire may be open to a small investment in energy efficiency to reduce the cost of running their home as their income reduces, while people who are about to purchasing a home might make an investment in energy efficiency in order to improve their longterm asset value.

The policy approach of the past should not necessarily be abandoned outright.  As suggested above, the government needs to understand why a policy was not successful to know whether it should be abandoned.  For example, the concept of ‘pay as you save’, the underlying premise of the Green Deal, is not necessarily flawed and can be an effective method of incentivising action and realising value from energy efficiency.  However, there were clearly features of the Government’s enacted policy that limited its success, for example the high interest rates of the Green Deal compared to the low interest rates available from lenders.

In moving forward, we should expect the Government to look back on past energy efficiency policy experience in the housing market and to understand the opportunities and limitations of those policies in achieving their desired objectives.  The complexity of the housing market and the multiple actors that interact within this environment means that setting targets and reaching them is challenging.  However, with a decent understanding of the past and present, we can continue to aim for a sustainable future.

Referenced works:

8 Boardman, B., 2004. New directions for household energy efficiency: evidence from the UK. Energy Policy 32, 1921–1933. doi:10.1016/j.enpol.2004.03.021

4 Gilbertson, J., Grimsley, M., Green, G., 2012. Psychosocial routes from housing investment to health: Evidence from England’s home energy efficiency scheme. Energy Policy 49, 122–133. doi:10.1016/j.enpol.2012.01.053

2 Hamilton, I.G., Steadman, P.J., Bruhns, H., Summerfield, A.J., Lowe, R., 2013. Energy efficiency in the British housing stock: Energy demand and the Homes Energy Efficiency Database. Energy Policy 60, 462–480. doi:10.1016/j.enpol.2013.04.004

5 Hong, S.H., Gilbertson, J., Oreszczyn, T., Green, G., Ridley, I., 2009. A field study of thermal comfort in low-income dwellings in England before and after energy efficient refurbishment. Build. Environ. 44, 1228–1236. doi:10.1016/j.buildenv.2008.09.003

6 Lowe, R.J., Oreszczyn, T., 2008. Regulatory standards and barriers to improved performance for housing. Energy Policy 36, 4475–4481. doi:10.1016/j.enpol.2008.09.024

1 Mallaburn, P.S., Eyre, N., 2014. Lessons from energy efficiency policy and programmesin the UK from 1973 to 2013. Energy Effic. 7, 23–41. doi:10.1007/s12053-013-9197-7

7 Schiellerup, P., 2002. An examination of the effectiveness of the EU minimum standard on cold appliances: the British case. Energy Policy 30, 327–332. doi:10.1016/S0301-4215(01)00099-4

9 Wilson, C., Crane, L., Chryssochoidis, G., 2015. Why do homeowners renovate energy efficiently? Contrasting perspectives and implications for policy. Energy Res. Soc. Sci. 7, 12–22. doi:10.1016/j.erss.2015.03.002

3 Wyatt, P., 2013. A dwelling-level investigation into the physical and socio-economic drivers of domestic energy consumption in England. Energy Policy 60, 540–549. doi:10.1016/j.enpol.2013.05.037

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This blog is one of a series of five from the UCL Institute for Sustainable Resources. The blogs will be combined into a report entitled ‘UK energy policy: rationalisation or politicisation’.

By Ian Hamilton & Peter Mallaburn, UCL Energy Institute