Towards The Delivery Of A National Residential Energy .

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Towards the delivery of a national residential energyefficiency programme:creating the conditions in which we will halve the energyconsumed in the UK’s homes in 25 yearsChristopher Jofeh, 8 February 2016

UKChancellor of the ExchequerTreasury2 Health ServiceNational(NHS)2TerminologyCanadaMinister of FinanceDepartment of FinanceMedicare

What’s Next After the Green Deal?The Need for a New National Domestic Retrofit Programme for the UKKeynote Address - Lord Deben, Chairman of the Committee on Climate Change3 Arup-hosted event, November 2014

Source: Andrew Hazard Photography and Design4

Structure of the talk 5The size of the challengeBenefits to the UKCreating and maintaining demand at scale5The maincomponents of a national residential energyefficiency programmeCreating the right conditionsMaking the business caseOutline timetableIndicative uptake

The size of the challenge

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“Current ambition and fundingcommitments are inadequate for meetingcarbon budgets and further funding islikely to be needed to meet the proposedEPC targets.”Main recommendation for buildings“Develop an action plan to address thesignificant shortfall in low-carbon heat,ensuring a better integration with energyefficiency and fuel poverty.”8UK Committee on Climate Change, June 2015

UK Government - Department of Energy and Climate ChangeDECC 2050 pathways calculator

DECC 2050 pathways

Households consume 29% of total energy Average energy consumption per dwelling 18 000kWhSource: Eurostat

Annual rate of change of energy consumption per dwelling, 1990-2009.Source: European Environment Agency, 2012

“The 7see model demonstrates that thelow-carbon scenario does indeed reduceemissions while maintaining economicgrowth and, importantly, avoiding anyincrease in unemployment.”13Arup’s 7see model of the UK economy

Tenure of properties in the UK. Source: DCLG, 2014Thousands of dwellings14YearOwnerOccupied201217,835RentedRented from Rented fromPrivatelyHousingLocalor with a job or Associations Authoritiesbusiness4,9202,7472,189OtherAllpublic sector dwellingsdwellings7527,767

Official fuel poverty estimates for different parts of the UK (multiplesources, 2014)Nation15Number ofhouseholds(million)In fuel poverty(million)Proportion infuel .300.3930%Northern Ireland0.700.3042%Totals26.53.714%

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ResPublicaCBI 18 Plenty of ideas and recommendationsUK-GBCBonfield review

19What to do?

Source: bre20What works best where?

The benefits to the UK

22Benefits

23Frontier Economics, 2015 and Copenhagen Economics, 2012

The benefits to the UK

Creating and maintaining demand at scale

26Policy MechanismStatusEnergy Efficiency Commitment (EEC)Introduced 2002Overhauled 2005Withdrawn 2008Carbon Emissions Reduction Target (CERT)2Community6Energy Saving Programme (CESP).Introduced 2008Withdrawn 2013The Green DealIntroduced October 2012Withdrawn July 2015Energy Company Obligation (ECO)Introduced January 2013Now under review, future currentlyunclear.Energy policy flip-flopsIntroduced 2009Withdrawn 2012

Source: DECC27The damaging effect of policy flip-flops

Source: wikipedia28Economies of scale and of learning

The main components of a national residentialenergy efficiency programme

The Delivery of a National Residential Retrofit Programme

By 2045 the energy consumed in the UK’s homes will be halvedCreate and maintain demand at scaleLearn and disseminate lessons fromresearch and experienceCreate appropriate governanceframework Build on what devolvedadministrations, local authorities,registered social landlords andprivate landlords have achievedalready Draw out knowledge & insightsfrom the data that exists Identify gaps in knowledge andundertake research to fill gaps Carry out pilots to test ideas Learn & apply lessons fromrelevant projects such asLondon 2012, Crossrail, thedigital switchover, smartmeters and North Sea gasconversion Build on existingcommunities & networks31 Begin with a publically-fundedscheme for homes in socialownership and fuel poverty Attract private sector investment Design around homeowners tocreate market pull31Strategic framework for national residential energy efficiency

3232What kind of leadership do we need?

Creating the right conditions

Creating the right conditions34 Build on what we have achievedalready, and on what is underway Use the data we have gathered Build on existing networks Industry needs to apply the principlesof lean manufacturing and masscustomization to retrofit Make the right funding available Design around the customers to createmarket pull

Devolved administrationsWales Arbed and NestScotland Home Energy Efficiency Programmes forScotland (HEEPS)Northern Ireland The Affordable Warmth SchemeHousing AssociationsAffinity SuttonCharter HomesFusion21GentooHHPMelin HomesPoplar Harcaetc., etc.35Build on what we have achieved alreadyLocal AuthoritiesBirmingham Energy SaversGlasgow Energy Efficiency Loan Scheme EELSGreater London Authority Retrofit ToolkitIslington Council fuel poverty initiative SHINELeeds City Region Better Homes Yorkshire(Barnsley, Bradford, Calderdale, Craven,Harrogate, Kirklees, Leeds, Selby, York)Sussex Energy Saving PartnershipWarm Homes OldhamWarm Up BristolWarm Up North (Darlington, Durham, Gateshead,Hartlepool, Newcastle, Northumberland, Redcarand Cleveland, South Tyneside and Sunderland)etc., etc.

1.Homes Energy Efficiency Database (HEED)2. National Energy Efficiency Data-framework(NEED)3. DECC and ONS: statistics covering energy,climate change, energy efficiency, fuel poverty andrelated areas.4. The Energy Saving Trust: Home Analytics5. The energy suppliers’ meter point gas andelectricity data.6. English Housing Survey7. Scottish House Condition Survey8. Welsh House Condition Survey9. Northern Ireland House Condition Survey36Use the data we have gathered10. Valuation Office Agency council tax data11. Census data12. Benefits data13. Local authority housing stock models14. Housing association asset databases15. Private landlord asset databases16. Ordnance survey data17. Calnea’s residential transaction prices dataset18. Landmark’s Domestic EPC Register19. Data on the outcomes of retrofit projects, suchas the Embed project which holds data fromInnovate UK’s Retrofit for the future initiative.20. NHS data on hospital admissions

DecreaseIncreaseDistribution of savings for properties having cavity wall insulation installed in 2010.Source:. DECC, 201337Analyse the data we have gathered

92/75/ECcomes intoforce96/57/ECcomes intoforceSource: DECC, ECUK (2015) Chapter 3Analyse the data we have gathered

39Build on existing networks

40Build on existing networks

41The role of SMEs, sole traders and micro enterprises

CorehausEnergiesprong42Apply the principles of lean manufacturing and mass customization

Key principles Stimulate demand by creating value for thehomeowner Stimulate demand by providing competitive andaffordable finance Seek to blend public funds with private sectorinvestment to address the risks and achieve thescale of financing needed. Engage with mortgage lenders Minimise the financial burden to the consumer andto Government. A main driver for housing retrofit is sustained orimproved asset values.43Make the right funding available

“Residential buildings.often haveeconomically attractive energy efficiencyinvestment returns, yet this marketsegment is highly fragmented and requiresa successful and low cost retail distributionstrategy to engage at scale.”Top Demand and Supply Driver of EnergyEfficiency Investment: Standardisation Clear Business Case Increased Investor Confidence &Change in Risk Perception Transaction costs / simplicity Measurement, Reporting & Verification(MRV) and Quality Assurance44Energy Efficiency Financial Institutions Group, 2015

Impact of the lack of standardizationGovernments High programme costs Lack of quality data Unsustainable public fundingInvestors and Owners High diligence costs Project size is too small Can’t build a project pipelineDevelopers Hard to communicate project risk Difficulty accessing financing High transaction costs

Standards should be developed for each element in theenergy efficiency investment process These standards should be open source and establish acommon vocabulary and shared knowledge across Europe. Provide open source tools and resources to help allenergy efficiency market participants to improverenovation project performance and investmentattractiveness46EEFIG and ICP

47Pay for performance

48Design around customers to create market pull

Source: Energy Technologies Institute49Segmentation

“It is an essentialcomponent of thestrategy thatenergy-efficientbuildings becomeworth more thanenergy-inefficientones.”50Design around the customers to create market pull

Relationship between EPC and total annual energy spend (all fuels and allproperty types)51Mortgage affordability

52Make it as easy as choosing and buying a new kitchen

Making the business case to Treasury

54The business case

Four steps1. Strategic Outline Programme (SOP)2. Strategic Outline Case (SOC)3. Outline Business Case (OBC)4. Full Business Case (FBC).Five cases1. Strategic case2. Economic case3. Commercial4. Financial5. Management case55OGC’s five case model

Outline programme

Q22016Business caseTreasury go/no go decisionResearch conferencesResearch programme,including field trials57&Identify existing networksCreate an enabling planningenvironmentassociationsStrengthen & coordinatenetworks & associationsIdentify and share bestpracticeECO post March 2017Design & create governanceframeworkLegislate & regulateNational programme begins57Outline programmeQ32016Q42016Strategic Outline CaseQ12017Q22017Q32017Q42017Outline Business CaseQ12018Q22018Q32018Q42018Full Business CaseQ12019Q22019Q32019Q42019Q12020

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