Energy policy has been high on the agenda recently both within the EU and the UK. On a European level, the Strategic Energy Review – if ambitious enough – has the potential to move Europe onto an investment path to a clean and secure energy future. In the UK, the publication of the Energy White Paper in May will reveal the level of the government’s commitment to sustainable energy sources and its determination to make a step-change in the reduction of the UK’s greenhouse gas emissions.
There are signs that both these processes could potentially start to address one of the missing elements of energy policy, an area that provides almost a third of emissions in the UK and is responsible for almost half of Europe’s energy consumption. This is an area of energy that was barely covered in the UK’s recent 216-page Energy Review, yet is fundamental to tackling emissions reductions and security of gas supply concerns and to meeting any ambitious plans on the EU stage. What is this element? Heat.
The 2006 Energy Review was an opportunity for the government to robustly assess the state of energy supply and demand in the UK in the wake of increasing concerns about energy security and in particular, gas supply.
Despite our initial misgivings about the reason for the review, the questions that were asked were the right ones:
The review was a strategic opportunity for the government to answer these questions through a radical remodelling of the UK’s energy system to a truly sustainable format: one that embraced decentralized energy and enabled energy generation as close as possible to where it is used, with a more active role for individuals and communities. This approach would have mirrored the shift across society towards more people-centred, multi-way networks and would have given people a sense of responsibility towards the energy they use. Unfortunately this opportunity was missed.
What became crystal clear during the process was that this was not going to be a robust evaluation of the overall cost profiles of different energy pathways and technologies. Let alone one that factored in the value of the diversity and resilience offered by small-scale systems.
Prime Minister Tony Blair made it obvious from the outset that he saw no way of achieving the UK’s goal of a reduction in carbon emissions of 60% by 2050 without a new fleet of nuclear power stations. Three years of assiduous lobbying by the nuclear industry had worked. The result was a political decision to support new nuclear.
PAUCITY OF AMBITION
Yet, alongside this decision there were some last-minute additions to the review that gave us hope. These included important policy commitments to embed local energy into planning, make it easier to install microgeneration and community power and hook it up to the grid. But still there was a paucity of ambition in this area; trying to shoehorn elements of the decentralized approach into the incumbent centralized network will not work.
In particular, ambition was lacking in addressing the third of the UK’s emissions that come from the heating and cooling market. Heat is the sector of our energy supply that is often hidden. People use the words ‘energy’ and ‘electricity’ interchangeably. Heat is called ‘energy efficiency’ in ‘homes’ or ‘industry’ in pie-charts. It is not seen: boilers are tucked under stairs and there are no large heat power stations on the horizon.
UK policymakers have long ignored low-carbon and renewable heat from installations such as this solar thermal system, which can provide a building’s hot water needs on-site (Centre for Alternative Technology)
Yet heat is a fundamental energy source. We use it in industry for melting, evaporating and drying processes and within our homes for heating, hot water supply and cooking and ironically for keeping cool in summer. Around 76% of total energy (excluding transport) consumed in the UK is for heating. But the UK’s energy system is still organized in a way that around two-thirds of all energy from fossil fuels is wasted as heat during its conversion to electricity at large centralized power plants and delivery to our homes. Enough heat to supply all our needs.
Heat also produces about a third of the UK’s emissions, about the same amount as come from electricity. It would therefore seem logical for the UK government to devote a large amount of attention to looking at more sustainable ways of harnessing and delivering this heat supply. Currently only around 1% of space and process heat is generated from renewable sources and only 8% is met from combined heat and power (CHP) systems fired by fossil fuels or renewable sources. And despite the market potential, the amount of renewable energy supplied as heat has declined in recent years both as a proportion of the whole and in absolute terms.1
The UK government’s inability so far to broaden its attention to the wider energy market and to direct any meaningful attention to heat, means that major opportunities for low-cost carbon savings are being missed. Energy efficiency and a more rational use of heat continue to be overlooked as fundamental means of enhancing supply security. There is no coherent, long-term incentive framework for the supply of heat from renewable and low-carbon sources, and the momentum behind a move towards a more distributed energy system is being dissipated as government continues to focus on electricity network barriers.
BARRIERS IN THE UK
The reason for the lack of coverage of heat in the Energy Review and for the small share of low-carbon and renewable heat in the UK energy mix is partly because it falls between several departments. The Department for the Environment, Food and Rural Affairs (Defra), the Department for Trade and Industry (DTI) and the Department for Communities and Local Government (DCLG) all share responsibility for different elements of heating. Secondly there is a fundamental lack of awareness of the true costs and benefits of energy efficiency measures and of understanding of the potential of renewable and low-carbon heat sources. For many in the UK, ‘renewables’ remain synonymous with renewable electricity alone.
The UK market regulator, Ofgem, is currently constituted as the Office of Gas and Electricity Markets. It therefore lacks the legal powers to take any substantive steps to broaden the scope of the heat market beyond gas.
Intermittent UK government support delivered through short-term and sporadic grant programmes has failed to create the stable conditions necessary to stimulate investment in the supply chain that can deliver cost savings, sustainable growth and efficiency in the long term. In a fully liberalized and competitive market place it is unsurprising that renewable and low-carbon heating technologies fail to compete with gas, the dominant fuel of choice. Even when the investment case appears attractive, a lack of confidence in the technology and commercial infrastructure hinders action.
Effective low-carbon and renewable heat policies need to encourage millions of building owners, developers, construction companies and district heating operators to invest. To do this, incentives need to be reliable, predictable and sufficiently valuable and long-term in nature to encourage sustained investment. They must contribute to orderly market growth, and overcome the disruption created by erratic funding programmes.
The Stern report delivered three main characteristics for policy mechanisms, and currently the mechanisms for addressing heat in the UK miss them all. An effective strategy needs to be developed that would address these characteristics and provide the support needed to stimulate the market to create a level playing field for heat with electricity producing projects:
- First, policies should be based on a long-term meaningful price for carbon. Currently there is no carbon price for heating or cooling, as existing mechanisms do not apply to this market.
- Second, policies should support innovation. A heating and cooling strategy could encourage innovation in technologies, building design and urban planning, controls and metering. It should also drive innovation in financing and commercial structures.
- Third, it should encourage behaviour change. A strategy that encourages low-carbon and renewable heating and cooling could, through small-scale technologies; give the public a clear opportunity to become directly involved a solution to climate change and change consumers’ views surrounding these technologies.
While there is a target for the percentage of electricity in the UK that should come from renewable sources – through the Renewables Obligation – there is no comparable target for heat. There have been many calls for a Renewable Heat Obligation to run parallel to the existing Renewable Obligation until 2027. While an obligation may not be the exact answer, it is clear that a stable, long-term incentive framework built on the principal of rewarding the delivery of renewable and low-carbon heating and cooling is needed. This should provide a direct revenue incentive for the majority of heat options, while offering capital support for demand reduction and domestic supply-side measures. Such an incentive would create trust in the growth of the market, thus encouraging investment in new production lines and the distribution chain.
As well as financial support, a comprehensive heat strategy should also encompass non-financial measures such as changes to the building regulations, standards on the government estate in central and local government and changes to the planning system.
HOW DOES HEAT FARE elsewhere IN EUROPE?
The picture is a similar one in continental Europe where the final demand for heat is dominated by the supply of natural gas and electricity. Over 40% of the EU’s primary energy consumption is used for heating or cooling in buildings, for domestic hot water supply, for industrial process heat and for heat in the service sector.
The lack of integration between heat and power means that huge heat losses appear in the EU energy balance. From the annual energy supply of 63 EJ, more than 20 EJ heat are lost in power plants, oil refineries, and industrial processes. Gas and electricity provide 33% each of heat in the industrial, residential and service sectors and this dominance is more pronounced in the five largest national heat markets: Germany, France, Spain, Italy and the UK. Smaller countries have more diversified heat markets with less natural gas and electricity, and more district heating systems.2 Meanwhile another market is growing: the energy consumption for cooling and air conditioning is dramatically increasing. For the first time in history, the peak electricity demand in several countries is no longer in winter, but in summer.
The EU aims to increase the proportion of renewable energy sources within gross domestic energy consumption from around 5% in 1995 to 12% in 2010. It has recently acknowledged part of the role that low-carbon and renewable heat can play: EU finance ministers agreed in November 2006 to add district heating to the list of sectors eligible for a reduced 5.5% VAT rate.3 Yet overall, heating and cooling has received too little political attention. As in the UK, at EU level and in most EU Member States, there are no specific growth targets for low-carbon and renewable heating and coherent support policies are still to come.
The recent EC Directive on the Energy Performance of Buildings is a very positive step to reduce energy consumption, but it will not have a strong impact on the use of renewable heating and cooling during the next decade. Its market-oriented approach will mainly promote the use of energy efficiency measures because they are in most cases more cost-effective in the short term.
A new Directive may be on its way. At the beginning of 2006, Energy Commissioner Pielbags promised that the Commission would present a draft for a new Directive for the promotion of renewable heating and cooling before the end of the year. We are still waiting, but the draft Directive is expected later this year. The Directive would set a target for the share of renewable heating and cooling from its current level of approximately 10%. The green groups have called for 20% by 2020. This would be translated into national targets, taking into account the existing differences within Member States whose current situations regarding low-carbon and renewable heat vary hugely.
Currently, low-carbon and renewable heating and cooling sources are used very successfully in a few EU Member States, and with the lack of coherent targets and policies at an EU level, Member States’ policies are crucial to stimulate growth in the countries lagging behind and achieve more quickly the economies of scale possible at European level.
CASE STUDIES SHOW WHAT CAN BE ACHIEVED
Denmark is rapidly gaining a worldwide reputation for its commitment to renewable energy and in particular to community heating which provides about 60% of the country’s space heating. The small island of Samsø is a good example of this. Appointed as Denmark’s ‘renewable energy island’, it has the task of becoming self-sufficient in renewable energy within 10 years. So far, about 70% of the island’s total heat production is pumped into homes from three district heating plants powered by straw, woodchips and solar power. Isolated farmhouses have been equipped with wood-burning stoves, solar heating or biogas.
Denmark provides strong support for district heating, such as by this high-efficiency multi-fuel CHP plant at Avedøre (Lars Sundshøj, DONG Energy A/S)
District heating constitutes a major driver for the expansion of combined heat and power (CHP) generation. On average, 62% of the heat distributed via district heating networks is produced in high efficiency combined heat and power (CHP) plants.4 For example, the Avedøre power plant, south of Copenhagen, is Denmark’s largest example of sophisticated cogeneration and collective thinking. Avedøre is one of the world’s most energy-efficient combined heat and power plants: it is a multi-fuel plant that can run on natural gas, straw, wood pellets or traditional oil. Up to 95% of the fuel that powers its turbines is used. Its two production units provide enough electricity to power 1.2 million homes as well as district heating for 190,000 households in Greater Copenhagen.
Wood pellets is a renewable fuel option that can be used in household stoves and boilers (Balcas Ltd)
Denmark has established such a reliance on district heating as it is strongly supported by both central and municipality authorities through strong regulation and controlled use of market forces. For example, there is a ban on electric heating in all new buildings; there is a high tax on fossil fuels for heating; investment subsidies are available for utilities which rehabilitate and complete networks and to consumers who connect to district heating and legal measures enforce building owners to connect, and remain connected, to district heating. These measures are accompanied by national and zonal least-cost energy planning and district heating is considered an integral part of urban planning.
Most district heating companies are owned by the consumers, meaning there is transparency and motivation for good customer service and the lowest possible running costs. As there is a stable energy policy, the technology is proven and reliable and consumers are obliged to stay connected, there is a high security in investment and banks compete to invest.
Equally, the province of Nordrhein-Westfalen in Germany has shown how state level grants and policies can heavily promote renewable heat. The creation of a ‘wood industry’ department focused attention on the use of wood as a sustainable source of energy as well as a construction material. Around €11 million of support was given to 937 plants between 1999 and 2002. Power and heat cogeneration received preference. It was calculated that if wood is used to fuel power plants, 80% of the earnings from the plant remain within the region compared to about 20% of the earnings from energy generated from oil and natural gas.
Nordrhein-Westfalen’s Wood Sales Promotion Guideline has opened up the market for pellet heating technology and small wood-fired heating facilities. This enables the use of a large proportion of the 1.1-1.2 million tonnes of waste wood produced from the wood-processing industry and wood trade each year and the 2.5 million tonnes of used wood. From 2005 recycling laws meant it no longer became possible to dispose of wood on tips or dumps.5 Wood pellet boilers are now an attractive option when upgrading heating systems. Government support means solar water collectors no longer require subsidies, and grants mean geothermal installations are as cost-effective as conventional heating systems.
SUSTAINED AND RELIABLE SUPPORT
How might these examples provide lessons for the UK? Denmark and other countries show what can be achieved through concerted action and prioritizing by Member States. Only through sustained and reliable support, strong regulation and controlled market forces will low-carbon and renewable heat get the prominence in the UK that it has done abroad.
The European Council meeting on 8-9 March, which will focus on climate and energy, provides a vital opportunity for Europe to forge ambitious integrated energy policies that can show bold leadership on the international stage. Fundamental to these ambitions should be a package of strong sectoral measures and targets that will enhance the credibility of the high-level emissions goal by showing how it can and will be delivered in practice. One of these targets should address heat.
Green Alliance is working with a broad coalition of organizations to promote the uptake of low-carbon and renewable heat in the run-up to the publication of the UK Energy White Paper. We believe it would be a huge oversight if the UK government was unable to recognize either the contribution that could be made to our energy system from low-carbon and renewable heat, nor the mechanisms necessary to get us there. Without a focus on heat, any discussion on energy security, emissions and future energy supply is purely hot air.
Rebekah Phillips is a Policy Officer at the Green Alliance, London, UK. e-mail: email@example.com
The first output of the project ‘Building an alliance for sustainable heat’ will be a manifesto outlining the need for sustainable heat and presenting key asks of government. This will be launched in April 2007. For more information about this project please contact the author at Green Alliance.
4. Euroheat & Power, 2005 edition of its bi-annual publication ‘District Heating and Cooling – country by country survey’.
5. ‘5 years of wood sales promotion in Nordrhein-Westfalen: Development and Perspectives’, NRW.