Decentralisation Issues: New deployment models for micro regeneration

Raphael Sauter, University of Sussex

Electricity generation by individual households (known as micro-generation) is attracting increasing interest in the UK and other countries. A variety of drivers have been identified for the expected growth in micro-generation technologies including environmental concerns (particularly the need to reduce carbon emissions), worries about the insecurity of energy supplies, the development of new energy service companies and programmes to tackle fuel poverty. In its Microgeneration Strategy the UK government has committed itself to increase the share of domestic microgeneration in the UK energy supply (DTI, 2006).  Domestic microgeneration would play a central role in a more decentralised energy system.

Whilst the Energy Saving Trust (2005) projected that micro-generation could supply a significant proportion of energy in UK households, deployment to date has been slow. It is not yet clear whether micro-generation will fulfil this potential, and questions remain about its attractiveness to consumers and energy suppliers. The eventual outcome will depend on a number of technical, economic, behavioural and institutional factors.

This paper will draw on work in progress within the “Unlocking the Power House” project funded by the UK’s Economic and Social Research Council (ESRC). The paper will analyse three possible models for the deployment of domestic micro-generation technologies including solar PV, micro-wind and micro-combined heat and power (micro-CHP). These models include ‘traditional’ householder investment, investment by incumbent energy companies and community-driven investment by a local energy service company (Watson, 2004). The economics of the three different deployment models will be tested and implications for regulatory and policy changes in the UK will be explored.

Methodologically the paper will use two main approaches. First, it will analyse the economics of micro-generation using a spreadsheet tool. The economic analysis will calculate payback times for micro-generation investments under each of the different deployment models discussed above. The impact of changes in policy, fiscal incentives and other regulations will be tested. The calculations are based on field trial and modelling data. Second, results from a series of qualitative interviews with a range of relevant actors from industry, government and NGOs will be used to investigate policy and regulatory implications. It will specifically discuss the implications of a ‘level playing field’ in the tax treatment between company’s and individual’s investments in energy supply infrastructure.

The results presented in the paper will show the economic attractiveness of micro-generation technologies under each deployment model and the possible impact of changes in policies and regulations. It will illustrate how technology specific issues (e.g. upfront costs, annual output, export ratio) and behavioural aspects (e.g. level and pattern of domestic consumption) affect the economic attractiveness of microgeneration technologies. The analysis will examine the extent to which each deployment model has different policy and/or regulatory implications. For example, within the consumer-led deployment model, there may be a particular need to guarantee a fair reward for electricity exported to the grid. The regulatory reforms to allow this may be less important if most micro-generation is to be installed and owned by major energy companies.

A final section of the paper will briefly consider some wider implications of the options available. It will focus in particular on the extent to which changes in economic incentives will be sufficient to foster widespread micro-generation deployment. It is likely that successful policies will also have to take into account broader issues such as planning restrictions, installer training and – perhaps most important of all – consumer behaviour.