Call for auctions to reduce demand via energy efficiency measures

The National Electricity System Operator (NESO) has been urged to hold auctions to fund demand reduction via energy efficiency measures, once the new organisation comes into force later this year.

The Association for Decentralised Energy (ADE) claims that holding such auctions would lessen the need to reinforce the grid, increase competition in the energy efficiency market and lower household energy bills.

The ADE says that the NESO could hold auctions “in a similar way it does to secure capacity elsewhere in the energy system”.

It claims that the investment needed “would pay for itself over the long run […] due to cost savings from lower grid reinforcement work”.

The report continues: “Energy efficiency being able to compete on a level playing field with grid upgrades, flexibility, storage, renewables and so on, simply allows energy efficiency to gain support in the same way.

“Auction processes have brought substantial benefits and high investment to other parts of the energy system.

“It could also help the current energy efficiency supply chain scale up, since competing for grid funding provides a revenue source outside of government subsidy schemes, and an additional element of business security.

“Household energy bills would be lower under this model, both for households receiving the insulation upgrades, but critically for homes overall. This is because the electricity system charges for maintaining both local and national parts of the electricity system are currently paid via fixed costs on energy bills. This means that without installing energy efficiency, these charges will be higher in order to account for costly grid upgrades.”

The proposal is included within the ADE’s report into Alternative routes to funding mass market energy efficiency.

It warns that “energy efficiency urgently needs new approaches for scaling up in a wider private market”, adding that existing subsidies “only scratch the surface”.

To boost the uptake of energy efficiency measures, the report also calls for the introduction of:

  • Enhanced cashback schemes, where suppliers offer to install loft insulation for free to their customers, paid for via enhanced cashback schemes from lenders.
  • Loyalty schemes, where suppliers fund installation of loft insulation as a reward for customers staying with them for a fixed period of time.
  • Lenders standards, where lenders would compete with each other to increase the energy efficiency of their housing portfolio, ultimately following a mandatory standard.
  • Energy as a Service, where the supplier installs a full package of measures, including insulation, a heat pump, battery and solar PV, with a monthly fee paid back over 20 years.
  • Regional tendering, where network operators invest in energy efficiency at a more local level to avoid costly upgrades later.
  • Planning compensation, where homes near new electricity pylons and associated infrastructure could receive energy efficiency measures as compensation.

Chris Friedler, energy efficiency policy manager at the ADE, said: “We know the UK needs energy efficiency to scale up to millions of homes to fight climate change, fuel poverty and energy insecurity. Yet, scaling up subsidy funding to the level required or introducing regulations has faced barriers. Funding abounds for energy efficiency in the private market, and today’s report advocates for seven key methods of funding energy efficiency.

“Critically, these don’t increase taxpayer spending, put requirements on households, and come with no upfront cost, with energy savings for the households straight away. These solutions are urgently needed for a greener, more affordable, and more secure future.”