Getting Paid to Save Energy

Feed-in-Tariffs (FiTs) have been a widely adopted policy tool to promote the growth in renewable energy. An intriguing new report suggests how they might be used to also save energy. 

With the need to reduce energy demand firmly on the agenda, the concept of paying people to use less energy is gaining attention.

The think-tank Green Alliance has been a strong advocate of energy efficiency feed-in-tariffs (ee FiTs), suggesting they could help avoid up to £125 billion of expenditure on new low carbon generation and save consumers at least £35 billion.

With the imminent closure of several coal fired power stations and the debate over the country’s entire energy policy as heated as ever, there is a clear advantage in avoiding the need to build extra capacity.

The government has also indicated its support for rewarding ‘negawatts’ – theoretical units of saved energy – in its recent Energy Efficiency Strategy.

FiT pics

A new peer-reviewed report in Energy Policy throws more weight behind the concept of ee FiTs and suggests how they might work in practice:

  1. Historical energy data is used to establish an average energy baseline of a given household or business, for example 3,000 kWh/year.
  2. The FiT payment would be eligible if the next year’s usage was reduced by 10%, for example to 2,700 kWh.
  3. The FiT would be eligible for 3-5 years, but only paid if the household/business uses 2,700 kWh or less each year.
  4. The payment would be equal to the cost of the saved energy, in this case £40, meaning there would be overall savings of £80/year.
  5. The target reduction might be adjusted for external factors, for example a lower target of 9% if the weather was colder than average or if someone moves out / the business is open for fewer hours.

One of the key requirements for the scheme is the availability of technology to monitor actual energy consumption, something that the UK’s smart meter roll-out is making more viable.

The advantage of an ee FiT is that energy saving behaviour is directly rewarded, thus avoiding the so-called rebound effect. This is where seeming energy efficiency improvements (for example a new fridge) actually lead to increased energy consumption (people might run the old fridge is their garage).

And the importance of behaviour change cannot be ignored. For example, one study investigated energy use of two families in the US, both of whom lived in energy-efficient passive houses. One used considerably more energy than the other, largely down to behaviour such as letting heat escape and frequent appliance usage.

But policy designed to change behaviour is fraught with difficulty.

An ee FiT would need to be offered for at least 5-10 years to ensure a stronger persistence of energy saving behaviour and even then there is no guarantee of long-term success. 

There are also a host of other challenges such as integrating the policy with existing FiTs and other efficiency policies, as well as raising the required revenue whilst avoiding higher bills for those in fuel poverty.

The long list of potential drawbacks with an ee FiT make it appear a somewhat desperate measure, especially when it would seem more intuitive to use revenue to create low-carbon infrastructure which can serve future generations.

Nevertheless, the options to transition the UK to a truly sustainable energy economy are starting to look limited.

Most people predict that energy efficiency schemes such as the Green Deal will be unsuccessful and the government’s hopes of zero carbon new build by 2016 look as distant as ever, partly due to its lack of leadership in tightening the building regulations.

If bills continue to rise, people continue to go cold and the environment continues to deteriorate then we may find that future governments have to resort to more extreme measures.

Paying us to use less could be one of those. 

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