EEC3 – The Way Forward

Presentation to NIA Annual Conference12 December 2006By Iris Rooney, Defra

Summary

• Context• Energy Review • Role of EEC • EEC3 Initial Consultation• Supplier Obligation• Role of Insulation Industry

Context (1)

• Demand for household energy services rising on average 1.5% (0.6MtC) per annum

• Currently offset by improvements in energy efficiency of about 1% per annum

• Energy use in household sector needs to fall by approx 1.8% to be on track for 2050 goal.

• Requires action on multiple fronts - new and existing buildings, technology and behaviour

Context (2): Household Carbon Emissions

Households were responsible for 27% of UK carbon emissions in 2004

By fuel By end use

• Addressed the 2 major long term challenges in UK energy policy:- climate change & reducing carbon emissions- secure, clean energy at affordable prices

• Commitment to competitive energy market • Aim is to set right regulatory framework to enable

the market to move in the right direction to meet long-term challenges

Energy Review (1)

Energy Review (2) – Energy Efficiency & the Household Sector

• New homes - long-term goal of carbon neutral developments

• Product Policy - transform markets • Improved information - better billing & In-House displays +

smart metering trials• Distributed Generation - consented developments• Existing Homes - EEC3 and supplier obligation post-2011

Role of EEC (1)

• EEC1 delivered 0.4MtC pa in 2010• £600m investment in energy efficiency• For every £1 spent by suppliers, householders

benefited by £9• 50% of EEC1 and EEC2 activity targeted at

Priority Group

Role of EEC (2)

• EEC2 already making significant contribution to increased carbon abatement targets – expected to deliver 0.62 in 2010

• At the half way point, suppliers have achieved 76% of the target

• Insulation activity accounted for 88% of these savings

Role of EEC (3)

• Targets will be increased by 50-100% over EEC2, delivering 0.9MtC to 1.2MtC

• Unlimited carry-over of activity from EEC2 to EEC3

• Use experience gained from EEC3 and money announced in Budget 2006 for smart meters trials to inform developments of post-2011 approach

EEC3 Initial Consultation (1)

• Successful passage of the Climate Change and Sustainable Energy Act presented new opportunities

• Consider smooth transition to the 2008-11period• Inform Statutory Consultation in spring 2007

EEC3 Initial Consultation (2) – Key Themes

A. Climate Change and Sustainable Energy Act

B. Transition to 2008-11

C. Equity Issues

D. Opportunities for trading

A. Climate Change & Sustainable Energy Act

• Move to carbon emission reductions target instead of the current energy efficiency target

• More options for delivery of carbon savings & reduced consumption of energy from grid:- Eligibility of microgeneration measures - Eligibility of other measures affecting consumer

demand

Climate Change and Sustainable Energy Act (2)

• Explore scope for greater innovation

• Possible approach of “ring-fencing” a limited proportion of each supplier’s target that could be met by unproven measures or trials

B. Transition to 2008-11

• EEC3 will be 50-100% bigger than EEC2, with unlimited carry-over

• Energy suppliers encouraged to make full use of transitional arrangements to start on EEC3 work early

• Possibility of setting the scores early for individual measures under EEC3

C. Equity issues

• Need to consider:- impact on low-income customers- cost-effectiveness in terms of carbon and fuel

poverty objectives - what is technically feasible

• Implications of directing different levels of activity to the priority group

Equity issues (2)

• Potential for new mechanism to offer suppliers flexibility in meeting their priority group target

• Need to consider any approach in the light of the need to reduce carbon emissions and the impact of priority group consumers

D. Opportunities for Trading

• Findings on work on trading reported – views invited

• Trading of retrospective measures has been suggested, but this is constrained under EEC

• Possibilities post-2011 include tradable targets defined in terms of absolute carbon or energy demand

EEC3 - Next Steps

• EEC3:- Summary of consultation responses in January

2006- Continuing discussions with stakeholders- Statutory consultation in Spring 2007

Supplier obligation (1)

• Early announcement in the Energy Review to give market long term certainty

• SO will need to incentivise all measures if we are to achieve 60% savings by 2050 – including cost-effective measures like insulation

• Formidable work programme ahead to determine the shape. Defra in the lead

Supplier Obligation (2)

• Process will include:• Liaison throughout with key stakeholders,

including the insulation industry• Short update in Energy White Paper• Call for evidence around May 2007• Formal consultation end 2007• Website coming soon …

Insulation Industry (1)

• Government needs your support to deliver its challenging carbon and fuel poverty objectives

• Insulation remains a cost-effective way of achieving large-scale carbon reductions

Insulation Industry (2)

• You have made a major contribution to the success of EEC to date and effectively met the challenge of increasing demand

• We expect insulation to play a major role in EEC3• Look forward to the industry’s continuing

constructive input to the development of EEC3

Contact Details

• EEC3 Consultation can be found at <http://defraweb/corporate/consult/eec3/index.htm>

• EEC3 - Iris Rooney at iris.rooney@defra.gsi.gov.uk