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Role of a forward-capacity market to promote electricity use reduction in the residential sector—a case study of the potential of social housing participation in the Electricity Demand Reduction Pilot in the UK

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Abstract

The residential sector is key for electricity demand in many developed economies. Reducing electricity use in households is valuable for carbon mitigation and capacity adequacy and addressing fuel poverty. In many liberalised systems, a forward-capacity market is established to remunerate resources’ capacity value, with some allowing electricity use reduction to participate. This paper focuses on the Electricity Demand Reduction Pilot in the UK that trials a novel approach of incentivising electric efficiency via the Great Britain capacity market. Using a case study of social housing, it identifies barriers faced by the residential sector to utilise funding from the pilot. While opportunities exist for electricity use reduction in lighting, appliances and heating, financial incentives based on the impact on system peak demand are unlikely to be attractive and disadvantage insulation and efficient heating system. Limited budget for electric efficiency project and inflexible requirement of over 2-year payback of Electricity Demand Reduction (EDR) Pilot pose the challenge of funding projects, especially for small organisations, even if they can deliver capacity value to the electricity system. The obligation to deliver and verify committed peak savings and limited scope for payback present challenges and risks for projects to target potential opportunities within households. For communal electricity use, the minimum savings, cash flow and limited internal capabilities are constraints. Therefore, it is inadequate to rely on a forward-capacity market as a primary vehicle for incentivising electric efficiency investment in the residential sector, highlighting the importance of alternative provisions like supplier obligation and market transformation.

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Notes

  1. Includes final electricity consumption in households, industry, commercial, public administrations and other sectors

  2. Electrical equipment with higher efficiency ratings or other measures (e.g. process improvement, insulation) that can help reduce electricity use

  3. For successful programmes, other aspects of financial incentive programmes (e.g. design and implementation, delivery) are also key.

  4. In response to the instruction of system operator or market pricing signal

  5. The first auction is a year-ahead auction that occurred in January 2015 for delivery in winter of 2015–2016. The second auction occurred in January 2016, and projects had the flexibility to choose delivery in winter of 2016–2017 or 2017–2018.

  6. Defined as 4–8 p.m. of weekdays in November–February

  7. Standard Assessment Procedure is a methodology used by the UK government to assess and compare energy and environmental performance of buildings.

  8. Interest-free loan provided by the UK government to public organisations for undertaking efficiency projects

  9. Includes incentive uplift for insulation in non-gas heating properties and new incentive for replacing less efficient storage heaters with more efficient versions

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Acknowledgements

The author is supported by the China Scholarship Council to undertake this research. The author would like to thank all participants in this research, Professor Nick Eyre and Dr. Sarah Darby for their valuable comments on this paper and Dr. Gavin Killip and Dr. Marina Topouzi for their help with the design of survey.

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  1. Environmental Change Institute, University of Oxford, South Parks Road, Oxford, OX1 3QY, UK

    Yingqi Liu

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Annex 1. Sample topic guide for semi-structured interviews

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Previous projects

  • Characteristics of previous projects

  • Motivations for undertaking these projects

  • Electric efficiency measures: untapped potential and barriers for identifying opportunity

  • How important electric energy efficiency is to your organisation

  • Major funding sources

  • Evaluation of their impacts on electricity use

  • Indicators used (e.g. energy use, peak demand and carbon emissions)

  • Motivation and experience

Planned projects

  • Measures being considered and how many property units to target

  • Any potential funding sources being considered

EDR Pilot and alternative policy

  • Engagement with the EDR Pilot

  • Awareness of the EDR Pilot

  • If participated, project characteristics (e.g. measures, size of peak demand, project model—e.g. third party)

  • Outcomes and why

  • What do you think about the design of EDR Pilot?

  • Design you would like to see changed

  • Overall energy savings vs. peak savings

  • What project model would you prefer (e.g. third-party company giving proposition and sharing risk)

  • What are the key characteristics of a funding programme that would interest your organisation? (e.g. barriers it should target, how financial incentive is given, M&V requirements)

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Liu, Y. Role of a forward-capacity market to promote electricity use reduction in the residential sector—a case study of the potential of social housing participation in the Electricity Demand Reduction Pilot in the UK. Energy Efficiency 11, 799–822 (2018). https://doi.org/10.1007/s12053-017-9607-3

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