Citiworks, zero carbon doesn't

Buried away on p.94 of the government’s Zero Carbon Definition document, you will find Annex D, which shares some thoughts with us about private wire arrangements and the Citiworks judgement, which threatens the viability of such schemes.

To understand the significance of this, you first have to grasp that at the very heart of the ideal of zero carbon development lies the requirement for a development to not only create the power that it uses but to be able to trade it with the outside world, via the National Grid. No one expects zero carbon developments to be entirely self-sufficient in energy; the expectation is merely that over the course of an average year they will generate as much power as they consume, and that the Grid will be used to absorb any surpluses and to cover for any shortfalls. The fact that small scale renewable power plants tend to create surpluses when they are least needed gets conveniently overlooked in this scenario.

But enough of this. There is another fundamental problem here and that is to do with the definition of onsite. It’s all very well insisting that energy production must be onsite, which the Code for Sustainable Homes is pushing us towards, but does that mean on the roof, or in the garden, or could it be down the end of the lane. And if down the end of the lane, why not just buy some shares in a windfarm someplace. Like the Indian Ocean. There are a lot of clever people out there and they are just lining up to drive a cart and horse through whatever definition you concoct.

The government’s preferred option seems to be to insist that any zero carbon development must be supplied by a private wire arrangement as an alternative to using costly PV arrays on every rooftop. Essentially, this gives a licence to a developer to build a small power plant — probably using combined heat and power (CHP) — which would provide enough electricity and hot water for all the homes, workplaces and schools deemed to be zero-carbon. It’s the sort of thing which routinely happens in Denmark, spiritual home of local power supplies (and community piped hot water). This releases the developer from the expenses and hassle of having to fit every building with renewable plant. It also points us towards a solution whereby the community power plant is built and operated by professionals, known as ESCOs, which stands for energy service companies.

But in order to work, these ESCOs would need to have binding arrangements with their customers, otherwise the pesky customers could all choose to decamp to nPower or Powergen or British Gas, or whoever is offering us the best deal of the day. Hence these schemes tend to get referred to as private wire: the connection between ESCO and consumer isn’t just physical, it’s contractual.

But hang on a minute. We also have in place a government policy promoting choice and value for power and gas consumers. In fact, it’s one of the main reasons for having a quango called OFGEM. It’s there on their website: Ofgem is committed to promoting choice and value for all energy customers. How do you square that with promoting private wire contracts for zero carbon developments?

And this is where the Citiworks judgment comes in because over in Germany a similar debate has been raging and it has resulted in a ruling from the European Court of Justice in May 2008, which basically says that private wire contracts are illegal monopolies and that all customers should be allowed access to all available suppliers.

Now this judgment alone ought to be enough to knock the whole zero-carbon objective into Row Z, because it establishes that consumer choice (i.e. price) supercedes private wire arrangements. But this is not how the wonks that put together the Zero Carbon document choose to look at matters. Far from seeing Citiworks as a stake through the heart, it gets portrayed as an opportunity. Here is what they write:

Schemes will be able to operate across sites on the public local network, and there will be no restriction on their capacity or the number of customers they can serve. As such schemes will be able to increase their ambition and achieve real scale, operating larger energy centres that can serve a number of developments and buildings in an area.

Fiddlesticks. Think about it for a moment. The reason for the existence of these zero carbon ESCOs is not to compete in the open marketplace but to fulfill a government-defined policy objective of making new developments zero carbon. No ESCO is going to throw money at a non-commercial project if they don’t have a guarantee of getting a return on their money, which is what the private wire arrangements are all about.

On the other hand, if the project is commercially viable, and these brave little ESCOs start nabbing customers from elsewhere, as this paragraph suggests they just might, then they really don’t require private wire arrangements in the first place. They will exist and compete on their own merits. These ESCOs are either going to be featherbedded with private wire contracts because they are not competitive, or they are going to emerge as successful energy generators in their own right. But not both. You can’t have it both ways. And if they emerge as successful energy generators, then there is little point in locking them into zero carbon developments — the whole thing becomes a charade.

It’s a classic example of the tail wagging the dog. The policy (in this case zero carbon development) has been decided before the implications have been thought through. There is no sensible way of achieving this policy objective, so we end up with fudge. The private wire objective is a grand example of this. It will not work. The European Court of Justice can see that. It’s a shame our government can’t.