23 Jan 2009

Getting our private wires crossed

Casey Cole takes me to task for being sloppy about the Zero Carbon consultation. Maybe he is right. I still haven’t read it all and I am beginning to lose heart. It is, in my opinion, an incredibly hard read. I’ve had something like ten attempts to “get to grips” with this consultation, but keep getting bogged down by the minutiae.

Try this paragraph, drawn (pretty much at random) from p.50

The principles set out in section 3 include incentivising reductions in emissions from the locality of the development. All of the measures that can be put in place to achieve the carbon compliance level (see section 5) are either on site or (in the case of directly connected heat) local. However, allowing the developer to provide the home buyer with an investment in LZC energy infrastructure is not necessarily tied to the locality.

Yes, it sort of makes sense, but somewhere in the last sentence I lose the plot. Maybe that’s because the last sentence doesn’t actually make sense grammatically. Or maybe, I am just not clever enough to understand exactly what they are saying. That’s why it’s a difficult read. If you try and plough through it, you keep getting cross references to different sections, which interrupt the flow. And if alternatively, you try to read it in bitesized chunks, you lose the thread and it makes very little sense.

What you can make out is that there’s an awful lot of local power for local people going on here, and my mind keeps flipping to that crazy shop in the League of Gentlemen. “We’re a local power station for local people.” I keep getting stuck with this image. It makes adult comprehension rather taxing.

My main problem with Casey’s arguments is that, as with much of the Zero Carbon Consultation, I barely understand them. They are complicated. But that doesn’t mean they are wrong. It’s just that I think this stuff should be easy to understand, and it’s not.

His main point seems to be that local electricity generators may have a future after all, because they still have one big factor in their favour, which I hadn’t considered, and that is that they will be able to undercut the big power suppliers because they won’t have to pay compliance costs associated with the Renewables Obligation and Climate Change Levy and from avoiding most distribution (DUoS) and transmission (TUoS) charges.

I take the point; I hadn’t considered the effects of the added Renewables Obligation Certificates and the Climate Change Levy. They might be enough to swing it, but equally, they might not. The added cost per kWh is not large, currently around 0.3p for ROCs and 0.45p for the Climate Change Levy (not applied to domestic customers).

And of course, however you look at it, it’s still featherbedding. These LZC ESCOs (see, I’m at last getting to grips with all the acronyms!) will only be profitable if they can avoid paying the levies that the big energy producers have to pay.

But will that subsidy be enough to tempt people to invest in them? Anyone setting up an ESCO for a zero carbon development is going to want to have a reasonable guarantee that there will be a steady income stream for, say, 20 years. What is to stop another European Court ruling coming along in a year or so, suggesting that this practise is also anti-competitive?

So I am still not convinced by Casey’s rebuttal of my original tract. I take the point that there may be a middle way between private wire and the full-on National Grid. I am just not convinced that it makes much sense.

On a brighter note, I have been invited to go to a Zero Carbon Afternoon to discuss the finer details of the Consultation. I have selected the event in Peterborough on Feb 18. I am rather hoping it will shed some more light on the consultation because, at the moment, I am losing the will to go on struggling with it.

20 Jan 2009

Cautionary tale

Be sure to get your foundations in the right place. It sounds easy, but even experienced practitioners don’t always get it right, and the consequences can be awful.

19 Jan 2009

Beckett on housing

Interesting interview in today’s Times with Margaret Beckett, currently the housing minister. It seems to me that property commentators are divided into bulls and bears and that Beckett, and by inference, the government are siding with the recovery bulls.

If demand starts to turn up before supply turns up, you’re immediately back in inflationary pressures, and it’s just not economically healthy, she is quoted as saying. Well, yes that’s true, but inflation seems to be about the least of our concerns at the moment, so complaining that such a situation would be inflationary is akin to telling a cancer sufferer they would feel better if they had a haircut.

She goes on: when the upturn comes, there will probably be a mad rush. How does she know this? There wasn’t the last time, nor the time before, so is she privy to some inside knowledge that the rest of us are not? And if so, why didn’t she warn us about the crash two years ago?

Next up: We’re going through a recession when we know there’s a substantial built-in growth of householder demand in the pipeline.

Almost by definition, falling prices are a result of falling demand, so what she is saying is that this is only temporary and that it’s just a matter of time before we return to the status quo ante. Again, how does she know? And what business is it of a minister to predict the future like this?

Interviewer Isobel Oakeshott asks if we should be more like the Germans, and accept that sometimes renting is better? Beckett won’t have it.

You could turn the question on its head. Why is it that people in places like France or Germany or the Netherlands, or wherever, don’t want to, don’t care, about owning their own homes? Maybe it’s they who are the people whose attitudes are a bit surprising.

Well, yes, it’s an interesting line, but why not answer the question? Afterall, behind it is the suggestion that we had become too keen to use housing as an investment and that this became a principle cause of the bubble.

Beckett prefers this line: People do feel that if you are just paying rent for years, it’s money down the drain. It isn’t, in the sense that it’s providing a roof over your head, but a lot of British people do feel like that and I don’t really see much sign that will change.

This seems a very strange observation and one that suggests she doesn’t get out enough. There is nothing intrinsically British about owning property and the perception that it’s a sure fire winner is surely changing in front of our very eyes right now. Paying rent may be money down the drain, but it’s a much smaller drain that paying a mortgage for a depreciating asset.

So why is Beckett so bullish? Why does she appear to be so certain that in a year or two everything will back to where it was and house prices will once again start rising? She may well be right — though personally I doubt it — but that still doesn’t explain just why she is so keen to see a return to the old days. It’s not as though they were so wonderful, was it? One of the persistent problems being faced was that hardly anyone could afford to buy a house. Admittedly, this justified a huge government housebuilding programme, but the point of this was ostensibly to make housing more affordable.

Could it be that, at this point in time, the government’s entire strategy is to try and turn the clock back to 2007 when everything in the garden appeared to be rosy and under control. Hence the constant exhortations to the banks to “get lending”, even as they are being berated for lending too much a mere 18 months ago. And the panic measure of reducing interest rates to 1.5%, as if that will persuade people to go out on a borrowing binge. The problem here is that if the economy does take off, Beckett style, then the first thing that will happen is that interest rates will go back up again. And if it doesn’t, then house prices will go on falling. As it stands, these near-zero interest rates look about as enticing as a stranger offering you sweets if you get into his car.

What’s just as interesting are the comments left by readers. At time of writing there are 28 such and only the estate agent appears to think that Beckett could be right. I particularly liked this one from Michael in Tunbridge Wells (presumably disgusted!) : If she's wrong, will people who lose out by taking her advice have a claim against the government?

7 Jan 2009

Zero carbon? Stuck on page 9

This morning, I thought I’d start on the Zero Carbon Definition policy document at the front, the way you are supposed to read it. I have a nasty habit of reading documents like this back to front, or dipping into bits, or even more likely, just skimming. But this morning I decided that I would give it a proper once over as everyone says just how important it is.

But I got to page 9 and I got stuck. Hell, page 9 is just the Introduction. And I started choking on my cornflakes. This is a bad sign, because it means that the chances of me wading through to p 111 are greatly reduced, because I am already feeling grumpy before I’ve got into the main course.

Just what is it about the introduction that upsets me so much? Remember, we are only talking broad policy objectives here, but it’s the broad policy objectives that are giving me indigestion. You see, the objectives are so loaded with contradictions that they sink before you get past page 9.

Let’s start at the beginning and see where we get to before I start yelling “enough!”

Here’s the first paragraph:

1.1 Climate change is the greatest long-term challenge facing the world. Scientific evidence demonstrates the seriousness and urgency of this issue and has moved the debate conclusively from whether or not it is happening to what we need to do about it.

I agree with this 100%. It’s brief, it’s to the point and whilst there are many mealy-mouthed people around who dispute the contention that climate change is happening or, if it is, that it’s not very serious, I am not one of them.

1.2 In the UK we are responding strongly. We have put in place legislation which will require an 80 per cent reduction in greenhouse gas emissions, relative to 1990 levels, by 2050, with legally binding five year carbon budgets governing the trajectory to our 2050 target. Following advice from the Climate Change Committee, the first set of carbon budgets, covering the five year periods 2008-12, 2013-17 and 2018-22 will be published in spring 2009.

OK. It’s a huge task, but the government has put in place a mechanism for dealing with the problem. I’ll skip to paragraph 4 for brevity’s sake.

1.4 Today almost half of the UK’s carbon emissions come from the use of buildings (27 per cent from homes and a further 17 per cent from non-domestic buildings). Responsible government means ensuring that, as we add to the overall stock of buildings, we do not add to the overall scale of the climate change problem. We have to think, ahead of time, about what we want our buildings to be like, how we want them to be used, and how we can mitigate the impact that they are likely to have, not just today, but over their lifetime.

Now if I was to quibble (and I am here to quibble), I would refer back to paragraph 2 which points out that we have a legally binding target to reduce carbon emissions by 80% by 2050. Here the aim has changed to one of ensuring that we don’t add to the overall scale of the problem. Surely, that’s not the point. If we are going to reduce carbon emissions by 80%, then that has to include a huge contribution from the UK’s housing stock. Like 80%? At least?

Am I missing something here?

Then the next paragraph pitches in with the government’s housing targets.

1.5 At the same time, we need to build more new homes to meet the needs of our growing number of households. Government’s annual household growth projections indicate an average household formation of 223,000 new households per year to 2026. So we need to build a large number of homes, compared to the levels witnessed over recent decades, but we need to minimise the impact of those homes on carbon emissions.

OK. It’s more of the same and regular readers of this blog won’t be surprised to see me pitching in here once more. It’s these annual household growth projections which really get my goat here. The government (and the opposition) take them as an given, as if these figures were set in stone, whereas I have been arguing that they are merely an expression of an aspiration by many people to own a home of their own, which is not the same thing.

Leaving aside these arguments (I’ve already done them to death here and here and here), I just don’t think you can square these two objectives. How can you hope to reduce carbon emissions from housing by around 80% if meanwhile you are actually expanding the housing stock? It’s like trying to drive a car both forwards and backwards at the same time. It doesn’t matter how zero-carbon your new housing is, it just doesn’t make sense to be building more of it until the environmental hazard that is our existing stock is sorted out.

Following on from this, I am also worried that the consultation on this document will be mostly carried out by development professionals, all of whom have a vested interest in seeing new development go forward because that is how they make their living. Hence there will be loads of debate about the minutiae of zero carbon, carbon compliance levels and allowable solutions, that sort of thing, but almost nothing on whether this is a good time to be planning new developments at all, or whether we should be moving towards a very different kind of building industry, based on repair, rebuilding and repositioning what we already have.

5 Jan 2009

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.