Introduction

5.1.  In Chapter 2 we summarised the various kinds of inefficiency or waste occurring as primary energy sources are converted into useful outputs. At each stage there are barriers which will have to be overcome if overall energy use is to fall. However, the final stage, that of the behaviour of the consumers of energy, is arguably the most important and the most complex. In this chapter we shall focus for the most part on individual behaviour, particularly within domestic households—though many of the conclusions we reach can be applied by analogy to commercial or business environments. Indeed, as the Government acknowledge with respect to the business sector, "in the 1980s we thought that the barriers for uptake of energy efficiency measures … were largely technical and economic … we now know that organisational and behavioural barriers are equally important." (p 11)

5.2.  What is true of business behaviour is still more relevant with regard to individual behaviour, where the commercial motivation that should, other things being equal, inspire economically rational behaviour, is much weaker. As Professor Paul Ekins told us, "Clearly people could change their behaviour and save energy in all sorts of ways which would not require any investment at all, but behaviour is a very complicated business and we all behave in the way that we do for quite good reasons as far as we individually are concerned." This leads into what Professor Ekins called a "very rich area of social science", concerned with the "interplay between incentives and regulations, and about actually knowing how people will behave when certain actions are taken" (Q 261).

5.3.  Within this field a particularly striking demonstration of the potentially perverse and unintended behavioural consequences of energy efficiency was mentioned in Professor Oreszczyn's written evidence, and described by him in more detail in his presentation to our seminar in October 2004. It was originally envisaged that domestic conservatories would reduce the energy consumption of houses, by providing an unheated buffer space around the outside wall—in effect, an extra layer of insulation. However, in practice this simply has not happened. Householders want to use their conservatories all year round, and so install heating in these highly inefficient spaces, or open them up to indoor rooms, to the extent that 90 percent of conservatories are now directly or indirectly heated, adding hugely to domestic heating bills. Furthermore, the average energy consumption for double glazed conservatories is in fact higher than that for less energy efficient single glazed conservatories—the explanation being, that customers who wish to sit in the conservatory all year round will buy double glazing.

5.4.  Another example of perverse consequences was given by the Economic and Social Research Council, who noted that the microwave had "largely become a device for defrosting and reheating food". This has "contributed to the demand for frozen and prepared foods; this in turn is highly energy intensive in its production, distribution and storage". The ESRC's conclusion was that "by focusing exclusively on energy use policy-makers have failed to pay anything like enough attention to the services and practices that energy consumption makes possible". Professor Oreszczyn's conclusion was in essence similar: "We appear to have an almost innate ability to come up with new and novel ways to use energy even if we know it is bad for the planet" (pp 322, 73).

5.5.  The unpredictability of human behaviour is thus at the root of many discrepancies between theoretical efficiency, particularly of buildings, and actual energy performance in use. Faced with this, Government have various strategies at their disposal, and the Government's written evidence draws attention to the following:

• Regulation (this is a matter of compelling rather than influencing behaviour, and is therefore considered in later chapters);
• Incentives and penalties;
• Education and exhortation;
• Provision of better information on actual energy consumption.

Incentives

5.6.  The most obvious incentives are economic—in the Government's words, "the potential to save money on fuel bills". The drawback is that even when investments are fully cost-effective, with short payback times, it has proved extremely difficult to overcome what the Cavity Insulation Guarantee Agency describe as "customer apathy" (p 273). The difficulty is much more extreme when the investment is greater, and the payback time longer. In the words of United Utilities: "Rational behaviour would see individuals looking at whole life costs of their investments, when replacing a boiler, installing double glazing or cavity insulation. The reality of course is that few individuals behave in this way" (p 341).

5.7.  Reasons for this market failure are not hard to find. Perhaps the most obvious is energy's very low profile for most consumers: as the Government note, "for most consumers energy represents a very small proportion of their overall expenditure: in households typical bills are around £600 per year, less than their spending on alcohol". For most businesses, energy costs are "typically 0.5-1 percent of turnover" (p 9). Payback times for what can in some cases be substantial capital investment are correspondingly long.

5.8.  But while low prices may have contributed to careless use of energy, there is no guarantee that higher prices would have the reverse effect. As the Energy Saving Trust note, "the propensity of consumers to invest in … energy efficiency is not very price sensitive" (p 119). Energy demand is in itself relatively inelastic—the bulk of energy is used for core tasks, such as heating and hot water, and while there are significant savings to be achieved, for instance by turning down thermostats, the link between such actions and ultimate economic savings is under current conditions far from clear to most consumers.

5.9.  Furthermore, an across-the-board increase in energy prices would, unless accompanied by a highly effective programme of social welfare, have a disproportionate impact on the fuel poor (that is, those who spend above ten percent of household income on fuel).[39] It could also have a disastrous impact upon industry, where energy prices have already risen markedly, and are already subject to targeted taxation—in the words of Dr David Harris, Secretary General of the Aluminium Federation, "you cannot keep taxing industry and expect it to stay in the UK" (Q 601). We do not therefore believe that generalised energy price rises would in themselves be a desirable way to promote energy efficiency.

5.10.  However, various targeted economic instruments have been proposed. The EST, who are currently researching fiscal incentives, argued that "Government must signal further fiscal measures to encourage consumers to save energy". The Royal Society agreed: "placing primary emphasis on well-designed economic instruments can provide considerable motivation and incentive across the industrial and domestic sectors" (p 327). Fiscal incentives for domestic households that were discussed in the course of our inquiry included "green" or carbon taxes, rebates on property-related taxes such as Council tax or stamp duty, or an extension of the existing carbon trading arrangements from industry to households or individuals. Industry and business (including landlords) can also benefit from the Enhanced Capital Allowances scheme. Finally, we consider in this section the development of a market for energy services, along with revised pricing structures that would promote lower energy use.

CARBON TAXES

5.11.  Carbon taxes have a long track record in Sweden, where a "green tax shift" was initiated in 1991, with progressive increases in targeted energy taxes being counter-balanced by reductions elsewhere, such as in payroll and income taxes, so as to produce overall a revenue-neutral result. In Sweden green taxes apply across the board, and have succeeded in shifting some SKr 8 billion (around £600 million) to "green taxes" by 2003.[40] At the same time, Sweden's success in promoting energy efficiency and renewables is well documented.

5.12.  The closest analogy to a carbon tax in the United Kingdom is the Climate Change Levy, a tax on energy paid by industry, which was introduced in 2001, though this excludes both households and transport. It is also payable not just on fossil-fuelled power, but on some carbon-free sources, notably nuclear, so that its impact upon carbon emissions is far from clear. We shall consider the Levy, and related instruments affecting industry such as Climate Change Agreements, in more detail in Chapter 10

5.13.  However, a carbon tax, like a general increase in energy taxes, would inevitably have a regressive effect. Professor Ekins, who co-authored a Policy Studies Institute report on ways to mitigate this effect, noted that "if you simply levied the carbon tax in an undifferentiated way across households … you would make low income households disproportionately worse off". However, his research suggested that if the revenue generated was redistributed through the benefits system "80 percent of these households ended up better off". However, he conceded that this still meant "that 20 percent of [low income] households were made worse off", thus deepening fuel poverty. He concluded that until this issue could be addressed a carbon tax would remain a "relatively unpopular" measure (Q 271).

ENHANCED CAPITAL ALLOWANCES

5.14.  While rising energy prices or carbon taxes would influence ongoing expenditure on energy or fuel, Enhanced Capital Allowances, which were introduced by the Government in 2001, are designed specifically to influence decisions on capital investment in new plant and machinery. The scheme allows any business that pays Corporation Tax to offset the capital cost of new, energy efficiency machinery, against its taxable profits. Qualifying plant or machinery is listed in an Energy Technology List, which is regularly updated by the Carbon Trust.

5.15.  The ECA scheme appears in practice to have had a limited impact. The Environmental Industries Commission noted that the financial advantage represented for most companies a "relatively modest incentive", and recommended that the allowance be increased to 150 percent of the capital cost. The Carbon Trust also noted that for smaller companies, particularly those making little or no profit, the value of the ECA was insufficient to tip the balance in favour of energy efficient equipment. Public sector organisations, which do not pay Corporation Tax, are ineligible for the ECA—although the Action Plan noted that good practice was encouraged by the Office of Government Commerce "OGCbuying.solutions" website, which provides advice on procuring environmentally friendly equipment. The EIC, however, drew attention to the lack of control over Private Finance Initiative contracts, where private sector companies are more likely to go for the lowest cost option (compare paragraph 3.16).

5.16.  The Carbon Trust also suggested that the Government might "simplify some of the procedures by which technologies qualify for an ECA", citing lighting as an example. At present companies can claim the ECA in respect of energy efficient lighting only if the lighting qualifies as "plant"—in other words, to quote from the Inland Revenue website, "A complete lighting system may be treated as plant … if the system is provided mainly to meet the particular requirements of the trade carried on in the building in which the system is installed". However, general lighting that would be necessary within the building regardless of the kind of business being carried on there would not qualify.

COUNCIL TAX OR STAMP DUTY REBATES

5.17.  An alternative approach to household emissions is to offer rebates on particular property-related taxes such as Council Tax and stamp duty in exchange for the installation of energy efficiency measures.[41] British Gas have recently initiated a pilot scheme, in partnership with Braintree Council in Essex, in which £100 reductions in Council Tax are offered in return for the installation of energy efficiency measures. Although the results are not yet known, Mr Patrick Law, Director of Corporate Affairs at British Gas, was optimistic, noting that other Councils had expressed interest, and that Braintree had not had to market the scheme very heavily to excite interest. The key was to provide an incentive that was "framed in a compelling way" (Q 371).

5.18.  There also appears to be growing momentum behind the campaign for a stamp duty rebate, which was endorsed by the Energy Saving Trust and the Association for the Conservation of Energy (pp 121, 59). In a report published in March the Green Alliance made a similar recommendation, suggesting that stamp duty rebates should be developed in tandem with the introduction of Home Information Packs in 2007, which will also include the energy performance certificates required by the Energy Performance of Buildings Directive. Green Alliance also pointed out that stamp duty had "the added attraction of being levied at the point of house sale/purchase, a time when the seller and/or purchaser often carries out other improvement work and when the house (and loft) is empty".[42] As property in the United Kingdom changes hands, on average, every seven years, over time such an approach would cover a large majority of privately owned properties.

5.19.  However, while this proposal has its attractions, we note various potential difficulties: for instance, because stamp duty only bites when properties change hands (unlike Council Tax), a significant proportion of householders would not be affected by rebates for the foreseeable future. Also, those who acquired a highly efficient property would have little or no scope to benefit from rebates, while, given variations in property prices and stamp duty levels around the country, great care would have to be taken to ensure that the prospective rebates were equitable and effective.

DOMESTIC TRADABLE QUOTAS

5.20.  A still more radical proposal is to introduce a "domestic tradable quota" (DTQ) for each individual, analogous to the carbon emissions quotas already allocated to industry under the EU and UK Emissions Trading Schemes. The proposal was advanced at our seminar by Dr Brenda Boardman, of the Environmental Change Institute in Oxford, and in evidence by Richard Starkey and Kevin Anderson, of the Tyndall Centre in Manchester, who are conducting a study of the scheme's practical feasibility, and by Ms Tina Fawcett and Dr Mayer Hillman.

5.21.  The argument for DTQs relates to the "contract and converge" model for a possible successor to the Kyoto Protocol. According to this model agreement must be reached, with a view to avoiding unacceptable climate change, on the maximum allowable concentration of greenhouse gases in the atmosphere, and on the basis of this agreement it would be possible to work out how much emissions will have to be reduced and over what timescale. These overall figures would then be converted into equal per capita shares, which would be assigned to individuals as personal, tradable carbon allowances. Over a period of, say, 20 years, personal allowances would decline until such time as the point of convergence had been reached.

5.22.  The fundamental problems for DTQs are practical: we simply do not believe that individual carbon trading is feasible within the foreseeable future. Even Mr Starkey conceded that there were "definite implementation issues", both in terms of the "enrolment of fifty million people" and in the information technology challenge of monitoring and enforcing carbon quotas. Furthermore, the "contract and converge" model, which underpins DTQs, is far from universally accepted—it is by no means clear if and when the international community will reach agreement on what is to follow Kyoto. Application of per capita allowances to individual households, irrespective of variables such as income or the type of dwelling, could also raise serious issues of equity. We therefore do not see DTQs as a practicable option within the foreseeable future.

ENERGY SERVICES

5.23.  In the longer term, the development of a strong market in energy services will be crucial in changing the relationship between consumers and energy suppliers. At present, the suppliers are obliged, under the terms of the Energy Efficiency Commitment (EEC), to deliver specified carbon savings in proportion to the number of their customers—for instance, by supplying home insulation or condensing boilers. For each such product the company receives an energy saving credit, which is finally presented to the regulator. However, despite this final balancing EEC comes at a cost to the supply companies, both in reduced demand for energy itself, and also because the assumed cost of the programme, estimated by Defra at £8.97 per customer per bill, may underestimate the real cost to the companies themselves (Q 347). In addition, companies face the risk that, under the terms of the present liberalised energy market, customers, having reaped the benefits of subsidised energy efficiency products, may with just 28 days' notice terminate their contract and change suppliers.

5.24.  The development of a market in energy services, currently the subject of a DTI pilot scheme, is intended to mitigate this last risk. According to this model, longer-term contracts, combining energy supply with wider energy-related services, will be permitted. Mr Law, of British Gas, gave us one example: the company will offer free insulation in exchange for a contract according to which the consumer will pay nine percent higher energy charges. The increase in the customer's bill (typically about £60) will be outweighed by the saving as a result of the insulation (about £90)—in other words, the up-front capital cost is met out of the ongoing saving (Q 368).

5.25.  Thus the development of energy services, which are also being pursued at European level through the draft Energy Services Directive, could offer entirely new business opportunities to the energy companies—as Mr David Sigsworth, of Scottish and Southern Energy, told us, "the actual business of reducing energy will drive new profit streams … that has to be big business if energy efficiency targets are to be met" (Q 370).

TARIFFS

5.26.  Finally, we turn to the pricing of energy. At present the prevailing model in energy as in many other sectors is that prices fall as consumption rises. Although we have received no evidence specifically addressing this issue, we see no reason why this model, which appears to create a perverse incentive to be less careful about energy the more one uses, should not be challenged. So-called "lifeline" tariffs were introduced in many American states after the oil crises of the 1970s, and provide for cheap electricity sufficient to meet the most basic needs (typically up to around 50-60 percent of average household consumption), and more expensive electricity at higher levels of use. This approach both ensures that electricity for basic necessities is affordable, and encourages conservation at higher levels of consumption. Similar models have been applied by certain states to gas and to water supplies, which like electricity are easily metered.[43]

5.27.  A similar approach has been applied in the developing world, providing households with a "free" quota of energy, sufficient for basic needs, while charging them when this quota is exceeded. We see no reason why "lifeline tariffs" should not also be introduced in this country. They have many advantages: they are non-regressive, as poorer households on average use substantially less energy than the better off; they create a strong incentive to cut back on non-essential energy use; and they are transparent and easy to administer.

5.28.  Equally, there is no reason such tariffs should not be commercially viable for supply companies. It would of course be essential that the level of the initial quota was set sensibly and fairly. It might also be possible to incorporate a standing charge (analogous to the line rental paid by telephone users), or to combine "lifeline tariffs" with longer-term contracts for energy services.

CONCLUSIONS

5.29.  We endorse the view of the Energy Saving Trust, that the Government should urgently review the fiscal incentives to energy efficiency. None of the proposals we have heard appears to be without difficulties, but we look forward to the results of the pilot scheme initiated by British Gas and Braintree Council, which should provide valuable information on the effectiveness of Council Tax rebates.

5.30.  We look forward to the results of the Carbon Trust's review of the impact of the Enhanced Capital Allowances scheme, and, subject to the results of that review, recommend strengthening the financial incentives for small companies, and increasing use by the public sector of the Energy Technology List. This should include the extension of the requirement to use the List to Private Finance Initiative projects.

5.31.  We welcome the current energy services pilot scheme. If the results of the pilot are satisfactory we look forward to the extension of the energy services model nationally.

5.32.  We further recommend that the Government and regulator review current energy pricing arrangements, which create a perverse incentive to consume more energy. In particular, we recommend that the Government explore the feasibility of introducing pricing arrangements based on the model of "lifeline tariffs".

Education

5.33.  The education system will ultimately play a crucial part in increasing awareness of energy use and its associated effects on greenhouse gas emissions. When we visited Leicester, we visited the Eyres Monsall Primary School, where a 2.5 kW wind turbine, the first in Leicester, was installed in December 2004. The children were able to monitor the output from the turbine via computers in the main entrance. More, larger turbines are planned for other schools in Leicester. Such imaginative projects will surely contribute in the coming decades to the growth of a better-informed and more careful generation of energy consumers. While some grants have been made to schools through the "Clear Skies" programme, the current "Building Schools for the Future" programme provides an excellent opportunity to promote such projects more widely. We recommend that the Government make ear-marked funding available, possibly as part of the "Building Schools for the Future" programme, to finance innovative, energy-based school projects such as those in Leicester.

5.34.  The "education" of the adult population, which is of greater relevance to this report, given the timescales for action set out in the Energy White Paper, is inevitably more difficult. Experience suggests that people generally do not respond satisfactorily to sermons, and that this is true in the field of energy efficiency was repeated by many witnesses. In the words of the Energy Saving Trust, "general exhortation and Government public information campaigns are not very effective on their own" (p 119). The Government drew attention to an "attitude-behaviour gap", suggesting that "information failure is rarely the key problem" (p 9).

5.35.  The Energy Saving Trust conducts general campaigns on energy efficiency, as do energy supply companies—producing literature that was described by National Energy Action as "clear, helpful and attractively presented" (p 302). But the key appears to be not just to provide information, but to offer advice that is timely and targeted—in the words of the Energy Advice Providers Group (EAPG), "specific to individuals and their circumstances"—and so more likely to be translated into action. One example of such targeted advice was drawn to our attention in a lecture given on 13 June by Christie Todd Whitman, former Governor of New Jersey and Administrator of the US Environmental Protection Agency, to the Carbon Trust: in the United States simple energy advice is often tied into weather broadcasts—for instance, viewers are told "it is going to be cooler, so you can turn off your air conditioning".

5.36.  Are the arrangements for providing targeted, specific advice in place? The picture turns out to be complicated, the sources of advice diverse and variable in quality. National Energy Action drew attention to the results of Ofgem's monitoring of calls made to suppliers, showing that of some 24 million households, only 110,000 were given oral advice on energy efficiency in 2003, some 18 percent fewer than in 2002. Only one enquirer in five was told about EEC schemes for which they would have been eligible. Ofgem is currently seeking to encourage suppliers to ensure that call centre staff are more aware of the opportunities to provide advice on energy efficiency.

5.37.  Nevertheless, the supply companies are keen to advertise their ability to offer advice and support. Mr Jon Kimber, of British Gas, told us that the company was "looking at a major redesign of the way that we provide energy advice to consumers. We will be introducing a new product … which will again not just provide advice but will provide an insight into the environmental consequences of … energy use. That will be available through a whole host of different media … it will be available through requesting an energy survey of the home and we will provide data from that energy survey" (Q 374).

5.38.  Another source of advice is the Energy Saving Trust, which runs a network of 52 Energy Efficiency Advice Centres around the United Kingdom. These both provide advice to consumers and, crucially, "follow up and see how many consumers actually acted on that advice" (Q 764). The Trust confirmed that it would use the Advice Centres increasingly to direct consumers to offers made by suppliers under the EEC. In addition, in early 2005 the Trust began to pilot a "Sustainable Energy Network" (SEN), aiming to "provide information, advice and support for action locally" (p 121). This network will build upon the existing network of Advice Centres, allowing the Trust to work more closely with regions and local authorities.

5.39.  In promoting the value of the SEN, and conceding that "delivery of household energy efficiency will always need to be done locally", the Trust argued that "most local authorities are not well placed to deliver consumer campaigns or technical advice to households. There is therefore a synergy between the community leadership role of local authorities and the advice and project work that the SEN will deliver." In marked contrast, in Leicester we visited an impressive Council-run Energy Centre, which provided a "one stop shop" for local people. We also heard about the Council's information campaigns, including a "Keep Leicester Cool" campaign targeted at ethnic minorities, and local awards schemes. We have already mentioned the Council's projects in local schools. The picture was of dynamic and effective action to raise awareness of energy issues in the local community.

5.40.  In addition we heard that in October 2003 the EAPG had established a "Domestic Energy Efficiency Advice Code of Practice", of which the Energy Saving Trust has now taken ownership.[44] The EAPG has commissioned market research into the efficacy of energy advice, confirming the importance of follow-up. It also drew attention to the forthcoming introduction of Energy Performance Certificates, which "will inform a much larger proportion of householders about the possibilities of improving the energy efficiency of their homes". We discuss Energy performance certificates in more detail in Chapter 6. At this point we simply agree with the EAPG's comment that this opportunity to provide good, targeted advice "must not be missed".

5.41.  There are currently too many possible sources for energy efficiency advice; the quality is inconsistent, and follow-up patchy. We welcome the efforts of the Energy Saving Trust and Energy Advice Providers Group to bring coherence to the field.

5.42.  However, we believe that local authorities, particularly if they are able to assume the more proactive role in promoting energy efficiency that we have already recommended, are likely to be best placed to provide impartial advice tailored to the needs of local consumers. We recommend that the new Sustainable Energy Network be developed in such a way as to promote best practice, while ensuring that the responsibility for delivering advice is devolved to local level.

5.43.  Wherever possible energy efficiency advice should be tied to firm data so as to produce specific recommendations for action. Energy supply companies are to an extent already offering such a service by means of energy surveys. The introduction of Energy Performance Certificates will offer an ideal opportunity for local authorities to target advice more effectively.

Energy use data

5.44.  While advice and information proliferates, and while appliances are routinely labelled with detailed figures on efficiency and overall energy consumption, most consumers have no access to data on their own energy use. Meters are often inaccessible and difficult to read. Supply companies offer discounts to consumers who pay for energy by direct debit, calculated by reference to average consumption rather than real energy use. Bills themselves are uninformative, frequently based on estimated readings, rather than real data, and lacking points of reference or comparison.

5.45.  To some extent the Government have already confronted this issue:

There is growing recognition that the provision of better information to consumers can lead to energy savings. A desk study carried out for Ofgem, based on evidence from overseas, concluded that sustained savings of 5-10 percent could be achieved by presenting clear historical information on bills … Defra, DTI and Ofgem, under the auspices of the Joint Working Group on Energy and the Environment are currently reviewing the evidence and options for action (p 10).

5.46.  This is a welcome development. Comparative data on energy consumption, degree-day adjusted, are already provided on bills in countries such as Norway, and there is no technical reason why they should not be supplied here. Indeed, as well as providing data on current and historical energy consumption, bills could readily give other comparisons—for instance with best, average and worst performance for particular types of dwelling. We recommend that the Government, together with the regulator, not only press forward their review of the presentation of information on bills, but that they specifically explore innovative ways in which information can be presented so as to exert the greatest possible influence on behaviour.

5.47.  However, there is more to be said on this issue. The technology to enable remote meter-reading is now readily available, and would allow suppliers to access meter information without having to enter properties, thus avoiding the need for estimated readings. While there would be a significant capital cost associated with introducing remote metering, there would be ongoing savings in the potential to automate meter-reading, avoiding the need to employ staff to take readings.

5.48.  "Smart" metering presents still greater opportunities. A simple smart meter could be a display unit on, for example, the kitchen wall, which would receive signals transmitted from the gas and electricity meters, and convert them into a simple measure of current energy consumption. Consumers would thus be able to keep track of their energy consumption in real time, and in a variety of units—for instance, in financial terms, or in terms of carbon equivalent emissions.

5.49.  As long ago as 2001 the DTI set up a "Smart Metering Working Group", and in September of that year the Group reported that small scale demonstrations suggested reductions of 5-10 percent in energy usage could be achieved by means of smart metering alone. This strikes us as a conservative estimate. There is ample evidence that human beings can change their behaviour in response to information—the effect of fuel consumption gauges on driving habits is just one example. Although there is little experience of smart metering at domestic level, our visits both to Leicester and Gothenburg revealed on a larger scale the impact of access to real-time data upon energy consumption.

5.50.  In Leicester the Council have invested in an energy and water monitoring system. This is made up of three elements: meters in Council-run properties, such as schools, collecting information half-hourly; radio antennae that relay the information; and a central software system, that logs and analyses it. The software establishes parameters of normal usage, factoring in variables such as weather conditions, and instantly identifies aberrations, to which Council staff are alerted daily. The system cost some £500,000, and as a result the Council have identified savings of around £160,000 per annum. In parallel the Council have developed an energy labelling scheme for public buildings, as well as information panels displaying real-time information on energy use and carbon emissions.

5.51.  The system in Gothenburg is similar, though more ambitious in scale. The municipal housing association, Poseidon, owns some 23,500 apartments, heated for the most part through the district heating system. Poseidon has invested some £8 million in a system that monitors demand, regulates energy supply, and identifies aberrations. As a result energy consumption has fallen from 186 kWh/m² in 2000 to 157 kWh/m² in 2004—a fall in energy use of some 15 percent. This represents a saving of around £2 million per annum, and a reduction in carbon dioxide emissions of around 1,900 tonnes per annum. Throughout this period average December temperatures in apartments have been between 21.1 and 21.4ºC.

5.52.  Thus in both Leicester and Gothenburg investment in smart metering and monitoring of energy use has shown the potential to pay for itself within 3-4 years. In Gothenburg it has led to a fall in energy consumption of around 15 percent, without any significant change in internal temperatures. Such results demonstrate the large amount of energy that is at present simply wasted—heating and ventilation systems are operated inefficiently, lights or appliances are left on when not in use, and so on. Readily available, good quality data will be essential if such waste is to be reduced. The message from Leicester was simple and clear: "if you can't measure it, you can't manage it".

5.53.  The message has not been lost on business—Mr Farrow, of the CBI, drew attention to a "well-known UK retailer" which has "installed half-hourly monitoring on energy use in [its] stores" (Q 571). However, since 2001 the Government themselves seem to have done little or nothing on smart metering—an assessment that even the Minister accepted as a "fair comment", although he did tell us that Ofgem was now working on a smart metering trial (Q 752). In contrast, Defra's explanatory memorandum to the draft EU Directive on Energy Efficiency, which includes a reference to "actual time use of meters", says, in the words of the House of Commons European Scrutiny Committee, that the Government "does not at present have sufficient evidence of the potential costs and benefits to justify agreeing a commitment to [smart metering]." The Minister similarly emphasised the costs of smart metering, and doubts as to whether it would be "worth it".

5.54.  There is no doubt that rolling out remote domestic metering technology countrywide would be extremely expensive, while the millions of units required for commercial, industrial and public sector premises would in many cases be more complex and still more expensive. Understandably, therefore, the supply companies do not appear to have an appetite for the task. As Mr Alistair Phillips-Davies, of Scottish and Southern Energy, told us, the existing regulatory regime "has driven us to the lowest cost denominator and the lowest cost denominator is what you have got"—that is, electricity meters costing around "six or seven pounds". Smart metering technology would be an additional cost which the supply companies seem unwilling to bear: "you have got no incentive or framework in the UK market to motivate anybody to invest in anything of this nature on a long-term basis. So you will not see anything like that for many years to come unless somebody substantially changes the way the metering market works" (Q 377).

5.55.  This is a depressing conclusion, and underlines the need for Government leadership. In marked contrast to the inaction in this country, in Canada the government of Ontario recently established targets for the installation of 800,000 smart electricity meters, providing remote meter reading and the option of customer display units, by the end of 2007, and the installation of such meters for all Ontario consumers by the end of 2010.[45] The costs are estimated at $250CAN (around £100) per domestic meter. We see no reason why comparable targets should not be set for the United Kingdom. The investment would be considerable, but no greater than that committed to other carbon-saving programmes, such as the Energy Efficiency Commitment and the Renewables Obligation—or to the programme of installing water meters. At the very least a large-scale trial is urgently required.

5.56.  On the other hand, a basic domestic "smart" electricity meter—a simple device monitoring current and relaying the information to a display unit—would be very cheap. It would not, of course, monitor gas consumption, but would still represent a significant step forward in allowing individuals to monitor their own energy use.

5.57.  Since 2001 the Government has dragged its feet on smart and remote metering, and now appears to be resisting draft European legislation that would require more rapid development of the technology. We deplore this. In the long term, the surest way to achieve lasting reductions in energy use is to empower consumers—to provide them with the information that enables them to manage their energy use. We therefore urge the Government to take the lead in establishing a large-scale trial both of remote metering and of low-cost options for "smart" domestic display units, which could be rapidly developed and rolled out.

40   See Energy Policies of IEA Countries: Sweden: 2004 Review, IEA/OECD, pp 30-36. Back

41   See written evidence from the Association for the Conservation of Energy, and from the Cavity Insulation Guarantee Agency.  Back

42   New policies for energy efficiency, Green Alliance/Business Council for UK, March 2005, p 13. Back

43   We are grateful to Professor Dennis Anderson, of Imperial College, for his written comments on lifeline tariffs. Back

44   Details are available on the website www.goodenergyadvice.org.uk.  Back

45   See www.oeb.gov.on.ca/html/en/industryrelations/ongoingprojects_smartmeters.htm.  Back