Bunter’s Parcel, Green Alliance and Demand Side Reduction

It’s getting a bit like Bunter’s parcel – always about to arrive: never actually does. The publication of the Energy Bill is yet again not quite on us, and we’re running out of days for the Secretary of State promise that the bill will be with us ‘this month’ to be discharged. In a way though, the appearance of the Bill is not quite the issue, although it would be nice to see it before Christmas. It is what is in it when it does appear that will count.  Of course, the occasional reader of this blog will know that I’ve drawn repeated attention to the omissions  and inadequacies  of the draft bill when it surfaced, and indeed the relative lack of published activity to rectify these difficulties in the run up to the ‘final’ publication of the definitive article – although that, will, by all accounts not really fit that description, with a number of items scurrying along behind it, aiming to hang themselves on somewhere as the bill progresses through Parliament.

One thing we know will not definitively be in the bill next week or whenever this month will be measures to promote demand side reduction.  Not that these measures are not being worked on- it’s just that the task of making something actually work in the context of the overall architecture of the Bill is proving somewhat difficult. It might be, of course that a relatively simple amendment emerges, which commits the Secretary of State to do something within a year, defines in outline what that might be, and then leaves the detail to secondary legislation.  Those who object that this leaves too much to be coloured in down the line might reflect that this is where most of the proposals elsewhere in the Bill actually are, and that at least there’s a firm outline and timetable on the face of the legislation.

But how then to do it? I’m chairing a PRASEG meeting tomorrow (Wednesday) which is presenting the findings of a very thoughtful Green Alliance study on how to place demand side reduction measures onto the Bill.  It looks at the range of possibilities, and concludes that providing a revenue stream for demand side FITs through Contracts for Difference is the best overall way to proceed.  Certainly the idea that there should be a supply-side FIT – that is, a reward for bringing about ‘negawatts’ on a permanent basis is very sound, but I remain sceptical that permanent reduction strategies that rely on a revenue stream for those doing this are sustainable in the long term, even allowing for the substantial complication they entail in implementation and monitoring.

The provision of one-off ‘rewards’ for verifiable permanent reduction  seems far more reliable and less complicated – but that then depends on what it is you reward, and through what mechanism. I think the soundest target would be to incentivise through marginal cost reduction incentives products and technologies that permanently and actively reduce demand.  The recent McKinsey Report DECC published on the potential for demand side reduction identified a number of such measures, and I think others can be added: LED lighting, efficient industrial pumps, active electricity management, dynamic demand technologies, voltage optimisation, and many more.

I also wonder about the wisdom of pitting demand side reduction schemes against renewable and low carbon generation incentives.  In a world of Levy Control mechanisms and spending caps it seems to pit the relative success of one against the possible relative failure of the other.  Better, I think, to introduce ‘decapacity payments’ alongside capacity payments, since, logically the success of decapacity should ensure that less is required in the form of payments to add capacity to the system. That would probably mean a recast of what capacity payments are about – but I don’t think we should shy away from such an exercise, as the present ‘market –wide’ payments will almost certainly be over-expensive and lead to over-capacity if anything. Strategic reserve capacity paid supply coupled with a permanent reduction in needed capacity through decapacity payments works well, I believe.

Anyway, I’ve set out how I think we should go about a ‘decapacity payment’ programme to meet a demand side reduction requirement in the Bill in a brief paper here: Decapacity Payments.  It won’t be discussed tomorrow because we’re talking about the Green Alliance document: but I think when and if anyone has a read of both they will see that they are pretty much moving in the same direction.  My modest piece I hope does a ‘sparrows on the shoulders of eagles’ job on what is a very good piece of work – and which can inform centrally the content of Bunter’s parcel when it finally arrives and can be unpacked.

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