Can the Electricity Demand Reduction pilot help you unlock energy savings?
Author: Date: 01/08/2014
The Government has recently launched an Electricity Demand Reduction (EDR) Pilot Scheme. This is a new approach to saving energy in the UK, and is designed to combine more traditional energy efficiency measures with reductions in demand at peak periods – typically 4.00pm to 8.00pm in winter months.
What is Electricity Demand Reduction?
The Government's Department for Energy and Climate Change (DECC) defines Electricity Demand Reduction (EDR) as meaning electricity savings that are achieved through the installation of more efficient electrical equipment. To qualify for the pilot, new equipment must reduce electricity demand at all times of operation, not just in peak periods. DECC differentiates EDR from the more common Demand Side Response (DSR), where operation of equipment is reduced or the time of operation is changed. Savings are calculated by comparing energy use before and after a project.
Although this pilot will clearly help the UK meet its carbon reduction targets (and should also reduce energy bills for participants), the main driver is to reduce electricity demand at peak times. The pilot is part of a much wider range of policies designed to introduce a Capacity Market, with the aim of maintaining reliable and affordable electricity supplies, even at times of very high electricity demand. At present, the Capacity Market encompasses power stations, electricity storage providers and large energy user who can switch demand to other times (demand side response).
EDR supplements the Capacity Market by seeking to reduce the level of demand placed on the electricity network. The EDR Pilot is designed to test whether electricity demand reduction has a role to play in the Capacity Market and to help DECC (and participants) understand suitable delivery mechanisms for Electricity Demand Reduction. Although the EDR approach has been used elsewhere (including France, New England and on the US West Coast), it is a relatively unusual approach to encouraging savings, and there is likely to be much to learn.
The Capacity Market uses an auction to match capacity with prospective suppliers, and the Government has decided to test a similar approach with EDR. The first auction in the pilot will be held on 12 January 2015, with £10 million being earmarked for supporting programmes and a second auction likely to be held in 2016. Participants will have to deliver demand reductions over the 2012-16 winter peak period of at least 100kW, although it is possible to aggregate reductions from a number of smaller sites to meet this total.
How can people participate in Electricity Demand Reduction?
DECC has set out a detailed participant guide on its website, but as this is the first time the approach has been used in the UK there is still some uncertainty about how it will work in practice.
Essentially there are three stages leading to participation in the pilot:
1. Participants register an Expression of Interest by 30 September 2014. These can be lodged as soon as you have decided you want to take part in the pilot. Although it's a 19-page form, many of the pages contain lists from which you only need to select a single option, or require you to confirm basic eligibility criteria, such as compliance with UK laws. Although there are questions about past investment in energy efficiency and energy management, there is no requirement to identify a likely project. NEF can help at this stage.
2. To help you decide whether to participate, DECC has provided an exclusion list of ineligible measures. These rules around measures are:
Eligibility criteria for measures
|1||All measures included in an application must deliver reductions in electricity demand through the installation of equipment. Behavioural, new build, generation, load shifting and expansion projects are excluded.|
|2||3The payback period of a package of measures included at any single site in a project must be no less than two years.|
|3||Measures which are already benefitting or will benefit from publicly-funded incentives (including Salix loans) are not eligible.|
|4||Measures must deliver capacity savings across the winter peak period (the 83 business days from 1 November 2015 to 29 February 2016).|
|5||Measures must not have a short replacement cycle (an expected lifespan of less than 16,000 hours), unless included as a component in the installation of an eligible EDR measure.|
|6||Measures included as part of any one application must lead to average savings of at least 100kW throughout the winter peak period (4pm-8pm, business days, 1 November 2015 to 29 February 2016). There are calculation rules showing how to average out savings across this period.|
|7||Measures must be able to be installed and provide Operational Verification by 15 October 2015.|
|8||Measures must be electricity grid-connected and based in Great Britain excluding Northern Ireland (and any onsite generation must be declared).|
|9||Any individual measure can only be included in one application.|
|10||Measures may be aggregated across organisations or households by so-called aggregators – there are special rules for these, including a need for at least 75% of the expected savings to be signed up.|
Participants have to provide detail about their proposed activity, through providing a detailed Measurement & Verification (M&V) plan by 31 October 2014. Savings will need to be expressed in terms demand of capacity reduction in kW, and not as absolute energy savings (kWh), and may be deemed savings for certain measures only. Where deemed savings are used, DECC has the right to install (at their expense) additional metering equipment to help check the robustness of deemed savings. DECC will release more details on what is expected in a plan shortly, but we expect that NEF will also be able to help at this stage.
3. The final stage is participation in the auction; sealed bids must be submitted by 12 January 2015. As it is a pilot there is much uncertainty over the likely level of participation and no real guidance on the likely costs; the only clue as to DECC's thinking is that they have examples with bids between £33 and £100 per kW. Owing to strict rules against collusion in an auction, we will be unable to help at this stage, although we can help determine likely financial returns based on different capacity levels and bid prices.
What happens next with Electricity Demand Reduction?
Once you are accepted onto the pilot, the real work begins. Participants must install the agreed measures and complete an Operational Verification in line with their M&V Plan before the start of the Winter Peak period (ie. 15 October 2015). There will be limited flexibility on the EDR measures actually installed, but they must be of the technology types specified in the original application.
Following Operational Verification, participants must collect and report on data for the operation of their EDR measures during the 2015/2016 winter peak. Evidence must be provided to DECC by 15 April 2016 and participants will be paid 80% of the full payment for delivering and reporting full committed capacity savings. (Lower savings will lead to a financial penalty of 2% for each 1% below target.) Finally there will be Final Report (including 12 months data and evaluation evidence) needing to be submitted by 1 December 2016; DECC may also require some of those taking part to take part in questionnaires, interviews and focus groups.
Is Electricity Demand Reduction worth it?
This is the hardest question of all to answer. There is no explicit reference to additionality, so the pilot may be used to improve the returns on an otherwise marginal energy efficiency project. Clearly DECC does not want to support only those projects that might have gone ahead anyway, but one part of the pilot has to be to see whether it can lead to genuinely new projects taking shape. And although there is a significant level of complexity in the whole process, including the auctions, the rules are set out with reasonable clarity.
Without having seen any calculations, at this stage it is very hard to tell which measures are likely to be most appropriate. DECC will permit a wide range, including lighting, controls, variable speed drives and refrigeration, but experience from other "technology-neutral" programmes is that a small number of technologies fit the rules best and gather the lion's share of funding.
We also suspect that, given the range of alternative incentives available to social housing providers, it is not likely to appeal to housing associations in their potential role of aggregators. However, we would welcome talking to associations to see if between us we can come up with possible projects.