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DECC - Energy efficiency policy research

DECC commissioned the Carbon Trust to conduct research exploring the design of policies to increase efficiency of electricity use within the industrial and commercial sectors.

The efficient use of electricity and of energy more broadly, is a critical element of the UK's transition to a low carbon economy and the achievement of its 2050 targets.  While the potential savings are large, with a significant proportion of measures offering attractive payback periods and rates of return, many projects are not implemented due to a complex mix of barriers. Existing policy is acting to overcome these barriers and unlock the potential energy savings, but there remains potential to go further, with additional benefits for the energy system, the economy and the UK's environmental goals. 

Objectives and approach

The project was designed to inform the early stages of the policy development process, with a particular objective to build the evidence base on incentive policies, and to explore which types of incentive schemes would most effectively address the barriers to the implementation of energy efficiency measures, within the industrial and commercial sectors.


To inform the design of these policy interventions, DECC commissioned the Carbon Trust and SPA Future Thinking to conduct a qualitative research project to explore the potential role of incentive schemes in increasing the efficiency of energy use. The project involved c. 50 depth interviews with businesses, landlords, energy efficient product manufacturers and energy services companies, and a small number of focus group sessions.    

Key findings

Interviewees identified a complex mix of organisational, financial and informational barriers that hinder the uptake of energy efficiency measures. These barriers were categorised as follows:

  • Low priority given to energy efficiency by the company;
  • Capital constraints;
  • Short investment payback period requirements;
  • Lack of expertise in energy efficiency;
  • Complex internal decision making processes that favour simple, compelling propositions;
  • Other, including fear of disruption of daily business.


End user views on incentive scheme characteristics

The research focused on five characteristics of an incentive scheme that are of most interest to DECC:

  • Finance: how are measures paid for?
  • Incentive payment: what form is the benefit to the end user and when is it received?
  • Audit: how are energy efficiency opportunities identified?
  • Third parties: what is the role of third parties in the scheme?
  • M&V: how are energy savings measured and verified?


Conclusions

No single policy option appealed across all interviewees. Appeal was driven by the circumstances of the interviewee, the relative importance of the different barriers to them and the broader appeal of the scheme.


The most important factor in determining business preferences was whether or not they were capital constrained with regard to energy efficiency investments. The strength of this barrier determined choice across the finance and incentive characteristics, and it broadly aligned with the size of company, explaining to the greatest extent why different sized companies liked different variants. A policy option offering a 'no upfront cost' solution to businesses (similar to an ESCO model) was most popular among organisations with capital constraints.


No variant addressed the barrier that energy efficiency was not a priority for any of the organisations interviewed. The payback period barrier was addressed by policy options offering lump sum rebates for energy efficiency investments and incentive payments based on verified energy savings. Those organisations that were not capital constrained liked these variants the most.


Several other factors influenced the preferences expressed by companies, including the complexity of a scheme, and the sophistication and capability of the organisation to understand and manage it; the certainty of scheme payments, and the capability of the organisation to estimate future savings and cope with variance from these estimates; and an organisation's trust in and willingness to work with a third party.


For more information and to download a copy of the final report see: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/66566/7028-design-policies-efficiency-elec-edr.pdf

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