Energy Policy 38 (2010) 7604–7613

Contents lists available at ScienceDirect

Energy Policy

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The deployment of decentralised energy systems as part of the housinggrowth programme in the UK

Jo Williams �

Bartlett School of Planning, University College London, 22 Gordon Street, London WC1H0qB, United Kingdom

a r t i c l e i n f o

Article history:

Received 24 March 2009

Accepted 11 August 2009Available online 22 September 2009

Keywords:

Housing

Renewable energy

Zero-carbon

15/$ - see front matter & 2009 Elsevier Ltd. A

016/j.enpol.2009.08.039

+44 207679 4810.

ail address: joanna.williams@ucl.ac.uk

ro net emissions of carbon dioxide from all e

r the purpose of this paper this equates to t

d/or electricity (generation of a capacity of l

source. The variety of technologies caught by

rs, photovoltaic cells, micro-wind, micro-hy

ombined heat and power (micro CHP) and sm

a b s t r a c t

The housing growth programme could offer an opportunity for accelerating the deployment of

decentralised renewable energy systems (DRES) in the UK. The Government hopes to leverage private

sector investment into DRES as part of new housing projects. The aim of this paper is to assess whether

current regulatory and funding frameworks are sufficient to achieve this. The question is explored by

drawing on the experience of developers, local authorities, energy utilities and service companies

operating in the largest housing growth region in the UK–Thames Gateway. Their experience suggests

that the current low intervention approach will be insufficient to generate the shift required in both

industries. In order to be more successful economic and regulatory instruments should focus on

producers (house-builders and energy providers) rather than consumers (households). Tighter

regulation is needed to ensure that producers have a responsibility to install DRES as part of new

developments, to enable connection to the grid, to ensure a sustained financial return from investment

and revenue is spent on the expansion of new renewable energy infrastructure. This regulatory

framework must be under-pinned by substantial funds focused on producers. Greater intervention is

needed if DRES is to be included in new housing development.

& 2009 Elsevier Ltd. All rights reserved.

1. Introduction

The domestic sector currently emits 40 million tonnes ofcarbon dioxide annually (27% of UK carbon emissions; Miliband,2006). With growth in households predicted, this is set to increasesubstantially over the coming decades (domestic energy use isprojected to rise by 6% by 2010; Miliband, 2006). To this end theGovernment has set a target for achieving zero-carbon homes1 by2016. These homes will need to be energy efficient and fuelled bya non-carbon emitting energy source. The provision of decen-tralised renewable energy systems2 in new housing developmentswill play a role in achieving this.

The government introduced a new housing growth pro-gramme, to develop 2 million new homes by 2016 (3 millionnew homes by 2020). These new homes will be provided in‘‘growth areas’’, ‘‘growth points’’, ‘‘eco-towns’’ and existing urbanareas in the UK, including Thames Gateway. This represents themost ambitious housing growth policy since the 1960s (Bennett

ll rights reserved.

nergy use in the home.

he small-scale production of

ess than 50 kW) from a low-

this definition includes solar

dro, heat pumps, biomass,

all-scale fuel cells.

and Morris, 2006). Government hopes that it will provide a test-bed for low/zero-carbon technologies and drive the changesrequired within the house-building and energy industries todeliver zero-carbon homes from 2016. Thus the housing growthprogramme could offer an opportunity for accelerating thedeployment of decentralised renewable energy systems in the UK.

The UK is a particularly interesting case study because it hasadopted a less interventionist approach and relied largely on themarket and industry to deliver new housing products and energytechnologies. However, the deployment of DRES has so far beenslow and ad hoc. There has been heavy reliance on the privatesector (energy suppliers and house-builders) and individuals toincrease deployment, yet the incentives to do so and marketdemand are limited. Considering the scale of change required andthe short time frame for delivery this approach may not be themost successful. The degree of innovation required in the existinghouse-building and energy industries to deliver a decentralisedenergy network would be significant. In addition, if marketdemand were to drive these changes there would need to be asubstantial shift in current public awareness and attitudes. Thiscould be driven by a series of instruments including regulationand economic incentives.

This paper explores these questions using a case study area onthe periphery of London–Thames Gateway. Thames Gateway isthe largest regeneration site in Europe and has been identified ashousing growth area. It is located in a world city region and playsan integral role in the functioning of London. It is an area in which

J. Williams / Energy Policy 38 (2010) 7604–7613 7605

there is significant and increasing demand for housing and energy(Greater London Authority, 2004). The government wants theGateway to become a low-carbon region and suggests thatdecentralised energy could play a part in delivering this vision.Certainly the less interventionist approach is more likely to besuccessful in a growth region where market demand for housingand energy is greater. A study was completed (in 2006/2007) toassess whether policy instruments were sufficient to deliver DRESas part of the new housing programme in the Gateway. From theanalysis appropriate instruments and the roles for key players indelivering DRES were identified. The findings are presented here.

2. Barriers to deployment of decentralised energy inhousing development

The energy industry has shown itself very resistant to changeparticularly in terms of adoption of decentralised renewableenergy generation as part of a future energy supply strategy.Frequent changes in renewable energy policy have resulted in alack of price and market security for investors (Lipp, 2007;Ragwitz and Held, 2006). Long-term, chronic under investmentin the renewable energy industry has meant that research,development and deployment of technologies have lagged behindother European countries. This has been further exacerbated byproblems accessing the grid (particularly for smaller generators)and planning constraints (Lipp, 2007; Ragwitz and Held, 2006).This combination has resulted in higher costs for producingrenewable energy and a lack of diversity in supply (Lipp, 2007;Ragwitz and Held, 2006).

The market for renewable energy in the UK is distorted. Thereal cost (including the environmental cost) of using fossil fuels isnot internalized into the calculation of the worth of renewableenergy. The price of fossil fuels remains comparatively low. Theenergy sector is monopolised by existing utilities and to gainaccess requires considerable investment. A lack of informationabout renewable markets and high transaction costs limits thenumber of smaller energy providers entering the market (Painuly,2001).

The capital costs of investing in renewable technologies arehigh and there is a lack of support for projects from financialinstitutions (Painuly, 2001; Department of Trade and Industry,2006). Lack of certainty in the absence of a clear political lead orrobust regulatory framework for promoting renewable energyreinforces the concern amongst investors in the security ofrenewable energy projects for long-term investment (Painuly,2001; Reiche 2002). Long pay-back periods and low demand forthese technologies further frustrates the market (Painuly, 2001;Department of Trade and Industry, 2006). Government invest-ment provides an alternative solution, however, funding fordeployment, research and development of new technologies hasbeen very limited to date (Painuly, 2001; Reiche 2002).

Lack of expertise or interest amongst utilities, technologysuppliers, skilled labour force and entrepreneurs has greatlyrestricted the supply of technologies and associated services(Painuly, 2001; Department of Trade and Industry, 2006). Thereare very few energy service companies (ESCOs) in the UK whocould supply, install, manage and maintain decentralised energysystems. A survey of ESCO activity in Europe showed that therewere approximately 20 ESCOs in the UK whilst in Germany therewere 500–1000 (Vine, 2003). This is largely due to the long-termfinancial incentives (capital grants and feed-in tariff) offered toenergy generators in Germany (Bertoldi et al., 2006). Lack ofaccreditation systems for products and installers has limitedprogress in technological and service development (Painuly, 2001;Department of Trade and Industry, 2006). Lack of information has

also created problems in establishing supply chains or demand fornew products and services. There are still many technicaldifficulties in connecting smaller generators to the grid andmaintaining stable energy supply (Painuly, 2001; Reiche, 2002;Department of Trade and Industry, 2006; Jardine and Ault, 2008).

Public demand for decentralised renewable energy systems arecurrently limited (Department of Trade and Industry, 2006). Theprice of fossil fuels remains comparatively low and there is littleeconomic incentive to purchase renewable energy or to generateit. Public awareness of the technologies is limited (althoughgrowing) largely due to lack of promotion and marketing (Reiche,2002). Information about the full range of technologies available,relative efficiencies, costs, availability of subsidies, potentialproviders and so on is very limited (Painuly, 2001; Departmentof Trade and Industry, 2006).

Transaction costs for households in terms of time and effortrequired to install operate, manage and maintain technologies andconnect to the grid put off many potential generators (Williams,2008). Capital, operating costs and pay-back times also limitdemand. Public objections particularly on noise and aestheticgrounds have also created a barrier to the deployment ofindividual and community generation projects (Painuly, 2001;Department of Trade and Industry, 2006). Thus resilience tochange demonstrated by the energy sector results from a complexinteraction of economic, organisational, technical and institu-tional barriers.

The UK house-building industry shows a similar level ofresistance to change. Path-dependency in the industry stiflesinnovation. It is largely reinforced by well-established construc-tion processes, supply chains, delivery systems and sources offinance (Clarke, 2001; Asibong and Barlow, 1997; Barlow, 1999,Dewick and Miozzo, 2004). Historically conservatism amongsthouse-purchasers has very much influenced the types of housingdeveloped and restricted innovation (Holdsworth, 2003). Envir-onmental features have been a minor consideration for house-purchasers (Dixon et al., 2005). As a result house-builders aresceptical about size of the market for more costly environmentalfeatures in housing (Townshend, 2005).

The technologies for localised energy generation are availablefor inclusion in new housing developments. Stages in marketpenetration vary depending on the technologies. For examplegreatest market penetration is demonstrated by solar collectors(102,000 installations of solar collectors equivalent to137,000 MWH/year; Element Energy, 2008) in the UK, whilst PVcells (2993 installations of solar PV cells equivalent to 8801 MWH/year; Element Energy, 2008) and biomass boilers (1400 installa-tions of biomass boilers equivalent to 23,961 MWH/year; ElementEnergy, 2008) lag behind. Most are not currently economicallyjustifiable without some form of financial incentive.

Financial incentives do not overcome all the persistent barriersto adoption nor do they create value for all the key stake holders(CEC, 2008; Gouchoe et al., 2002). Smooth connection to the gridand adequate capacity to deliver systems (i.e., distributors andinstallers of infrastructure) are needed in order for fiscalincentives to be successful (Gouchoe et al., 2002). Lessons learntfrom zero-energy homes (USA) suggest that high transaction costs(i.e., difficulties connecting to the grid, forming new supplychains, raising finance for projects, planning delays, long-termliability) coupled with limited value for house-builders restrictsadoption (Davis et al., 2006; CEC, 2008).

Lessons learnt from the passive house (in Northern Europe)suggest that knowledge transfer within the industry is also crucialfor innovation (Halse, 2005). The house-building industry acts as acomplex value chain, involving many agents and a number ofdifferent competence bases. Often the information needed toenable innovation is not communicated between these different

J. Williams / Energy Policy 38 (2010) 7604–76137606

agents which inhibits the use and development of new productsand services (Halse, 2005). Information is often not commu-nicated within organisations themselves, let alone betweenagents in the supply chain (Ørstavik et al., 2003). Education levelsin the industry are low (Ørstavik et al., 2003) which reducesinnovation intensity. Technical innovation depends on infrastruc-ture at the meso-level. Without the necessary skills andcompetence amongst those operating at the meso-level (i.e.,energy utilities and house-builders) technological innovation willnot break through (Halse, 2005).

A full market breakthrough of DRES in new housing develop-ments will require both the house-building and energy industriesto develop their productive capacity to design, install, operateand maintain DRES. This will require the diffusion of appropriate

knowledge in both industries. The product (both the buildingsand energy) must be as economically viable as the currentalternatives both for the provider and customer (which maymean some subsidisation in the first instance). The energy andhouse-building industries will need to act as intermedi-aries between national policies and individual choice in order todeliver DRES.

3. Current interventions

A number of interventions have been introduced to encourageinnovation within the house-building and energy industries

Table 1Instruments for encouraging DRES in new housing developments.

Instrument Relevant policy/act/

programme

Introduc-

tion date

Aim

Carbon emission

reduction

targets (CERT)

Electricity and Gas

(Carbon Emissions

Reduction) Order (Great

Britain, 2008a)

2008 Requires energy

efficiency impro

microgeneration

CERT. Targets m

centralised rene

Buy-back

scheme

Climate Change and

Sustainable Energy Act

(Great Britain, 2006b)

2006 Set microgenera

energy supplier

micro-generato

Renewables

Obligation

(RO)

Renewables Obligation

(Great Britain, 2004) and

RO Order (Great Britain,

2009)

2004 Requires utilitie

supply from ren

financial suppo

commercial dep

Feed-in tariff Renewables Obligation

Order (Great Britain,

2009)

2010 Financial suppo

electricity in pr

Capital grant Low-Carbon Buildings

Programme

2006 Capital grants t

technologies

Target zero

carbon homes

2016

Building a greener future

(2006)

2016 Target for house

build will be ze

on- or off-site g

Voluntary code Code for sustainable

homes (2007)

2007 Identifies DRES

Planning The Planning Acta (Great

Britain, 2008b)

2008 Regional and lo

responsibility to

through local p

permitted deve

of the ‘‘Merton

Planning Policy Statement

1 (2007)

2007 Requires that lo

securing decent

energy in new d

a Planning Bill in 2007 at time of study outlined the same approach as the later Pl

which may lead to deployment of DRES in new housing projects(Table 1).

3.1. The carbon emissions reduction target (CERT)

The carbon emissions reduction target (CERT) requires energysuppliers to deliver measures that will result in overall lifetimecarbon dioxide savings of 185 MtCO2 by 2011. Suppliers arerequired to deliver energy efficiency improvements (energyperformance contracts) to customers, as well as increasing theircapacity to generate renewable energy (delivery contracts—

installation and operation). Thus it provides the energy industrywith incentive to overcome its internal inertia towards renewableenergy. It is expected to lead to energy supplier investment of over£3 billion, the formation of ESCOs within existing utilities and theemergence of new players in the market.

3.2. Buy-back schemes

The Climate Change and Sustainable Energy Act (2006) gavethe Secretary of State the power to impose a duty on energycompanies to buy energy from local generators. In theory thisshould provide guaranteed revenue to the generator and reduceinvestment risk. Thus it provides stakeholder incentive andshould encourage innovation within the industry.

Possible problems

utilities to deliver energy

vements and encourage

in the domestic sector to meet

ay also be achieved through

wable energy

Tendency to focus on energy efficiency

measures rather than renewable energy

generation particularly at a local level

tion targets to ensure that

s buy-back electricity from

rs

Prices are not guaranteed—no security for

generators, risky, difficult to obtain

investment

s to source a proportion of their

ewable generators. Offers more

rt to technologies further from

loyment

Financial security offered by this scheme

to smaller generators is very limited

rt to low-carbon generation of

ojects up to 5 MW

The security offered to investors limited

because short-term and no price

differentiation depending on energy type

or scale. Does not encourage deployment

of technologies further from market

penetration. Reduces the diversity of

energy options available

o encourage the deployment of Very limited funding. Insufficient to

encourage the deployment of technologies

further from market penetration. No

money available for housing in the next

round

-building industry—all new

ro carbon by 2016 which infers

eneration of renewable energy

No supportive regulation to encourage

DRES as move towards target by

2016—focus on CO2 reduction through

energy efficiency

as essential for code level 5/6 No statutory obligation to deliver DRES on

or off-site

cal authorities have a statutory

take action on climate change

lans microgeneration becomes

lopment supports the inclusion

rule’’ in local plans

Problems with implementation

cal authorities have policy for

ralised, renewable or low-carbon

evelopment

Problems with implementation

anning Act 2008.

Table 2The impact of Government policy framework on the barriers to the deployment DRES.

CERT Buy back RO LCBP FIT 2016 Target CSH Plan

Economic

Investment riska X XCost—capital and operationalb X X XLong pay-back periodc XLack of value to stakeholdersd X X X X X X X XLack of customer demand green energy/DRES X

Organisation

Industrial inertia (house-building and energy industries)e X X XLack of ESCOs X X XAccess to grid

Information

Lack of accreditation system for products and service providers XKnowledge transfer

a Both CERT and RO reduce risk particularly to the larger generators but do little for the smaller generators.b All RO, LCBP and FIT have the capacity to reduce costs to producers but access to these sources of funding for ESCOs is restricted and is non-existent for house-

builders.c Reduces pay-back period but only for technologies closer to market maturity.d Instruments which provide some incentive to stakeholders to innovate by providing financial incentive, creating market demand, etc.e Factors encouraging restructuring in the industries.

J. Williams / Energy Policy 38 (2010) 7604–7613 7607

3.3. Renewables Obligation

The Renewables Obligation requires electricity suppliers tosource a proportion of their supply from renewable generators.This offers stakeholder incentive and should stimulate productionand innovation within the industry. Suppliers can alternativelypay into a buy-out fund to meet the obligation. Since 2004renewables operators (independent of size) have been entitled toreceive renewable obligation certificates (two ROC’s for every1000 kWh) which they can also sell to electricity supplycompanies to help them achieve their obligation.

3.4. Feed-in tariff

A feed-in tariff (FIT) offering financial support to low-carbongeneration of electricity in projects up to 5 MW will be introducedin 2010. The feed-in tariff offers high investment security coupledwith low administrative and regulatory barriers. The revenuegenerated by the FIT, subsidises capital and operational costsand offers key stakeholders an incentive to invest. It shouldhelp to overcome the inertia within the energy industry toDRES and result in the entry of new participants into themarket.

3.5. Low-Carbon Buildings Programme

Capital grants are needed to reduce the initial cost of newtechnologies to potential generators and house-builders duringthe earlier stages of deployment. The Low-Carbon BuildingsProgramme (LCBP) is a capital grant scheme for encouraging theuse of renewable energy technologies in buildings. It follows onfrom the Clear Skies Programme. Both were made available to thedomestic sector. During the first round of the LCBP grants wereavailable to households to make energy improvements or installrenewable technologies. However, there was less funding avail-able from the LCBP to households than through the Clear SkiesProgramme. During the second phase of the LCBP funds will nolonger be available to households which will further restrictadoption of renewable technologies in the domestic sector. Thereare currently no capital grants schemes which house-builders canaccess.

3.6. Target zero-carbon homes 2016

The target for zero-carbon homes was introduced by thegovernment in 2007 (CLG, 2006a). At the time a zero-carbonhome was defined as one that had net zero-carbon emissions(from space heating, water heating, lighting and appliances) overthe period of a year. In order to achieve this aim, the building andits contents would need to be energy efficient and the energysupply low-carbon emitting. It was unclear from the initialdefinition the extent to which renewable energy should begenerated on or off site. More recently a further Governmentconsultation (CLG, 2008) has reinforced the importance offlexibility in the provision of energy supply to new buildings. Itsuggests generation can be on or off site from a variety of sources(renewable heat, low-carbon energy, etc.). The aim of the 2016target is to drive a step-change in the house-building industry,stimulating the industry to develop the required expertise andsupply chains. It is also possible that this will generate newdemand for ESCOs to work in partnership with house-builders.

3.7. Code for sustainable homes

The code for sustainable homes (CLG, 2006b) providessustainability standards (an accreditation system) for all newhomes. It was also introduced to drive a step-change in the house-building industry. The code sets voluntary standards for a numberof environmental objectives including on-site generation ofrenewable energy. However, only for code levels 5 and 6 is thisrequired. It is hoped that this accreditation system will help todrive market demand for more sustainable homes.

3.8. Planning

The planning process is seen as being central to the delivery ofDRES in new development by the Government. The ClimateChange Planning Policy Statement (CLG, 2007) required that localauthorities had a policy for securing decentralised, renewableor low-carbon energy in new development. Great Britain(2008b) states that regional and local authorities have a statutoryresponsibility to take action on climate change through localplans. More specifically the act classified microgenerationas permitted development (i.e., it did not require planning

J. Williams / Energy Policy 38 (2010) 7604–76137608

permission), although again there were various restrictions placedon installation. The act also supported the ‘‘Merton Rule whichrequires that 10% of the energy consumed by a new developmentis generated by renewable sources on site. This applies to newhousing developments with 10 or more units or over 0.5 hectaresin area (although thresholds vary between authorities).

4 Two interim targets have been set to achieve a 25% reduction in carbon

dioxide emissions from buildings by 2010 (from Building Regulations 2006) and a

further 44% reduction by 2013 (which is equivalent to passive house standard).

3.9. Policy gap analysis

Theoretically the UK policy framework does appear to be fairlycomprehensive tackling most of the barriers identified by theliterature (Table 2).

Crucially, it includes the elements that have been shown to beeffective in encouraging the deployment of DRES in Germany:capital grants for the installation of DRES (i.e., through the LCBP);a requirement for utilities to buy-back energy from generators(i.e., RO and buy-back mechanism) and a feed-in tariff to offersecurity to generators and investors during operation. However, inpractice the capital grants are likely to be insufficient, utilities arenot required to buy back all the energy produced by smallgenerators and the planned feed-in tariff (as it stands currently)offers no long-term security to potential investors.

The capital grant schemes in the UK have been historicallyunder-funded and subject to frequent changes which has limitedtake-up and deployment of DRES. This contrast with othercountries where more generous and stable capital grants havebeen used to create mass markets for technologies that fit withlocal characteristics (e.g., heat pumps in Sweden, photovoltaiccells in Germany; TNS, 2008). The LCBP has committed over 12million Euros (BERR, 2009) to date to all forms of microgeneratingtechnologies in the domestic sector in the UK, compared to the 14billion Euros spent on PV alone in Germany. In addition, LCBPgrants are only available to consumers (households) rather thanproducers (smaller energy companies and house-builders) whichalso limits effectiveness, particularly in new build housing.Studies in the USA (CEC, 2008) suggest that subsidies forinstallation of DRES given directly to house-builders are far moreeffective in encouraging widespread deployment.

The German feed-in tariff has been extremely successful inencouraging the deployment of DRES and generation of energyfrom renewable sources. From 1990 to 2002 13000 MW ofelectricity generated by renewable resources was attributed tothe German feed-in tariff (Wustenhagen and Bilharz, 2006). TheGerman model is fixed for a long-term period (around 20 yearsbut varies with technology) offering greater security to potentialinvestors. It also differentiates between types of technology andscale, giving greater support to the less economically viabletechnologies and smaller generators (i.e., those further frommarket penetration). Although the cost of the feed-in tariff hasbeen considerable in Germany, it is less expensive than the ROC’ssystem used in the UK (DIW et al., 2008). Unfortunately theproposed UK feed-in tariff (UKFIT) currently lacks the basicelements of the German scheme that made it so successful.3

Firstly the proposed UKFIT has no fixed contract length, whichreduces security to the investor and may make it difficult tofinance projects. Secondly the payment does not vary according totechnology and installation size which will benefit larger scaleprojects using well-established technologies. Thus, the UK model(as it stands) is unlikely to be as successful in encouragingdeployment.

The RO may also provide a potential source of funding forgenerators and reduce the risk associated with investing in DRES.

3 That is, a fixed length contract for 20 years and price differentiation

depending on the scale of technology and stage of market penetration.

However, currently the RO is difficult for micro-generators toaccess. The government is looking towards making access easierand offering differentiated levels of support for different technol-ogies (Allen et al., 2008). However, recent studies suggest that thisis unlikely to result in rapid deployment of microgeneration (TNS,2008).

In summary, the buy-back scheme and RO provide somecertainty for investors but low returns. The capital and opera-tional costs of DRES may be partially covered by the capital grantsprogramme, buy-back scheme and RO. However, funds are limitedand pay-back times on technologies further from market maturityare likely to be long. That said CERT, buy-back scheme and RO dooffer some limited incentive to the energy industry to innovateand consider DRES as part of their portfolio. The feed-in tariff, ifsimilar to the German model, could substantially boost theconfidence of those working in the renewable energy industryand potential investors in DRES.

Equally a tighter regulatory framework applied to developmentcould drive innovation in the construction industry and increasedeployment of DRES in new housing. Currently there are no legalrequirements placed on house-builders to incorporate DRES innew developments. The housing industry still appears to beunconvinced by the 2016 zero-carbon target. Partly it claimsbecause of insufficient capacity within the industry to deliver thetarget (i.e., expertise, supply chains, lack of effective technologies,etc.) and partly due to the Government’s inconsistent approach topolicy targets. The more recent discussion at a European level tomove towards a mandatory requirement for constructing zero-carbon buildings by 2019 may drive the changes needed inindustry.

However, part of the problem is also the definition of zerocarbon. Discussions about the degree to which carbon reductionsshould be provided through energy efficiency (in the structure ofthe building or the network) or low-carbon energy sources willgreatly influence the types of DRES that are most viable for newhousing projects. For house-builders the current definition doesnot provide adequate information on which to base their futuredesigns, budgets or construction strategies. However, it shouldgenerate interest in DRES amongst house-builders. It can also beargued that the interim targets4 set by the government do notencourage the use of DRES only the adoption of energy efficiencymeasures.

In the absence of a robust regulatory framework and adequatefunding there appears to be a heavy reliance on planners to deliverDRES in new housing developments. The key problem withplanning as a tool for delivering DRES is exemplified by theClimate Change Planning Policy Statement (CLG, 2007) which leftsetting specific targets to the discretion of local authorities. It alsostated that inclusion of microgeneration as a condition placed ondevelopment should not have an adverse impact on ‘‘developmentneeds of the community’’, ‘‘housing supply’’ or ‘‘pace of housingsupply’’. In the current situation when addressing housingshortages are at the top of the political agenda only a brave LPAis likely to make carbon reductions a higher priority.

The code and ‘‘Merton rule’’ offer the key instruments forimplementation available to planners. However, the voluntarynature of the code in combination with the low weighting givento DRES5 suggests it is unlikely to have a major impact on

5 Only 1.2 points are given to developments where at least 10% of total energy

demand is supplied from local renewable or low-carbon energy sources. The same

number of points is given for providing 50% of dwellings in a development

with cycle storage or a providing a single drying space. Since provision of

Table 3Data collection.

Group

intervieweda

Number

interviewed

Notes

House-builders 4 Three large private sector house-builders and 1

social housing provider

All operating in the region

All have either included DRES or considered

including DRES in new housing projects—i.e.,

open to innovation

Energy utilities 4 Four main utilities operating in Thames

Gateway

Two offering pay-back schemes for local

generators

All offering green tariffs

Energy service

companies

2 Two ESCOs operating in Thames Gateway

Both specialise in localised generation

One specialises in solar collectors/PV systems

design and installation

One specialises in wind generation design,

installation and operation

Local planning

authorities

15 Representatives from all of the planning

authorities operating in Thames Gateway

a All those interviewed requested anonymity in the final report and

subsequent publications.

J. Williams / Energy Policy 38 (2010) 7604–7613 7609

deployment. Currently for privately funded development build-ings only need achieve the standards set out in buildingregulations (Great Britain, 2006a). The onus is placed on localplanning authorities to encourage DRES by setting level 5 or 6code standards for new development using the local developmentplan. This approach is likely to produce variable results as LPAsoften have many other conflicting priorities heightened currentlyby the need to boost housing supply.

The adoption and implementation of the ‘‘Merton rule’’ mayalso be patchy. A study conducted by the Town and CountryPlanning Association (2006) investigated the adoption of the‘‘Merton rule’’ in 387 LPAs in the UK. Only 15% of those surveyedhad adopted renewable targets (and of those 17% were describedas prescriptive). The key reasons given for non-adoption were lackof government support, conflicting guidance from government,lack of resources and expertise in planning departments toenforce the ‘‘Merton rule’’.

This analysis suggests that there are gaps in the current policyframework. It does nothing to tackle the need for buildingappropriate expertise within the energy and house-buildingindustries, enabling knowledge transfer or improving access tothe grid for small-scale generators. In addition it does little tostimulate public demand for renewable energy, reduce invest-ment costs and risks for small-scale generators, ESCOs and house-builders (Table 2).

4. Thames gateway study

The Thames Gateway offers an excellent opportunity tostudy the effectiveness of the policy framework (as outlinedin Tables 1 and 2) in delivering DRES alongside the develop-ment of new homes in a growth region. Around 160,000 homeswere planned to be built in the Gateway by 2016. IncludingDRES in the development could help to reduce reliance onfossil fuel in the region. The stakeholders involved in thedelivery of DRES in the Gateway included: house-builders,local planning authorities, energy utilities and energy servicecompanies.

At the time of the study the LCBP, buy-back scheme, Renew-ables Obligation, target for 2016, code for sustainable homes andplanning system were the key instruments for encouraging thedeployment of DRES in new housing developments in theGateway. The study conducted interviews with four house-builders (one social housing provider),6 four energy utilities, twoESCOs and fifteen local planning authorities operating in ThamesGateway (Table 3) to determine whether these instrumentswere successful and where they needed to be strengthened orsupported. Secondary data (including local plans, planningapplication and approval data, technology installation data, etc.)was used where possible to verify the feed-back from theinterviewees.

4.1. Low-Carbon Buildings Programme

Those households opting to generate their own renewableenergy in Thames Gateway constituted a small group (source:interviews with utilities). This was confirmed by data produced bya range of agencies in the region. Data for the Eastern region

(footnote continued)

microgeneration is more complex and expensive than providing cycle parking or a

drying space, house-builders are perhaps more likely to opt for the easier option to

gain the same points.6 The group included four house-builders operating in the region, with

experience of including DRES in housing projects.

shows that between 1999–2008 only 260 kw7 of micro-technol-ogies had been installed in eastern England (of which ThamesGateway is a small part; Renewables East, 2008). Data from theSouth East region shows that for the Thames valley and Kentinstalled capacity of solar PV was very low (1370 kw in ThamesValley and 60 kw in Kent in 2007; see South East RenewableEnergy Statistics, 2009). Yet over £4 million had been committedthrough the LCBP to domestic installations in the regions includedin the Gateway.

The two ESCOs involved in designing and installing technol-ogies for individual households in the Gateway, reported difficul-ties obtaining planning permission for installations andconnecting to the grid. These reported difficulties may explainthe apparent implementation gap and slow deployment oftechnologies in Thames Gateway. The amount and stability offunding available was a further issue—the funds available tohouseholds for installation were very limited and difficult toaccess (source: interviews with ESCOs). Also the constant changesto the funding programmes created confusion amongst potentialcustomers as to what was available; source: interviews withESCOs).

All these factors restricted take-up of the LCBP grants. TheLCBP grants were not available to house-builders or ESCOs thusoffering no incentive to the meso-level producers to innovate andincorporate DRES in new developments. The onus was entirely onthe public to adopt new technologies, which without a majorcultural shift was unlikely to lead to rapid deployment (source:interviews with house-builders and ESCOs).

4.2. Buy-back scheme

The study found that the current buy-back scheme wasinsufficient to generate rapid deployment of DRES in the Gateway(source: interviews with utilities). Three out of the four energyutilities were offering ‘‘buy-back’’ schemes to those households

7 Compared with peak demand for a house in the winter which would be

around 20 kW.

Table 4Expenditure on building new green electricity resources in 2007.

Supplier 2007 spend per customer

Ecotricity £555.36

Powergen £17.28

Centrica £7.12

npower £3.89

EDF energy £3.55

Scottish power £2.63

Green energy UK £0.00

Good energy £0.00

Scottish & Southern energy £0.00

Source: Ecotricity (2007)—compiled using Ofgem, BWEA; Enviros 2005 statistics.

J. Williams / Energy Policy 38 (2010) 7604–76137610

generating their own renewable energy. They explained that theprice paid to generators per unit was inconsistent; it varied withfluctuations in market price, which lengthened pay-back periods.This acted as a major disincentive to households consideringinstalling DRES (source: interviews with utilities, ESCOs).

The public were also deterred from installing individualsystems by high transaction costs (connection, sourcing technol-ogies, obtaining planning permission, finding companies tomaintain systems) and low economic returns (source: interviewswith ESCOs). The buy-back mechanism was seen as an improve-ment on the previous system but insufficient to generatesignificant interest amongst the public (source: interviews withutilities, ESCOs). Greater financial reward (through the introduc-tion of the FIT for example) or lower transaction costs (greaterinvolvement of ESCOs in implementation and operation) mightencourage more speedy deployment. A switch in emphasis fromincentives offered to the public to producers at the meso-levelmay help in this respect.

4.3. Renewables Obligation

The Renewables Obligation encouraged some utilities todevelop their capacity to generate renewable energy. This resultedin the introduction of green tariffs. However, customer take-upof the green tariffs was low (source: interviews with utilities).This is supported by research completed by Diaz-Rainey andAshton (2008) which suggests that only 340,000 customers havegreen tariffs in the UK, constituting about 1.5% of the customerbase.

For the majority of customers price was the key factorinfluencing choice and green tariffs were seen to be expensive,hence the low take-up (source: interviews with utilities, ESCOs).

Thus the market for green energy is currently very under-developed and is unlikely to drive innovation in the industry or anincrease in renewable energy capacity. This problem has beenfurther exacerbated by the wide variation in definition of a greentariff which includes various off-set mechanisms and forms ofdouble-counting. One ESCO interviewed suggested that inade-quate product information reduced customer confidence in theproduct resulting in fewer sales.

In addition, a very small proportion of the green tariffs arebeing spent by the main utilities on building new sources of greenelectricity. Data provided by Ecotricity (2007) showed thatgenerally less than £10 per customer per year was spent ondeveloping new sources of green electricity (Table 4). Thusinvestment by the utilities in new infrastructure to deliver agreen energy supply is very low. Greater controls over whatconstitutes a green tariff and how the revenue raised by the tariffis spent is needed if this mechanism is to deliver more renewableenergy.

The RO may attract new energy generators into the marketincluding house-builders and smaller ESCOs. The two ESCOsinterviewed mentioned the difficulties they had in accessingfunds to finance DRES projects. They had also encountereddifficulties in obtaining power purchase agreements8 whichincreased risk and limited potential for investment. Lack ofavailable information on fuel markets and supplies also made itdifficult to identify appropriate energy strategies or to obtaininvestment. However, the ESCOs were interested in providingDRES for larger housing and mixed-use projects in the Gatewayparticularly if more operational subsidies were introduced.

8 A Power Purchase Agreement (PPA) is a legal contract between an electricity

generator and a purchaser of energy or capacity (power or ancillary services). Such

agreements play a key role in the financing of electricity generating assets.

The option of house-builders acting as energy generators wasexplored with one private sector house-builder who had experi-enced being responsible for installing, operating and maintaininga low-carbon energy system (generating heat and power).According to the house-builder the transaction costs outweighedthe potential financial benefits. The house-builder encountereddifficulties sourcing appropriate technologies, buying in relevantexpertise and connecting to the grid. In addition the cost to thehouse-builder of financing DRES was high due to the riskassociated with relatively new technologies. The house-builderhad also experienced a lack of investor interest in funding DRESfor the development, which was attributed to perceived lowreturns. Thus the house-builder had found that investment inDRES in one-off large-scale housing developments was risky.

High transaction costs and low financial returns from sellingthe energy reduced the house-builders interest in acting as agenerator. For this option to become attractive to the house-builder the financial rewards would need to be greater. A reliablerevenue stream (possibly achieved through the introduction of afeed-in tariff) and subsidisation of the capital cost mightencourage house-builders to become generators. However, whenasked to comment on this the house-builder said that inadequateexpertise and supply chains within the house-building industrywould still need to be addressed if they were to become energygenerators.

The social housing provider did demonstrate some interest inbecoming an energy generator, explained by the financial savingsthat he could make during the operational phase of thedevelopment (i.e., the removal of split incentives). The threeprivate sector house-builders interviewed were not interested inbecoming energy generators because of the costs involved, therisks and lack of relevant expertise. They wanted to shortendevelopment time-lines and leave the site as quickly as possible.A preference for energy solutions to be provided by energycompanies was strongly emphasised by this group. This might bebest resolved through partnerships between house-builders andthe energy industry. A good example of this is provided by BarrettHomes who has formed partnerships with energy companies(including E-ON and Utilicom) to provide low-carbon solutions fornew housing developments.

4.4. 2016 target and code for sustainable homes

According to the four house-builders interviewed the 2016target and code had not offered sufficient incentive for inclusionof DRES in new housing in Thames Gateway, although a fewdemonstration projects did exist. The transaction costs to thehouse-builder of incorporating DRES were too high and benefitstoo low. They highlighted the need to develop in-house expertiseor hire consultants; problems identifying sustainable supplychains for appropriate technologies; difficulties finding companies

J. Williams / Energy Policy 38 (2010) 7604–7613 7611

to maintain and operate energy systems long-term as being thekey transaction costs. Lack of market demand and governmentsubsidy provided no incentive for overcoming those transactioncosts.

The house-builders confirmed that further intervention wouldbe needed to deliver DRES as part of the new house-buildingprogramme. Their comments suggested that the incorporationof DRES in new housing could only be driven by the market, directcapital subsidies or tighter regulation. One private sector house-builder commented:

‘‘If the public aren’t prepared to pay the cost of microgenera-tion, no subsidies are offered to house-builders to coveradditional costs and there is no legal obligation for its inclusionin new developments, there is no incentive in my opinion toincorporate microgeneration into any new housing schemes atthis stage’’, (private sector house-builder interview).

The house-builders favoured the use of building controls todeliver DRES in new developments, as this would reduceuncertainty in the planning system, speed-up approvals and thedevelopment process. It would reduce charges on loans for thedevelopment to the house-builder. Thus introducing tighterbuilding controls could also produce a financial incentive as wellas provide greater certainty.

Clearer guidance on how to achieve the zero-carbon target wasdeemed to be lacking by the house-builders. They wanted a moreprescriptive approach, which provided clear guidelines for zero-carbon homes, and enabled them to deliver housing without fearof rejection by LPAs. They also highlighted that accreditationsystems for technologies, suppliers and ESCOs would be integralto delivery. They suggested that more formalised training withinboth the house-building and energy industries (or at least betterknowledge transfer networks) were needed to disseminateessential expertise more widely, to increase awareness of theoptions for delivering zero-carbon homes.

4.5. Planning

In the absence of regulatory control or adequate financialincentives, planning is crucial for encouraging DRES in newhousing developments in the Gateway (through the enforcementof the ‘‘Merton rule’’, code for sustainable homes, creation of low-carbon zones, zero-carbon projects and energy action areas).However, the study showed planning as a tool for interventionwas problematic for a number of reasons. It found planning policywas open to a range of interpretations which reduced certainty forinvestors and house-builders. Planners are influenced by a rangeof competing demands placed on local authorities. The planningprocess is affected by a lack of awareness amongst decision-makers and is subject to interference from local politicians. It alsorelies on the private sector to deliver the infrastructure neededwhich is only effective when there is sufficient market demand.

Table 5Local approach to DRES in Thames Gateway by regional authority.

GLAa

LPAs with general renewable energy policy (%) 71

LPAs with Merton rule included in development plan (%) 71

LPAs with renewable energy champion (%) 86

LPAs with officers adequate expertise (%) 100

LPAs with elected members adequate expertise (%) 43

Source: Survey of LPAs in Thames Gateway.

a GLA ¼ Greater London Authority, EERA ¼ East England Regional Authority, SEERA

4.5.1. Interpretation and implementation

The interviews with planning officers working in 15 localauthorities in Thames Gateway and scrutiny of their local plans,revealed remarkable variation in their approach to DRES (Table 5).Overall 65% of the local planning authorities (LPAs) in theGateway had adopted a generic policy supporting renewableenergy. These policies reflected the national and regional targetsset for renewable energy (i.e., 10% of electricity supply will comefrom renewable energy by 2010). Local plans did not identifysectoral targets or specific actions for achieving those targets.However, approximately one third of the LPAs in the Gateway hadintroduced the ‘‘Merton’’ rule into their local plan (almost all werefound in Greater London—71%). Outside Greater London very fewLPAs adopted policies specifically designed to ensure DRES in newdevelopments, including the ‘‘Merton rule’’.

Interpretation of national planning guidance on DRES was verydifferent in LPAs outside London. The planning officers inter-viewed suggested several possible causes. Firstly that competingdemands (particularly to provide affordable housing and processapplications quickly for new developments) placed on LPAsreduced their willingness to require the delivery of DRES in newhousing developments. Secondly, that guidance from Governmentwas unclear and open to interpretation specifically in terms ofwhich of these conflicting goals was most important (i.e., theinclusion of DRES in new development, the provision of affordablehousing, speedy planning process, conservation of character, etc.).Thirdly, lack of investment in training, tools or technical staffneeded for implementation within LPAs reduced willingness tointroduce targets in the local plan which would prove difficult toenforce. Fourthly, a lack of local political support for DRES(resulting from lack of awareness amongst councillors and publicopposition) diminished the LPAs willingness to enforce policiesfor DRES in new developments or even to include them in thelocal plan.

Local planning authorities wanted greater clarity on theprioritisation of DRES at a national and regional level to enableinclusion of suitable policies and enforcement at a local level. Theinclusion of a requirement for 20% on-site renewable energygeneration in the London plan gave a clear signal to LondonBoroughs of what was required at a local level. This was reinforcedthrough strategic development control decisions made by theGLA. However, even with clear guidance and strong leadership at aregional level some local authorities implement the policy in avery piecemeal manner largely because of other competingdemands, particularly for the provision of affordable housing.

4.5.2. Competing demands

The planning system is expected to deliver a number ofeconomic, social and environmental development objectives. Thismakes deciding what conditions to place on permissions for newdevelopment very complicated. The decision largely rests onhow the planner and local politicians prioritise the differentdevelopment objectives. Energy tends to be lower on the list of

EERA SEERA Average

50 75 65.5

0 25 32

25 50 54

75 50 75

75 50 55

¼ South East England Regional Authority.

J. Williams / Energy Policy 38 (2010) 7604–76137612

priorities which is reflected in implementation (source: inter-views with LPAs).

LPAs compete with each other for larger development projects.This influences their willingness to impose additional conditionsfor DRES on house-builders. This problem appeared particularlyacute in the more deprived areas in the outer Gateway (i.e., Kentand Essex). Here LPAs said they were reluctant to place additionalconditions on house-builders for DRES but preferred to focus onthe provision of much needed affordable housing and transportinfrastructure (source: interviews with LPAs).

Finally approval times and the inclusion of DRES also appearedto be in conflict. LPAs in the Gateway found that applications forschemes that included DRES took longer to determine than thosewithout. This slowed the turn-over of permissions and interferedwith LPAs achieving planning approval targets. It also increasedthe cost to the house-builder as the development process waslengthened, making projects with DRES very unattractive. InGreater London the GLA managed to reduce the length of approvaltime by employing staff with relevant expertise to assist plannersand introducing the ‘‘low-carbon designer’’9 (source: interviewswith LPAs).

4.5.3. Lack of expertise amongst decision-makers

Lack of expertise amongst decision-makers has often beenidentified as a barrier to implementation. However, the studyestablished that three-quarters of the LPAs in the Gateway hadofficers capable of determining planning applications whichincluded DRES (Table 5) but this was not reflected in implementa-tion (source: interviews with LPAs). Councillors are also involvedin determining planning decisions and thus have a key role to playin the inclusion of DRES in new housing schemes. Over half of theLPAs interviewed in the Gateway reported that councillors hadadequate expertise to support DRES. However, the councillorsinterviewed in the outer Gateway said that public opposition toDRES (usually on aesthetic grounds) and other developmentpriorities limited their support when schemes were presented toplanning committees. Some councillors also said that theproblems associated with new technologies (particularly micro-wind, micro-biomass and PV cells) in terms of cost, quantity andstability of energy supply also undermined political support forDRES. These findings suggest that it is not necessarily a lack ofexpertise amongst key decision-makers which is slowing thedeployment of DRES.

4.5.4. Local leadership

Just over half (54%) of the local planning authorities (LPAs) inthe Gateway had an energy champion, although there was greatvariation throughout the Gateway (Greater London 86%, East ofEngland 25% and South East of England 50%). The study found thatLPAs with energy champions took a more proactive approachtowards DRES in new developments. There was a positivecorrelation between the adoption of the Merton rule in the localplan and the presence of an energy champion in a local authority.Those authorities without energy champions lagged behind interms of policy (source: interviews with LPAs and local plans).Planners working in authorities with energy champions appearedto be more motivated to deliver DRES and more knowledgeable ofthe options for delivery. Developing renewable energy wasprioritised in the local plan and community plan. Appropriatetraining was provided for planners and councillors to raise their

9 Low-carbon designer an electronic tool created for house-builders and

planners to determine the most appropriate microgeneration and energy efficiency

options for new developments. This technical support gave planners and house-

builders a clearer understanding of what was required in new developments in

order to conform to the microgeneration target set in the London Plan.

awareness and technical expertise to enable implementation(source: interviews with LPAs).

Interviews and interrogation of secondary data (i.e., theLondon plan, the GLA act, planning application and approvaldata) showed that the London Mayor was the most activechampion for DRES in the Gateway. The Mayor included a specifictarget for microgeneration in the London Plan (2004). The targetwas a material consideration for all planning authorities indetermining applications for new development and formulatinglocal plans in Greater London. The GLA Act 1999 also gave theMayor the power to refuse applications of strategic importance10

if they did not comply with the London Plan. The Mayor activelyused this power to ensure that 20% microgeneration was includedin all strategically important schemes. This provided a clearframework for local planning authorities in London and demon-strated the Mayors support for DRES.

The Mayor also invested in appropriate training for localauthority planners, councillors, house-builders, built environmentprofessionals throughout Greater London to raise expertise andfacilitate wider deployment of DRES. He invested in a tool – ‘‘thelow-carbon designer’’ – to speed-up planning applications withDRES. The Mayor recruited technical staff to advise planningofficers on DRES options for new development.

The Mayor also sought partnerships with potential investors inDRES, including British Gas and EDF. Through these partnershipsthe GLA hoped to develop DRES either through private financeinitiatives or public–private partnerships. This could provide off-site generation options for new developments. As part of thisaction the mayor commissioned a study of the existing districtheating systems in London to determine the potential for DRES,the introduction of biomass/CHP and where new developmentscan link up to an existing district heating system. This formed aninitial attempt at a more strategic energy plan. According to thehouse-builders, utilities and ESCOs interviewed, such a resourcecould be very helpful for those house-builders and energycompanies considering DRES as it identifies locations where withlittle investment existing networks could be extended to newdevelopments.

The planners interviewed suggested that strong leadership,strategic planning and financial support for renewable energyfrom the Mayor had been influential in delivering DRES in Londonboroughs but deployment was still slow. The London experience(which represents best practice in the Gateway) suggests that forDRES to be incorporated into new housing developments asstandard by 2016 will require instruments that are more effectivethan the current planning system. Indeed the study demonstratedthat the planning system was unlikely to deliver the degree ofinnovation needed in the house-building industry.

5. Conclusions

The study suggests that the policy instruments operating inthe Gateway would be insufficient to deliver DRES in all newhousing developments. Economic incentives directed at producers(house-builders and energy industry) rather than consumerswould be needed to subsidise capital and operational costs ofDRES at least until the market matures. Increasing fundingavailable through the capital grants programmes, particularlytargeting house-builders, could encourage the deployment of

10 According to the Town and Country Planning (Mayor of London) Order 2000

strategic development in terms of housing provision constitutes development

which (a) comprises or includes the provision of more than 500 houses, flats, or

houses and flats; or (b) comprises or includes the provision of flats or houses and

the development occupies more than 10 ha.

J. Williams / Energy Policy 38 (2010) 7604–7613 7613

DRES. The introduction of the feed-in tariff (if properly designed)could also encourage deployment and the formation of neworganisations (ESCOs) to deliver support services for DRES.

Tighter regulation directed at encouraging more rapid innova-tion in the energy and house-building industries is also needed.Currently both house-builders and utilities have tended to opt forconservative strategies to the deliver the products demanded by aconservative market. For house-builders and utilities there doesnot appear to be a rational economic argument for either theinclusion of DRES as part of new housing schemes or the provisionof DRES over a centralised renewable energy supply. To tip thebalance the study suggests that regulation could be used to:improve grid access for smaller operators; clearly define greentariffs; ensure that the revenue generated by green tariffs is spenton increasing renewable energy generating capacity; to enforcethe inclusion of DRES in new development. Regulation andeconomic incentives could be used in tandem to encourage theinclusion of DRES in new housing development, however furtherchanges within both industries will be needed to deliver it.Partnerships between the industries, knowledge transfer withinthe industries and accreditation systems for components, pro-ducts, processes and suppliers are required.

The current low intervention strategy adopted by the Govern-ment is unlikely to deliver decentralised renewable energy systemsin new housing development. Although the policy frameworkintroduced by the Government appears to be fairly comprehensiveit lacks teeth (i.e., regulatory and economic) and needs refocusing todeliver innovation in the energy and construction sectors in a veryshort time period. Well designed instruments, tighter regulationand sufficient financial support focussed on producers (house-builders and utilities) would be more successful. In addition,accreditation schemes and systems for knowledge transfer withinand between industries are essential.

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