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The Topic: Funding decarbonisation UTILITY WEEK | 16TH - 22ND SEPTEMBER 2016 | 15 O ne of the problems with government policy- making is that it oen tries to do too many things at one time, with the same policy instrument. For example, the Energy Company Obligation (Eco) was being used to "tax" the big six, tackle fuel poverty, make homes more energy efficient, and reduce carbon emissions. As a result, in my opinion, it never really suc- ceeded. It did a little, with an awful lot of money. Much better to target a policy with greater precision to achieve the desired outcomes. Rather than suggest- ing that the Renewable Heat Incentive is the best tool to promote renewable product uptake, as a means of reduc- ing carbon emissions, why not simply target carbon emissions? Anyone can be an armchair critic, so what would I do instead? I'd begin by being very clear on what my objec- tive was. Reducing bills? Decarbonising heat? Tackling fuel poverty? They are all worthy objectives, all merit action, but I'd pick one. So let's prioritise decarbonising heat. I would then ask how I could get the best yield from my resource. My aim is to reduce carbon emissions from heat, not pro- mote or seed-fund a technology. So I'd aim at the 85 per cent of households who are on the gas grid and ask how the gas consumed can become greener. The technology is there, the infrastructure may need investment, but reducing the carbon emitted from the vast majority of homes would be a real prize for policymakers. If my aim was to tackle affordability, especially fuel poverty, the stats suggest that on-gas grid fuel poverty is lower than off-grid and the fuel poverty gap is greater off grid too. So clearly, I'd direct my attention there. Extend- ing the gas grid over and above the current RIIO obliga- tions would be a straightforward approach. Using Eco funding to pay for the heating system installation while the GDN connects the pipes requires less effort in finding worthy recipients of support, while genuinely targeting a key group – not having a gas central heating system is a prominent indicator in fuel poverty analysis. Mike Foster, chief executive, Energy and Utilities Alliance Energy and Climate Intelligence Unit says a similar output could be provided by four large windfarms or just three new intercon- nectors. The same peak capacity could be provided by between six and ten new gas- fired plants at a cost of just £1.6 billion. Improvements in energy efficiency could also "negate the need for at least two-fihs of Hinkley's electricity". However, Stuart Bradley, strategy man- ager for offshore renewables at the Energy Technologies Institute, told Utility Week the UK still needs "good baseload power" and the idea that renewables and storage can replace Hinkley needs "a bit more work". National secretary for the GMB union, Justin Bowden, said it was "wishful think- ing" to believe alternatives could effectively replace Hinkley: "Until there is a scientific breakthrough on carbon capture or solar storage, then nuclear and gas are the only reliable, and cost-effective, shows in town." According to Tom Greatrex, chief execu- tive of the Nuclear Industry Association, interconnection, demand management and storage might all make contributions in the future, but unless we are "content to lock in additional carbon emissions and rely on importing [fossil fuels]", then new nuclear is needed right now. The stumbling block has been money. The upfront capital costs required by EDF and the Chinese were deemed incredibly high, with the risk surrounding the return on investment also deemed too great. A guaranteed income for 35 years was agreed through a CfD at £92.50/MWh (fall- ing to £89.50 if Sizewell C is built), which turned the risk equation around. This trans- formed a revenue risk into a big opportunity to boost profitability. At the same time, this brings on much-needed low-carbon capacity, and is another step towards the low-carbon economy the government needs to develop in order to meet the UK's climate change targets. Almost half the UK's energy use and a third of its carbon emissions come from heating. Heat networks are one way to slash this. The important role they could play was recognised by the government in last year's Budget when they received £320 million worth of capital support over the next five years. This investment is expected to fund 200 heat networks and leverage £2 billion of private investment. But for the industry to develop unaided, a solution to the problem of how to attract low-cost investment must be found. The Association for Decentral- ised Energy says that to attract investors the industry needs a market framework to put it on a level playing field with electricity and gas networks, which are bank- able assets offering stable returns. Its three main proposals include equal business rates, a guaran- tee on future volume, and for the role of the Heat Network Delivery Unit to be extended to maintain a project pipeline. NEXT TOPIC: COMPETITION The next Topic will look at the different approaches to competition across the utility arena and the new markets that are being opened up. This will focus on retail and upstream competition being developed in the water market, as well as the on and offshore transmission markets being developed by Ofgem. in the support tariffs. The Renewable Energy Association has said tariff levels may no longer be viable in the second half of 2016. HEAT NETWORKS According to a study by Imperial College London, the solution to decarbonising heat is a mixture of three approaches: repurpos- ing gas grids; heat networks and electrification. A combination of the three will be necessary to deal with the variation in geography, housing types and occupancy across the country. 70 60 50 40 20 20 10 0 2010 2011 2012 2013 2014 2015 2016 Speculative Projects/year Projects/year (cumulative) 1 1 2 4 26 50 65 Viewpoint: Policy needs to be better targeted – trying to do everything at once accomplishes nothing 21 Biomethane projects per year 2010-16