Demand Policies: Can Energy Services companies deliver low carbon new build homes?

Sharad Saxena, Oxford University Centre for the Environment

The UK has set for itself an ambitious target of reducing carbon dioxide emissions by 60% by 2050. To achieve this target, carbon reductions would need to be made by all sectors including the residential sector which presently accounts for 28% of CO2 emissions.

Energy Services Companies (ESCOs) could address the barriers to energy efficiency and microgeneration through design build, finance, operation and maintenance provision (DBFO). Energy services contracting will only be chosen where the reduction in cost of supplying energy services can more than offset the additional transaction cost compared to conventional supply.

Previous work has identified three broad models of energy services: the Facilities Management or performance contract model for business commercial and public sector customers; the Community Model where decisions are taken on behalf of a group of customers (predominantly householders) in the same location; and the Supplier model  where existing energy suppliers could evolve their offer to domestic customers.

The Community model in new build has particular interest, in that it offers a viable route for the development of ESCo services to households. The paper explores the social, technological, economic and policy issues (a STEP analysis) that will play a key role in the emergence of ESCOs in new build housing in the UK.

Key findings are:

  • ·      Purchasing new build is a very different purchasing decision to purchasing an existing home, and an A rated home guaranteed by ESCO services could provide a key part of the marketing offer;
  • ·      The changing building regulations and planning framework may require significant microgeneration which, it is argued, are best delivered through ESCos
  • ·      housing developers may be attracted by being able to contract out the whole energy infrastructure;
  • ·      A combination of information, incentives and regulation could transform the market for ESCos in new build
  • ·      London appears to be a key market within the UK, and in particular in dense build (eg flats) the whole development may be on a communal solution. Economic analysis shows the conditions under which it would be cost effective to develop this approach.

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