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U.K. Could Save $17 Billion a Year by Cutting Power Demand

The U.K. could wipe 10.9 billion pounds ($17 billion) off its annual energy bill by 2030 with the introduction of incentives designed to cut electricity demand during the switch to a low-carbon market, a study showed today.

The savings in the form of so-called negawatts, a theoretical unit of power representing energy saved, would reduce the need to build more wind farms, nuclear plants and fossil-fuel power stations, according to environmental policy group Green Alliance and WWF.

The measures should be introduced into a bill the government plans before the end of the year to overhaul the U.K. energy market, so that the “huge potential” for cutting power demand by as much as 40 percent is realized, the groups said.

“Securing negawatts, rather than simply building new generating capacity to meet growing electricity demand, is much cheaper,” the study said. “Paying for power stations may force consumers to overpay for decarbonization with more new renewable developments, fossil-fuel power stations with carbon capture and storage and nuclear power stations than are needed.”

U.K. Energy Minister John Hayes said today in an interview that managing electricity demand “has got to be a much bigger feature” of government policy, and that he’s working to include measures in his department’s energy bill, planned for this fall.

Guarantee Prices

The government on May 22 published a draft of the bill, designed to attract the 110 billion pounds of investment needed to replace ageing power stations and upgrade the grid by 2020. The proposed law lays out plans to guarantee prices for low- carbon electricity and pay producers for providing back-up supply when wind, solar and marine power fall short.

“Demand management needs to have a greater focus than it’s had previously, including in this bill,” Hayes said. “There’s the area around how you could financially incentivise both consumers and producers in respect of demand management. Rather than focusing arrangements wholly or solely around production, you could start to tie that to consumption in a financial way.”

In a separate e-mailed statement, Hayes’s department welcomed the Green Alliance report and said it will start a consultation this fall on electricity demand reduction.

The main mechanism proposed by the government to spur the development of wind and nuclear plants is the so-called feed-in tariff with contracts for difference, which guarantee a long- term price for generating power. If the market rate is lower, the government ensures the generator gets the difference. If the price exceeds the tariff, producers return money to consumers.

Efficiency Measures

Projected U.K. electricity demand of 411 terawatt-hours in 2030 could be cut by 155 terawatt-hours, or about 40 percent using energy efficiency measures, according to a draft report posted in July on the website of the Department of Energy and Climate Change. Current policy captures just 54 terawatt-hours of that potential, according to the study.

“Energy efficiency is the obvious win-win in the upcoming reform of our electricity market; keeping a check on rising energy bills while also reducing our dependency on fossil fuels,” WWF-U.K. Chief Executive Officer David Nussbaum said in an e-mailed statement. “Thus far the draft energy bill has failed to recognize this gilt-edged opportunity, and energy efficiency is conspicuous only by its absence.”

Most Suited

London-based Green Alliance and WWF’s U.K. branch in Godalming, south of the capital, studied three measures to reward energy efficiency and concluded that a feed-in tariff that pays projects for electricity savings on a per kilowatt- hour basis, was the tool most suited to Britain.

They recommended the level of the incentive should be lower than those offered for renewable energy and nuclear projects to ensure they lead to savings in the power system.

The other measures examined were a capacity market where energy-cutting projects could bid alongside power suppliers for hourly slots, and an obligation for electricity suppliers to demonstrate annual savings in their customers’ energy use.

“An electricity-efficiency FiT is the best option to ensure that electricity market reform delivers the significant potential to reduce electricity demand across the economy,” the groups wrote. “It is vital that the bill is amended to allow for the introduction of energy efficiency support measures, so that an electricity-efficiency FiT can be introduced.”

To contact the reporter on this story: Alex Morales in London at amorales2@bloomberg.net.

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net.

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