Why the UK should introduce payments for electricity ‘negawatts’

British energy efficiency policy to date has mainly focused on domestic insulation, and rightly so: we have a particularly leaky housing stock and heating costs form the bulk of most household energy bills. But we also need to ensure we use electricity efficiently.

This is particularly important since electricity bills are predicted to rise as we replace our aging electricity system, and as the fossil fuels we use in power stations become more expensive. The UK’s service and industrial sectors are increasingly reliant on electricity and we need to make sure they are as lean as possible so they can emerge successfully from the current recession.

The opportunity for increased electrical efficiency is vast. McKinsey estimates that as much as 40 per cent of our use of electricity for existing services could be reduced by 2030. Yet existing policy is only expected to deliver a third of this potential. You’d therefore assume that the government’s current overhaul of the electricity sector would focus heavily on measures to reduce demand.

The missing half of the energy bill
Unfortunately, this is not the case. The government’s draft Energy Bill, which will put in place the reforms, overlooks this crucial part of the equation. It explores how we can secure new sources of low carbon electricity but has nothing in it that will help us to reduce our use of electricity.

As our new infographic shows, we should take this opportunity to introduce a new policy to reduce demand for electricity: an electricity efficiency feed-in tariff (FiT) that would provide a stable, guaranteed revenue stream to any project which could reliably demonstrate it saved electricity, ie produced  ‘negawatts’.

The feed-in tariff would stimulate a new market in saving electricity. It would be a simple mechanism open to anyone. The money could go direct to new entrants who could compete with each other to find innovative ways to save electricity. These new firms would have the right expertise to identify saving opportunities and install and monitor new equipment, taking the hassle factor out for time-poor households and businesses.

Saving consumers money
The electricity efficiency FiT would be funded from the same pot of money as that given to low carbon power generators, making supply and demand compete fairly with each other. As saving a unit of electricity is typically significantly cheaper than supplying an additional unit, this would reduce the cost to the end consumer.

Some argue that the current reform proposals are complex enough and any further interventions will only create further hiatus. However, given the huge prize at stake, it is vital that we get the reforms right so they deliver the electricity system we want.

Without policies to reduce demand, the risk is we will overpay for new electricity supply and consumers lose out.

See our infographic The power of negawatts and read our analysis of the options to reduce energy demand: Creating a market for electricity savings

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