Pilot Analysis of the Government's New Green Deal Initiative

Transcription

1 Penwithick Green Deal Pilot project: Green Deal and costbenefit analysis Prepared for: The BRE Trust January 2013 Report number:

2 1 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis Prepared by Name Richard Hartless Position Associate Director, Garston Signature Reviewed by Name Colin King Position Associate Director, Wales Date 31 st January 2013 Signature BRE Wales & SW Ethos Kings Road Swansea Waterfront SA1 8AS T + 44 (0) F + 44 (0) E walesenq@bre.co.uk This report is made on behalf of BRE. By receiving the report and acting on it, the client - or any third party relying on it - accepts that no individual is personally liable in contract, tort or breach of statutory duty (including negligence).

3 2 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis Executive Summary Cornwall Council, with their delivery partner Ocean Services, are undertaking a Green Deal retrofit pilot project in the village of Penwithick, near St Austell. BRE are acting as Technical Advisors to the project team to help achieve their objectives. During the first phase of the pilot, initial modelling was carried out by BRE using full SAP (the Government s Standard Assessment Procedure for dwellings) on all potential measures for the dwelling types in Penwithick to prioritise which were most cost effective. The most common measures, such as loft insulation and cavity wall insulation, were demonstrated to have acceptable payback periods and would therefore inevitably be viable under the Green Deal regardless of regional and occupancy influences. This study investigates more costly measures such as External Wall Insulation (EWI) and Air Source Heat Pumps (ASHPs) in more detail to see whether different modelling tools and/ or assumptions would suggest such measures to be more or less viable under the Green Deal. The approach used here adopts the Green Deal and golden rule framework developed by DECC. This includes the lifetime and the in-use factors assigned to EWI and ASHPs. The Green Deal assessments undertaken here reflect the likely current market in terms of loan periods and interest rates and use capital costs as provided by Ocean services. EWI as applied to the solid wall and Cornish properties will not meet the Green Deal golden rule. This is not an unexpected result as it is in accordance with the experience of others. The key issue is the high cost of EWI. To insulate the Cornish property is proportionately lower than the solid wall property and so is closer to meeting the golden rule. A fall in the cost of EWI will facilitate this but the cost reductions are of the order of 25 to 60% (depending on heating fuel) which is probably not going to be readily achieved. The solid walled property will require even higher cost reductions. Reducing the interest charged on the Green Deal loan will also help but again the interest rate required (would need to have an APR well below 3%) is probably far lower than the likely market rate. A fall in the EWI in-use factor (currently 0.33) will also help but this will only be addressed slowly as evidence and experience is gained. Therefore, any shortfall will need to be made up through the ECO if the householder is eligible or funding provided directly by the householder (either an alternative loan or their own capital). Interestingly, the different occupancy patterns modelled do not have much impact on the annual energy and hence cash savings. The results are more dependent on the heating fuel used. Cash savings are largest for those houses heated with the more expensive fuels such as LPG and electricity. There are similar findings with the three properties improved using ASHPs. Again, the golden rule is not met in any of the cases. There is a similar trend of savings having a greater dependency on original fuel type compared to occupancy, although there is a noticeable higher saving for the 4-person family occupancy, presumably because of the greater number of persons. The ASHP savings are very varied: the properties heated by coal and wood have much lower savings compared to those with portable electric heating. This simply reflects switching from a cheaper fuel to a more expensive one. For the properties improved with ASHPs there is scope for RHI payments. Based on the proposed framework and the prediction of deemed heat by RdSAP the annual payment is about 1000, which over the period during which the RHI is paid will address the shortfall in the Green Deal loan, although it cannot be integrated into the loan itself.

4 3 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis The total carbon savings arising from EWI are greater than those achieved using ASHPs simply because of its longer lifetime. The carbon savings are greatest for the coal fuelled properties as this fuel has a high emission rate. At the other extreme, the carbon savings from wood heating are very low for the solid wall property as wood has a very low carbon emission rate. In one case there is actually a small increase in carbon emissions (i.e. a negative saving) after improvement because although there are substantial energy savings we are substituting a less carbon intensive fuel with a more intensive one (electricity). Although the electricity carbon emission rate is predicted to fall, it will not fall sufficiently during the lifetime of the ASHP. The cost-benefit (NPV, net present value) analysis undertaken here builds upon the Green Deal framework but also considers changing fuel prices, varying carbon emissions rates and carbon prices as used in the context of government policy appraisal. The analysis also includes maintenance costs of the measures plus likely payments expected through the proposed domestic Renewable Heat Initiative (RHI). The NPV calculations closely mirror the findings of the golden rule assessments. Specifically, where a measure is cost-effective it also tends to meet the golden rule. In most cases the measures are not costeffective (i.e. they have negative NPVs). Again, there is little dependence on occupancy patterns as the other factors that are introduced into the NPV calculation (e.g. discounting, fuel prices etc.) predominate. In the Cornish property the installation of EWI is actually cost-effective for an expensive fuel such as electricity particularly where future prices rises are factored in. The installation of the ASHP is less cost-effective compared to EWI as a consequence of its shorter lifetime. Again, occupancy does not appear to have that much impact except for a house originally with portable electrical heaters where the cost-effectiveness improves with each occupancy pattern and, for the 4-person household, the ASHP is actually just cost-effective. The impact of RHI payments is significant. Such payments significantly improves the situation such that an ASHP is cost-effective for a house heated by coal or portable electrical heaters and is only slightly cost ineffective for the other two fuels. This is largely a theoretical exercise but it has provided some very useful insights into the financial position in Penwithick. The next phase of the project will generate actual energy and cash data against which we can test the predictions presented here. BRE acknowledge the ongoing support of Cornwall Council during this research and give thanks for allowing use of the Penwithick pilot project as the basis and data source for this study. The longer term monitoring programme for the dwellings that the Council has instigated will also be an asset to this ongoing research. Also, BRE wish to thank Ocean Services, who have carried out the refurbishment measures on the dwellings and provided key information on the installed measures and their costs.

5 4 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis Contents 1 Introduction 5 2 Approach to study Green Deal Cost-benefit analysis Data input and assumptions Green Deal assessment Cost-benefit analysis 11 3 Results Green Deal Energy savings Financial savings Carbon savings Cost-benefit analysis 21 4 Conclusions and recommendations 26

6 5 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis 1 Introduction Cornwall Council, with their delivery partner Ocean Services, are undertaking a Green Deal retrofit pilot project in the village of Penwithick, near St Austell. BRE are acting as Technical Advisors to the project team to help achieve their objectives. The purpose of the pilot is to determine which refurbishment measures are suitable for the various property types in the village (considered representative of Cornwall as a whole) and to investigate which offer the most benefits in terms of payback, cost savings to households and CO 2 emissions reductions. A financial analysis will assess how measures are likely to stack up against the Green Deal golden rule based on energy modelling predictions. Properties receiving measures will be monitored to assess the resulting savings in fuel bills in order to provide a sensitivity analysis for the energy modelling and financial assessment. During the first phase of the pilot, initial modelling was carried out by BRE using full SAP (the Government s Standard Assessment Procedure for dwellings) on all potential measures for dwellings in Penwithick to prioritise which were most cost effective. The findings were reported to the project team and the BRE Trust in May 2012 in the report Penwithick Green Deal Pilot Project: Selection of properties for refurbishment measures. The most common measures, such as loft insulation and cavity wall insulation, were demonstrated to have acceptable payback periods (<20 years) and would therefore inevitably be viable for the Green Deal regardless of occupancy influences. It is likely that some households will wish to consider less conventional measures, particularly for hard to treat homes, such as solid wall and system built dwellings and/or off-gas locations, including solid wall insulation (assumed to be externally applied in this study) and Air Source Heat Pumps. However, these are generally (currently at least) significantly more expensive measures and hence their viability under the Green Deal is less certain (or unviable within an acceptable period, as indicated from the above report). This study therefore investigates these more costly measures in more detail to see whether occupancy and behavioural factors would be likely to make such measures more or less viable. A follow-up report: Penwithick Green Deal Pilot Project: Comparison of various energy modelling tools was prepared in November A range of modelling tools were assessed including Reduced Data SAP (RdSAP), full SAP, PVSol for the assessment of photovoltaic (PV) systems and Design Builder, which allowed tailoring of occupancy patterns and behavioural impacts. The report determined that full SAP will generally give a more accurate representation of the dwelling and typically forecasts higher savings than RdSAP. However, the differences between the two tools are not likely to be great enough to influence the viability of key refurbishment measures such as EWI and ASHPs under the Green Deal. Design Builder modelling software was used to assess a refined selection of dwellings so that occupancy impacts could be analysed and compared with standard RdSAP results. The objective was to determine whether specifying key variables in the Design Builder models (rather than using the assumptions in SAP) would provide more accurate forecasts of energy usage and whether different household types would find measures such as EWI or ASHPs more viable as a result. Overall, despite variations that emerge across the various modelling tools assessed, the report suggested that in the majority of cases the capital cost of EWI and ASHPs would need to reduce or be subsidised by additional funding/ grants in order to encourage the mainstream uptake of these measures.

7 6 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis This report builds upon the modelling report and undertakes further financial analysis to assess what additional economic factors may also contribute (beneficially or detrimentally) to the occupancy impacts seen here.

8 7 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis 2 Approach to study This study looks at the viability of the installed measures under the current Green Deal framework and then extends this to understand the wider cost-effectiveness of the measures. 2.1 Green Deal The Green Deal concept is very straightforward and is based on the fact that the upfront capital cost of an energy efficiency measure is covered by a loan which is re-paid by the annual savings the measure produces. The loan is novel in that it is tied to the property s electricity meter rather than an individual; it can also be paid over an extended time period (up to 20 years) and should attract relatively low rates of interest, typically 6-8% APR. However, the size of the loan is limited by the golden rule which states that it cannot be greater than the annual saving the measure produces. As noted above, expensive measures such as EWI are likely to break this rule and so any shortfall has to be addressed by, for example: Funding from the Energy Company Obligation (ECO), if the householder is eligible, A separate personal loan taken out by the householder, or, Capital paid directly by the householder. In addition, the framework as proposed by DECC requires the Green Deal assessment of the energy savings use RdSAP and that this forms the basis of adherence to the golden rule. However, this assessment is overlaid by a tailored occupancy assessment to show how the changes will impact on the householder, which gives them better insight into their specific circumstances and whether they should take up a Green Deal loan. At the time of preparing the previous modelling report the occupancy assessment tool was not available and so the Design Builder model was used instead. Further, the Green Deal framework assigns a lifetime value to each measure as well as an in-use factor to reflect the gap between predicted and actual performance as a consequence of design and installation considerations 1. These values are on the basis of industry experience and monitoring. The in-use factors do not include reductions in savings that householders take through increased levels of thermal comfort to an extent this is addressed by the occupancy assessment. Microgeneration measures are eligible under the Green Deal and should also be able to receive energy cash back payments through FiTs for the electricity and the proposed RHI for the heat that they generate. However, such payments are not to be included in any golden rule assessment that focuses on the energy saving, but certainly they could be used by a householder to help make any loan payments. This report uses the Green Deal framework to assess the performance of the two selected measures (EWI and ASHP) as applied to each of the Penwithick house types for each of the fuel types modelled. Further specific details are given in the next section. 1 DECC How the Green Deal will reflect the in-situ performance of energy efficiency measures.

9 8 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis 2.2 Cost-benefit analysis The general approach to cost-benefit analysis used here builds upon the Green Deal framework. The upfront capital cost is offset by the annual fuel cost savings produced by the measure plus the financial value of the carbon saved. For the ASHP the likely RHI payment for the heat generated is also included. The RHI framework is still to be finalised but DECC s public consultation on it at the end of 2012 provides a helpful insight into the payment mechanism and the likely size of the tariff 2. All cash savings are discounted using the Treasury s discount rate over the lifetime of the measure. Given that fuel prices are likely to rise over the next few years this will increase future savings. Further, the value of carbon and CO 2 emission rates for each fuel, particularly electricity, will change over the next few years so these variations have also been included in the final modelling exercise. The fundamental data here was taken from the government s IAG toolkit 3 ; further details are given below. 2.3 Data input and assumptions The tables and graphs in this section summarise the data inputs and assumptions used in the financial assessment Green Deal assessment Table 1 shows the five unique dwelling types, the original fuel types present and the improvement measure modelled in this study. Further details on construction form, U-values etc. are given in the earlier report, but it should be noted that the dwellings provided with ASHPs were modelled with the insulation measures required by Green Deal assessment in order that they would qualify for an RHI payment this is the fabric first approach required by DECC. The table also shows the associated cost of the improvement measures provided by Ocean Services and the DECC figures for their assumed lifetime and in-use factors. 2 3 DECC. Renewable Heat Incentive: proposals for a domestic scheme. Can be viewed at: Interdepartmental Analysts' Group (IAG) Toolkit (

10 9 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis Dwelling type Fuel type Improvement measure Solid Cornish Timber Cavity Cavity bungalow Economy 7 Oil LPG Wood Coal Portable electric Economy 7 Oil LPG Wood Coal Portable electric LPG Wood Coal Portable electric LPG Wood Coal Portable electric LPG Wood Coal Portable electric Cost GD lifetime (years) In-use factor EWI 11, Cornish EWI (to ground floor) 4, ASHP 9, ASHP 9, ASHP 9, Table 1. Dwelling type, fuel type and improvement measure (cost, lifetime and in-use factor) The energy modelling was undertaken using RdSAP, and all calculated energy savings were reduced by the in-use factors to reflect their likely performance in practice. To mirror the Green Deal occupancy assessment process, the RdSAP energy consumption figures were compared to those arising from the five different occupancy patterns modelled using Design Builder. Table 2 summarises the form of each of the occupancy patterns which were derived from surveys at Penwithick:

11 10 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis No. Occupancy Profile Number of occupants Hours at home Mon-Fri Hours at home Sat-Sun 1 Employed person (work away from home) Retired single person Employed or self-employed couple (at least 1 person works away from home) 4 Retired couple Families (All categories, i.e. (assume working, not working, etc.) 4 in modelling) Table 2. Occupancy patterns To be consistent with the previous report the fuel prices from the SAP July 2012 update was used as set out in Table 3: Fuel Price per kwh CO 2 emissions (kg/kwh) Standard rate electricity 12.93p Peak rate Economy 7 electric 14.97p Off peak rate Economy 7 electric 5.37p Oil 5.02p LPG 7.12p Coal 3.64p Wood 4.19p Table 3. Fuel costs and CO 2 emissions factors (SAP July 2012 update) The Green Deal loan calculation was assessed over a 20-year period with an interest rate of 6% APR. It was assumed that the Green Deal loan re-payments were made monthly. The calculation was repeated for each of the dwelling and fuel types to see whether the golden rule was met and, if not, the size of the shortfall was calculated.

12 11 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis Cost-benefit analysis The cost-benefit analysis used the same core data from Tables 1 to 3 but all cash savings were calculated over the lifetime of the measure by applying the Treasury s discount rate of 3.5%. The approach was extended to include: Thermal comfort. This was not applied to the Green Deal calculations, but a further 10% reduction factor was applied to the RdSAP energy saving for the cost-benefit assessment. This was not applied to energy savings calculated using Design Builder as the occupancy profiles go some way to addressing the thermal comfort take-back. Changing fuel prices. This is not considered in the Green Deal assessment but can be evaluated using the predicted price changes from the IAG toolkit. Graph 1 below shows the normalised fuel prices for gas, coal, electricity and oil up to To obtain the actual fuel price in p/kwh for each year the normalised price was multiplied by the appropriate value from Table 3. The toolkit proposes high, central and low scenarios for fuel prices but for the purposes of this work just the central scenario was selected. Graph 1. Predicted fuel prices to 2050 Carbon price. Again, this is not considered in Green Deal assessment but represents an additional benefit. Unit values ( /tco 2 ) were taken from the IAG toolkit and then multiplied by the carbon saving in each year to give a cash saving which was then discounted.

13 12 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis Varying emission factors. The IAG toolkit also provides figures here and, of particular relevance, is the CO 2 emission factor for electricity which is predicted to fall in the long-term in light of the steps taken to de-carbonise the grid. This is shown in Graph 2: Graph 2. Predicted trajectory of electricity emission factor to 2050 RHI payment. This represents a cash benefit arising from the heat generated by the ASHP. The format of the domestic RHI has yet to be finalised but the recent DECC consultation proposes the basic framework. For ASHPs this is: - 20 years of heat to be paid over 7 years (curiously, the 20-year period for heat is greater than the 15-year lifetime for a heat pump assumed under Green Deal) - Tariff range: p/kwh. Maintenance costs. This is an annual or periodic maintenance activity to ensure a measure operates at its optimal level. For EWI this is likely to be minimal other than the occasional repair of the render. For an ASHP there are likely to be costs for pressure checks ( 60-70/year) and to clean filters for exhaust air heat pumps ( per quarter) 4. For the purposes of this analysis an annual fee of 100 has been assumed. 4 Lifetime costs of installing renewable energy technologies: a guide for housing associations. National Housing Federation, June 2010.

14 13 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis There are potentially two other issues that could be included in the cost-benefit calculation but ultimately were not: Cost of Green Deal assessment. Green Deal Assessors and Providers can set their own fees to undertake the assessment process. This could be free, with the cost recouped through the overall Green Deal loan. However, there is the issue of abortive visits if a householder decides not to proceed with a Green Deal installation and so assessments may well be charged for. British Gas, for example, is charging a fee of 99 5, and others in the industry look to be levying similar rates. It was decided not to include the cost of the assessment into the cost-benefit because it is relatively small in comparison to the measures installed at Penwithick, and, in general, the assessment may well be paid for separately by the householder. Increased property value. Evidence suggests that a dwelling with lower heating costs and greater environmental credentials commands a higher selling price but there is insufficient robust evidence to quantify this impact. Conversely, a potential buyer may make a reduced offer on a dwelling with a Green Deal loan attached to it. Therefore, in light of these conflicting impacts and the difficulty in quantifying them, it has not been considered. The final variable derived at the end of the analysis is Net Present Value (NPV) which, if positive, means the investment is cost-effective, or if negative it is not cost-effective. In addition, the Net Annual Cost (NAC) was calculated from: Where, NAC = EAC - S EAC = Equivalent Annual Cost ( ) and is given by: Co = Capital cost of measure ( ) r = Discount rate (in this case 3.5%) N = Lifetime of measure (years) S = Annual saving ( ) The NAC will produce the same decision as NPV as to whether a measure is cost effective. It is a useful metric in that dividing it by the total carbon saved by the measure and plotting this against the total carbon saving produces the so called MAC (Marginal Abatement Cost) curves, although that has not been pursued here. 5 See

15 14 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis 3 Results 3.1 Green Deal Energy savings As a first step it is helpful to have an overview of the overall position for each of the dwellings to enable comparisons to be made and trends to be to drawn. Therefore, Graphs 3 to 7 show the predicted energy savings for each of the dwellings for each occupancy pattern and original fuel type (note that for those dwellings improved with an ASHP the fuel type switches to electricity). These have been adjusted by the appropriate in-use factor and all graphs have been plotted on the same scale to facilitate comparison.

16 15 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis

17 16 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis The key points to note are: The savings in the solid wall property fitted with EWI are typically twice those in the Cornish property. This is because in the latter property the insulation is only applied to the ground floor walls. (Graphs 3 & 4). The predicted EWI savings are broadly comparable for the five models, i.e. the different occupancy patterns do not appear to make that much difference. In fact, the original fuel type has a bigger impact on the energy saving. RdSAP savings are greater for the dwellings heated by coal and wood compared to the Design Builder predictions, but are lower for Economy 7. (Graphs 3 & 4). The houses improved with ASHPs show a similar trend of savings having a greater dependency on original fuel type compared to occupancy. There is though a noticeable higher saving for occupancy no. 5 (the 4- person family) presumably because of the greater number of persons. Again, the RdSAP savings are generally higher for the houses heated by coal and wood, but curiously this is not the case for the timber property which has reduced savings for all occupancy patterns. (Graphs 5 to 7) Financial savings The next stage of the analysis was to assess the predicted annual fuel saving. Graph 8 shows the key Green Deal annual saving as predicted by RdSAP for each of the five dwelling types. As expected from the respective energy savings, the solid wall property has twice the cash saving of the Cornish property. The ASHP savings are far more varied: the properties heated by coal and wood have much lower savings compared to those with portable electric heating. This simply reflects switching from a cheaper fuel to a more expensive one. Graphs 9 to 13 below show the effect of occupancy on the annual cash saving.

18 17 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis

19 18 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis Each of the above graphs give an indication of what the annual cash saving in each household will be for each occupancy pattern against the core Green Deal prediction. In general terms the graphs reflect the trends already observed for the energy savings shown in Graphs 3 to 7. Specifically, there is greater dependence on original fuel type as opposed to occupancy pattern. For the EWI improved properties (Graphs 9 & 10), RdSAP predicts higher Green Deal savings compared to the Design Builder figures. For the properties improved with ASHPs (Graphs 11 to 13) the savings are more comparable, again with the dwelling with electric heating generating a greater saving and Occupancy 5 show the largest saving overall. Overall, in none of the cases was the golden rule met, i.e. the annual savings were insufficient to cover the capital cost of the measure. (In each case the shortfall has been calculated.) This is perhaps not surprising as both EWI and ASHPs are expensive measures. It is anticipated that EWI costs will fall with economies of scale although in the case of the two Penwithick properties there will have to be substantial cost reductions for the golden rule to be met. For the solid wall property the current cost of 11.8k would have to fall to 3.2k for an oil heated property or to 6.8k for a property with portable electric heaters in order to meet the rule. This is equivalent to reductions from 51% to 73%. For the Cornish property the current cost of 4.4k would have to reduce to 1.8k for an oil heated property or to 3.3k with portable electric heaters. The percentage reductions here are actually smaller (25% to 58%) because the EWI cost for the Cornish property is proportionately lower. Although cost efficiencies in EWI installations will occur, it is unlikely that cost reductions of this extent will be achieved in practice and so the other variable to consider is the interest rate (APR) charged. Given that the Cornish property is closer to achieving the golden rule, Graph 14 shows the impact of reducing the APR on the size of the shortfall in the Green Deal loan.

20 19 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis Where the shortfall becomes negative this is the point at which the Green Deal loan meets the golden rule. The graph shows that for four of the original fuel types the golden rule is eventually met, but the APR has to reduce to about 2.5% for portable heaters using standard rate electricity and to nearly 0% for a house heated by coal. For two fuel types (oil and Economy 7) the golden rule is never met. If both the cost of EWI reduces and a lower APR is charged then this increases the chance of a Green Deal loan covering the whole cost of the measure but this is unlikely to occur to a sufficient degree, so alternative funding will be required, for example ECO funding or an additional loan. For the properties improved with ASHPs there is scope for RHI payments. Based on the proposed framework and the prediction of deemed heat by RdSAP the annual payment is about 1000, which over the period during which the RHI is paid will address the shortfall in the Green Deal loan. Further detail on the impact of the RHI is given in the next section Carbon savings Finally, in this section we look at the total carbon saving over the lifetime of each measure. Graphs 15 and 16 overleaf show this for the solid wall property (improved with EWI) and the timber property (improved with ASHP) respectively. To clarify, the calculated carbon savings take into consideration the falling emission rate for CO 2 from electricity as shown in Graph 2. This reduces the annual carbon saving towards the end of the measure s lifetime. The total carbon saving in the solid wall property is greater simply because of the longer lifetime of EWI compared to an ASHP. The carbon savings are greatest for the coal fuelled properties as this fuel has a high emission rate. At the other extreme, the carbon savings from wood heating are very low for the solid wall property as wood has a

21 20 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis very low carbon emission rate. For the timber property heated by wood there is actually a small increase in carbon emissions (i.e. a negative saving) after improvement because although there are substantial energy savings we are substituting a less carbon intensive fuel with a more intensive one (electricity). Although the electricity carbon emission rate is predicted to fall it has not fallen sufficiently during the lifetime of the ASHP.

22 21 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis 3.2 Cost-benefit analysis Graphs 17 and 18 show how the NPV increases over time for the solid wall property improved with EWI for RdSAP and the five occupancy patterns considered. Specifically, Graph 17 is for a dwelling heated by coal and Graph 18 is for one heated by portable electric heaters. The curves are fairly typical as they taper off as discounting reduces future cash savings. In both cases the NPVs remain negative indicating that EWI is not cost-effective in these circumstances. This is consistent with the fact that the Green Deal golden rule is not met. At the end of the lifetime of the measure they flatten out. Graph 17 shows that the RdSAP prediction is the least negative whereas the curves for the five occupancy patterns follow each other very closely, i.e. there is little difference between them. We could have inferred this by looking at the cash savings from Graph 9 which shows that the RdSAP saving for a coal heated dwelling was the largest and that the savings for the five occupancy patterns were comparable with each other. Conversely, Graph 18 shows all of the NPV curves falling onto each other, which again could have been inferred from Graph 9 as all the cash savings are similar.

23 22 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis Graphs 19 to 21 show the final NPVs for the improved solid, Cornish and timber properties for each fuel type and occupancy pattern.

24 23 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis

25 24 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis As might be expected, the three graphs exhibit the same general trends with regard to fuel type and occupancy patterns that were observed for energy and cash savings: EWI is not cost-effective at all in the solid wall property (Graph 19). Where there is an expensive fuel like electricity then this is where the installation approaches the cost-effective threshold. As discussed above, rising fuel prices are modelled here but, as shown in Graph 1, the IAG toolkit only predicts fuel price changes up to 2030 thereafter they are assumed constant. In the Cornish property the situation is more positive (Graph 20). EWI is less cost ineffective and is actually cost-effective in a number of instances, particularly when electricity is the fuel. This again illustrates the fact the EWI is proportionately cheaper in this property compared to the solid walled one. There appears to be no difference arising for the different occupancy patterns which is probably a consequence of other factors (e.g. discounting, capital cost of EWI, fuel prices etc.) having a greater impact on the situation. In the timber property the installation of the ASHP is far less cost-effective compared to EWI (Graph 21). This is a consequence of the shorter lifetime of an ASHP. Again, occupancy does not appear to have that much impact except for a house originally with portable electrical heaters where the cost-effectiveness improves with each occupancy pattern and, for pattern no. 5, the ASHP is actually just cost-effective. The last option assessed is the impact of RHI payments. This is displayed to the far right of the graph and shows that such payments significantly improves the situation such that an ASHP is cost-effective for a house heated by coal or portable electrical heaters, and is only slightly cost ineffective for the other two fuels.

26 25 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis Graph 22 shows the cumulative NPV for this last case. It shows the rapid increase in cost-effectiveness for the 7- year period where the RHI payment is made on the basis of the deemed heat. Thereafter the rate falls for the remaining lifetime of the ASHP. For comparison the RdSAP and Design Builder curves are included and these again show that the different occupancy patterns have little impact on the situation as the curves all collapse into one because other factors predominate.

27 26 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis 4 Conclusions and recommendations Given the five different dwelling types with up to six different heating fuels and five different occupancy patterns there is a large data set that has been analysed here. Nevertheless, we can observe some key messages arising for the dwellings in Penwithick in respect of the Green Deal and cost-effectiveness in general. EWI as applied to the solid wall and Cornish properties will not meet the Green Deal golden rule. This is not an unexpected result as it is in accordance with the experience of others. The key issue is the high cost of EWI. The cost to insulate the Cornish property is proportionately lower than the solid wall property and so is closer to meeting the golden rule. A fall in the cost of EWI will facilitate this but the cost reductions are of the order of 25 to 60% (depending on heating fuel), which is probably not going to be readily achieved. The solid walled property will require even higher cost reductions. Reducing the interest charged on the Green Deal loan will also help, but again the interest rate required (would need to have an APR well below 3%) is probably far lower than the likely market rate. A fall in the EWI in-use factor (currently 0.33) will also help but this will only be addressed slowly as evidence and experience is gained. Therefore, any shortfall will need to be made up through the ECO if the householder is eligible or funding provided directly by the householder (either an alternative loan or their own capital). Interestingly, the different occupancy patterns modelled do not have much impact on the annual energy and hence cash savings. The results are more dependent on the heating fuel used. Cash savings are largest for those houses heated with the more expensive fuels such as LPG and electricity. There are similar findings with the three properties improved using ASHPs. Again, the golden rule is not met in any of the cases. There is a similar trend of savings having a greater dependency on original fuel type compared to occupancy, although there is a noticeable higher saving for the 4-person family occupancy, presumably because of the greater number of persons. The ASHP savings are very varied: the properties heated by coal and wood have much lower savings compared to those with portable electric heating. This simply reflects switching from a cheaper fuel to a more expensive one. For the properties improved with ASHPs there is scope for RHI payments. Based on the proposed framework and the prediction of deemed heat by RdSAP the annual payment is about 1000, which over the period during which the RHI is paid will address the shortfall in the Green Deal loan, although it cannot be integrated into the loan itself. The total carbon saving arising from EWI are greater than those achieved using ASHPs simply because of its longer lifetime. The carbon savings are greatest for the coal fuelled properties as this fuel has a high emission rate. At the other extreme, the carbon savings from wood heating are very low for the solid wall property as wood has a very low carbon emission rate. In one case there is actually a small increase in carbon emissions (i.e. a negative saving) after improvement because although there are substantial energy savings we are substituting a less carbon intensive fuel with a more intensive one (electricity). Although the electricity carbon emission rate is predicted to fall it will not fall sufficiently during the lifetime of the ASHP. In respect of the cost-benefit analysis, the results of the NPV calculations closely mirror the findings of the golden rule assessments. Specifically, where a measure is cost-effective it also tends to meet the golden rule. In most cases the measures are not cost-effective (i.e. they have negative NPVs). Again, there is little dependence on

28 27 Penwithick Green Deal Pilot: Green Deal and cost-benefit analysis occupancy patterns as the other factors that are introduced into the NPV calculation (e.g. discounting, fuel prices etc.) predominate. In the Cornish property the installation of EWI is actually cost-effective for an expensive fuel such as electricity, particularly where future price rises are factored in. The installation of the ASHP is less cost-effective compared to EWI as a consequence of its shorter lifetime. Again, occupancy does not appear to have that much impact except for a house originally with portable electrical heaters where the cost-effectiveness improves with each occupancy pattern and, for the 4-person household, the ASHP is actually just cost-effective. The impact of RHI payments is significant. Such payments significantly improves the situation such that an ASHP is cost-effective for a house heated by coal or portable electrical heaters and is only slightly cost ineffective for the other two fuels. This is largely a theoretical exercise but it has provided some very useful insights into the financial position in Penwithick. The next phase of the project will generate actual energy and cash data against which we can test the predictions presented here.