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Theme 6: Policy & Governance

26 September, 2018

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The aim of the theme is to undertake globally leading research on the policy and governance issues critical to the Centre’s goal of changing UK demand to go further, faster and more flexibly.

Fawcett, Oxford

The aim of the theme is to undertake globally leading research on the policy and governance issues critical to the Centre’s goal of changing UK demand to go further, faster and more flexibly.

There is widespread agreement in the energy demand research and stakeholder communities that governance and policy are key drivers of change. Relatively rapid progress in demand reduction in the UK since 2004, for example in boiler, vehicle and appliance efficiency and in insulation adoption, has largely been policy driven. Changes in policy effectiveness have been due to political factors as much as formal analysis of policy effectiveness (Mallaburn and Eyre, 2014). Both need to be understood, but government itself rarely examines the political dimension.

Increasingly, policies at different levels of governance (EU, UK, devolved, local) matter. In the UK, the future role of EU-driven policies remains uncertain. In contrast, there is general agreement that the roles of both devolved and local government will be increasingly important.

Given the scale of ambition for carbon emissions reduction, it is increasingly important to understand the effectiveness of policy instruments in driving change beyond the highly cost effective investments which have been the traditional focus of energy efficiency policy, particularly for the newer challenges of encouraging demand flexibility and switching to low carbon vectors.

Sub-theme 6.1 Policies for reducing demand further

Fawcett, Oxford

In this sub-theme, we will examine how policy can support energy demand changes that go beyond highly cost effective energy efficiency, incorporating deeper technical changes and user practices. This involves consideration of both technology-focused and people-focused policies.

Project 6.1.1 Policies for deep refurbishment of buildings

Deep renovation is widely recognised as a vital step in delivering carbon targets, but is more technically, organisationally and socially complex than installation of individual efficiency measures (Topouzi, 2015; Wilson et al, 2015). Most UK policy support for building efficiency has been for more cost-effective, simple measures (Rosenow, 2011), which provide limited learning for deep renovation. Our research will do two things: (1) analyse deep renovation policy initiatives and policy mixes across the world; (2) develop knowledge on three key aspects of deep renovation.

Existing deep renovation policies in the residential and commercial sectors, including Energiesprong, KfW loans, renovation passports, and building labelling, will be analysed. We will produce a critically evaluated evidence base of what works (and what does not work), in what context, and distil lessons for future policy design and implementation.

Three key aspects of deep renovation will be researched through literature review, empirical evidence, and working with key stakeholders.

– The first aspect is time, timing and policy design. We will build on the concept of ‘windows of opportunity’ and the characterisation of (some) deep renovation as an incremental process (EST, 2011; Fawcett, 2013).

– The second is the key role of intermediaries and the supply chain (Janda et al, 2014; Killip, 2013). We will work with building energy efficiency trade association, the Association for the Conservation of Energy, to understand the commercial strategies of retrofit businesses, and identify how policy has, and could in the future, influence these.

– Finally, we will extend work on the multiple benefits of energy efficiency (IEA, 2014) to deep renovation (Fawcett and Killip, 2014). We will draw on sub-theme 1.1 with respect to comfort and health. We work with European partners as part of the Horizon 2020 project M-Benefits to address benefits, how benefits can be communicated, and whether and how this framing can be implemented via public policy.

Project 6.1.2 Policies for engagement

In addition to the investment-led decisions that characterise adoption of efficiency measures, energy demand is strongly influenced by everyday behaviours, habits and practices (Banks et al, 2012; Fell and King, 2012). Influencing household behaviours through advice and information has been a relatively minor focus of policy and the changes targeted have generally been modest and hard to evaluate. To better understand the potential for policy in this area, we will co-create and evaluate a range of people-focussed interactions which aim to make transformative change to energy demand patterns. The Energy Saving Trust, which has long experience of seeking to change household behaviour, will be our key partner for this co-creation (see partner letter). We will work with Theme 5 to consider the role of digital innovation in providing real time information and control.

Sub-theme 6.2: Multi-level governance

Webb and van der Horst, Edinburgh

In this sub-theme, we will examine to what extent and why devolved, regional and local authorities are responding differentially to the goals of low energy, low carbon development and retrofit. We will compare the resulting effectiveness of design and delivery of energy efficiency policy. It is now widely accepted that much higher levels of decentralised investment and user engagement will be required to deliver policy objectives. And it has been argued that more localised decision-making could both improve local delivery mechanisms and increase political legitimacy and citizen engagement. However political and learning processes are insufficiently understood in this context.

Project 6.2.1 Devolved policy making

UK and devolved government policy frameworks for a low energy, low carbon building stock are diverging, creating a ‘natural experiment’ which will provide important insights into institution building for low energy social and technical infrastructures. This project will compare policy decision-making, and implementation, for energy efficiency in buildings in England and Scotland. We will also monitor Welsh and Northern Irish policy developments. In England, ambitions and suggested policies for buildings set out in the Clean Growth Strategy will provide the focus for analysis. In Scotland the policy framework is better established: energy efficiency was declared a National Infrastructure Priority in 2015 and the pilot phase of the Energy Efficiency Programme (2016-2018) has allocated £23M for integrated area-based initiatives led by local authorities. The Scottish Government has also consulted on proposals for a statutory duty for local authorities to develop Local Heat and Energy Efficiency Strategies and implementation plans, and has announced its intention to establish a National Investment Bank for low cost long term lending.

The comparison between England and Scotland will analyse policies, including instruments for assessing the value of energy saving and deciding on levels of grants and loans; the use of taxes and incentives; the use and enforcement of regulatory standards for different categories of buildings and owners, including developers, private and social landlords, owner occupiers, businesses of various sizes and the public sector. Data will be derived from:

  • Interviews with senior officials in UK and Scottish Governments, executive agencies, regulators and consultants responsible for implementation and evaluation of policy;
  • Published documents and financial statements;
  • Professional and executive seminars designed to aid policy development, implementation and progress review.

These will use established relationships with officials in BEIS and Scottish Government, and use them as the base for additional necessary contacts.

Project 6.2.2 Local policy-making

Evidence shows the ambition of local authorities (LAs) across the UK to improve the energy performance of buildings. Austerity in public finances has however reduced in-house technical capacity and expertise for project development and management, disrupting and delaying planned investments (Webb et al 2017). LAs, particularly beneficiaries of City Region Deals, are now assessing new commercial structures to generate income from investing in energy efficiency. Business models are geared to, and interact with, local circumstances and relevant government policies (UK and devolved). Building on existing data sets, and gathering new data from follow-up interviews and documentary materials, we will devise an initial typology of business models and differentiating factors, including political control, institutional and budgetary characteristics, energy and carbon management structures, presence/absence of integrated energy and spatial development plans, external grant funding and influential non-state organisations.

The business model typology will differentiate between direct in-house control of projects and independent legal entities (community/municipal/private ownership or partnerships), and between types of investment. The latter may range from individually small building retrofit projects to local energy systems development, including electricity and/or heat generation and supply, as well as storage and demand side response at various scales. We will test the robustness of the typology against emerging developments in the 26 ‘city deal’ regions. We aim to identify innovation and assess the relative effectiveness of the different commercial structures for achieving locally-defined goals in relation to energy and carbon management and income streams. We will look primarily at housing in City Deals, but also paying attention to innovation in integrated approaches (e.g. built environment and transport (working with Theme 2); digital innovations for low carbon urban living (with Theme 5) and demand/supply interactions (with sub-theme 6.3). Assuming that there is no single recipe for effectiveness, we will conduct local in-depth interviews and document analysis in targeted LAs to understand significant common principles behind different business models and identify opportunities for shared learning and scaling up.

Sub-theme 6.3: Demand/Supply Policy Asymmetry

Eyre, Oxford

In this sub-theme, we will examine how policy to reduce demand might be more effectively integrated with energy supply policies. It has long been noted that the goals of reducing demand secure less attention in policymaking than energy supply, even where demand side change could secure similar policy objectives more cost effectively (Cabinet Office, 2002). Under-investment in demand side solutions potentially increases UK energy costs by ~20% (UKERC and CIED, 2017).

There are three broad challenges. The first is a policy design question: asking how policy might be designed symmetrically in specific markets, recognising that the actors and technologies in supply and demand tend to be different. The second is a political science problem: to understand why this process is not norm, i.e. why there is less attention to reducing demand than to increasing supply. The third is to consider whether disruption of the supply/demand distinction in markets with radical ICTs might change this situation.

Project 6.3.1 Policy Asymmetry in market design

Eyre, Oxford

We will consider the policy paradigm of levelling the playing field by explicitly considering demand side policy as an alternative to supply within a regulatory process. This type of integrated resource planning approach has been common in electricity regulation in the USA, but much less so in Europe. The only experience in the UK is the Electricity Demand Reduction Pilot in the capacity market, which was unsuccessful (Liu, 2017). In other cases, notably the use of Contracts for Difference, supply and demand were not treated equivalently.

Drawing on international experience and detailed analysis of the economics and institutions in the UK, we will investigate how the principle of the level playing field might be applied and the problems in doing so. To do this we will collaborate with the Regulatory Assistance Project to draw on their international expertise and the iGov Fellowship to build on their analysis of energy supply regulation in transition.

Project 6.3.2 Understanding the Drivers of Policy Asymmetry

Eyre, Oxford

In this project we will consider the underlying causes of asymmetric policies. These potentially include the greater power of supply side actors, accountancy treatment of energy efficiency assets, lower visibility of demand side projects, greater complexity of demand-side evaluation, risk perceptions and the scale of transactions in markets. Their relative importance has never been systemically studied. We will undertake a review of the policy process for the policies addressed in 6.3.1 to understand the policy-making process by which asymmetric decisions were agreed. The work will draw on theories in political science including agenda setting and policy windows.

Decision making processes will be tracked through a combination of process tracing and interviews with the relevant stakeholders. Our aim is to understand the conditions under which policies have been developed, the extent to which institutions constrain direct comparison of supply and demand side solutions and the underlying drivers of this.

Project 6.3.3 Distributed ledgers as a disrupter of retail markets

Shipworth, UCL

Research Question: How does the architecture of Distributed Ledger Technologies (DLT) enabled retail markets impact on UK government policy objectives? Sub-questions include: Do DLT enabled retail markets need to be local monopolies? What demographic sectors are being targeted and why? Can DLT enabled retail markets exist alongside conventional energy retail markets?

Distributed Ledger Technologies (DLTs) are a disruptive digital technology changing many established retail markets. Retail energy markets are beginning to see this disruption in Europe (motionwerk.com), the US (lo3energy.com) and Australia (powerledger.io) with DLTs creating new ways to buy and sell energy. It is known that the structure of such markets profoundly affects how they influence social and energy system outcomes (Takagi et al 2017; Mihaylov et al 2016).

The work package will conduct the first systematic study of the relationship between DLT enabled energy retail market structure and energy policy outcomes using the theory-driven systematic review framework (Pawson & Tilley 1997). It will combine systematic evidence review methods and expert elicitation to comprehensively map applications of DLT enabled new energy retail market structures including peer-to-peer using graphical probabilistic modelling methods. These methods will be used to map the transaction relationships between the actors in these new market structures, qualify the likely scale of consumer response, and to link the theoretical causal models implicit in them to their stated social values. It will compare these with current policy and regulatory objectives including: energy market participation, affordability; distributional impacts; climate change mitigation; air quality improvement; and fuel poverty alleviation.

Research methods: Theory-driven systematic review (Pawson & Tilley 1997). Systematic evidence review methods (Grant and Booth, 2009). expert elicitation (O’Hagan 1998); graphical probabilistic modelling (Jensen 1996).

Outcomes/impacts: The project will produce a set of models of existing and planned DLT enabled new retail market structures, showing both the transactional relations between actors, and the theoretical causal models showing their impacts. The models will allow policy makers and regulators to understand how such markets could work and the likely scale of consumer engagement. It will lay the foundation for the evaluation of Ofgem sanctioned trials.

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