Fuel poverty, renewables and opportunities for social housing
Energy costs are rising and there is no reason to believe that this trend will reverse. Increased bills impact everyone but for those on lower incomes the effects can be pronounced. More than one in ten households (11.1%) in England live in fuel poverty, some 2.5 million families unable to heat their homes adequately without falling below the poverty line. In Scotland, 613,000 households are defined as being in fuel poverty, a staggering 25% of the total.
Social housing tenants tend to be on lower incomes, so the problem of fuel poverty is clearly more acute in the sector.
It’s an issue that is not going away. In the Scottish Federation of Housing Association’s Fuel Poverty Survey, published June 2019, 73% of responding members reported an increase in tenants experiencing or at risk from fuel poverty.
Fuel poverty is a product of three factors:
- Household income
- Energy efficiency of the property
- Energy costs
Other than lobbying for policy changes, there is little social landlords can do to tackle household income. The sector has, however, invested significantly in its housing stock, with new homes being built to excellent efficiency standards and existing stock retrofitted with efficiency measures. Many of these improvements are a result of the Energy Efficiency Standard for Social Housing (EESSH), which legislates for social housing to achieve energy efficiency standards no lower than C or D by 2020.
That leaves energy costs. There have been a number of initiatives, such as the Cheaper Energy Together scheme, which have attempted to secure lower cost energy tariffs for tenants. There have been some successes but savings tend to peter out after initial offer periods expire and tenants fail to move on to new deals.
Such savings are, in any case, for the most part marginal and they are unlikely to improve. Last year eight energy suppliers went bust, showing just how hard it is to make a profit in this industry. Against this background, cheaper tariffs seem a remote possibility.
Tackling tenants’ energy costs in this way returns limited, and decreasing, benefits but changes in the way energy is being generated, transmitted and sold offers the possibility of significant and sustained savings.
Limitations of the traditional energy generation model
The traditional model of electricity generation in the UK is that of large, centralised generators transmitting energy outwards to consumers via the transmission and distribution networks. Consumers could not choose where they bought their energy from. The gas markets were deregulated in 1996, with the electricity markets following in 1998, allowing consumers to choose, for the first time, their supplier. In reality, however, this merely changed the ‘front-end’ operation you were buying from – where your bills came from and which call centre you phoned when things went wrong. In some cases, even the call centre was the same, just the brand was different. Certainly, your electricity came from the same generators.
The advent of the internet and price comparison websites made switching supplier a whole lot easier and many new players entered the market but this didn’t fundamentally change the model of a few large, centralised generators and a one-way, Generator>Transmission Network>Distribution Network>Consumer route for energy.
Deploying distributed renewable energy solutions, on the other hand, has the potential to create a paradigm shift in this one-way, top-down model.
Implementing renewable energy in housing associations
Many housing associations are already taking advantage of distributed renewable energy systems. Solar panels have been widely adopted and have, for the first time, allowed traditional consumers, such as housing associations, to become generators themselves. Electricity is consumed onsite in order to reduce bills and (with the Feed-in Tariff) any excess is exported to the grid at an agreed tariff rate.
Taking things a step further, Locogen client, Ore Valley, became the first Scottish housing association to wholly own a wind turbine, when their turbine at Cardenden was commissioned in March 2017.
Although grid-connected and not supplying tenants directly, the profits from the turbine go towards improving the association’s housing stock and funding grants and investments for local projects and enterprises.
The role of storage
Battery storage is still in its infancy as a component of distributed renewable energy systems but, as costs continue to fall, it has the potential to significantly improve returns and further reduce tenants’ bills by storing solar energy when not being used and consuming it when demand increases. Housing associations are already deploying the technology as can be seen here.
Options for housing associations and renewable heat
Space and water heating accounts for nearly 75% of domestic energy bills; even more in the case of some electric heating. The adverse effects of an inadequately heated home are well known, so savings made here are especially valuable.
Heat pumps can make a huge difference. This is down to the greater efficiency of the technology, with air to water and ground source heat pumps achieving average year-round efficiencies of 350% (Seasonal Co-efficient of Performance) compared with electric heating at 100%.
Air source heat pumps (ASHPs) are perhaps the simpler technology to deploy. They are often designed into new housing developments.
ASHPs can also be suited to retrofit projects. Properties need to be properly insulated in order for the heat pumps to work efficiently but if specified and installed correctly they can make a big difference to heating bills for homes that have been using solid fuel, electric heating or oil. One such example can be found here.
Ground source heat pumps (GSHPs) have greater capital costs but attract a far higher renewable heat incentive (RHI) tariff. Depending on site conditions, they can offer better returns in the long term. By centralising the heating plant you can simplify the infrastructure, achieve efficiency improvements, economies of scale and, hence, capital cost savings.
Shared ground loop arrays
Clearly, the cost of a ground array or boreholes is far too great for individual homes in a social housing context, so a shared ground loop set up is often used. This has the potential to bring costs down but there are are issues to overcome. The main issues are:
Losses associated with pumping hot water around the development – district heat network pipes are well insulated but there are inevitable heat losses and degradation of the insulation over time.
The legal complexity of requiring occupants to purchase heat from a monopoly supplier – for the system to be economic, the vast majority of owners / occupiers must commit to purchase the heat for the long term. This can be complex to enforce and may affect the attractiveness of the tenancy.
The need to supply heat (and hot water) instantly to anyone who requires it – our expectation is to have heat and hot water on demand. This is only achievable by constantly circulating hot water around the entire system, even if very little is being used.
A shared ground loop array eliminates these problems.
Water is circulated around the network at ambient temperature and only heated on demand by individual heat pumps in each property, so there is no loss in the distribution network.
Each property is heated by its own ground source heat pump and wired to its own electricity supply, so occupants have individual control of their own heating and hot water supply and can change their electricity supplier whenever they wish.
Because water is heated only when needed at each individual property, there is no need to pump heated water around the network whether it is being used or not, so the system is far more efficient.
The heat collector can be any ground system, boreholes or arrays, depending on local ground conditions and available space. Such shared ground loop systems are also eligible for 20-years of non-domestic RHI payments, unlike individual air-source heat pumps. This contributes to a typical IRR >10%.
Shared ground loop arrays therefore combine a number of factors that make them attractive to developers and consumers alike:
- Low-carbon, low-cost heat for consumers
- Individual control and the freedom to change electricity suppliers
- No dedicated heat metering or billing
- Guaranteed 20-year RHI income for developers / social housing landlords
- IRR >10%
- Robust solution with 99-year lifespan (ground array)
Local energy markets
Local energy markets have the potential to disrupt the traditional model of model of central generation and outwards transmission. Here, local renewable energy generators will be able to trade directly with consumers, paying for only the portions of the grid being used. Locogen and our partners are developing the innovative Cloud ZUoS (zonal use of system) to help make these local energy markets a reality.
The platform is already being tested in the northeast of Scotland, bringing together local renewable generators with commercial and domestic consumers to facilitate peer to peer energy trading.
There are a number of different initiatives that can be accessed by social housing landlords to provide financial support at various stages in renewable energy projects in the sector.
The CARES scheme, administered by Local energy Scotland, provides enablement grants of up to £25k to help assess the feasibility of projects, along with development loans of £150k and bridging loans of £100k. The Scottish Government’s Decarbonisation Fund also offers extensive support, while there are loans available of up to £1 million from HEEPs and up to £500k for the District Heating Loans Scheme.
Considering a renewable energy project for your housing association?
Please contact us if you’d like to investigate the potential for renewable energy at your housing association. Our consultants will be happy to chat through the various options and funding channels available.