What to learn from the Australian EPC?

Here is an Australian Energy Performance Certificate. You can compare the UK version here. Some obvious differences are:

• More, small scale / easy recommendations (good)
• Includes water efficiency (good)
• Linked to a govt loan programme (good in principle)
• Happy-smiley design (bad!)

Oh, and wait a minute - worth mentioning that the Australian government pays ~£120 for each certificate. Sounds good, but in practice it's been a nightmare for everyone involved. The $10,000 loan element has since been withdrawn - too expensive and too complicated, apparently. A lesson for any new UK government thinking of launching a similar scheme.

Carbon Census Song

So here it is, the Carbon Census Song - our contribution to the Take One Small Step competition. If you'd like to support us click here to watch the 1 minute video and give us your vote. Many thanks to Joy Mills for putting this together.

Introducing the Carbon Census Rule of Thumb

How much power do you use when you're not using any power? Surprisingly, not zero. Take my house for example: it's a quiet Saturday afternoon, the family has gone out and everything is turned off, but our power monitor is reading 170 watts. How so? After 5 minutes poking around I found the culprits: microwave, radio, TV, DVD and a list of other things.

These devices draw a tiny amount of power, but they draw it all the time. That's the problem. So I spent another 5 minutes figuring out how much this 'background demand' is costing me. According to a really rather elegant coincidence, it turns out that 170 watts of background demand will cost about £170 a year. That's about 1 tonne of CO2 or 30% of the average UK electricity bill, just for stuff I'm not even using.

Let's call this the Carbon Census Rule Of Thumb: 1 watt of background power costs £1 a year.

(Interested in why this works? There are about 10,000 hours in a year, and a kilowatt hour of electricity costs about 10p. Well, just under 10,000 hours actually and just over 10p, but the rounding cancels out making the answer nice and easy.)

Lib Dems adopt Reverse Pricing

Great news, the Lib Dems have committed to introduce reverse pricing in energy. I believe they are the first major political party to do so, let's hope the other parties follow suit.  Here's what the Lib Dems say:

Protecting low income households is a good idea, but not with a social tariff. It would be better to help low income households consume less energy (e.g. by switching away from electric heating) than to subsidise prices. For more info read our article of 26 March which introduces the reverse pricing idea.

Undercover Economist

Tim Harford has picked up our arguments on energy pricing on the Undercover Economist website.

Energy prices double, but suppliers lose money for 5 years. So how on Earth does that work?

A picture is worth a thousand words. Have a look at this, an excellent piece of work from Ofgem:

The chart shows the average net margin on a dual fuel energy account, and goes a long way to explaining the mysterious behaviour of the UK energy market. It's a classic case study in sticky prices: the retailer is 'caught out' by steeply rising prices in the wholesale market, and can't push prices up to consumers quickly enough. Net margins turn negative around August 2004 ... and they don't recover for nearly 5 years.

Horrendous industry, you might think. But the flip side is a 20-fold increase in generation profits. So as long as you are in generation and retail, none of the above matters. What the chart really tells you is that energy retail is just a hedging option for generators, against inevitable periods of low wholesale prices.

So what of the sticky prices thing? One way to think about those is as a barrier to entry for future competitors. As the chart shows, a challenger must be prepared to lose money for a pretty long time. And who's got the cash to do that, if you don't happen to have a generation business in your back pocket? If you saw what happened to BizzEnergy then you know the rest of the story. 

10% of households use 1/3 of our electricity

Last week we posted our Financial Times article on reverse pricing. We said this policy could double the marginal cost of energy without making households worse off overall. There would be winners and losers, and people asked us how many: the answer is about 2/3 of households would benefit, and about 1/3 would pay higher bills.

But here's what's really interesting: to get to this answer we had to crunch the data on 26 million domestic electricity meter points, producing the chart below as a by product. Wow. The top 10% of households use nearly 1/3 of all domestic electricity in the UK. The top 20% use 44%. For whatever reason, there are about 5 million households who consume up to 6 times the national average every year. So we really do need policies - like reverse pricing - that make energy saving more attractive for high volume users.


You can see the source data in DECC's Energy Trends, March 2009 (p24 and after).

Can we make CO2 into fuel?

Here's some interesting science. It may be possible to turn CO2 into methanol, a useful fuel. There is a good article about this in the New Scientist and you can find a summary of the science here.

Nobody believes the strategy will work

We do like the new government strategy for household energy management, we just don't think it's going to make much difference. But who cares about us, what does everyone else think?

Here's one way to find out. Today's chart shows the Centrica (i.e. British Gas) stock price since Ed Milliband launched the Warm Homes strategy on 2 March. According to the Minister, we are going to cut household energy demand - about 1/3 of Centrica Group profits - by 29% in 10 years. What did the market make of that? Hmmm. Centrica stock is up 4%.

(OK, so I admit, this one is just for fun. We could have looked at SSE, whose stock price has gone the other way in the same period. But the point is that the new strategy doesn't seem to have made a jot of difference to utility stocks. I'm pretty sure this wouldn't be the case, if analysts really believed that household energy demand was going to be down 30% within 10 years. Or if they expected the government to introduce a policy with a more dramatic impact, such as reverse pricing.)