Household investment in home energy retrofit: designing effective policy

1. Household investment in home energy retrofit:designing effective policy 18th September, 2018, BIEE Conference, Oxford Niall Kerr Research Fellow, ClimateXChange/University of Edinburgh Mark Winskel, Senior Lecturer and Chancellor’s Fellow, University of Edinburgh

3. Outline Background • Retrofit policy in Scotland • Potential for private investment Evidence review • How should private investment be measured? • How can policy more effectively encourage private investment?

4. ‘Consumers at the heart of the energy system?’ Home energy retrofit: wide-range of intervention options, with varying degrees of intrusion. Low carbon heat options:the public acceptabilityof retrofit and other low carbon heat options. Private and public collaboration: retrofit involves a joint investment from public and private funds.

5. Scotland and retrofit policy Scottish Energy Strategy (2017) and Climate Change Plan (2018) • Energy Efficient Scotland Route Map (May 2018) • Millions of homes already retrofit: cost-effective first, low hanging fruit • Ambition: ‘By 2040 all Scottish homes to be EPC band C (where technically feasible and cost effective)’ Retrofit investment • Policy ambition: more than £10 billion required investment in Scotland • Public funds likely to be below this – less than £1 billion designated public funds over the next 5 years for retrofit in Scotland

6. Our evidence review • “How can public policy more effectively encourage private, ‘able to pay’ households to invest in energy efficient retrofit?” • Private, ‘able to pay’ owner-occupied households investing in home energy retrofit • Required retrofit investment to achieve Energy Efficient Scotland ambitions

7. Systematic Evidence review • Systematic collection of evidence: 1000 academic research articles considered and 81 given a full reading • Structured review: broad topic required evidence themes - Quantifying household investment and Achieving household investment - demand-side policies, supply-side policies and overall policy package dynamics • Expert peer-review of initial findings

8. Household investment: policy additionality • Does policy facilitate additional retrofit or support retrofit that would happen in its absence? • Different additionality for different measures: higher additionality for supplementary measures e.g. new insulation, than for replacement measures e.g. new windows or doors • Positive spillovers: from programme participants and non-participants; can lead to 100% + ‘Net-to-Gross’ ratio estimates • Overall take-up and scale: high additionality does not equate to large amounts retrofit

9. Policy additionality

10. Household investment: leverage • Leverage: private investment alongside public investment • Leverage and additionality: only private investment that is additional counts as leverage • Policy efficiency: one means of assessing policy is it’s efficiency of attracting additional private investment • Overall private investment: affected by Additionality, Leverage and Spillovers

11. Leverage of private household investment

12. Household investment:additionality, leverage and scale • Additionality : the extent to which policy supports ‘additional’ retrofit or whether the households receiving support are ‘free-riding’ • Leverage: the ratio of private to public investment associated with retrofit policy • Overall effectiveness and scale: high additionality and leverage do not mean high levels of retrofit

13. Demand for retrofit: the financial carrots Grants or Tax incentives • Non-repayment subsidies more common • Attractive to households Low interest loans • Less common and less attractive to households • Higher private investment leverage Policy effectiveness vs Policy efficiency?

14. Demand for retrofit: the sermon and the stick Information based policy • Energy performance certificates and face-to-face energy assessments Regulations • Minimum standards for replacement • Retrofit when extending a home or when renovating

15. Supply-side of retrofit • Actors involved with installing, designing, advising or selling home energy retrofit • General home refurbishment: a much larger market than energy retrofit • Trigger points: moving house and other renovations • Whole house plans: whole house projects beneficial but often impractical

16. Overall policy package Policy stability • Churn in policy design creates uncertainty for demand and supply side Policy simplicity: • Simplicity in application for funds and in understanding policy Policy flexibility • Regional flexibility and in reacting to policy evaluation

17. Summary • Large opportunity (and need) for private household investment in retrofit • Additionality, leverage and overall scale: how is policy effectiveness measured? • Financial incentives: loans offer higher leverage but are less attractive to households • Supply alongside demand policy: thinkingholistically about policy offering a push and pull from demand and supply • Tension between policy efficiency and effectiveness as retrofit policy extends across the housing stock

18. Thank you Questions? Comments? www.climatexchange.org.uk • niall.kerr@ed.ac.uk • mark.winskel@ed.ac.uk