carbon limited

That’s right. None. Zero. Zilch.

This is because, using DECC’s calculation tool, there are no cases in which the retrofit of residential heat meters is considered “financially viable.” No matter what numbers you feed into the calculation tool, the output for homes on heat networks is always the same:

Heat meters are NOT viable on an average building(s) of this type.

This means that the EU Energy Efficiency Directive has just been rendered toothless. Huge savings from behaviour change and efficiency improvements will not be realised. The 75% of people on heat networks with unmetered connections will continue to pay a flat fee regardless of how much heat they use, robbing them of control over spending and giving them no incentive to save. At the same time, heat network operators will be forced to engage in needless calculations and reporting, the outcome of which was decided before they even downloaded the calculation tool.

There was a lot of discussion about the EED when it came into force last summer, including in Inside Housing and this blog. Importantly, the EED requires heat network operators (including private and social landlords) to install heat meters for customers on heat networks, except in cases where it’s not technically or financially viable. The definition of viability is left up to EU member states.

On first reading, the UK definition for financial viability seems reasonable enough: take the cost savings resulting from the new meter (due to behaviour change) and weigh them against the install cost and operating cost. Discount this cashflow over 10 years. It the net present value (NPV) is positive, the installation is viable. If the NPV is negative, it’s not viable.

So far so straightforward, right? Well, no.

Because DECC’s assumptions underestimate or ignore a number of crucial factors, including the following:

• Economies of scale on meter cost
• Reduction in install and operating cost in a growing market
• Wider benefits from energy savings (e.g. non-traded carbon saving, air quality, fuel poverty reduction, etc.)
• The likely poor efficiency of unmonitored networks and improvements following meter install

But these factors aren’t included in DECC’s model. And without the full picture, the computer says no every time. This is in contrast to DECC’s first impact assessment, which estimated that meters would be viable in 5k dwellings (and even that was pretty meagre!).

Of the factors listed above, the last is arguably the most important. The DECC model assumes that all existing networks operate with just 10% heat losses, which is a drastic underestimation.

There are often significant inefficiencies on heating networks that aren’t monitored. A recent study from Lund University estimated that 3/4 of customers on heat networks have faults in substations and secondary systems, faults that stay hidden because performance isn’t measured with heat meters. From my own experience, networks that aren’t monitored often have losses greater than 60%. This discrepancy more than doubles the cost of heat compared to DECC’s 10% figure.

The stakes are high. In fact, they’re even higher than we thought a couple of months ago. Because in the course of the EED consultation, DECC more than doubled its estimate of the number of UK homes on heat networks, from 200k to over 400k! That means there’s a hell of a lot more cost savings and efficiency improvements to play for. And even more households who’ll bear the brunt if this opportunity passes us by.

So what happens to viability when you take a fuller picture into account? In the next post, I’ll go through the numbers.