Domestic UK Retrofit Challenge: Barriers, incentives and current performance leading into the Green Deal Mark Dowson Ada

1. Domestic UK Retrofit Challenge: Barriers, incentives and current performance leading into the Green Deal Mark Dowson Adam Poole

2. Presentation Overview • Who we are • Thermal efficiency of UK housing stock • General barriers to retrofitting • Specific challenges for the Green Deal • Outputs of internal business modelling / ‘war-gaming’ workshops • Summary & questions

3. Who we are • Mark Dowson • Research engineer • 4 years at Buro Happold • Have just submitted thesis for an Engineering Doctorate focused on environmental technology & retrofitting • Have worked on several retrofit projects within the company • Adam Poole • Analyst, BuroHappold • 16 years in construction industry • Member of Green Construction Board’s Carbon Route Map Group. • Member of Industry Taskforce for Peak Oil and Energy Supply

4. UK housing stock

5. UK housing stock millions of terrace houses built before the 1930s

6. UK housing stock millions of terrace houses built before the 1930s millions of semi-detached houses built after the war

7. UK housing stock millions of terrace houses built before the 1930s millions of semi-detached houses built after the war millions of flats built in the 1960s

8. UK housing stock Solid walls were common until 1930s millions of terrace houses built before the 1930s millions of semi-detached houses built after the war millions of flats built in the 1960s

9. UK housing stock Solid walls were common until 1930s Cavity walls introduced to prevent dampness millions of terrace houses built before the 1930s millions of semi-detached houses built after the war millions of flats built in the 1960s

10. UK housing stock Solid walls were common until 1930s Cavity walls introduced to prevent dampness Only in the 1976 Building Regulations was insulation a legal requirement millions of terrace houses built before the 1930s millions of semi-detached houses built after the war millions of flats built in the 1960s

11. Thermal efficiency of the stock

12. Thermal efficiency of the stock Millions of homes built before Building Regulations have lowest energy efficiency

13. Hard to treat stock

14. Hard to treat stock

15. General barriers to retrofitting • Up to 1.2 million homes are in conservation areas • Up to 300,000 homes are listed • Expensive & disruptive to improve hard-to-treat homes

16. General barriers to retrofitting • Discrepancies between predicted and actual savings • Thermal bridges and gaps in insulation reduce energy savings • Thermal comfort “take-back” resulting occupants increasing the amount of heating they use following a refurbishment

17. General barriers to retrofitting • Uncertainty regarding capital costs & payback periods • Not all properties and/or occupants qualify for grants • Too much insulation could cause overheating

18. General barriers to retrofitting • Lack of public engagement • Energy efficiency not viewed as a priority when upgrading homes • Lack of incentives for landlords (if tenants are reaping the benefits)

19. Specific challenges for the Green Deal • All of the above, plus more! • Size of Green Deal loan is limited by the Golden Rule • Lack of incentives for private investors looking for a high IRR • Lack of public engagement with scheme – low penetration rates in early trials

20. Specific challenges for the Green Deal KEY

21. Specific challenges for the Green Deal 8 million lofts lack 300mm insulation KEY

22. Specific challenges for the Green Deal 6.5 million homes have unfilled cavities KEY

23. Specific challenges for the Green Deal KEY 14 million homes need boiler upgrades

24. Specific challenges for the Green Deal KEY 6.6 million homes have solid walls

25. Specific challenges for the Green Deal KEY 6.5 million homes still have single glazing

26. Cost effectiveness of measures • Investors will want to target low hanging fruit

27. War-gaming the Green Deal

28. Green Deal Wargame • First Concern Testing design for business wargame • Second Concern – using game to add to under-standing of Green Deal

29. Business Wargames • Describes a spectrum of modelling approaches • The term & much of the technique borrowed from the military • At one level it is about seeing a chess board several moves ahead

30. But with some key differences • Imperfect knowledge (you don’t know where the opponent’s pieces are) • No certainty of outcome in any encounter • Force multipliers apply (affect of terrain, generalship and technology) • No certainty in opponent’s objectives (different victory conditions) • Morale and logistics are factors

31. Much of the military technique applies to business games But military games largely zero-sum Business games can be zero-sum (bidding) But can be several other things as well • Finding stable solutions • Win-win solutions • Cooperation and prisoner’s dilemma

32. Games are about winning This sets them aside from other forms of scenario-modelling Impossibility theorem – can’t list the thing you have not thought of By letting testosterone rip • People will ‘game’ the system • Do the unexpected • The unintended consequences of policy can be revealed

33. Green Deal We needed a scenario to test developing wargame mechanisms • Good measure of complexity • Scope to involve a large number of players • Game play that would call on a number of skill-sets • Learning objectives for core business • An opportunity to explore something on the radar

34. Green Deal – Where to focus Government Accreditation Energy Companies Banks Selling Training User behaviour Assessment Warranties Manufacturing Innovation Installation

35. Where the action takes place • In a universe of fictitious energy companies, retailers and banks • Between each company’s main board and its Green Deal Department • Within alliances between 1 energy company, 1 retailer and 1 bank (a consortium) • Between consortia • Between government and consortia

36. The Process Consortium members are required to keep the alliance together while • Producing a business plan • Negotiating around differing attitudes to risk, reward and return • Managing cashflow and the supply chain • Pursuing individual victory conditions many of which were at odds with those of their fellow members • one implication of which could be company interests best served by keeping a toe in the while quietly trying to torpedo the scheme • Competing with other consortia over particular segments of the market and parts of the supply chain • Identifying lobbying positions to get government to change the rules that will make it easier for some players to do well and harder for others • Coping with changing external events such as the oil price, price and availability of lending and the energy supply debate

37. CO2 savings & financial payback period of a new boiler

38. Impact of fuel price rises

39. Impact of thermal comfort take-back

40. Impact of one-off replacement

41. 500 homes with insulation, new glazing, new boiler, PV panels & solar thermal

43. Feed-in Tariffs

44. Feed-in Tariffs & Renewable Heat Incentive

45. Reduced capital costs from economies of scale

46. Marketing & Admin costs

47. Repeat investment over next 5 years

48. Net present value of all measures

49. How accurate is the process? • Business wargames are intended to be more illustrative than predictive • Green Deal involves many unknowns either because we do not know (household sales conversion rates) or because we are unlikely to be told (required internal rates of return) • We have made assumptions on these points • People who know about the inner workings of banks, energy companies and retailers have been positive about our assumptions, particularly in terms of the Machiavellian implications of some of the victory conditions we have created • We have run 4 teams that have produced a range of outcomes that are pretty similar

50. Results • We have had 24 engineers / MBAs rapidly model different Green Deal financing options • Not yet made the scheme work for the game parameters we have set: • IRR targets, • amount of capital • conversion rates • It is a long-term game, over several governments in a volatile area • This process is generating a series of useful policy suggestions