Decc to pay firms for implementing energy efficiency projects

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Replacing lighting can be one of the cheapest ways to reduce electricity use.

The UK government has run its first £10 million pilot auction to see if energy efficiency measures could bid into the capacity market, a major plank of EMR.

Companies bidding for funding for their energy efficiency projects will find out next week whether they have been successful in landing a contract.

The Department of Energy & Climate Change yesterday conducted the first auction of its Electricity Demand Reduction (EDR) pilot. The aim is to discover whether energy efficiency projects, such as lighting or pump replacement could eventually bid into the UK’s capacity market, competing with generation, storage and demand-side response.

The department has been criticised for putting capacity and generation ahead of a cohesive policy on energy efficiency and demand reduction. The smart meter rollout, designed to help households become more aware of energy use, may enable limited, low single digit energy savings, possibly 3%, yet will cost upwards of £12 billion. Net savings of around £4 billion have been estimated, plus around £2 billion in the non-domestic sector, but are by no means assured.

But the EDR pilot auction, while small, should help discover which approach delivers the best value to bill payers. Another upside is that energy efficiency improvements are fixed, and therefore not only available at times of peak demand, but reduce demand full stop.

Firms that are planning energy saving measures and which were pre-qualified by Decc yesterday bid for up to £10 million in the inaugural auction. £20 million in total has been allocated to the pilot.

Firms bid in kW savings from their projects and those that bid the lowest price for each kW offered will receive contracts to deliver the agreed savings. Once those savings have been verified, the money is released.

The winners will likely be announced on 4 February. They have to have completed their energy saving projects by October 2015 and are then contractually obliged to deliver agreed savings from 1 November 2015 to 29 February 2016.

Decc capped the maximum price per kilowatt savings at £300. A Decc spokesman said the department could not disclose the firms taking part, nor how many had bid in the auction.

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