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Value Management - Overcoming barriers to smarter heat solutions in UK homes - Annex 3b: Payback period drivers

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Abstract:

This project studied how value can be delivered across a smart energy value chain - in the context of the UK. It built a clear understanding of how smart energy systems can deliver combined consumer value alongside commercial value for market participants - producers, suppliers, distributors. The analysis will help to make the commercial deployment of smart energy systems more likely. This £600,000 project was delivered by Frontier Economics, a leading economic consultancy.

The final report has 11 annexes. This is Annex 3b: Payback period drivers.

The payback period of an intervention refers to the time taken for the ongoing stream of cost-savings to outweigh the initial investment. For long-run optimising models of intervention take-up (like ESME and BMET), the payback period is only of tangential relevance: interventions with a high net present value overtheir lifetime will be taken up, regardless of whether there is a significant delay before these benefits are realised.

However, both customers and business model providers face limits on the length of payback period they are likely to accept. Since many low-carbon interventions are associated with high initial investments and long payback periods, this leads to a barrier to uptake.

Contents of this annex:

  • Why customers are more likely to take up interventions with relatively short payback periods
  • Whether business model providers can help overcome these constraints
  • This analysis is primarily focussed on household-level interventions (HEMS,cavity, internal and external wall insulation, and heat pumps). District heat also has long payback periods, and we briefly consider the issues for this technology. While the nature of district heat means that individual consumer contracts might prove less of a barrier, systematic uncertainties are likely to require risk-sharing with government.
  • Quantitative modelling from BMET is used to examine the likely payback periods of different types of low-carbon interventions for different customer groups, and look at what might be required to bring these to within a 5-10 year window.

Overall, we find that HEMS and cavity wall insulation are the only interventions which are likely to have payback periods within such a window given BMET default assumptions.

This document was prepared at the time to contribute to ETI internal thinking and planning only.

Publication Year:

2015

Publisher:

ETI

Author(s):

Frontier Economics

Language:

English

File Type:

application/pdf

File Size:

789528 B

Rights:

Energy Technologies Institute Open Licence for Materials

Rights Overview:

The Energy Technologies Institute is making this document available to use under the Energy Technologies Institute Open Licence for Materials. Please refer to the Energy Technologies Institute website for the terms and conditions of this licence. The Information is licensed "as is" and the Energy Technologies Institute excludes all representations, warranties, obligations and liabilities in relation to the Information to the maximum extent permitted by law. The Energy Technologies Institute is not liable for any errors or omissions in the Information and shall not be liable for any loss, injury or damage of any kind caused by its use. This exclusion of liability includes, but is not limited to, any direct, indirect, special, incidental, consequential, punitive, or exemplary damages in each case such as loss of revenue, data, anticipated profits, and lost business. The Energy Technologies Institute does not guarantee the continued supply of the Information. Notwithstanding any statement to the contrary contained on the face of this document, the Energy Technologies Institute confirms that it has the right to publish this document.

Further information:

N/A

Region:

United Kingdom

Publication Type:

Technical Report

Subject:

Buildings

Theme(s):

Smart Systems and Heat

Related Publications(s):

SSH Stagegate 1 - Review of International Smart Systems and Heat Initiatives - Final Report

Value Management - Characterisation of the Current Energy Value Chain (WA4 D1)

Value Management - Future Business Models: Options and Analysis

Value Management - Overcoming barriers to smarter heat solutions in UK homes - Annex 2a: Qualitative policy analysis

Value Management - Overcoming barriers to smarter heat solutions in UK homes - Annex 3a: Modelling customer uptake (including attitudes to risk)

Value Management - Overcoming barriers to smarter heat solutions in UK homes - Annex 3c: Factors affecting intervention take-up order

Value Management - Overcoming barriers to smarter heat solutions in UK homes - Annex 3d: Elements of business model offerings

Value Management - Overcoming barriers to smarter heat solutions in UK homes - Annex 3e: Assumptions on current and future levels of insulation

Value Management - Overcoming barriers to smarter heat solutions in UK homes - final report

Value Management - Overcoming barriers to smarter heat solutions in UK homes. Annex 1a: Case studies.

Value Management - Overcoming barriers to smarter heat solutions in UK homes. Annex 1b Analysis of existing policy

Value Management - Overcoming barriers to smarter heat solutions in UK homes. Annex 1c: Energy efficiency and low-carbon heating in Germany

Value Management - Overcoming barriers to smarter heat solutions in UK homes. Annex 2b: Cost benefit analysis of policies

Value Management - Request for Proposals