How can the impact of domestic energy efficiency policies in the UK be maximised?

Author: Gianluca Trotta
Institution: Aalborg University, Danish Building Research Institute, Denmark; (University of Vaasa, Finland at time of research)
Type of case study: Research

About the research

The UK's housing stock is amongst the oldest and least energy efficient in Europe. There are around 27 million homes of varying housing types. A significant amount of the UK's housing stock was built prior to a clear understanding of the links between energy use and climate change and in a time when there were different expectations of what people consider a warm home. Approximately 40% of existing housing stock (10.3 million homes) are classed as ‘hard-to-treat’. ‘Hard-to-treat’ homes are dwellings with one or more of the following:

  • solid walls with no cavity which can be insulated
  • no loft space to insulate
  • no connection to the gas network
  • high-rise buildings

Using conventional measures, dwellings with such characteristics cannot be upgraded easily or cost effectively.

Significant increases in home energy efficiency will contribute towards meeting the UK's long-term carbon emissions. In 2015, the residential sector accounted for 29% of the total energy consumption in the UK and for 23% of total CO2 emissions. To work towards the target of lowering carbon emissions, a better understanding of the challenges involved in retrofitting is needed. Gianluca's research investigates the characteristics of homes that influence energy-efficient retrofit investments in the English residential sector by using combined data from “English Housing” surveys.

His research recognises that there are various factors and barriers involved in households deciding whether to retrofit their homes for energy efficiency and aims to better understand how identified factors and barriers might be addressed through targeted interventions.

The main findings of Gianluca's research are

  • Generally, decisions on energy-efficient retrofit investments are more influenced by the characteristics of the building than by the socio-demographic characteristics of the householders.
  • In England, householders living in older houses who have lived there for longer are more likely to invest in energy-efficient retrofit measures.
  • Households living in private or social rented properties are less likely to invest in energy-efficient retrofit measures than outright owners.
  • Interestingly, people with a mortgage appear to be more likely to invest than outright owners, as their status is linked to higher levels of income, longer length of plan to stay in the home, and probably a lower debt aversion.
  • Households living in detached or semi-detached houses are more likely to invest than households living in terraced dwellings, while households living in flats have less incentive to invest.
  • Households in London are less likely to invest than households in the North East region.
  • To maximize their impact, future energy efficiency policies should target the identified household groups with a low retrofit uptake.
  • A more detailed representation of the characteristics related to the dwelling in which the household live should be taken into account when designing energy efficiency policies.
  • The household groups identified with a high retrofit uptake could be targeted by Energy Service Companies (ESCOs) projects because of greater economies of scale.

The results of the study can influence current discussions about the household groups future interventions should target in order to maximise their energy and social impact and contribute to reach climate and energy goals.

 


Headline message
  • Identifying what leads to energy-efficient retrofit investment - and at what level they are made - can be crucial in creating opportunities for future energy policies to have a greater impact.
  • Future energy efficiency policies should target identified household groups with a low retrofit uptake – living in older dwellings, private or social rented flats, in London, with a short length of residence, and single – because of higher energy and social potential impacts.
  • The different characteristics of homes largely explain energy-efficient retrofit investments. Therefore, any intervention design should contain a more detailed representation of the characteristics of the dwelling in which the household live.

Methodology

Gianluca used data from the 2012 and 2013 English Housing Survey datasets as they contained information about reported energy efficiency investments, which the 2014 and 2015 datasets did not. To investigate the factors influencing the probability of English households to invest in at least one energy-efficient retrofit measure, he used a standard discrete choice probit model framework based on the following energy-efficient retrofit measures:

  • cavity wall insulation
  • solid wall insulation
  • loft insulation
  • double-glazed windows
  • biomass boiler/wood pellet stove
  • replacement of old storage heaters
  • replacement of a hot water cylinder
  • replacement of old warm air heating units

The majority of the above retrofits are directed toward reducing space and water heating use that is by far the largest portion of households energy use representing 80% of final energy consumption.

A probit model (the name comes from from probability + unit) is a regression where the dependent variable can take only two values, e.g. ‘no retrofit investments over the previous 12 months’ or ‘at least one retrofit investment over the previous 12 months’. In Gianluca’s model, the two values were represented by 0 or 1. There was also a latent, unobserved variable which established a linear relation between the variables of interest and determined the value of the dependent variable.

As previous research shows a strong relationship between the dwelling characteristics with space (and water) heating consumption and related energy-efficient retrofit investments, Gianluca included the following explanatory variables in the model:

  • dwelling age
  • dwelling type
  • dwelling tenure
  • length of residence
  • Government office region

Household characteristics such as household type and annual net household income (divided into quintiles) complete the group of independent variables Gianluca used in his investigation.

 


Data used from the UK Data Service collection

Gianluca’s study is based on combined data from the “English Housing Survey, 2012: Housing Stock Data” collected between April 2011 and March 2013 and the “English Housing Survey, 2013: Housing Stock Data” collected between April 2012 and March 2014.

The English Housing Survey (EHS) is a continuous national survey commissioned by the Department for Communities and Local Government that consists of an initial interview of around 13,300 households (‘full interview sample’) and a physical inspection of a subsample of approximately 6200 of the respondents’ dwellings to assess the condition and energy performance of the property (‘dwelling sample’).

With its rich set of determinants, the EHS dataset provides unique information about the English housing stock, household characteristics, and investments in energy-efficient retrofits made by English households over the previous 12 months.

Messages

  • Identifying what leads to energy-efficient retrofit investment – and at what level they are made – can be crucial in creating opportunities for future energy policies to have a greater impact.
  • Future energy efficiency policies should target identified household groups with a low retrofit uptake – living in older dwellings, private or social rented flats, in London, with a short length of residence, and single – because of higher energy and social potential impacts.
  • The different characteristics of homes largely explain energy-efficient retrofit investments. Therefore, any intervention design should contain a more detailed representation of the characteristics of the dwelling in which the household live.

Findings

Gianluca concluded that, compared to the socio-economic characteristics of households, the features of the dwelling are better predictors of energy-efficient retrofit investments:

English households living in houses built before 1990 and with a length of residence higher than 1 year are more likely to invest in energy-efficient retrofit measures.

The age of a dwelling usually affects its energy efficiency, and older homes typically have poorer insulation than modern homes. In addition, unless a household is not planning to move in the near future, are investments in energy-efficient technologies likely to be recouped.

Compared to households living in terraced dwellings, households living in detached or semi-detached houses are more likely to invest; also, results confirm that households living in flats have less incentive to invest.

Two lines of reasoning support such a finding:

  1. there is a strong correlation between the type of dwelling and its size. Detached and semi-detached dwellings are usually bigger and consume more energy than terraced dwellings, thus the households living in such houses have more incentives to reduce the energy consumption by investing in energy-efficient retrofit measures.
  2. 66% of the households living in flats belong to the two lowest income groups, and 80% of them do not own the dwelling in which they live.

Households living in private rented properties and social rented dwellings owned or managed by Local Authorities and Registered Social Landlords are less likely to invest in energy-efficient retrofits than outright owners (‘landlord-tenant problem’).

Landlords have little incentive to invest in the energy efficiency of their properties, given that it is the tenant who benefits from lower energy bills.

Interestingly, people with a mortgage are more likely to invest in energy-efficient retrofit measures than outright owners.

Evidently, the effects of home ownership mask trends in household income. In fact, households buying their home with a mortgage had the highest incomes, freeing up more income to pay for retrofits.

Another possible explanation is the concept of debt aversion. Since the financing of capital-intensive investments in energy-efficient retrofit measures may require households to rely on credit, households that have taken out a loan or mortgage to help purchase their home might be less averse to debt than outright owners. In addition, paying a loan or mortgage may also suggest how long the household plans to stay in the current home (leading towards recouping the investment).

Couples with independent child(ren) are associated with higher probabilities to invest than one-female households.

A couple with independent child(ren), may have more time than one-single (female) household to look for expert advices and may want to make the space heating consumption more efficient due to under-occupied spaces.

By Government office region, households living in London are less likely to invest than households in the North East region.

The likelihood here is that favourable weather conditions (less heating demand) and a busy lifestyle characterised by a high cost of time associated with a higher perceived inconvenience (‘hassle factor’), may result in less willingness and time to invest in energy-efficient retrofit measures.

 

Findings for policy

In order to achieve the ambitious UK government goals (as well as to support the recommendations of the IPCC Special Report on Global Warming of 1.5°C) Gianluca concludes it is important to rethink of UK residential energy efficiency policies.

The UK government goals are set by

  • the Clean Growth Strategy – upgrading as many as possible privately rented and all fuel poor homes to Energy Performance Certificate (EPC) Band C by 2030
  • the Climate Change Act 2008 – reduction in greenhouse gas emissions of at least 80% by 2050, relative to 1990 levels

Gianluca’s research suggests a number of policy implications.

First, future energy efficiency policies should target household groups with a low retrofit uptake – living in older dwellings, private or social rented flats, in London, with a short length of residence, and single – because of higher energy and social potential impacts.

Instead of a one-size-fits-all approach, targeted interventions towards the identified subset of households may also contribute to lower free-rider effects and improve the cost-effectiveness evaluation of incentive programs. If the number of single-person households, rented flats, people living in urban areas, and the price of electricity and gas continue to increase, the implications are even more crucial for a long-term energy demand reduction strategy.

Second, any intervention design should contain a more detailed representation of the characteristics related to the dwelling in which the household live, since they seem to be a better predictor than household characteristics of energy-efficient retrofit investments.

To improve the effectiveness of the Energy Company Obligation (ECO), a broader and more comprehensive representation of the households less willing or able to invest in energy-efficient retrofit measures could partially switch the focus of the ECO from households in ‘fuel poverty’ in the narrow sense to households in ‘most need’.

Finally, aside from informing policymakers on how best to design energy efficiency policies, the findings could also support a larger scale application of the ESCO activities in the residential sector, which are much less developed than in other demand sectors.

The household groups identified as having the highest rate of uptake or retrofit measures could be targeted by ESCO projects in order to achieve greater economies of scale.

ESCOs are groups of residents, housing associations and local authorities, sometimes working with energy companies – who have attempted to develop new models that re-balance priorities away from purely financial benefit towards the public good. The aim of Gianluca’s models is to try and reduce energy services costs and the accompanying environmental impacts. The reductions have generally been attempted by improving homes’ and businesses’ energy efficiency, through low and zero carbon technologies for producing heat and power as well as by making energy distribution systems more efficient. ESCOs strive to be more locally transparent and accountable.

 

Publications

Trotta, G. (2018). The determinants of energy-efficient retrofit investments in the English residential sector. Energy Policy120, 175-182. doi:10.1016/j.enpol.2018.05.024

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