Firms and households could be rewarded for becoming more energy efficient under proposals set out by the UK government today.

Published alongside the long-awaited Energy Bill, the ‘Electricity Demand Reduction’ consultation considers potential options to encourage permanent reductions in electricity use.

The Department of Energy and Climate Change (DECC) believes that there is the potential to go above and beyond existing policies and reduce electricity demand ‘substantially’. It claims that if a 10% reduction could be achieved by 2030 it would result in cost savings in the region of £4bn and a fall in carbon emissions of 4.5 MtCO2, the equivalent of turning off five power stations.

The consultation seeks views on a number of financial incentives, including:

• Premium payment – a feed-in tariff where, instead of receiving payment for energy generation, users are paid for each kWh saved through energy efficiency measures.

• Capacity market – the aim of the capacity market is to ensure there is enough reliable supply to meet demand. The current plan is for capacity to be provided by generation, demand side response and energy storage. However, it could be extended to include permanent demand reduction delivered through electricity efficiency measures. This in turn would attract a payment.

• Energy supplier obligation – this obligation could be placed on energy suppliers to deliver a specific target of electricity demand reduction. There are a number of ways this could work such as working directly with customers to support them implementing efficiency measures.

The consultation also seeks views on the potential for more targeted, sector-specific financial incentives. In the non-domestic sector this could include support for replacing technologies with more electricity efficient versions – such as installing lighting, heating, ventilation and air conditioning controls or LED lighting in non-domestic buildings.

The potential for voluntary schemes and information campaigns such as improved product information for consumers and better energy labelling, is also outlined.

The consultation warns that any additional initiatives would have to fit in with existing policies, such as the Green Deal, the CRC Energy Efficiency scheme and Energy Company Obligation, as well as the requirements of the EU Energy Efficiency Directive.

Industry feedback

The UK Green Building Council welcomed the proposals on energy efficiency commenting that it has traditionally been the ‘Cinderella’ of the energy debate and never given the prominence it deserves in an agenda dominated by the issue of energy generation.

Paul King, CEO at UK-GBC Green Building Council said: “After some major setbacks for its ‘greenest government ever’ claims, today’s announcements are much more encouraging than many – including ourselves – have been expecting. It’s great to see government bringing forward innovative proposals to reduce energy demand, but of course, it will be critical that they learn lessons from the feed-in tariffs debacle and the Carbon Reduction Commitment to ensure that this is done in the right way and provides the certainty industry needs to invest”.

WWF-UK also welcomed the launch of the consultation but warned that it had to deliver concrete results in the months to come if the UK was serious about moving towards a low-carbon economy at lowest cost to consumers.

Nick Molho head of energy policy at WWF-UK said: “Energy efficiency is a no-brainer for the environment, the economy and consumers and could reduce our power sector costs by more than £10bn a year by 2030. We have to go beyond saying warm words about energy efficiency and finally make of it a core element of our energy policy. The economic benefits at stake – and the risks if we don’t take them for people’s bills – are simply too big to ignore.”

The Electricity Demand Reduction consultation will close on 31 January 2013. Find out more.