Scottish Government

5 Current Market for Energy Efficiency and Microgeneration in the Built Environment

5.1 In 2009, the total level of investment directed towards the retrofitting of all housing and non-housing buildings was estimated to comprise just 2.5 per cent of new work construction output statistics ^[17]. This is a small proportion when compared to the housing and non-housing Repair & Maintenance retrofit markets' overall shares of 16.3 per cent and 9.3 per cent, respectively. Although investment and construction output are not strictly comparable, this estimate helps to give an idea of market sizes and was developed from available data outlined below.

5.2 The Scottish Housing Condition Survey ( SHCS) provides estimates on the average yearly cost for installation of insulation and double glazing in Scotland over the last three years, ref. Table 2 below. This covers work done by householders and landlords.

Table 2: Average Total Installation Cost per Year in Scotland, 2007-2009

Source: Scottish Housing Condition Survey

5.3 These figures support estimates developed using additional historic data from two alternative sources, however there is a difference in estimates of the insulation costs as the average cost for wall insulation from SHCS is less than £300 per installation, similar to estimates for average cavity wall costs, although significantly lower than solid wall insulation. A survey carried out in 1996 by Construction Forecasting and Research ( CFR) on the GB Private Home Improvement Market gave a total expenditure on house insulation of £83m. The report indicated that 19% of the housing stock was built pre-1918, and was therefore not suitable for cavity wall insulation. In addition the figure of 13% of total expenditure on pre-1918 property (£11m) implies that in 1996 a limited amount was spent on solid wall insulation across Great Britain. Details on solid wall insulation are captured with the SHCS, however the low sample size base makes it difficult to draw conclusions.

5.3 If the total expenditure of £83m on insulation across the 15.6 million households in Great Britain, is taken into account with this level of spending pro-rata across the 2.1 million households in Scotland, this gives a rough estimate of a £11m market for home insulation in 1996. Therefore it can be estimated that around £1.5m (13 per cent of total expenditure on insulation in Scotland) was spent in homes built before 1918.

5.4 In order to contextualise this figure within a more current timescale, the size of the house insulation market in Scotland can be projected by applying the overall increase in housing repair and maintenance output to the insulation figures, and adding in an assumption that energy efficiency measures have been taking an increasing share of the market since 1996. A compound increase in insulation share of 0.4 per cent a year could be applied which gives an estimated value of the house insulation market in Scotland as around £95m in 2008.

5.5 This estimate is close to the figure derived from research conducted by Market and Business Development ( MBD) whose data showed that the building thermal insulation market in the UK was worth £889m, having grown by 6 per cent in 2008, which is a robust increase despite the difficult economic climate. However, it must be remembered that this figure is for the entire UK built environment stock and thus would include other buildings which are not used for public and private housing. Therefore since the National Accounts show that homes accounted for 88% of the total built environment stock in the UK, it can be estimated that £782m was spent on housing insulation across around 22 million households in 2008.

5.6 If it is assumed that the average level of expenditure on insulation across Scottish households was on par with the UK in 2008, the market for thermal insulation can be calculated to be worth around £83m, according to the MBD estimates.

5.7 The CFR/ BSRIA 1996 survey of repair, maintenance and improvement ( RM&I) expenditure by owner occupiers provides some useful data on the level of expenditure on energy efficiency measures in that year. Approximately £2.4bn was estimated to have been spent on double glazing across the UK - giving a pro-rata split of £258m for Scotland. If these figures are projected using the output growth rates for the housing R&M sector, the expectation is that the market was worth £406m in 2009. Using the same method, the boiler replacement market can be estimated to have been worth £47m over the same period.

Table 3: Estimated expenditure in Scotland on the retrofitting of domestic energy efficiency measures in Scotland, 2008-09

Source: Construction Forecasting & Research/Experian, MBD.

5.8 In relation to microgeneration installation a report in 2008 'The growth potential for microgeneration in England, Wales and Scotland' by Element Energy estimated that around 95,000 to 98,000 microgeneration units were installed in the UK in 2008 and applying a pro-rata split for Scotland gives a total figure of almost 10,200, with solar thermal comprising the largest proportion of installations - 94%, or in absolute terms, approximately 9,520, ref. Table 4 below.

Table 4: Approximate cumulative number of microgeneration installations in Scotland by 2007

Source: Element Energy: The Growth Potential for Microgeneration in England, Wales and Scotland, June 2008

5.9 Figures released recently from Ofgem ^[18] on Feed-in Tariffs, which includes installations transferred over from the Renewable Energy Obligation scheme, show a total of 554 grid connected installations in Scotland, as of Dec 2010. Obviously this is an increase over the corresponding 2008 estimate, which indicates 429 grid connected systems, however not a significant up-surge in the level of uptake. The details also show that in terms of installed generating capacity, micro wind and micro hydro account for nearly 90% of capacity in Scotland, whereas in other areas of England and Wales it is photovoltaic systems that make up the largest share of installed capacity. Scotland has a natural advantage for both wind and hydro micro-power generation, however it should be noted that these figures include larger commercial, industrial and community based schemes with significantly higher installed capacity than a typical domestic installation. The UK Government has recently announced a review of the Feed-in Tariff levels ^[19].

5.10 The Element Energy (2008) ^[20] report stated that demand for microgeneration units was ' heavily underpinned by ( UK) government funding and other supporting initiatives'. Furthermore, the greater cost of installation of these types of measures in comparison to insulation meant that only a very small proportion of consumers went on to make a purchase. These points are also made by Ownergy's report ^[21] on the initial uptake of feed-in tariffs which cites lack of finance, the initial capital outlay and speculation about possible lowering of feed-in tariff rates as challenges, especially for residential customers.

5.11 What this shows is that Scotland, like other areas of the UK has developing aspects of the built environment that are linked into energy efficiency and microgeneration investment. However as the initial estimate and details show, compared to the overall construction output figures, energy efficiency and microgeneration comprises a small percentage of current construction work, ref. Chart 2 below.

Chart 2: Current % share of energy efficiency and microgeneration against construction output for Scotland, 2010

Source; ConstructionSkills, Experian

5.12 Although the current share of energy efficiency and microgeneration related work contributes a small percentage to overall construction output, in recent years this type of work has been beneficial to the industry which has suffered from falling workloads due the banking crisis and recession, Chart 3 shows the output data for the last ten years and following growth from 2002. The recession in 2008/2009 resulted in a 12% drop in work load, mainly in new work sectors such as private housing and commercial work and this drop in workload would have been further if programmes to support energy efficiency and microgeneration had not been in place over the last two or three years.

Chart 3: Construction output in Scotland, 2001 - 2010

Source; Construction Skills Network, Experian

5.13 To make the gains required and meet future greenhouse gas reduction targets, there will need to be continued investment across all sectors of the built environment, coupled with innovative ways of financing to increase demand, which will increase the % share of energy efficiency and microgeneration related work. While there is a developing market, ways need to be found to incentivise businesses to get involved, to build on what's already happening as well as changing consumer perceptions and expectations.