The new review will look at current incentives for electricity suppliers to buy power from generators connecting at the level of the distribution network, licensing and standards for connection of small generators, and the costs and benefits for district network operators in upgrading their networks to accommodate more small scale generation.
"Making it easier for people to sell surplus electricity back to the grid and looking at the potential of new combined heat and power domestic boilers must be considered," says Alistair Darling, secretary of state for trade and industry. "We want to understand the barriers to generating energy locally in large buildings like hospitals, hotels and universities." The deadline for responses to the consultation is January 2.
The Renewable Energy Association (REA) welcomes the action on distributed energy, but says it is just a first step which must be followed by an agenda for far-reaching change to the energy system. The old energy system, which did not cater for power plant connected to the distribution grid, will not meet the challenges of climate change and energy security, says the REA's Philip Wolfe. The UK will need to use far more renewables, much of which will be decentralised. "Making the most of these technologies means that we have to change the way we develop and manage our electricity networks and the way we meet our demand for heat." This needs a comprehensive change to the energy regulator's remit, states the REA.
Ofgem chief executive Alistair Buchanan argues that the regulator has already taken action to help more locally-based generators connect to their grids. This includes incentives for network owners to invest in research and development to allow them to respond to the growth in renewables.
Ofgem is also concerned about facilitating micro generation, or home power, although micro generation's contribution to electricity supplies can only be minimal, a fact the British Wind Energy Association (BWEA) has been at pains to point out. Nonetheless, Ofgem has been pushing electricity retailers, referred to as "suppliers" in the UK, to make it easier for people to generate electricity from their homes and sell surplus power to the grid. It wants retailers to act as a one-stop-shop to advise on installing micro generation units and to simplify arrangements for buying electricity.
"Suppliers need to compete against each other to raise their game and address these issues so they can respond to the growing numbers of customers that want to generate their own power," says Buchanan. "If they are unable to do that successfully, then new legislation could force us to set prices and terms for the sale of surplus electricity back to the networks."
For its part, Ofgem is removing regulatory barriers to micro generation, and making it easier for small generators to claim and sell Renewables Obligation Certificates (ROCs), he adds.
Micro generation is very much in vogue with government. It is keen to promote the concept of very local micro-generation from small scale units in community buildings and homes to help cut carbon emissions. The BWEA advises caution, however. In evidence to the government's Energy Review, the association demonstrates that the potential from micro-wind turbines is "very small." By 2020 micro wind could supply no more than 0.5 TWh (0.1% of electricity demand). Slightly more promising is the outlook for small wind turbines, with rated capacities of 20 kW to 100 kW. Here there is scope for about 1200 MW capacity, or 2 TWh of power, says BWEA.
Undeterred, Darling still insists there is huge potential for local energy involving individuals, businesses and communities. "More and more people want to generate their own electricity at home and people can now buy the products on the high street. Solar panels, wind turbines and greater energy efficiency can help cut emissions and the impact on the environment," he says.
There are some 80,000 so-called micro generation units in British homes. This figure, however, includes about 70,000 solar panels for water heating. True micro-generation facilities include a few roof top wind turbines. That number is set to grow rapidly as do-it-yourself (DIY) stores are starting to sell small wind turbines and solar power units. DIY giant B&Q reports that since the £1500 Windsave mini turbine went on sale in the chain's stores in October, it has become its biggest selling product line in value.
Meantime, in Edinburgh, the city council has waived the need for householders to obtain planning consent for micro wind turbines and solar power on their homes in an effort to meet targets for cutting carbon emissions. The new planning rule applies to all buildings except those in conservation areas. And Welsh environment minister Carwen Jones says the Welsh Assembly government will support proposals to relax planning consent for micro generation on homes in Wales.
Between them, the UK government's Department of Trade and Industry (DTI) and the Department of the Environment and Rural Affairs are announcing new initiatives to pave the way for micro generation on what seems to be at least a monthly basis. Climate change and environment minister Ian Pearson has called on energy companies and high street banks to offer low-cost finance to boost the take-up of micro generation systems. It should be as easy to get finance for a wind turbine as it is for a sofa, he says. "This could be through credit or loans, or it could be an energy service contract with the cost rolled up with a customer's energy bills. Green mortgages or long term leasing are other options."
The DTI, meantime, has announced an additional £6.2 million in grants towards the cost of micro wind turbines and solar panels on houses. This almost doubles the pot of grants for householders to a total £12.7 million, which should provide funding up to 2008, the DTI claims. Not to be outdone, the leader of the Conservative party opposition, David Cameron, has said he will fit a wind turbine to the roof of Number 10 Downing Street if he becomes Prime Minister. He is already putting a small wind turbine on the roof of his London house.