Micro-generation is the generation of heat or electricity at the household, business or local community scale. It uses technologies such as solar PV or thermal panels, micro wind turbines, biomass technologies, ground- and air-source heat pumps and micro-CHP. It allows households to become energy generators, and provides electricity or heat at the point of demand. In the UK 20 per cent of domestic GHG emissions arise from water heating, and another 50 per cent from space heating. Solar technologies can reduce these emissions significantly today, and the Energy Saving Trust has estimated that micro-generation technologies could provide 30-40 per cent of UK electricity demand by 2050 (EST, 2005).

In recent years micro-generation has captured the imagination of politicians, the media and many citizens in the UK in a way that energy saving or efficiency never had. In early 2007, UK government grants for micro-generation technologies under the Low Carbon Buildings Programme were so popular that they were used up within hours of becoming available. Some have described micro-generation, possibly unkindly, as 'green bling' (meaning highly visible, attention-seeking adornments). It appears to satisfy both the modern desire to consume high-tech products and the wish to display a social conscience by doing something about climate change.

Not surprisingly, politicians of all shades have jumped on the microgeneration bandwagon. The UK's Conservative Party leader David Cameron said in December 2005 that 'micro-generation and local distribution networks have the potential to capture people's imagination. Many people want to lead more environmentally responsible lives' (Cameron, 2005). The former Secretary of State for Trade and Industry,

Alan Johnson, said in a speech in early 2006: 'I want to work at making [micro-generation] the new "must have" gadget for your home. The iPod of the energy world' ( Johnson, 2006).

Though such hype may be excessive, there are early indications that micro-generation may initiate behavioural change, with those who install such technologies likely to become more aware of their overall household energy use (Dobbyn and Thomas, 2005). More importantly, it is significant that micro-generation technologies provide visible signals of zero or low carbon energy use, both to those who install the technologies themselves and to people in communities around them (Dobbyn and Thomas, 2005). Clearly more research is required to fully establish whether there is a direct link between micro-generation and behavioural change, but early signs are positive. Combined with measures such as smart meters and improved housing stock, micro-generation could play a key part in enabling people to become more like the 'green citizens' described above. It also allows organisations such as local authorities, schools and housing associations to become active generators (and even exporters) of heat and power.

Despite increased interest from both households and policymakers, the number of micro-generation installations in the UK remains low, at around 100,000. There are several challenges to deal with before the industry can reach a mass market. In practice most micro-generation technologies are relatively expensive and have long payback times. Some consumers are discouraged by the perceived risks of investing in new technology and by regulatory barriers, such as the need for planning consent or inadequate information provision (Watson et al., 2006). In the UK weak economic incentives for those wishing to invest in microgeneration are acting as a significant brake on investment. These are important since upfront costs are a particularly important barrier for households (Oxera, 2006). UK support under the Low Carbon Buildings Programme has been characterised by stop-start availability of funds, which is not the best way to build confidence among citizens or the nascent micro-generation industries the programme is designed to support.

While better funded and organised grant programmes would be desirable, this model may not be the best in the longer term. An alternative would be to level the playing field between micro-generation and other energy investments (Watson et al., 2006). In the UK power generators and companies that implement energy efficiency measures have access to tax breaks (capital allowances). These mean that they can write off a significant proportion of the upfront costs against their tax bill, often in the first year. There is no fundamental reason why micro-generation

(which is also an investment in energy infrastructure) should not benefit from similar treatment. Individuals have been able to offset the costs of some of their other activities against their income tax bill for some time. Examples include the purchase of a bicycle, teleworking and the costs of childcare. If such a tax reform were implemented alongside changes to the electricity market (discussed below), the economic incentive would be as big as that from the Low Carbon Buildings Programme.

The other essential element of incentive packages for micro-generators is a payment for any excess power exported to the grid (Watson et al., 2006). In the UK the level of this payment is entirely at the discretion of the company that supplies electricity to the household concerned. In some cases, the terms offered have been poor and the government has refused to develop proposals on what a fair price should be. There is an argument that micro-generated electricity is not worth very much because the amounts are too small to feed into the main wholesale market, but this misses the point. From a longer-term perspective, it is the market that needs to be reformed so that generators of any size are able to realise the economic value of the electricity they produce.

The UK experience compares unfavourably with the situation in other countries. In Germany, for instance, predictable and generous 'feed-in tariffs' have led to a much more vibrant market in micro-generation. This has particularly benefited solar PV, but has also helped to diffuse other technologies. German householders know that they will earn income for 20 years from their electricity, and are often able to access special low interest loans to help with the upfront costs. Under these conditions, they are prepared to invest in large numbers. In theory, renewable microgeneration installations in the UK are also eligible for incentives from the Renewables Obligation based on the amount of power they generate. But this scheme is much less generous than the feed-in tariff. It is designed for larger renewable installations and is too bureaucratic for most householders to bother claiming the rather small sums on offer.

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