F.K. Lyness 'OR and UK natural gas deple- tion strategy', European Joumal of Opera- tional Research, Vol 2, 1978, pp 160-7, and I.J. Whitting, Planning- Gas and the Future, Paper to Manchester and District Section of the Institution of Gas Engineers, September 1980. aFor example, M. Webb and M. Ricketts, The Economics of Energy, Macmillan, London, 1980, Chapter 3 and R. Lecomber, The Economics of Natural Resources, Macmillan, London, 1979, Chapters 5 and 6. 4Those who value and are willing to pay for the special advantages of gas. SThis is now known as the Required Rate of Return which nationalized industries are expected to earn on all investment. White Paper on Nationalized Industries, Cmnd 7131, March 1978. 6This memorandum is likely to be published when the Oil Depletion Enquiry is complete. 7For further discussion of these constraints, see J.A.D. Lister, W.E.H. King and J.A. Lacey, Augmenting Gas Supplies-A prospect for the future, Institution of Gas Engineers, Communication 1148, pp

15-16. On re-entry problems, see the British Gas Memorandum to the Select Committee on Energy's Oil Depletion Enquiry which is likely to be published when the enquiry is complete. sOn the relationship between depletion and exploration, see the questioning of British Gas representatives in House of Lords, Select Committee on the European Com- munities, Harmonisation of Energy Prices and Taxes, second report, HMSO, UK, 1980/1. 9For discussion of these see J. Chesshire and G. MacKerron, 'UK depletion policy', World Energy Review, James Capel and Company, UK, February 1981, p 7. lOThe oil taxation system applies to all gas supplied under contracts signed since 1975. The main provisions of the current system are described in A.G. Kemp and D. Rose, The 1981 North Sea Fiscal System, University of Aberdeen, July 1981, especi- ally pp 1-4. tqbid, especially pp 55-7. t2M.V. Posner, Fuel Policy: A Study in Applied Economics, Macmillan, London, 1973, p 198.

Improving insulation standards in existing dwellings There is increasing evidence that major inveslment in better insulation of domestic buildings is worthwhile and cost effective, whatever economic criteria are employed. This article summarizes the main issues involved in a major scheme of insulation improvements to UK housing, and presents key findings of the recent paper Improving Insulation in Existing Dwellings, published by the Electricity Consumers' Council and the National Consumer Council The two options recommended are ambitious, but necessarily so; given the behavioural arguments about motivation of individual consumers, anything less ambitious is unlikely to succeed.

Keywords: Insulation; Domestic buildings; Economics

In the last few years a number of studies have looked at the potential impact of domestic insulation, not only on the energy consumption of particular types of domestic dwelling but also on the national energy economy. One import- ant series of studies has been carried out at the International Institute of Environment and Development ( l IED) by a team headed by Gerald Leach. 1 Work has also been carded out by the Building Research Establish- ment (BRE) of the Department of the Environment 2 and by some other groups.

These analyses, which make use of discounted cash flow techniques to assess the cost effectiveness of various types and levels of expenditure on

domestic insulation, establish a cogent case for a major investment in domestic energy saving measures. The l IED argue that a package of insulation improvements costing £4000-5000 million in 1976 prices would be cost effective and lead to annual energy savings of £1000-1300 million. BRE suggest that similar expenditure of £3300 million at 1975 prices would produce savings of £800-900 million per annum. It is clear from this work that - irrespective of the precise details of the assumptions used - as far as the U K as a whole is concerned, major investment in better insulation is attractive and stands on its own as such, according to standard methods of appraisal. Moreover, it becomes more

Communicat ions on energy

attractive if fuel prices rise in real terms (as they have done since the above calculations were prepared).

The economics of investment in improving insulation may also be com- pared with that of investment in new power stations. There have been a number of attempts to analyse this, although none have as yet been par- ticularly satisfactory. 3 Nevertheless, there must be a strong supposition that it might be better for more priority to be given to investing in energy con- servation measures than in increasing energy supply. The need for an authoritative examination of this argument was recently emphasized by the House of Commons Select Com- mittee on Energy in its report on the government 's announcement on the new nuclear power programme. 4 The Committee stated:

• . .we were dismayed to find that, seven years after the first major oil price in- creases, the Department of Energy has no clear idea of whether investing around £1300 million in a single nuclear plant (or a smaller but still important amount in a fossil fuel station) is as cost effective as spending a similar sum to promote energy conservation.

It went on to argue:

• . .it is not necessarily a matter of choosing between nuclear plants and conservation... The point is that if the discounted net economic benefits of both expenditures were positive and large, it would be worth spending on both. It would certainly indi- cate the need to encourage conservation by far more effective fiscal and other incentives than the Government has employed so far.

This last point is important because, while the national economic case for improved insulation may be clear, in the domestic sector what counts is the motivation of individual households to improve the insulation standards of their homes.

There is a wide variation in the rate at which people acquire various types of insulation. Work has been carried out in the Department of Social Psychology of the London School of Economics and Political Science s which applies behavioural science to energy use. This has shown that there are a number of factors which predis- pose individual consumers to im- p r o v e - or inhibit them from improv- ing - the insulation standards of their homes• It is found, for example, that

E N E R G Y P O L I C Y March 1982 61

Communications on energy

there is a positive correlation between education level and the likelihood of an individual adopting conservation measures, that people are more likely to insulate their homes if they are con- scious of their energy consumption, but that many people simply do not know how to save energy.

This work clearly has implications for the effectiveness of government poli- cies to encourge personal energy saving. A study 6 of the S A V E IT energy conservation campaign during the 1974/76 period has confirmed that the desire to save money on energy is not directly translated into investment in particular insulation measures, un- less the individual concerned is aware of the specific benefits that will follow. Moreover, as some capital outlay is required, this may put some insulation measures beyond people's capacity to pay. The study concluded that, al- though the saving on money is the prime motivator to save energy, most people 's financial interest is short-term and this is likely to

• . .act against investment expenditure on energy-saving devices unless the consumer is convinced of a clear, and not too lengthy, payback period.

Thus, the key issue is how much indi- viduals are prepared to spend in the present to achieve future gains in terms of lower fuel expenditure.

In an important article in Energy Policy, Guy Doyle and David Pearce summarized 7 the main problem with low energy scenarios which rely heavily on conservation measures, as the need to provide an incentive for conserva- tion, since:

• . .individual consumers of energy do not adopt the same time horizon for energy con- servation as a government acting on their behalf would• In the more popular termin- ology, the argument is that individuals typically seek a 'payback' on their conser- vation investments - ie total recoupment of their expenditure - in 2-3 years•

A recent discussion paper, Improving Insulation in Existing Dwellings 8 looks at the different ways in which better insulation can be promoted, and con- siders the encouragement which ought to be given to ensure that the measures appropriate for individual dwellings are actually carried out. The paper reviews ten possible models of schemes

to promote improved insulation in existing housing against a range of criteria. The models range from com- paratively non-interventionist approaches - allowing the price mech- anism to be the sole agency for en- couraging people to insulate their homes, or alternatively relying on p u b l i c i t y - to others involving direct financial assistance or even those that aim to achieve comprehensiveness by some form of regulation or compulsion•

It is clear, however, that a major commitment of resources is needed if all the insulation measures that could be justified, as far as the community's energy saving is concerned, are to be carried out. Inevitably, this means that in one way or another a fairly inter- ventionist strategy has to be adopted•

There are essentially two options. One is based firmly on the voluntarist principle and would require a combi- nation of several measures. The second involves a direct approach which would seek to achieve a comprehensive coverage in a way similar to the North Sea gas conversion programme.

The first option would involve a major package of measures, including the following:

• Much better publicity, kept up over longer periods, to encourage people to insulate their homes and to stress the national importance of energy saving.

• A bet ter energy advice network, perhaps with a number of specialist centres (like Newcastle's Energy Advice Unit) providing support to existing advice services and help- ing voluntary consumer and com- munity agencies to give effective advice on energy issues.

• A home energy audit service, which could be provided by a variety of organizations, including the fuel industries, local authori- ties and voluntary bodies.

• More publicity for existing loan schemes run by building societies to finance insulation improve- ments, and a possible use of the fuel industries' powers to make loans for insulation.

• More help for local insulation projects, sponsored by voluntary organizations (in this context the

government 's support for the work of Neighbourhood Energy Action is to be welcomed). This can also be linked with employment pro- motion measures.

• Local councils should sponsor local insulation projects, particu- larly those focusing on the house- holds that most need help with insulation.

• Local authorities should be asked to report regularly on their energy conservation activities and pro- gress, and should have adequate funds specifically available for improving the insulation of council housing.

The important feature about this option is, however, that these measures would need to be implemented in com- bination, since none of them would be adequate if accepted in isolation.

The second option is a comprehen- sive direct insulation programme. This would seek to cover all the homes in the UK, to bring them up to appropriate insulation standards• Teams of insula- tors, under supervision, would make the necessary improvements house by house, street by street and district by district. It might be feasible to deal with those most in need first, but in practice the cheapest arrangement would pro- bably be a phased programme dealing with all the dwellings in a particular locality at the same time.

The scheme would need manage- ment and funding by a government funded national body; by local authorities (who would have to be made responsible by law for doing the work and be given the necessary funds); or by the fuel industries (which would involve legislation and again government money).

Both of these options are ambitious in their scope. However, if it is accepted that a major investment in domestic insulation is necessary, and given the behavioural arguments about how individual energy users are likely to respond to incentives, it seems that anything less ambitious is unlikely to succeed.

Toby Harris Electricity Consumers' Council

London, UK

62 ENERGY POLICY March 1982

tSee, for example, G. Leach et al, A Low Energy Strategy for the United Kingdom, lIED, and Science Reviews, London, 1979. 2See, for example, Energy Conservatlbn: A Study of Energy Consumption in Buildings and Possible Means of Saving Energy in Housing, BRE Working Party Report, CP56/75, Building Research Establish- ment, Garston, Herts, 1975. aOne example is contained in Energy Options and Employment, Centre for Alter- native Industrial and Technological Sys- tems, 1979, but this should be seen in con- junction with a critique by D. W. Pearce, Employment and Energy Futures in the UK: An Analysis of the CAITS Scenario, Depart- ment of Political Economy, University of Aberdeen, 1979. 4The Govemmenfs Statement on the Nuclear Power Programme, First Report from the Select Committee on Energy,

House of Commons, Session 1980/81, HMSO, London, 1981. 5See, for example, G. Gaskell, P. Ellis and R. Pike, The Energy Literate Consumer: The Effects of Consumption, Feedback and Information on Beliefs, Knowledge and Behaviour, Department of Social Psychology, London School of Economics and Political Science, 1981. 6N. Phillips and E. Nelson, 'Energy savings in private households - an integrated research programme, Joumal of the Market Research Society, 1976, Vo118. 7G. Doyle and D. W. Pearce, 'Low energy strategies for the UK - economics and incentives', Energy Policy, Vol 7, No 4, December 1979, pp 346-351. Slmproving Insulation in Existing Dwellings, Electricity Consumers' Council and National Consumer Council, London, 1981.

Geothermal energy in Kenya Kenya has joined the list of countries that generate electricity from geothermal sources. A 15 MW geothermal station at Olkaria, near Lake Naivasha in the Rift Valley, began operating in August 1981 and is already providing Kenya with 7% of its electricity needs, at an economic cost.

Keywords: Electricity; Geothermal; Kenya

Other African countries in the Rift Valley - Uganda, Zaire and Ethiopia - are watching the progress of the £43 million Olkaria plant with considerable interest. The possibility of avoiding oil imports, at least to some extent, is highly attractive. Before the opening of Olkaria, two thirds of Kenya's electri- city was generated by imported oil, with most of the remainder provided by hydroelectricity.

The Olkaria unit uses 19 wells to tap 1980 Capacity (MW) steam from a geothermal reservoir 5

USA 923 miles square, three quarters of a mile Japan 168 below the surface. The steam drives a Italy 440 generator which feeds into Kenya's New Zealand 202

USSR 5 nat ional grid. Turkey 0.5

The opening of the plant raises key Iceland 32 questions as to whether the potential of France 0 geothermal, which has tended to be Tom/North 1771 dismissed as only marginal, could be Mexico 150

Philippines 446 much greater than is generally recog- El Salvador 95 nized. Costa Rica 0

Geothermal energy results f rom Nicaragua 0 Indonesia 0.25 temperatures in excess of 1000°C which Ethiopia 0 exist deep below the earth's surface. Kenya 0

Chile 0 The resultant thermal gradient creates a heat flow to the surface. The highest TotalSouth 691 heat flows are found along fault lines - World total 2462 a ear thquake and volcanic zones.

Italy, the USA and the Philippines

generate three quarters of the energy presently obtained from geothermal sources, but by the year 2000 nearly 40% of geothermal plants are likely to be in the Third World (see Table 1).

The cost of generating energy from geothermal sources appears highly competitive. A BP briefing paper 1

Communicat ions on energy

estimates that electricity can be generated from geothermal sources at a cost of 1-3p/kWh, compared with about 2p/kWh for coal and oil fired plant. The paper estimates however that by 2000, the cheapest way of pro- ducing electricity could be from geo- thermal, coal and hydro sources, at a cost of around 4p/kWh.

With the rising cost of imported oil, the incentives for non-oil developing countries to develop their geothermal zones are considerable. Kenya expects to open a second 15 MW unit at Olkaria early in 1982. The two units will enable the country to reduce its oil imports by around 200000 bbl/year.

The attraction to Kenya of develop- ing the Olkaria and other fields can be appreciated from the fact that the foreign exchange which Kenya earns from its largest export crop, coffee, is spent entirely on imported oil. Substi- tution of oil by geothermal energy would put Kenya into a stronger eco- nomic position.

But what makes geothermal energy a source with considerable potential not only in the seismic zones but in every country, is the possibility of tapping it from hot dry rocks as well as from underground reservoirs. At present, for geothermal heat to create a usable energy source, geological conditions must allow the formation of a geo- thermal reservoir. Whereas such reset-

Table 1. Geothermal electricity generating capacity, 1980 and 2000.

2000 (% of world total) Capacity (MW)

38 5824 7 3668

18 800 8 382 0 310 0 150 1 68 0 15

72 11217

6 4OOO 18 1225 4 535 0 380 0 100 0 92 0 5O 0 30 0 15

28 6427

100 17644

(% of world total)

33 21 5 2 1 1 0 0

64

23 7 3 2 1 0 0 0 0

36

100

aThe equivalent of about 50000 bbl oil/day. Source: UN Conference on New and Renewable Sources of Energy, Nairobi, August 1981.

E N E R G Y P O L I C Y M a r c h 1 9 8 2 6 3