Why housebuilders are footing the bill for renewable energy

What do we want?" “Green energy!” “When do we want it?” “Now!” Housebuilders and developers may not yet be waving placards outside the gates of the major energy companies – but there is certainly a growing demand for them to get involved in the emerging green homes market.

The new year has brought a fresh urgency to the eco-development agenda – one which depends on the major energy companies getting on board. Key figures on both sides say 2008 will be the year when the development industry and the energy companies lay out their communal future – a crucial step if the government’s pledge for zero carbon homes by 2016 is going to succeed.

“It has taken a while for the energy companies to say ‘this is going to be a large part of our market’,” admits Barratt chief executive, and former British Gas managing director, Mark Clare. “But momentum is starting to build now. Linkages are starting to be put in place.”

Yet there is growing frustration among certain housebuilders at what is perceived to be the energy companies’ reluctance to get involved. Those at the forefront of the fledgling green buildings movement will this year submit pilot projects for planning, and are struggling to find major energy companies willing to service their new, rather particular, needs. Some claim this is hampering the deliverability of greener projects.

One affected development is Gallions Park, a 260-unit flagship zero-carbon energy scheme in east London, trumpeted by the mayor as a model to be rolled out to every London borough. Arup director Chris Twinn, who is working with Crest Nicholson, BioRegional Quintain and Southern Housing Group on the scheme, says the dearth of energy companies willing to get involved means the development team has been forced to supply and manage their own power needs. There are whisperings in the industry that this issue has been a serious blow to the scheme and has set the project back. “The developer has taken on the role of energy supplier in this scheme, which is not its core business,” Twinn says. “This involves regulations and billing they are not familiar with, and which they would happily hand over to someone else. Given these conditions, it is not surprising that the industry is not willing to move quickly on zero carbon homes.”

Clare’s own Barratt Homes, which is working on English Partnership’s first eco-village in Bristol, Hanham Hall, has also found itself struggling with its energy supply. “By and large, we are doing on-site renewables ourselves now,” Clare admits. “At Hanham Hall, we are effectively without an energy services company (Esco). But this is an interim measure – it is not how it will be in the end. Eventually we hope to have one on board. The problem for housebuilders is that supplying energy is not our core business. It will be quite challenging.”

Former English Partnerships sustainability director Dan Epstein believes it is impossible for housebuilders to build successful zero carbon homes schemes alone, and says it is a mistake to ask them to do so. “Beyond level four of the Code for Sustainable Homes a large factor in compliance involves renewable energy – and that’s for the energy companies,” he says. “There needs to be much closer relationship between the energy companies and the housebuilders.”

There are a handful of Escos in the market, but it is widely acknowledged that there are not enough to work on all the proposed green schemes. This means the existing Escos are able to handpick the projects they work on, which are, understandably, the largest schemes with the greatest commercial gain. What is more, they often involve gas-fired combined heat and power, as opposed to renewables, as the technology is more established and reliable.

‘The developer has taken on the role of energy supplier in this scheme, which is not its core business

Chris Twinn, Arup

“There is a crisis in the Esco market,” says Peter Walker, managing director of EcoCentroGen, an Esco that has worked with developers Urban Splash and City Lofts. “There are not enough mature businesses out there to service the needs of the development community.”

The rare energy companies attempting to engage in this sector have complaints about the development industry, too, highlighting the gulf between the two sectors. They say housebuilders must learn to adapt to new ways of working. “It is difficult to engage with a developer who has a very particular point of view. For us, that is quite a challenge. The solution is to engage us right upfront, at the very beginning,” says Andrew Rothery a manager in the sustainable energy solutions division at E.On.

But the real problem, most agree, is that the major energy companies won’t invest in new energy services divisions until market conditions are right – and the current set up means there is too much regulation to make it commercially viable. The government has been pushing energy companies to set up and sponsor Escos for quite some time now but they have always refused, arguing that demand is not there.

David Greene, chief executive of the UK British Council for Sustainable Energy, has been working with the Home Builders Federation on this issue for over a year. He says government changes to the energy markets in 2000 mean that the six major energy companies in the UK are geared up for national, mainstream delivery, not smaller, local generation, as demanded by the Code for Sustainable Homes.

He insists that energy companies will only consider putting money into the necessary localised infrastructure once the regulatory framework changes – and only then if it makes good commercial sense.

“There won’t be heavy investment until the right rules are established,” agrees Charles Bradshaw-Smith, innovation director at energy firm E.ON, which has set up an energy services division. “Most energy companies are taking steps in the right direction but in reality this is the creation of a whole new industry. The rules have to be right for us and it won’t happen overnight.”

“There will be a radical change in the way we generate and distribute energy,” agrees Nick Doyle, head of sustainable development at property group Places for People. “Who runs this is the next question. But someone has to do it, and fast, because we absolutely cannot have zero carbon homes without renewable energy.”