Task 4: Full Cost Benefit Analysis
1.19 Cost benefit analysis
235. Based on the build/fuel mix, capital and lifetime costs, benefits and transition period defined in Section 5, the national costs and benefits for the improved and advanced 'with fossil fuel' cases compared with continuation of the existing 2015 standards are shown in Table 1.19a. The analysis is based on the HM Treasury Green Book standards and the accompanying supplementary guidance on the valuation of energy use. Relevant assumptions include:
- Energy savings are valued at the variable rate in accordance with the supplementary Green Book guidance. This is appropriate for social analysis and assumes that the retail energy savings enjoyed by the consumer occupying an energy efficient building does not fully reflect the social benefit.
- The appraisal time period for estimating the impact of the policy is 10 years with a consistent build rate and mix in each year equivalent to that forecast for 2021. We assume a 60 building life from the year of construction resulting in a total model period of 70 years.
- A discount rate of 3.5 per cent has been used for the first 30 years of building life and 3 per cent for subsequent years.
- Construction costs are in 2020 prices energy and carbon prices and costs are in 2019 prices all results are presented in line with a 2021 policy implementation year.
- Similar to the approach taken in MHCLG's recent consultation Impact Assessment (MHCLG, 2019h), this analysis does not include any comfort taking for new dwellings.
|Element||Section 6 2021 Improved fabric, no change in heating fuel|| Section 6 2021
Advanced fabric, no change in heating fuel
|Energy savings (£M)||417||483|
|Incremental costs (£M)||(609)||(1,171)|
|Total financial benefit/(cost) (£M)||(192)||(688)|
|Carbon savings - non-traded (£M)||153||346|
|Carbon savings - traded (£M)||36||31|
|Total carbon savings (£M)||189||377|
|Air quality savings (£M)||50||61|
|Net benefit/(cost) (£M)||46||(250)|
|Amount of gas saved (GWh)||9,647||24,122|
|Amount of electricity saved (GWh)||12,087||10,621|
|Amount of CO2 saved, non-traded (MtCO2(e))||2||5|
|Amount of CO2 saved, traded (MtCO2(e) )||1||0|
|Cost effectiveness, non-traded (£/tCO2)||50||125|
|Cost effectiveness, traded (£/tCO2)||(19)||594|
236. The results show that Option 1 results in a net benefit of £46m once the benefits of carbon savings are considered, while Option 2 results in a net cost of £250m. This difference is principally driven by the incremental capital, renewal and maintenance costs associated with Option 2 being nearly double those for Option 1. While Option 2 delivers a larger saving in energy use compared to Option 1, the difference in energy costs is relatively small at just over 15%. The smaller difference in energy costs between Options 1 and 2 is in part due to the increased electricity consumption for Option 2 as a result of the use of MVHR in homes built to these specifications. While this additional electrical consumption has little impact on carbon emissions it does increase running costs.
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