Small-scale energy generation, or microgeneration, is not a new concept and householders were using solar water heating systems long before the 1970s energy crisis. However, it was the oil price shock that brought the concept of small-scale energy production to the public’s attention, creating what promised to be a thriving market for household microgeneration systems. While falling oil prices have depressed this market, some homeowners have persisted with DIY generation of energy from renewable sources.
During the 1970s, when oil seemed set to break the $50 ($100 at today’s prices) per barrel barrier, energy derived from renewable sources was on the verge of becoming competitive with energy generated by burning fossil fuel. The reason the alternative energy market did not disappear completely when oil prices fell is that, for some householders, the decision to invest in their own generating equipment was motivated by emotion rather than economics. These householders wished to reduce their carbon footprint by replacing some of the energy generated by burning fossil fuels – which they use to heat and light their homes – with energy derived from renewable sources.
Recently the cost of fossil fuels has begun to climb again. This time price rises are steady and uniform and, so far, the industrial economies of the developed world have been spared an oil price shock. Even so, householders have started to spend money on small-scale energy generation equipment. Energy consumers keen to reduce their carbon footprint have been joined by householders who believe that oil prices will continue to rise as will the cost of heating their homes. The idea of having an energy generation system under their own control is attractive for householders who are currently dependent on expensive and insecure energy supplies. As well, the prospect of selling surplus energy back to an incumbent energy provider is an added incentive for potential purchasers of microgeneration systems.
In the US, 61% of the housing stock is detached. If the owners of just 10% of these 70 million houses installed a single kilowatt of energy generation capacity, up to 7 Gigawatts of energy demand would be removed from the grid and annual demand for fossil fuel could be reduced by the equivalent of 14 million barrels of oil. However, there are a number of key issues that have to be addressed as the market for small-scale energy generation installations residential use develops. Choosing the most suitable technology – solar, wind, geothermal or hybrid – for a particular location will be key to the success of the installation. As the householder is basing investment on projected fossil fuel prices, there is the potential for the formation of a market bubble that distorts investment decisions throughout the industry.
This report examines key factors that will influence the growth of small-scale generation technology that householders can use to convert natural energy into power for domestic use. It also analyses a range of technologies supplied by vendors who are already active in the alternative energy market, and considers how wider deployment of these technologies will impact on the energy market.
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