Uptake

The Merton Rule was a great creation. An idea ahead of its time. The original idea was to require developers to provide 10% of the energy required on their site from renewable sources. Say what you like about prescriptive targets but they are easy to understand (in principle if not always in practice). This simplicity has led to the idea being taken up (usually in a slightly adapted form) by local authorities across the country, most notable the 20% of site carbon emissions target used in the London boroughs.

The benefit that the Merton Rule had was of encouraging a young micro-renewables market. That is without doubt. But it now seems to be working badly with the new kids in the class, the Code for Sustainable Homes and BREEAM. Also the move towards measuring in CO2 rather than energy has muddied the water slightly leading to a muddied sea of targets for developers and their consultants to navigate.

Energy efficiency

The Merton Rule is said to encourage energy efficiency but with a 10% renewable energy target the developer is only prepared to spend a tenth as much on energy efficiency as on renewables per unit of CO2 saved. With a 20% target they will spend up to a fifth as much per unit of CO2 saved on efficiency as on renewables.

If the developer with a 10% target has to spend £500 per tonne of CO2 saved on solar panels they can only spend up until the point it costs them £50 per tonne of CO2 saved through energy efficiency before it makes no sense to continue.

Merton rule doesn’t play well with others

With a CSH/BREEAM target which requires a certain level of carbon reductions beyond current building regulations, Merton Rule targets do not give additional savings. In fact they lead to lower energy efficiency.

This is because a developer who wants to hit 25% saving for CSH and has the following options:

1. All renewable energy
2. All energy efficiency
3. A combination of the two

Option 1 is usually most expensive (i.e. least cost-effective at saving carbon)

Option 2 is usually more cost-effective at lower levels of saving, but the cost per kg saved rises the more you save due to diminishing returns on insulation, etc. However Merton Rules do not allow the target to be met using energy efficiency.

Option 3 is usually the most cost-effective. The most cost-effective way is usually the best way to deliver carbon savings. In aggregate the most effective way of setting a target is to set the overall target and allow the developer to decide the most cost effective way of saving carbon.

The problem with this is that even if the developer would rather build an efficient home or other building, they still have to provide a fixed proportion of the energy/carbon from renewables. This means that they will scale back their energy efficiency so that they just scrape through both of the targets. This leads to the same overall carbon saving, but for a higher price and leaving a less efficient building.

Bear in mind that this building will most likely outlast its renewable energy bling, whereas insulation tends to last much better. Encouraging less efficient homes also has an impact on the avoidance of fuel poverty when considering that the homes we are working on are often social housing.

This may sound purely hypothetical but I’ve been making notes while brewing this post and have been pushed into advising a client on at least three occasions already this week that they should downgrade the energy efficiency of their building in order to reduce the cost of compliance with a combination of targets.

Where do we go now?

The Merton Rule has undoubtedly done a very good job in encouraging small-scale renewable energy but the introduction of Feed-in Tariffs has made it obsolete for electrical renewables and the Code for Sustainable Homes / Zero Carbon Buildings programme is doing the same for thermal renewables.

London seems to have recognised this and there is no prescriptive target in the new London Plan. Local authorities are better off setting targets ahead of the Zero Carbon Buildings agenda where this is viable in their local market. Of course viability is a whole different kettle of fish with all the competing demands on developers (and eventually on land price) but that’s a post for another day.