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MSc Architecture:

Advanced Environmental and Energy Studies

What are the financial- and carbon-


optimal points for return on investment in
insulation?

University of East London Jamie Bull


School of Computing and Technology July 2007
Longbridge Road, Dagenham, RM8 2AS
Tel: 020 8223 3215
What are the financial- and carbon-optimal points for return on investment in insulation?

Jamie Bull MSc Architecture 2


Advanced Environmental and Energy Studies
What are the financial- and carbon-optimal points for return on investment in insulation?

Abstract
This thesis looks at the financial and carbon case for insulation. It examines whether it is
worthwhile to continue lowering the elemental U-values demanded by Building
Regulations in light of the diminishing returns found when increasing insulation thickness.
Also examined are the relative effects that low and high embodied carbon (ECO2), and
lower and higher conductivity forms of insulation have on lifetime emissions.
An assessment is made of the value of different methods for encouraging greater levels of
insulation such as grants or carbon trading/taxation.
Life cycle emissions and financial costs of insulation are found from published data and a
building estimator. Sources of projected costs for gas and the social cost of carbon are
assessed and a central value for each is found. The energy use of a typical semi-detached
house is found by modelling in IES:VE. These data are then used as inputs for a computer
model.
Optimal points are found through the use of the purpose-built Insulation Savings Model
(ISM). This allows calculation of both optimal points and payback times. These points
are calculated for three different types of insulation; polyurethane foam, mineral wool
and cellulose fibre, representing a range of ECO2 and conductivity.
Parameters representing carbon pricing and grant schemes are varied in order to discover
the relationships between these factors and financially-optimal levels of insulation.
Key results are that the carbon-optimal point is far beyond the financial-optimal point for
all materials assessed. The carbon-optimal point is also beyond the requirements of
Building Regulations. However the financially-optimal point (before accounting for co-
benefits) is below Building Regulations. Therefore it is found that, at the margins, super-
insulation is an expensive way of reducing lifetime CO2 emissions.
Greater return on investment in insulation will be found by focusing on refurbishment of
existing, poorly-performing homes than on increases in new build regulation.
Lifetime emissions savings are greater for a given U-value when looking at lower ECO2
materials. However, they generally require a greater thickness of insulation.
Keywords: insulation, optimal points, return on investment, embodied carbon, carbon
pricing.

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What are the financial- and carbon-optimal points for return on investment in insulation?

Contents
Abstract .......................................................................................................................3
Contents ......................................................................................................................4
Chapter 1 Introduction.................................................................................................6
1.1 Parameters of the question .................................................................................6
1.2 Method and methodology...................................................................................6
1.3 Context ..............................................................................................................7
Chapter 2 Thermal comfort, fuel poverty and CO2 emissions .......................................8
2.1 Introduction .......................................................................................................8
2.2 Definitions .........................................................................................................8
2.3 Interdependence .................................................................................................8
2.4 Effects ...............................................................................................................9
2.5 The role of increased insulation........................................................................10
2.6 Conclusions .....................................................................................................11
Chapter 3 Domestic heating and global warming .......................................................12
3.1 Introduction .....................................................................................................12
3.2 Space heating and CO2 emissions .....................................................................12
3.3 The effect of increased insulation.....................................................................13
Chapter 4 Optimal points ...........................................................................................14
4.1 Introduction .....................................................................................................14
4.2 Explanation of optimal points ..........................................................................14
4.4 The model........................................................................................................17
Chapter 5 Costs of insulation .....................................................................................18
5.1 Introduction .....................................................................................................18
5.2 Types of insulation covered .............................................................................18
5.3 Financial costs .................................................................................................18
5.4 Environmental costs.........................................................................................19
Chapter 6 Cost of space heating energy .....................................................................23
6.1 Introduction .....................................................................................................23
6.2 Forms of space heating considered ...................................................................23
6.3 The consultancy’s view – short-long term: Fuel Prophet – UKACE .................23
6.4 Issues affecting gas prices ................................................................................24
6.5 Analysis of price scenarios...............................................................................27
6.6 Conclusions .....................................................................................................29
Chapter 7 Cost of carbon ...........................................................................................31
7.1 Introduction .....................................................................................................31
7.3 Assessments of projections ..............................................................................33
7.4 Analysis...........................................................................................................35
7.5 Conclusions .....................................................................................................36
Chapter 8 Modelling ..................................................................................................37
8.1 Introduction .....................................................................................................37
8.2 Uses of modelling ............................................................................................37
8.3 Limitations of modelling ..................................................................................37
8.4 Discussion of building modelling software.......................................................38
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Advanced Environmental and Energy Studies
What are the financial- and carbon-optimal points for return on investment in insulation?

8.5 Conclusions .....................................................................................................38


Chapter 9 Calculation of fuel savings.........................................................................39
9.1 Introduction .....................................................................................................39
9.2 Heat losses .......................................................................................................39
9.3 Software choice ...............................................................................................40
9.4 The model........................................................................................................40
9.5 Coefficient of Energy Saving ...........................................................................40
9.6 Coefficient of energy saving in the model building ..........................................44
Chapter 10 The Model ...............................................................................................48
10.1 Introduction ...................................................................................................48
10.2 The interface ..................................................................................................48
10.3 The sheets ......................................................................................................48
10.4 Flow Chart .....................................................................................................50
10.5 The results .....................................................................................................51
Chapter 11 Results.....................................................................................................52
11.1 Introduction ...................................................................................................52
11.2 Optimal points and thickness required for Building Regulations.....................52
11.3 Payback time graphs ......................................................................................54
11.5 CO2 savings at U-value 0.16 W/m2 K and optimal points ...............................60
Chapter 12 Analysis...................................................................................................61
12.1 Introduction ...................................................................................................61
12.2 Insulation can save money and avoid CO2 emissions......................................61
12.3 The contribution of ECO2...............................................................................63
12.4 Sensitivity to parameters ................................................................................64
12.5 Analysis of sensitivity ....................................................................................67
Chapter 13 Conclusions and recommendations ..........................................................70
13.1 Introduction ...................................................................................................70
13.2 Implications for financial incentives...............................................................70
13.3 Building Regulations and CO2 emissions .......................................................72
13.4 Impacts on fuel poverty..................................................................................73
13.5 Impacts on thermal comfort............................................................................74
13.6 Implications for current orthodoxy .................................................................74
13.7 Limitations.....................................................................................................74
13.8 Further research .............................................................................................75
References and bibliography......................................................................................76
Glossary ....................................................................................................................80
Appendix 1 Insulation price estimates from Healey Associates, quantity surveyor .....82
Appendix 2 Carbon and energy prices over 50 years..................................................87
Appendix 3 Energy savings over 50 years..................................................................89

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What are the financial- and carbon-optimal points for return on investment in insulation?

Chapter 1 Introduction
“It is often more cost-effective to invest in end-use energy efficiency
improvement than in increasing energy supply to satisfy demand for energy
services”
Intergovernmental Panel on Climate Change, Fourth Assessment Report,
Working Group III, May 2007

1.1 Parameters of the question


This thesis tries to answer the question of what is the most effective thickness of
insulation to apply to a building element in terms of financial return and avoidance of
carbon emissions. It uses the purpose-built Insulation Savings Model (ISM) to calculate
optimal points, which are defined here as where the marginal return on investment (ROI)
over 50 years is equal to one when the insulation level is increased by 10mm.
In order to provide a manageable problem for modelling in this thesis, the scope of this
study is limited solely to the case of roof insulation. This is because with other insulation
options such as internal dry-lining there are a number of factors relevant to ROI1 such as
the cost of lost floor area which are difficult to account for.
Roof insulation still allows for several insulation types to be assessed as many are
suitable in this application.
The heating fuel assumed is gas. No assessment of how the heating market may move
away from gas in the future is made. As domestic gas is studied in isolation, the fact that
it is currently excluded from the EU emissions trading scheme (EU-ETS) allows a more
meaningful comparison of costs, with and without carbon pricing.
Of particular interest is the difference between using low ECO2 insulation such as
Warmcel, and high ECO2 insulation such as Kingspan.

1.2 Method and methodology


Initial modelling is carried out using the buildings modelling software, IES:VE
(Integrated Environmental Solutions, 2006). A model of a standard semi-detached house
is constructed and the insulation levels are varied to find the amount of energy saved by
each increase.
A review is carried out into projections of future energy prices and carbon pricing
mechanisms. Assumptions made in the projections are analysed and assessed in order to
find reasonable and reliable scenarios of future energy costs.
These results are then used as inputs for ISM using a projected natural gas price per kWh
for the next 50 years, and the monetary cost of insulation in order to find the optimum
depth of insulation in terms of financial payback.

1
Where not otherwise specified here, ROI is used to mean financial return on investment.
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Advanced Environmental and Energy Studies
What are the financial- and carbon-optimal points for return on investment in insulation?

Secondly, an assessment of the amount of carbon emissions avoided by insulation is


compared with the ECO2 of the insulation used. This produces a measure referred to here
as carbon return on carbon invested or CROCI. This is similar to energy return on energy
invested (EROEI) and is of use in deciding the best way to maximise carbon return on
investment.
Finally, different ways of internalising the cost of carbon are assessed. This provides the
measure of carbon return on financial investment (CROFI).

1.3 Context
This question is of particular importance at present where a high importance is being
placed on insulation. It should be assessed whether the levels of insulation demanded by
the new Part-L of Building Regulations (elemental U-value of 0.16 W/m2 K for roofs) is
financially- or carbon-optimal. Also, many in the environmentally conscious building
world are proponents of super-insulation, insulation to very low U-values (<0.1W/m2 K
for roof insulation to AECB Gold Standard) (AECB, 2007), however it is useful to
question whether such high levels of insulation are providing sufficient additional benefit
to justify their use.
Also assessed is whether higher ECO2 and less conductive insulants are preferable in
terms of lifetime emissions, or whether low ECO2 but more conductive insulation should
be preferred.

1.3.1 Carbon emissions from domestic heating


One of the primary reasons why this question is important is the problem of global
warming driven by CO2 emissions from the combustion of fossil fuels. A method of
assessment of the optimal level of insulation in terms of avoided carbon emissions is one
of the important outcomes of this thesis. Further examination of the issue of CO2
emissions can be found in chapters 2 and 3.

1.3.2 Fuel poverty


The other issue which drives the question behind this thesis is one of financial costs. This
is an important issue when thinking about the less well off members of society for whom
the costs of heating their homes may be prohibitively high. Knowing the optimal level of
insulation in terms of financial return is important when assessing the level of financial
and regulatory incentives to improving the thermal performance of homes, particularly of
lower income households. More on this issue can be found in chapter 2.

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Advanced Environmental and Energy Studies
What are the financial- and carbon-optimal points for return on investment in insulation?

Chapter 2 Thermal comfort, fuel poverty and


CO2 emissions

2.1 Introduction
This chapter examines why insulation is important in the context of thermal comfort, fuel
poverty and CO2 emissions. They are briefly defined, the relationships between them are
examined and some of their consequences explored.
It is shown that insulation and other measures to directly affect thermal comfort and
improvements in the emissions factor of fuel are the best ways of improving the all-round
sustainability of a home’s thermal performance as opposed to financial measures such as
the winter heating allowance.

2.2 Definitions
Thermal comfort is a subjective measure of the fitness of a building to provide an
acceptable living environment. It is necessarily subjective as people take different
adaptive measures such as opening windows, or adding or removing layers of clothing in
response to changes in the environment (Fanger, 1973).
Fuel poverty is defined as a household which needs to spend more than 10% of its
combined disposable income on all fuel use necessary to maintain a satisfactory heating
regime (DTI, 2001). It can be expected to become more common if fuel prices rise
relative to income.
CO2 emissions in this context are a consequence of heating homes with fossil fuels and
of producing insulation products. CO2 is a greenhouse gas and responsible for a large
majority (around 70%) of direct radiative forcing due to long-lived greenhouse gases
(IPCC, 2007).

2.3 Interdependence
These three factors, thermal comfort, fuel poverty and CO2 emissions are the main
reasons for improving the thermal performance of a house through insulation and other
measures. They are grouped together in this way because they are interdependent.
It is interesting to note that these three areas fit well with the “three-legged stool”
approach to sustainability. This is a way of looking at the requirements for sustainability
of a community project on any scale from local to global (Kirby, Goodburn, Sinclair,
2000). If any of the three legs is not present the system becomes unstable. In this case,
thermal comfort provides the social leg, avoidance of fuel poverty the economic leg and
avoidance of CO2 emissions the environmental leg.
The effects they have on each other are laid out below.
Excluding outside influence such as changes in fuel price or adding insulation and also
assuming one cannot be too warm, where:
A = thermal comfort
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What are the financial- and carbon-optimal points for return on investment in insulation?

B = fuel poverty
C = CO2 emissions
N+ = N gets better.
N– = N gets worse.
1) A+ Æ B– & C–
2) A– Æ B+ & C+
If we rearrange the equation, in all cases A has the opposite sign to B and C. This is
because when thermal comfort increases, that is seen as getting better whereas with the
other two factors an increase is seen as getting worse.
Essentially what this means if we are not worried about thermal comfort we can reduce
fuel poverty and emissions by not heating houses. And conversely, if we are not worried
about fuel poverty or emissions we can improve thermal comfort by increasing heating.
From this it follows that the only way to improve sustainability for all factors is to
introduce an outside force acting on one of the three factors, emissions, fuel poverty or
thermal comfort which decouples it from the others.
In practice only two of the options can work – A or C. On emissions (C) the force would
be something that improved the CO2 emissions factor of heating such as the use of
biofuels. On thermal comfort (A) an example would be insulation, whether of the
occupant (more layers of clothing), or of the building fabric. Both of these also depend on
cost, as if the measure was very expensive (greater than the savings) then it would fail the
economic sustainability test.
However, a force which acts on fuel poverty (B) would not have the desired effect, as
reducing fuel poverty directly (by reducing the cost of fuel or increasing income) would
most likely result in the same or higher use of fuel. However, actions which reduce CO2
emissions, either directly by improving the emissions factor of fuel (a switch from coal to
gas for example), or indirectly by increasing the thermal comfort derived from the same
fuel (insulation, draught proofing, etc) may have a positive effect on fuel poverty.

2.4 Effects

2.4.1 Thermal comfort


Thermal comfort is one of the most important things people require from a home. They
are prepared to spend money to raise the room temperature to the level they desire to feel
comfortable. The normal range in the UK is defined as 21°C in main living areas and
18°C in other rooms (CIBSE, 1999a) though this has increased over time.
People derive great psychological comfort from their homes. A lack of thermal comfort,
and problems associated with this such as damp, can have a severe negative effect on this
psychological comfort. This is illustrated by a study of 3,000 people in the central west of
Scotland which found that;
“More than any other feature of either the occupant, the house or the
neighbourhood, the presence of problems with the home such as dampness,
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What are the financial- and carbon-optimal points for return on investment in insulation?

[and] lack of warmth and space… detracts from the acquisition of psycho-
social benefits from the home.” (Kearns et al, 2004)

2.4.2 Fuel poverty


Fuel poverty is an issue connected to thermal comfort. It is lack of thermal comfort in a
home which is the problem – fuel poverty is often the cause. Given adequate income any
home could be made fairly comfortable by buying more heat in the winter (and possibly
cooling in summer). The problem is that many members of society do not have access to
a sufficient income to meet the fuel cost of this without compromising on other essentials
such as food and rent.
There is often a link suggested between excess winter deaths in the UK and homes in fuel
poverty (Clinch and Healy, 2000, Healy, 2003). Such links are often couched in
tentative terms as so many other factors affect excess seasonal mortality. Nevertheless,
fuel poverty is seen by the Government and others as a real problem, and much is being
done to try to alleviate it including various insulation grant schemes and the winter fuel
allowance for pensioners.
It is clear that, no matter what the truth is on excess winter deaths, attempts to raise
homes out of fuel poverty are of benefit to society. This is due to the benefits to thermal
comfort and hence psycho-social wellbeing discussed above. It also leaves more money
in the pocket of the household which may be spent on other goods and services so
stimulating the economy.

2.4.3 CO2 emissions


Atmospheric CO2 is a forcing factor in global warming. The predicted effects of this
include hotter, wetter summers and dryer winters in the UK. Globally, rising sea levels
leading to mass migration from low-lying countries such as Bangladesh, increased
incidence of hurricanes in the Mexican Gulf and many other effects are expected (IPCC,
2006, 2007, Stern, 2006). This is the environmental side-effect of the domestic heating
and the scale of this is discussed further in chapter 3.

2.5 The role of increased insulation

2.5.1 Co-benefits
When assessing the value of insulation, not only the cost of saved energy should be
counted. There are also valuable effects for society to be had by improving thermal
comfort and reducing CO2 emissions (Jakob, 2006). These provide financial benefit for
which the value to society could be calculated. In this thesis only financial co-benefits
based on the social cost of carbon have been used. In this thesis, improvements to thermal
comfort and decrease in fuel poverty are seen as co-benefits. Another co-benefit touched
upon but not fully assessed is that of increased energy security due to a lower requirement
for imported gas.

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Advanced Environmental and Energy Studies
What are the financial- and carbon-optimal points for return on investment in insulation?

2.5.2 “Fuel proofing”


Without some form of protection in the form of improving the fabric of hard to heat
homes, fuel poverty will continue to be a social and possibly medical problem in the UK.
The Association for Conservation of Energy (ACE) report on their online tool, Fuel
Prophet2, explains how increased insulation can “insulate” against price rises. They term
this effect “fuel proofing” (Smith, Wu, Pett, 2005, p.42). This is backed up by
experiments in their tool in which the effects of rapidly increasing fuel prices are tested
for variously insulated houses (see chapter 6 for more on the Fuel Prophet prices).
It was found that fuel bills in properties where measures have been taken to reduce them
become “more resistant to price fluctuations over time” (Smith, Wu, Pett, 2005, p. 42).
Basically this states the obvious fact that a 10% rise in a £100 bill is harder to cope with
than a 10% rise in a £50 bill.

2.5.3 Comfort factor


Insulation allows people to affordably increase the temperature of their homes to a more
comfortable level. This means that not all savings from insulation will automatically be
translated into a decrease in fuel use. This is known as the “comfort factor” and is one of
the reasons that predictions of energy savings through insulation are often greater than the
savings achieved (Defra, 2007). It is an example of the rebound effect which is seen in
many areas where energy is saved through efficiency.
This comfort factor represents an increase in the social sustainability of heating. It may
mean a smaller increase in environmental and economic sustainability but overall, the
right level of insulation generally makes an improvement in all three aspects.

2.6 Conclusions
This chapter has placed the issue of insulation in context. It has demonstrated the benefits
to occupants of increased thermal comfort and reduced risk of fuel poverty. The benefit
of reduced CO2 emissions is covered further in chapter 3.

2
On online tool which allows simple calculations of return on investment in insulation and other energy
saving measures in the domestic sector.
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Advanced Environmental and Energy Studies
What are the financial- and carbon-optimal points for return on investment in insulation?

Chapter 3 Domestic heating and global


warming

3.1 Introduction
It is necessary for homes to be kept warm in order that they are comfortable and healthy
places in which to live. In the UK this is generally achieved by heating the home with
fossil fuels such as gas, coal or oil. This has implications in terms of CO2 emissions
which are the major forcing gas in global warming (IPCC, 2006). The issue is discussed
in this chapter in order to place the issue of insulation in its global context.
Greater insulation is a way of avoiding CO2 emissions associated with heating from fossil
fuels. Therefore higher levels of insulation can serve to reduce the emissions of a home
and to bring it closer to an equitable global average.

3.2 Space heating and CO2 emissions


According to the Digest of UK Energy Statistics (DUKES), total UK energy use in 2005
was 246.9 MTOE (DTI, 2006c). This is approximately 2,870 TWh. The Sustainable
Development Commission state that 27% of UK energy is used by the domestic sector
(2006). According to the Government’s figures, 61% of that (473 TWh) is spent on space
heating (DTI, 2005).

Lighting and Domestic energy use


appliances
13%
Cooking
3%

Water
23% Space heating
61%

Figure 1, Domestic energy consumption by end use (Source, DTI, 2005)


83% of that (392 TWh) is from natural gas (ONS, 2005) which has a CO2 emissions
factor of 0.19 kg/kWh (Defra, 2003).
This translates into total CO2 emissions from UK domestic gas-fired central heating of 75
million tonnes. This is over a tonne a year each for every man, woman and child in the
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What are the financial- and carbon-optimal points for return on investment in insulation?

UK. To put that in a global context, average per capita annual emissions are around 1.1
tCO2 (Marland et al, 2006). Therefore, the average person in the UK is emitting far more
than his or her equitable share of CO2 and, on average, 10-15% of those emissions are
from domestic space heating.

3.3 The effect of increased insulation


Some homes are worse than others. The worst performing homes are those with
inadequate insulation and draught-proofing. A badly performing home would emit much
more CO2 than a new home built to the current Part L of Building Regulations (Building
Regulations, 2006) or one which had been refurbished with energy efficiency in mind.
The concept of efficiency is an important one. If we are not to compromise our quality of
life, whilst still reducing CO2 emissions, we must achieve greater returns from our energy
supplies by not wasting them. In the case of energy efficient space heating this means a
choice over whether more fuel or greater efficiency is a more cost-effective way of
maintaining thermal comfort.
Often the ideal situation is to use very little heating and to keep it in rather than buying
more heat. One long term solution is insulation. Increasing insulation such as the roof
insulation looked at in this thesis will have the effect of reducing heat loss and hence in-
use CO2 emissions immediately and continuing to do so for many years. It is accepted as
one of the most cost-effective ways of decreasing the UK’s carbon emissions.
The Government recognises this and for a long time successive updates to Building
Regulations have stipulated increasing levels of insulation for new housing. This can be
expected to continue in the light of the plans to make all new homes “zero carbon” by
2016 (CLG, 2007).
For existing homes there are Government grants in place for loft insulation (WarmFront,
etc.) as well as the energy industry’s Energy Efficiency Commitment (EEC) which
requires domestic energy suppliers to make improvements to their customers’ efficiency.
These are subsidised by the electricity and gas suppliers and include other carbon-saving
measures such as draught-proofing, supplying energy-efficient bulbs and A-rated boilers
as well as insulation (DTI, 2002).

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What are the financial- and carbon-optimal points for return on investment in insulation?

Chapter 4 Optimal points

4.1 Introduction
Increasing levels of insulation to create homes with a very low heat loss also has the
effect of increasing the environmental impact of some of the materials in it. There is a
question to be answered about where the best trade-off comes between positive impacts
(avoidance of in use emissions, decrease in fuel poverty, etc) and negative impacts (ECO2,
etc).
Simply defined, the optimal point is that point where the marginal cost of investment is
equal to the saving it produces. In the case of insulation as assessed here, this is where an
additional 10mm added costs the same as it saves.
The optimal point, if calculated correctly, is the most efficient configuration for
insulation. It is important to know where the carbon-optimal point is in relation to the
financial-optimal point so that cost-effective measures can be designed to encourage
insulation to go nearer to the carbon-optimal point.

4.2 Explanation of optimal points


The object of this thesis is to find the optimum levels of insulation for a roof. These are
defined here:
• The point at which financial investment in 10mm more insulation is repaid
financially in the 50 year life-span.
• And where the ECO2 of 10mm more insulation is matched by avoided emissions
over the same life-span.
These optimal points exist because of the diminishing returns of increasing depth of
insulation.
Previous work on optimal points for insulation has been carried out by Lowe et al (1997)
and Kalema (2001). In the Lowe paper, formulae are derived analytically in order to find
the optimal points in terms of energy and lifetime CO2 emissions. Their formulae work
on the fact that the optimal level of insulation is where ECO2 of a square metre of
insulation is equal to energy lost through that square metre.
This perhaps seems counter-intuitive so it is worth demonstrating that it is the case.

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Advanced Environmental and Energy Studies
What are the financial- and carbon-optimal points for return on investment in insulation?

800.0

700.0

600.0

500.0
Embodied CO2
kg CO2

400.0 CO2 emissions


Total
300.0

200.0

100.0

0.0
0 0.5 1 1.5 2
Thickness of insulation

Figure 2, Graph demonstrating one way of finding optimal points.


The simplest way to demonstrate why the optimal point is where in-use CO2 emissions =
ECO2 is to draw the graph above. It can be seen that the lowest total CO2 must occur at
the point where ECO2 and CO2 in-use are equal.
In fact, wherever one variable is falling and the other is rising, the sum will always be
smallest where they are equal.
In the case of carbon, ISM uses the fact that the optimal level is where the ECO2 of a
10mm layer is equal to the CO2 saved by that layer, compared with an uninsulated
baseline.
The Lowe et al method and the ISM method for calculating carbon-optimal points both
give the same end result.
A significant limitation of Lowe’s paper is that it assumes all insulation is equal in terms
of ECO2 and conductivity (although it varies them in sensitivity analysis). This thesis
models several different types of insulation in order to see how optimal points are
affected by differences in conductivity, cost and ECO2. It also takes into account the
financial costs and benefits of insulation.
The Kalema paper (2001) details the OPTIX model which optimises U-values for all
building elements. It looks solely at energy costs and financial cost of insulation and
makes no allowance for ECO2 or social costs of carbon. It also assumes electric heating.
The optimal U-value found for roof insulation is 0.08-0.16 W/m2 K.

4.2.1 Lifetime
In order to calculate a return on investment the duration of the investment must be
specified. In this thesis the duration is set at 50 years. This is as it is a reasonable length
of time to assume before refurbishment may be carried out. This is at variance with Lowe
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What are the financial- and carbon-optimal points for return on investment in insulation?

et al (1997) who used a lifetime of 100 years. This doubles the savings and therefore
results in a greater optimal thickness of insulation. It can certainly be argued that 100
years is a reasonable lifespan for the type of cavity wall insulation modelled by Lowe,
however roofs may be refurbished after less time.

4.2.2 Carbon-optimum
Sought in this thesis is the point at which carbon emissions avoided by insulating are
outweighed by carbon emissions embodied in the insulation. This is calculated for each
10mm layer. First the carbon return on carbon investment (CROCI) is calculated (Eq.1).
Where:
S = savings
C = costs
e = energy saved in that year
Pe = price of energy in that year
Pc = price of carbon in that year
Pi = price of insulation
EC02 = embodied CO2 of insulation
EFgas = emissions factor of fuel (gas)
L = lifetime of building
Equation 1

e x EFgas x L
ECO2
This means that the optimal point is where:
Equation 2

e x EFgas x L = ECO2
4.3.1 Financial optimum
The first formula required is the undiscounted ROI, the savings from insulation divided
by the cost of insulation.
Equation 3

L
∑ e x Pe
t=1
Pi

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What are the financial- and carbon-optimal points for return on investment in insulation?

4.3.2 Net present value


Financial-optimal points are affected by the idea of net present value (NPV). NPV is an
accounting method used to quantify the idea that income (or savings) made now are
worth more than those made in the future. It does so through a process known as
discounting.
The formula for calculating this is presented below.
Equation 4

n
∑ Ct – C0
t=1
(1 + r)t
Where:
t = year of the cash flow
n = total duration of the project
r = rate of discount
Ct = net cash flow in that year
C0 = capital investment at the beginning of the investment
The discount rate chosen is 3.5% - the UK Government’s preferred rate for projects with
social benefits (HM Treasury, 2004, ch. 5.49).

4.3.3 Financial-optimal points


Putting Eq. 3 together with the Eq. 4 for undiscounted ROI gives Eq. 5.
Equation 5

L
S = ∑((e x Pe) + (e x EFgas x Pc x L))
1
C Pi + (ECO2 x Pc)
Here the optimal point is where:
Equation 6

L
∑((e x Pe) + (e x EFgas x Pc x L) = Pi + (ECO2 x Pc)
1

4.4 The model


The model created in Excel, ISM, uses the formulae above to identify the optimal point in
terms of financial cost and carbon cost for each type of insulation in the application
studied. The model is explained in detail in Chapter 10.

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Chapter 5 Costs of insulation

5.1 Introduction
This chapter describes the types of insulation studied and examines their different costs,
both financial and environmental.

5.2 Types of insulation covered


The insulating materials chosen for study in this thesis have been selected primarily to
look at what effect if any different values of ECO2 have on the payback time when the
cost of carbon it taken into account. For this reason three types of insulation are
examined; firstly cellulose as a very low ECO2 product; secondly a mineral wool; and
thirdly a polyurethane foam as a high ECO2 material.
The cellulose product studied is Warmcel 500. Cellulose insulation a loose, fibrous
material made from recycled newspaper with boron added as a fire retardant. It can also
be purchased as insulated panels used in roof insulation sold as Tradis.
The mineral wool in this study is Rockwool. Mineral wool is made by heating a mineral
and blowing it into filaments rather like spun sugar. It can be supplied in rigid batts that
fit between rafters.
Polyurethane foam is represented by Kingspan TP10. Rigid polyurethane foam insulation
is a petrochemical product made by foaming polyurethane plastic, usually with pentane.
It is supplied in rigid boards which can be fitted between rafters.

5.3 Financial costs


These take two forms. There is a cost for the insulating material and also for the
installation (except in the case of DIY fitting). The insulation batts looked at come in
several thicknesses; however Warmcel can be fitted in any depth as it is supplied loose,
either in bags or to be sprayed on. The data for this section were obtained from a quantity
surveyor (see Appendix 1). A list of the required work was sent and the following prices
were received. The data is broken down into material cost and installed cost and
presented below.

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5.3.1 Material and labour costs


3
Table 1, Insulation costs per m

Insulation Kingspan TP10 Warmcel Rockwool


Material cost/m2 £12.20 £4.50 £20.02
Labour cost/m2 £6.40 £3.50 £6.15
Total cost/m2 £18.60 £8.00 £26.17

5.3.2 Grant schemes


There are grant schemes available for those on benefits for some types of insulation
which reduces the financial cost of insulation. This is not the case for new build
properties such as that modelled in this thesis. Some of the schemes are Warmfront, the
Energy Efficiency Commitment (EEC), etc.

5.4 Environmental costs


The primary environmental cost of insulation is the ECO2 generated in its manufacture.
However there are other costs which are revealed in a full life-cycle analysis (LCA).

5.4.1.1 Carbon cost


The total ECO2 of insulation is the CO2 emitted by manufacturing and transport of the
product as well as its end of life costs.
Further to this, other green house gases (GHGs) should also be counted if one is to
calculate the balance between global warming potential (GWP) embodied in the product
and that which it helps to avoid.
Several sources of data are available on this subject. One of the most comprehensive is
the Inventory of Carbon and Energy (Hammond, Jones, 2006). This consists of a
compilation of data from many sources and includes many types of insulation product.
However, despite covering many products, it is hard to compare them as the source
papers make very different assumptions. This includes those which are made explicit
such as the boundaries in terms of transport (ie, to factory gate or to building site), but
also many others which remain unstated. They also do not explicitly cover GHGs other
than CO2.
There may be associated maintenance cost and there will be CO2 emissions associated
with disposal of the product at the end of its life. An assessment which covers all of this
is known as a cradle to cradle LCA.
Availability of data has limited this thesis to a comparison of the few insulating products
with full LCAs. These are Rockwool, Warmcel and Kingspan.
The sources of data for these LCAs are a paper produced for Rockwool and LCAs
produced for Kingspan and Excel (the manufacturers of Warmcel. The Rockwool-
sponsored paper covers both Warmcel and Rockwool allowing for some comparison of
results.
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In the LCA commissioned by Rockwool (Schmidt et al, 2004) is a list of emissions to air
which are converted to kg CO2e/kg below. GWP figures are from IPCC (1996, p. 22).
Table 2, CO2e/kg of Rockwool and Warmcel (source, Schmidt et al, 2004)
Rockwool GHGs Cellulose GHGs
Gas g/kg GWP CO2e Gas g/kg GWP CO2e
CO2 1200 1 1200 CO2 629 1 629
CO 89 4 355.92 CO 0.88 4 3.52
N2O 0.02 310 6.2 N2O 0 310 0
CH4 0.88 21 18.48 CH4 0.44 21 9.24
total kg CO2e/kg 1.58 total kg CO2e/kg 0.64

Calculations are done differently for Kingspan as they have an LCA by BRE (Beedel,
2002). This assessment method gives a kg CO2e figure per functional unit, defined by
them as 1m2 of insulation with a resistance of 1.45 m2 K/W. This is equivalent to 32mm
of Kingspan Therma. The calculation for kg CO2e/kg is shown below.
volume of 1m2: 32mm x 1m2 = 0.032 m3
weight of 1m2: 0.032 m3 x 33 kg/m3 = 1.056 kg
kg CO2e/kg 7 kg/1.056 kg = 6.63 kg
Doing the same with the BRE LCA for Warmcel 500 (Beedel, 2003) gives a figure of
0.91 kg CO2e/kg. This is higher than the figure derived from Schmidt et al which could
be due to the higher density of sprayed Warmcel 500 when compared with loose-fill
insulation.

Rockwool

Warmcel 500

Kingspan TP10

0 1 2 3 4 5 6 7
kg CO2/kg

Figure 3, embodied CO2e/kg of insulation


Rockwool 1.58 kg CO2e/kg

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Kingspan Thermapitch TP10 6.63 kg CO2e/kg


Warmcel 500 0.91 kg CO2e/kg
These figures should be treated with a degree of caution as they are in most cases
sponsored by the manufacturer. Interestingly, in the one case which is not (Warmcel as
assessed by Schmidt et al for Rockwool), a lower figure is given.

5.4.1.2 Comparison of conductivity of high and low ECO2 materials

ECO2/m3 against lambda

350

300

250

200 Series1
150 Log. (Series1)

100

50

0
0.02 0.03 0.04 0.05 0.06
L am b d a

Figure 4, showing trend towards higher ECO2 with lower conductivity


The graph above plots the conductivity against ECO2 of various insulating materials. As
can be seen, there is a trend towards increased ECO2 as thermal performance improves.
However there is a high degree of variation involved. The greatest concentration is of low
ECO2 insulation materials at conductivities of around 0.04 W/mK. These materials fall
below the trend line and are therefore outperforming the average.
Furthest below the trend line is the Warmcel data point (green triangle) and furthest
above is reinforced fibre blanket (green lozenge).
The details of this graph must be treated cautiously as figures taken from the ICE
database (Hammond, Jones, 2006) have been normalised3 to take account of the fact that
most data points only take into account CO2 emissions up to the factory gate or to the site
and do not account for end of life costs such as methane emissions on decomposition.
Caution is advised as the figure used when normalising is drawn from only two points of
comparison. However, the conclusion that lower ECO2 insulation generally performs
worse thermally is more robust. More data on other high performance materials such as
polyisocyanurate would be useful in testing this conclusion as almost all the points
currently refer to polyurethane of various forms.

3
By a factor of 1.73. Normalised data are represented by lozenges on the graph, LCA data are triangles.
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5.4.2.1 Other life-cycle costs


All the insulation manufacturers studied have commissioned LCAs of their products.
Both Warmcel and Kingspan have the analyses carried out by BRE and Rockwool has the
one previously mentioned which was carried out by Force Technology/dk-TEKNIK
(Schmidt et al, 2004).
This thesis is primarily concerned with the financial and CO2 savings of insulation. An
in-depth study of these LCAs is not considered necessary. Lifetime energy savings are
seen as a far greater factor. It should however be noted that Warmcel 500 betters
Kingspan Therma in all but one (mineral extraction) of the categories measured in the
BRE method.
Ayres discusses the difficulties involved in accurate life cycle analysis and the setting of
different boundaries in his critique of LCAs (1995).

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Chapter 6 Cost of space heating energy

6.1 Introduction
Space heating energy costs are determined by the cost of fuel and the fuel type chosen.
Gas is generally more expensive per unit of energy than coal at present; however, gas is
normally used more efficiently when used directly for heating homes. Electric heaters are
very efficient at point of use, but once one takes into account the losses in generation and
transmission this apparent efficiency disappears.
Section 6.2 looks at forms of space heating and explains the reasoning behind focusing on
natural gas prices in this thesis. Sections 6.3 is an assessment of projections of fuel prices
into the future from a consultancy. In section 6.4 the issues which affect the price of fuels,
and particularly natural gas, are examined. In section 6.5 analyses of the projection
scenarios are undertaken and in 6.6 a conclusion is drawn as to which of these scenarios
is most reliable and useful in calculating financial savings on financial investment on
insulation.

6.2 Forms of space heating considered


The main fuels used for domestic space heating are listed below along with the amount
used in 2004 in MTOE (million tonnes of oil equivalent) and the percentage of market
share this represents:
Table 3, market share of domestic heating fuels (source, ONS, 2005)
Fuel MTOE % share
Natural gas 32.316 83 %
Burning oil 2.818 7%
Anthracite 1.110 3%
Coal 0.976 2.5 %
In this chapter gas central heating costs are focused on gas, as it currently accounts for
83% of domestic fuel in the UK making it the market leader. It is likely to remain so in
the short-medium term.
Other forms of heating are likely to come to greater prominence in the next 15-20 years.
This is likely to include combined heat and power (CHP) from gas (Whispergen and
successors) and potentially biomass. If renewable electricity achieves a significant market
penetration it is likely to require demand management. The provision of electric storage
heating can act to smooth the fluctuating demand and supply from variable renewable
energy sources (Barrett, 2006). This is seen as too large a topic to cover within this thesis
and so a study based on gas central heating is preferred.

6.3 The consultancy’s view – short-long term: Fuel Prophet – UKACE


Fuel Prophet is a tool developed by the UK Association for the Conservation of Energy
(ACE) supported by the EAGA Partnership (ACE, 2006). It is intended to help housing
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professionals and researchers to make decisions about the financial viability of


refurbishment options, primarily as a means of easing fuel poverty.
As such, it requires assumptions to be made about likely changes in UK energy prices
over the next 30 years. They have generated projections for electricity prices and for gas
prices to feed into their Excel spreadsheet which is available free online. The ACE
projections draw on DTI figures for the first 5 years (Smith, Wu, Pett, 2005) and can be
updated to reflect the Government’s changing assessments. Beyond this they are
expanded based on “well-established fuel and economic scenarios” (Smith, Wu, Pett,
2005, p. iv).
There are six different scenarios which cover a range of future possibilities:
“1. base case – moderate increase in demand, rising prices
2. high prices – higher demand and prices than base case
3. very high prices (a) – fuel poverty eliminated
4. very high prices (b) – record levels of winter fuel poverty; summer mortality
due to heat
5. low prices – similar price to base case in short term but access to cheap gas in
longer term
6. very low prices – plentiful fuel and weak global markets; personal carbon
allowances” (Smith, Wu, Pett, 2005, p. iv)
These scenarios in general are biased towards non-nuclear futures which may not be a
reasonable assumption given the current political climate post-Energy White Paper (DTI,
2007).
Each of these scenarios, as may be expected, places a large emphasis on the effects of
climate change and climate change policies on the cost of fuel as well as international
political and economic issues.
The differences between the causes of very high prices in Scenarios 3 and 4 illustrate this
point. In Scenario 3 prices are high due to “energy conservation and cost internalisation
policies” (ACE, 2006). The ACE argue this means that despite higher energy costs, on
average UK households spend a similar amount as in 2005. However, in Scenario 4 the
high cost is due to a disruption of supply due to global security problems and climate
change effects leading to rising insurance premiums. In this scenario fuel poverty
increases and both summer and winter mortality are predicted to rise.

6.4 Issues affecting gas prices


The drivers of natural gas prices are discussed below, including the main factor – oil
prices and the pressures on that including peak oil concerns. The likely course of world
economy over the short-medium term is assessed. The possibility of replacement of
natural gas by other fuels is discussed although it is not looked at in detail. Also
addressed are the difficult to predict issues of geopolitical stability.

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6.4.1 Oil
Short term increases in production
This is agreed upon by the ACE research although they may be echoing the DTI.
Peak oil – long term slowing of production
Many oil industry analysts believe that we are at or approaching peak oil, the point where
half of oil resources have been extracted and the rate of recovery is predicted to slow
(Campbell, 2004, Heinberg, 2003). However, there are conflicting reports which predict
that peak is up to 30 years away and in any case will be followed by an “undulating
plateau” in which new capacity comes on stream but is balanced by old fields becoming
exhausted (CERA, Yergin et al, 2006).
As reserves of easily extractable oil are depleted, more expensive and harder to extract
forms become more viable. The cost of producing oil from these forms (tar sands, oil
shale, etc) is higher than conventional drilling. This will keep the supply of oil up but will
tend to increase the price.
On the other hand, if new oil supplies are brought online at the same time as substitution
away from oil occurs this will bring downward pressure on oil and gas prices. This means
that competition between suppliers leads to price cutting in an attempt to retain market
share meaning the price of fuel becomes much closer to the cost of production.
Oil prices – UK natural gas price linked to Continental contracts
One of the main reasons for this is that continental European gas contracts are fixed to the
market price of oil (EIUG, 2002, Smith, Wu, Pett, 2005). There is no real reason for this
as they are “distinct products sold to different customers in different markets” as stated
by the Energy Intensive Users Group in their response to a DTI consultation on gas prices
(2002, p.5) but no one, including the EIUG, expects this relationship to change.
In winter, gas from the continent is imported which means the UK pays the continental
oil-linked price plus a transport differential. In summer when the UK exports gas to the
continent the fact that gas suppliers can get a higher price for their gas there means that
prices in the UK stay higher too (Smith, Wu, Pett, 2005). This means that despite the
UK’s gas production capabilities the price of gas remains close to the continental oil-
linked price year-round.
Another impact of the link to oil prices is that wholesale gas prices exhibit a similar
volatility. When wholesale prices remain high for a long time retail gas prices may follow,
usually with a lag of around 6 – 12 months according to Ofgem, quoted in a BBC News
article (BBC, 2006c). This volatility means that projections made are necessarily an
average price with the actual price, particularly of wholesale gas varying greatly around
that figure. To some extent this volatility is expected to be smoothed out by the retail gas
suppliers.

6.4.2 Economy
Growth/demand.
In the past, recessions (periods of negative growth) have tended to be short lived – much
shorter than the 15 – 25 year scope of this model. In fact the trend is somewhere in the
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region of 2% growth of gross domestic product (GDP) per annum (Budget Report, 2006).
Growth is something we can expect to continue at a greater or lesser rate.
World GDP is expected to continue to rise at 4½% of GDP each year in the short term
(Budget Report, 2006, table 2.1). Strong growth and hence surges in demand for oil in
China, the USA and India have led to recent oil and gas price rises (DTI, 2004).

6.4.3 EU deregulation and competition


Current high retail gas prices, despite falling wholesale prices, are primarily due to the
recent high prices prior to the opening of new import capacity. This includes the new
Landgeled pipeline from Norway connecting to the Sleipner gas field and on to Easington
(see fig.). This as well as increases in the capacity of the Bacton-Zeebrugge pipeline
(Smith, Wu, Pett, 2005, BBC, 2006b) led to the unusual situation of lower gas prices
towards the end of 2006. In fact in the week after the Langeled pipeline opened, for a
short while gas was trading at -5p a therm, meaning traders were paying to move it on
(BBC, 2006a).

Figure 5, the Landgeled gas pipeline


Source: BBC (2006)
Forthcoming EU energy policy may mean increased deregulation of the gas industry and
also splitting of retail companies from transmission companies. There is a second
suggestion that large, integrated energy companies may be made to hand over
management of their transmission services to independent operators but be allowed to
retain ownership. A decision on this is expected in summer 2007
(PricewaterhouseCoopers, 2007).

6.4.4 Substitution
Fuel substitution in generation, renewables, etc

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Demand elasticity will only increase if alternatives to oil and natural gas are found and
brought online. This may include a greater take-up of electrical and hybrid vehicles (and
renewable forms of charging them).
“[Conventional fuel costs are related to] the development and cost of
alternative production and generation technologies... The degree of cost
internalisation imposed (e.g. through carbon taxes or emissions trading) and
the degree of support granted to micro and renewable generation (e.g. via
the renewables obligation, EEC or building codes) will affect fuel prices.”
(Smith, Wu, Pett, 2005)
Coal price will stay high so long as gas and oil prices stay high as it will be required for
electricity generation. If gas is cheaper then it will be preferred to coal in generation.

6.4.5 Geopolitics
Issues of geopolitical instability have recently had some large effects on oil prices. These
have included war in the Middle East, particularly Iraq. Also kidnappings in Nigeria and
pipeline sabotage in Colombia have exerted upwards pressure on prices (Peterson, 2005).
Russia has a major role to play in current and future gas supply. Presently it supplies 25%
of European gas and oil and this is expected to rise (BBC, 2006b). However, Russia is a
state described in a recent Economist article as “chaotic, factional, corrupt and
criminalised.” (The Economist, Nov 25th, 2006) It is hardly surprising that the IEA says
there are “enormous uncertainties surrounding Russia’s energy future” (IEA, 2004).
Furthermore, climate change-linked effects such as hurricanes in the Gulf of Mexico are
likely to disrupt supply and increase insurance premiums leading to higher oil prices
(Stern, 2006).
The relative likelihoods of these geopolitical influences on fuel prices coming to pass are
hard to quantify, however in the short-medium term it is considered likely that the main
pressure will be upwards unless peace comes to the Middle East.

6.5 Analysis of price scenarios


Here the main assumptions made in the scenarios examined are assessed in the light of
the issues described above. They are described as possible, probable or subject to oil
price moves with oil price rises seen as probable and oil price falls as possible.

6.5.1 Fuel Prophet base scenario (1.9p/kWh retail in 2020)


Moderate demand increase and moderate growth: Probable
Reduced North Sea production: Probable
Short-term restricted supply from the Continent: Probable
Medium-term shortage of generation capacity: Possible/probable

6.5.2 Fuel Prophet high prices (2.2 p/kWh retail in 2020)


As in base case except demand rises faster: Possible/probable

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6.5.3 Fuel Prophet very high prices (a) (2.8 p/kWh retail in 2020)
Moderate to high demand and growth: Possible/probable
Assertive energy conservation and cost internalisation: Possible
Demanding ETS quotas (see Ch. 7): Possible/probable
Personal carbon allowances (see Ch. 7): Possible
LZC technologies become cheaper: Probable
Microgeneration mandatory for refurbishments by 2017: Possible/probable

6.5.4 Fuel Prophet very high prices (b) (2.9 p/kWh retail in 2020)
Moderate ETS quotas: Possible/probable
Gas price remains oil-linked: Probable
High global oil demand: Possible/probable
Geopolitical instability: Possible/probable
Climate change-related disruption to offshore production: Possible

6.5.5 Fuel Prophet low prices (1.4 p/kWh retail in 2020)


As base case plus deregulation of Continental gas market: Possible/probable
Generation from “super CCGT” technology: Possible/probable

6.5.6 Fuel Prophet very low prices (1.2 p/kWh retail in 2020)
Plentiful new reserves found in Russia and North Africa: Possible
Asian economies decelerate: Possible
Developed economies remain steady state or growing: Possible

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Retail gas price range

2.50

2.00
Price (p/kWh)

1.50 FP high
FP base
1.00 FP low

0.50

0.00
5

0
0

2
20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20
Year

Figure 6, Retail gas price projections to 2020 (source, ACE, 2005)

6.6 Conclusions
From the sources consulted it is considered unlikely that peak oil will have a major effect
on gas prices in the short-medium term (to 2020). Even if the peak is close or has already
been reached there is likely to be a period in which new discoveries enable the extraction
rate to be maintained in the medium term. Later in the period modelled, resource
depletion may begin to have a noticeable effect; however no reliable long-term projection
of by how much has been found.
From the categorisation of the main assumptions in both sets of scenarios, the most
probable is, unsurprisingly, Fuel Prophet’s base scenario. After this the two “high”
scenarios are seen as more likely than the “low” scenarios. Nevertheless, the low
scenarios do not contain any very unlikely assumptions and must still be considered as
possible outturns. The Fuel Prophet “very high (a)”, “very high (b)” and “very low”
scenarios contain some more unlikely assumptions and are therefore considered unlikely
to occur.
These projections are necessarily far from certain. As the DTI state in the accompanying
literature to their projections upon which Fuel Prophet draws,
“Econometric models are valuable in the medium to longer term but
projecting beyond 2020 to 2050 becomes difficult as for example,
technologies are expected to change, new processes and systems are
introduced and the detailed econometric relationships built on past
relationships are no longer valid in this time frame.”
(DTI, UK Energy and CO2 Emissions Projections, July 2006)
For this reason the central gas price projected by ACE is used for the first 20 years.
Thereafter the price is assumed to remain stable. The outlying projections are not used in
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sensitivity analysis; rather, the central price is doubled and halved to allow for the wide
variation in possible outturn. This is a far greater range than any of the ACE projections.
The most likely outturn for retail prices is 1.4 – 2.2p/kWh in 2020, most likely around or
higher than 1.9p/kWh.
See appendix 2 for tables showing the prices used to 2057.

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Chapter 7 Cost of carbon

7.1 Introduction
In assessing a value for carbon to be used in modelling of financial incentives towards
insulation there were two options. Firstly, use the social cost of carbon as assessed by
many authors and analysed in Clarkson and Deyes (2002). Secondly, use the projected
trading cost of carbon in emissions trading markets such as the EU-ETS.
The features of these two options are explored below, followed by an assessment of the
arguments for and against using them in the thesis.

7.2.1 Social cost


The social cost attempts to measure all economic externalities. This should include the
cost of mitigation and adaptation. In this way it is concerned with finding the cost of
carbon emissions.
According to Stern, the rational optimal price for carbon is where the marginal social cost
of externalities (the balance of the positive and negative economic effects of climate
change) is equal to the marginal cost of abatement (2006).
Externalities are those economic effects of an action which are not primarily experienced
by the agent doing the action. For example the cost of disposal of fly-tipped waste by the
council is an externality of the business which dumped the waste. Negative externalities
can be seen as a “free ride”.
Looking at costs to society, if the marginal cost of externalities is greater than that of
abatement then further abatement measures could be introduced at no net cost. If the
marginal cost of abatement is greater than that of externalities then the additional
economic benefit derived from further abatement efforts is less than that of doing
nothing. Only if marginal costs of abatement and externalities are equal (the point where
the lines cross in the figure below) is the maximum economic benefit being taken.

12.0

10.0

8.0 Cost of climate


change
Cost of avoiding
Cost

6.0 climate change


Rational optimal
4.0 price for carbon

2.0

0.0
1 3 5 7 9 11 13 15
Abatement effort

Figure 7, Showing decrease in damage costs as abatement costs rise

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The externalities in the case of GHGs are particularly hard to calculate. The main features
are laid out in the Stern Review (2006, Ch. 14.2) and paraphrased below:
• The damaging effect of GHG is roughly the same wherever it is emitted but the
impacts are likely to be felt unevenly around the world.
• Impacts are not immediately felt and will continue to have an effect into the
future.
• Uncertainty exists about when the effects will be felt and about how great the
effects will be.
• The effects could possibly be huge.
Taking these issues in turn they suggest that:
• The price should be equal across the world.
• The price should take account of future damage.
• The price is uncertain and hard to calculate.
• The price could be very high.

7.2.2 Trading price


Trading-based systems attempt to keep the level of emissions below a set level by means
of establishing a cap. Analysis carried out looks at the likely implications of setting
different caps (represented by stabilisation levels). In this way it tries to find the price of
carbon emissions.
An emissions trading scheme is a mechanism by which the market is used to find the
optimal price for a pollutant. The idea is that if a company can find a cheaper way to
avoid emitting the pollutant it will do so; otherwise, assuming it sees no other benefits to
reducing emissions, it will buy rights to emit from the trading market.
It is important that a cap is set on emissions. If this is set too high then the price of buying
rights will fall. This is important since if the price falls lower than the social cost of
carbon, the full externality is not being internalised.
This has been the case in the EU ETS up to now although there are hopes that the
situation will improve in the next phase and in potential subsequent phases.
Assuming a continuation of the EU ETS in its present form, prices are essentially dictated
by the European Commission which approves the emissions rights allocations for each
phase. These are reliant on each member state’s national allocation plan (NAP).
However, if the Commission believes that a state’s self-set targets are not demanding
enough they can cut the allocation. This was the case recently where Finland, Poland and
the Czech Republic’s allocations were cut. Both the Czech Republic and Poland intend to
take legal action over this (Point Carbon, 2007).

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7.3 Assessments of projections

7.3.1 Social cost


A thorough review of existing literature was carried out by Clarkson & Deyes for Defra
(2002). They compared the models used in a number of papers which aimed to calculate
the social costs of carbon. The range of values found between 2001-2010 was from $9-
197/tonne of carbon (tC) in 2000 prices.
Having assessed the methodologies of the existing papers, the authors chose the “most
sophisticated”. It produced an estimated marginal damage figure of £70/tC (2000 prices).
The figure was predicted to increase by £1/tC per year. Recognising the uncertainties
associated with modelling the impacts of climate change they recommend using an upper
and lower value of £140/tC and £35/tC.

7.3.2 Trading price


No meta-analysis was publicly available to compare the many models used in projections
of future carbon prices (many have been carried out by consultancies such as Point
Carbon, but these are commercially confidential for obvious reasons). For this reason a
set of projections using different scenarios are compared here. They were carried out by
Nakicenovic et al (2003), for the WBGU, the German Advisory Council on Global
Change.
The scenarios are for different GHG stabilisation scenarios ranging from 450 ppmv to
650 ppmv. This stabilisation level is the most important factor driving carbon prices in
the medium term looked at in this thesis:
“[D]ue to technological inertia, costs of meeting stringent climate stabilisation
goals are almost “pre-programmed” over the next couple of decades (i.e., are
baseline scenario independent) and are essentially dependent on emissions
constraints levels and existence (or absence) of flexibility mechanisms such as the
international trade in carbon permits.” (WBGU, 2003, p. 39)
This is saying that due to length of time necessary to develop and introduce new low and
zero carbon technology, any early efforts to avoid emissions must bear the fixed costs of
today’s technologies.
This modelling work was carried out by Nakicenovic et al of the Institute of Applied
Systems Analysis for WBGU. Three scenarios are used in the study. They are referred to
by the Special Report on Emissions Scenarios (SRES) scenarios they are based upon,
A1T, B1 and B2. These are baseline scenarios based on “storylines” and with no
particular action on emissions reductions. These are combined with an assumed
atmospheric GHG stabilisation level, the model is run and results are generated.
Complete details of the assumptions behind these scenarios can be found in the SRES
report (Nakicenovic et al, 2000) but an outline of the important factors is given below.
Baseline scenarios A1T and B1 focus on economic and social sustainability. In addition
B1 also encompasses environmental sustainability. A1T is low- and zero-emission
technology intensive but has a higher overall energy demand.

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While A1T and B1 represent baseline scenarios where the world is gradually moving
towards sustainability, scenario B2 represents a more unfavourable world for climate
change minimisation policies. It has a “more cautious geopolitical, economic and
technologic outlook” than the other two scenarios (Nakicenovic, 2003, p. 17).
The basic assumptions of the analysis are that scenarios B1 and B2 assume a stabilisation
figure of 400 ppmv while A1T assumes 450 ppmv, all under a “very limited and
restricted number of mitigation measures and options” (Nakicenovic et al, 2003, p. 4).
Nakicenovic et al are careful to point out that two of the baseline scenarios chosen, A1T
and B1, already assume a fairly high level of climate change avoidance due to their
sustainable “storylines”. B2 has a more “dynamics as usual” approach (2003, p. 1). In the
study authors’ view the funder’s choice of primarily “sustainable development” scenarios
leads to “an optimistic baseline projection of availability and costs of environmentally
benign technology, easing subsequently the achievement of ambitious climate
stabilization targets.” (2003, p. 2) This would mean an underestimate of the total
additional social cost of carbon emissions.
Nevertheless, due to the “technological inertia” mentioned previously, these issues appear
to have little short – medium term effect on permit prices so are negligible as far as the
scope of this thesis is concerned.
It should be noted that the finding of the authors was that;
“The costs of meeting a particular climate stabilization target [are] more
dependent on the type of base scenario analyzed (high- versus low-emission
futures) and the range of mitigation technologies available (unconstrained versus
– as in this study – constrained) than on the absolute level of emission reduction
or the particular model of emission permit allocation chosen.” (Nakicenovic et al,
2003, p. 37)
This is the reason that the sustainable development baselines, A1T and B1, are seen to
arrive at lower-priced assessments of the costs of climate change minimization, even with
such challenging stabilization targets.
It is debatable whether this is a correct assessment. Stern for example claims that a target
of 550 ppmv is economically feasible whereas a lower target such as that assessed by
Nakicenovic et al is not feasible. This suggests that the stabilization scenario is a
significant factor. It would appear clear that this is the case in any cap and trade system as
scarcity acts to increase price of the commodity.
It is also more meaningful in that governments may act to impose a cap on carbon
whereas they have less control over which mitigation technologies come to market -
though still some through measures such as market priming for technologies which are
felt to be important such as streamed ROCs for offshore wind (Crown, 2006).
The price projected for 2030 is around USD(1990)140/tC (£80/tC4). In today’s money
this is around £134/tC5, close to the upper range in Clarkson and Deyes and equivalent to

4
Average 1990 exchange rate of USD 1 = GBP 0.57 (oanda.com)
5
Inflation figures from CPI, (ONS, 2007) available online at
http://www.statistics.gov.uk/statbase/product.asp?vlnk=867
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£36.50/tCO2. By 2060 it is projected that the price of carbon will be around


USD(1990)220-390/tC, which is £57-102/tCO2 in today’s money.

7.4 Analysis

7.4.1 Social costs


The argument for using the social cost has moral authority in that it attempts to internalise
the externality of climate change. It is debatable whether the cost to humanity as assessed
by any of the researchers who have looked at this question would do so successfully.
Nevertheless, Clarkson and Deyes’ cost is a well-accepted figure and is used explicitly in
Government modelling. This means that modelling using this cost is more easily
comparable with other Government research.
The reason that none of the research into social cost of carbon is likely to come up with
an accurate cost for carbon is that none makes specific mention of the fact that, should the
world reach a tipping point where positive feedback effects cause runaway climate
change, the costs of adapting to the changing climate may become very high indeed. One
can imagine this as taking the original social cost of a tonne of carbon then multiplying it
by the additional radiative forcings caused by emission of that tonne. It is quite
understandable that such a complicated calculation has not been carried out but it still
remains a limitation (as is acknowledged by Clarkson and Deyes’ wide range of possible
values).
Another possible argument against using the social cost of carbon in this modelling is that
it is not presently a direct cost to the consumer. It is argued here that the effect on
individuals is less important than that on humanity as a whole. For this reason, and to

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enable this research to have more meaning when deciding policy, social cost may be
considered the better option in modelling.

7.4.2 Trading costs


Perhaps the most powerful argument in favour of using a projection of the price of carbon
permits in the UK is that it is the most likely direct cost to consumers. This will be the
case whether it is levied on the gas supplier or directly on the fuel purchaser. If the aim of
this modelling exercise is to find the financially optimal point to the consumer this would
clearly be the correct choice.
Unfortunately it is hard to assess whether the prices as assessed here will actually apply
to domestic gas consumers.
If the aim of this exercise is to find ways of encouraging insulation to the carbon-optimal
level then it is more important to know what carbon should cost rather than what it will
cost.

7.5 Conclusions
The distinction between social costs and trading costs is perhaps a false one. This social
cost is an important factor in the EU’s attempt to set a price in the EU-ETS. This price is
driven by the level of allocations in each phase of the scheme. The fact that both are
projecting a value early on of around £70/tC suggests that similar assumptions are being
made.
The main use of the value of carbon in this thesis is to assess the impact of economic
measures on optimal levels of insulation. This means that the aim is to find the optimal
level in terms of climate change mitigation rather than in terms of financial benefit to the
owner. For this reason, the baseline in the model is taken with no cost of carbon.
Subsequently, in analysis of financial incentives to insulate, the social cost of carbon
from Clarkson and Deyes (2002) is used.
It bears repeating that if we are approaching the point where positive feedbacks start to
occur then the price of carbon should be much higher than has been modelled previously.
Nevertheless, no reliable projections have been made of these and so the only advice that
can be given is that the higher rather than lower figure used in sensitivity analysis should
certainly not be considered unlikely.

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Chapter 8 Modelling

8.1 Introduction
Two computer models were used in this thesis. First, the purpose-built Excel-based ISM
which was used to predict the cost and savings of insulation. Secondly, IES:VE which
was used to provide energy use data for ISM.
The benefits and limitations of this are laid out below. 8.2 looks at the uses of computer
modelling. 8.3 examines the drawbacks which must be considered. 8.4 looks specifically
at the software chosen, IES:VE and Excel, and 8.5 draws conclusions about the use of
modelling in this thesis.

8.2 Uses of modelling


Computer models are useful in predicting things which may take too long to simulate
experimentally. This is particularly true with IES:VE which performs dynamic thermal
simulation of buildings. It is a commonly used tool in architecture and building design
due to the number of different modifications that can be made and tested in a
comparatively short time.
With the continuing increase in computing power more and more complex situations can
be modelled, including computational fluid dynamics (CFD) which was until recently
only possible with super-computers.
One of the ways in which computer modelling is easier than real world testing is that it
lends itself to simplified models. With a skilled designer and operator the relevant
parameters can be modelled, leaving those which have little or no effect out of the
experiment.
Finally, modelling is a powerful tool as it can be used to simulate almost anything from
crowd movements to climate patterns to building performance. It allows for
experimentation on parameters which may be impossible to change in the real world. For
example, in this thesis predictions are made about emissions over the next 50 years.

8.3 Limitations of modelling


Several problems can be encountered when using computer models.
• Most fundamentally there can be problems with the program used to build the
model.
• Secondly there can be problems with imperfect model design. If the modeller has
omitted important details believing them to have no effect then the results given
can be far from what is found in real life. One possible source of this in this thesis
is that no way has been found to account for comfort taking.
• Thirdly, where a model relies on data from elsewhere this can be a weak point. If
a parameter is particularly sensitive then the results given can again be far
removed from the real world. In this thesis such limitations come primarily from

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the projections of future gas and carbon prices. They are controlled for by means
of sensitivity analysis.
• In a very complex model it can be impossible for an inexperienced user to identify
erroneous results which can come from something as basic as poor data entry.
Every model needs to be compared with results in the real world if one is to have
confidence in its predictions.

8.4 Discussion of building modelling software


IES:VE is a well-known, much used building modelling programme which has been in
existence for over 15 years. ApacheSim, the thermal modelling element of IES:VE, has
been tested using the ANSI/ASHRAE standard, 140-2001 (ANSI/ASHRAE, 2001). It
performed well against benchmarks provided by other modelling software, returning
results outside the range set by other programs in 13 of 326 tests (Gough, Rees, 2004).
The programme is accredited by CIBSE and has an entry in the CIBSE Applications
Manual (CIBSE, 1998, Appendix B). The VE Compliance module is also an accepted
program for calculating compliance with Part L2 of UK Building Regulations for non-
domestic buildings.
9.3 looks at the benefits of IES:VE over other software tried.

8.5 Conclusions
Modelling opens up numerous possibilities for experimenting with things that are
impractical to test otherwise. It can provide the opportunity to see where something like
building performance may be improved, without the problem of having to change the
existing building to find out if the modification works. However, computer modelling
should be just the first step. Modelling should not be used as a replacement for physical
experimentation which is generally more reliable, and may uncover factors which were
judged irrelevant in the model. Post-occupancy evaluation is also of great value in
assessing whether a program is working as it should. This enables further development of
more accurate modelling tools.
In order to try and avoid some of the pitfalls of modelling, some checks should be applied.
Models should be checked carefully by using techniques such as sensitivity analysis –
systematically changing values to see the effect this has on results.
It is hard to get a sense of when a result is wrong as a number. Graphical output is useful
as a form of checking. This graphical output can be used in sensitivity analysis. By
changing values of inputs it can be seen which of the parameters are most sensitive to
data errors.
A spreadsheet model such as ISM must be carefully checked to ensure that every cell is
acting as it should and that all formulae and data have been entered correctly.
The results of a model are not usually interesting in themselves. It is important to look
back at what is being modelled and the effects that these results might have on the real
world. It is also important to consider any other factors in the real world such as comfort
taking which may affect the validity of results.

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Chapter 9 Calculation of fuel savings

9.1 Introduction
In this chapter the principles of housing heat losses are briefly introduced. A model house
is described and the results of simulation in terms of annual saving on heating load are
presented.
A formula for calculating the savings from a known U-value (a coefficient of energy
saving - CoES) is derived for this model house.
A simple model is created to show how this method of finding a CoES can be applied to
any building element. A final model for the experiment is then created and tables of
predicted annual savings are presented for several types of roof insulation.

9.2 Heat losses


The heat loss of a house is dependent on two main factors. One is the thermal
transmittance of the building fabric and the other is the ventilation or air change rate. Air
changes are normally measured in litres per second (l/s) or air changes per hour (ac/h)
while the thermal transmittance is measured in W/m2 K and is known as a U-value. A
lower U-value means lower heat loss. It decreases non-linearly with thickness as shown
in the graph below.

CIBSE U-value of cellulose


1.8
1.6
1.4 CIBSE u-value
U-value W/m2 K

1.2
1
0.8
0.6
0.4
0.2
0
0 100 200 300 400 500
thickness mm

Figure 8, U-value of cellulose calculated in IES:VE using CIBSE method.


This illustrates the reason for diminishing returns on investment in insulation.
It should be noted that a U-value is not a precise figure. The tests which are carried out to
determine the value are done in a hot box which drives out moisture. An allowance is

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made for this, but nevertheless, varying moisture levels in a real world situation are likely
to affect the U-value as water is a good conductor of heat.
Another factor which can affect the U-value of insulation is compression. Loose-fill
insulation such as cellulose can be found to pack down over time which will reduce the
U-value, both by increasing the conductivity and by decreasing the thickness. This has
not been accounted for in this thesis.

9.3 Software choice


The model house tested was built in IES:VE (IES, 2006). This was after preliminary
comparative testing had been carried out in both IES and NHER Builder (NHER, 2005)
which found disagreement between the two programmes. The decision was taken to use
IES:VE. This had the effect of minimising the apparent benefits of insulation as the
NHER figures showed greater energy savings. A further benefit is that IES allows for
greater control of the parameters and quicker model construction.
Using IES allowed for the speedy development of the model house used in the study.
Furthermore, it allows for the construction of highly simplified buildings in order to test a
theory quickly and simply without needing to specify every building element. Further
discussion of the software chosen can be found in chapter 8.

9.4 The model


The model house is a semi-detached, two-storey property of 105 m2 plus a room in the
roof. It has cavity walls with a U-value of 0.35 W/m2 K. The floor has a U-value of 0.22
W/m2 K. Windows and doors have a U-value of 2.02 W/m2 K. The air change rate is 5.5
l/s. These data have an impact on the optimal level of insulation for the roof by modifying
the necessary energy input to maintain a baseline internal temperature.

9.5 Coefficient of Energy Saving


This section describes a simple method for calculating energy savings from a known U-
value in a given space. A presentation of the experiment that led to this is given, followed
by a demonstration for an idealised space.

9.5.1 Deriving annual fuel savings from U-value


Simulation was carried out for insulation thicknesses up to 100mm in IES:VE. The graph
below shows the tailing off of returns as the insulation thickness is increased.

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IES model results:


Savings against thickness
450.0
400.0
350.0
kWh savings

300.0
250.0
200.0
150.0
100.0
50.0
0.0
0 10 20 30 40 50 60 70 80 90 100
thickness of insulation

Figure 9, Initial model results showing savings against insulation thickness.


When this data was plotted against U-value rather than thickness the near-linear
relationship was observed. It was decided to run one more model with a U-value of close
to zero in order to see if this relationship continued.

IES model results:

600.0
Savings against u-value

500.0
KWh savings

400.0

300.0

200.0

100.0

0.0
0 0.5 1 1.5 2
u-value

Figure 10, Showing savings against U-value.


The graph remained essentially linear as is to be expected. This is because U-value is a
measure of the amount of heat lost in Watts per m2 per degree difference. As the U-value
decreases, the kWh saving grows proportionally.
Therefore, in this case, the annual saving can be calculated thus:
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Equation 7

y ≈ 280xins – 280x
Where:
x = original U-value.
xins = insulated U-value
y = annual savings

Projected and modelled graphs of


savings
600.0

IES model results y = 280Xins -280X


500.0

400.0
kWh savings

300.0

200.0

100.0

0.0
0 0.5 1 1.5 2
u-value

Figure 11, Comparing IES-calculated savings and a simplified method of calculating


savings.
This figure of 280 is important in that it gives us an annual heat loss figure throughout the
whole model house rather than just through the roof, including losses due to infiltration
and ventilation. This figure is the coefficient of energy saving (CoES) for the building by
insulation of the chosen building element.
In the formula below, a is the coefficient of energy saving (CoES) for any building by
insulation of any chosen building element.
Equation 8

y ≈ axins – ax
Incidentally, the slight curve seen on the IES-simulated graph may be due to increasing
mass of insulation acting as a thermal store. The failure to take account of this effect is a
limitation of the CoES method and could perhaps be adjusted for in further development
of the model.

9.5.2 Deriving savings of insulation for any space


In order to show how this CoES can be found for any insulated element a simple box with
a door on one side and a window on each of the others was built in IES:VE.
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Figure 12, A simple box built to test the CoES method.


By running a simulation of the model with no insulation in the walls and another with
wall U-value of approaching zero the graph approximating energy saving against U-value
was created.

Energy saving against U-value


8000

7000

6000
saving KWh

5000

4000

3000

2000

1000

0
0 0.5 1 1.5 2
U-value W/m2 K

Figure 13, Energy saving against U-value using CoES method.


By substituting for a in Eq. 8, the CoES for wall insulation in this idealised box was
found. This simple process can be followed for any space and any insulated element.
There is also no need for the simulated building to be in IES:VE. The method would
work equally well based on a building modelled in NHER or other software or with
experimental data.

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9.6 Coefficient of energy saving in the model building


For the model building used in the experiment the uninsulated U-value of the roof was
2.4 W/m2 K and the building used 13,650 kWh.
With a U-value of 0.01 W/m2 K the saving was 8,380 kWh. This converts to a CoES of
3,490.
Below is a screenshot from the spreadsheet developed to calculate this.

Figure 14, Screenshot of CoES finder from ISM.

9.6.3 Fuel savings by type of insulation


The actual relationship between thickness and energy savings is now calculated for the
three types of insulation in this house to assess how much difference varying resistance of
types of insulation makes. The insulations modelled are cellulose, polyurethane and Rock
wool. Their characteristics are tabulated below:
Table 4, Physical characterictics of insulation types
Insulation type Conductivity (W/m K) Density (kg/m3)
Warmcel 500 0.036 45
Kingspan TP10 0.023 33

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Rock wool 0.04 25

9.6.4 U-value calculations


A U-value calculator (formula from McMullen, 2002) in Excel using the same
construction as the IES model generates a U-value graph which shows good agreement
with the IES-generated U-values which use the CIBSE admittance method (CIBSE,
1999b).

U -values for cellulose

1.6
1.4
1.2
1
W/m2K

CIBSE u-value
0.8
Simple calculation
0.6
0.4
0.2
0
10 20 30 40 50 60 70 80 90 100
thickness of insulation

Figure 15, Comparing CIBSE-calculated U-values with simple U-value calculation.


Since there is agreement, particularly at low U-values, it is considered reasonable to use
this simple method rather than IES simulation.
Graphs plotting thickness against U-value for three types of insulation are presented
below.

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U-values of insulation
2.50
Kingspan TP10
2.00 Warmcel 500
U-value W/m2 K

Rockwool
1.50

1.00

0.50

0.00
20
40
60
80

0
0
0
0
0
0
0
0
0
0
0
0

10
12
14
16
18
20
22
24
26
28
30
thickness mm

Figure 16, U-values of three types of insulation by thickness.

9.6.5 Results for annual energy savings by insulation type


These U-values can then finally be converted to annual energy savings by thickness for
each type of insulation using Eq. 8 derived above and the CoES found in ISM.

10000
9000
8000
7000
kWh saving

6000 Kingspan kWh


5000 Rockwool kWh
4000 Warmcel kWh

3000
2000
1000
0
0
70
140
210
280
350
420
490
560
630
700
770
840
910
980

thickness mm

Figure 17, graph of energy saved by varying thickness of insulation


The graph below shows the savings each of the insulation types makes above Rockwool.

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1400

1200

1000
kWh saving

800 Kingspan kWh


Rockwool kWh
600 Warmcel kWh

400

200

0
0
70
140
210
280
350
420
490
560
630
700
770
840
910
980
thickness mm

Figure 18, graph showing extra saving above that of Rockwool by thickness
It can be seen that the difference in energy saving is greatest between around 10mm and
100mm in thickness. Before and after this the lines converge. By somewhere around
1000mm the difference is almost negligible – around 60 kWh/yr at most. The data are
presented in Appendix 3.

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Chapter 10 The Model

10.1 Introduction
The Insulation Savings Model (ISM) is the software created for calculation of optimal
points for this research. It is described below including a description of the interface and
a flow chart showing its operation.

10.2 The interface


The main user interface of the ISM is a drop-down list on the sheet “Front page”. The
user selects an insulation type, enters the area of insulation and enters the desired
discount rate.

Figure 19, Screenshot from ISM showing data entered on the front page.
On the second page, “CoES” the user inputs four pieces of data from the building element
being modelled. This is two U-values and the energy use associated with them. They then
vary the value in the “CoES” cell until the green line covers the red to find the coefficient
of energy saving of insulating their building element as described in section 9.5.2.

10.3 The sheets


The model is a tool which contains the following datasets:
• Projected natural gas price for 30 years.
• Physical and cost data for the four insulation types.
• Projected carbon price for 30 years.
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Eight pieces of data are entered by the user: four about a building element’s thermal
performance found either through modelling or from measurement; a selection of the
insulation type; the insulation area; the discount rate; and the level of grant funding
available.

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Advanced Environmental and Energy Studies
10.4 Flow Chart
The process followed by the tool is laid out in the following flow chart.

Figure 20, ISM flow chart


10.5 The results
From the data which the user enters, the ISM model calculates the optimum thickness of
insulation for the building element being modelled. This is where the ROI or CROCI is
equal to 1. Graphs are plotted to show this, and also the net carbon saving at the two
optimal points.

Optimal points for insulat ion kg CO 2 saving at opt imal point for R OI of
2.0 layer and CRO CI of layer
2.0

ROI of layer
CROCI of layer
ROI/CROCI

ROI/CROCI
1.0 1.0
10

110

210

310

410

510

610

710

810

910
35,000 40,000 45,000 50,000 55,000
Savings at
financial trade-
off point
Savings at
carbon trade-off
point
0.0 0.0
Thickness mm Saving

Figure 21, ISM sample results


Finally, graphs are plotted of the financial and carbon payback times.
CO 2 marginal payback time of insulation Marginal financia l pa yback time of

100 insulation
100
90 90
80 80
70 70
60 60
years

years

50 50
40 40
30 30
20 20
10 10
- -
10

50
90

0
0

0
0
0
0
0

0
0

0
0

0
0
0
0
0
0
0
0
0
0
0
10
50
90
13
17

21
25
29
33
37

41
45

49
53

13
17
21
25
29
33
37
41
45
49
53

thickness mm thickness mm

Figure 22, ISM sample results Figure 23, ISM sample results
What are the financial- and carbon-optimal points for return on investment in insulation?

Chapter 11 Results

11.1 Introduction
The results presented here are for 66 m2 of roof insulation on a medium-sized, semi-
detached house. Some of the findings may apply in other situations but this will not
always be the case. The base case does not include any grant towards the cost of
insulation or a price for carbon.

11.2 Optimal points and thickness required for Building Regulations


Table 5, Thickness in mm required for Building Regulations and optimal points

Financial- U-value Carbon-


optimal = 0.16 optimal point
point
Kingspan 40 130 190
TP10
Warmcel 100 210 790
Rockwool 70 235 730
This table shows that the CO2 returns for the products in this sample set and construction
continue to increase after the insulation is no longer cost-effective and after the level
required by Building Regulations. The effect is less pronounced for Kingspan than for the
lower embodied CO2 materials but still significant.
On the other hand Kingspan achieves the same U-value from a much thinner layer than
the other two insulations.

900

800
700
600
Thickness mm

Kingspan TP10
500
Warmcel
400
Rockwool
300
200
100

0
Financial optimal U-value = 0.16 Carbon optimal
point point

Figure 24, showing optimal depths of insulation and required level for Building
Regulations

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Regulations are set closer to the financial-optimal point than carbon-optimal except in the
case of Kingspan.
Regulations could be set much higher for lower ECO2 materials and so avoid more
emissions. This would only apply where space is not critical. It may also not be the most
cost effective way of reducing emissions. This is further examined in the sensitivity
analysis.

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11.3 Payback time graphs

11.3.1 Kingspan TP10


Marginal financial payback time of
insulation
100
90
80
70
60
years

50
40
30
20
10
-
0
0
0

0
0
0
0
0
0
0
0

0
10
60
11
16
21

26
31
36

41
46
51
56
61

66
thickness mm

Figure 25: Marginal financial payback of Kingspan TP10

C O2 marginal payback time of insulation

100.0
90.0
80.0
70.0
60.0
years

50.0

40.0
30.0
20.0
10.0
-
0
0
0
0
0
0
0
0
0
0
0
0
10
60
11
16
21
26
31
36
41
46
51
56
61
66

thickness mm

Figure 26, Marginal CO2 payback of Kingspan TP10

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11.3.2 Warmcel

Marginal financial payback time of


insulation
100
90
80
70
60
years

50
40
30
20
10
-
0
0
0

0
0
0
0
0
0
0
0

0
10
60
11
16
21

26
31
36

41
46
51
56
61

66
thickness mm

Figure 27, Marginal financial payback of Warmcel

C O2 marginal payback time of insulation

100.0
90.0
80.0
70.0
60.0
years

50.0

40.0
30.0
20.0
10.0
-
0
0
0
0
0
0
0
0
0
0
0
0
10
60
11
16
21
26
31
36
41
46
51
56
61
66

thickness mm

Figure 28, Marginal CO2 payback time of Warmcel

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11.3.3 Rockwool
Marginal financial payback time of
insulation
100
90
80
70
60
years

50
40
30
20
10
-
0
0
0

0
0
0
0
0
0
0
0

0
10
60
11
16
21

26
31
36

41
46
51
56
61

66
thickness mm

Figure 29, Marginal financial payback time of Rockwool

C O2 marginal payback time of insulation

100.0
90.0
80.0
70.0
60.0
years

50.0

40.0
30.0
20.0
10.0
-
0
0
0
0
0
0
0
0
0
0
0
0
10
60
11
16
21
26
31
36
41
46
51
56
61
66

thickness mm

Figure 30, Marginal CO2 payback time of Rockwool

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11.3.4 Analysis of payback time graphs


Firstly, it should be restated that these payback time graphs are looking at the marginal
return on investment. The thickness of installed insulation will pay back far more quickly
when considered as a complete unit.
For example, Rockwool to 380mm will pay back the total financial investment after 50
years. The marginal 10mm however (370-380mm) would take 1,088 years to pay back.
Obviously all of the insulation types have a payback of 50 yrs at the optimal point
measured against, as this is the duration of the investment. In other words the marginal
financial payback time on the financial payback graph is 50 years and the marginal CO2
payback time on the CO2 payback graph is also 50 years.
The marginal financial payback time for a given thickness of Kingspan is high (ie, the
curve is steep) both in terms of financial and of CO2 payback. This is because it is both
expensive and high in embodied carbon. This is a skewed measure however as Kingspan
performs better for a given thickness due to a lower conductivity. This means that the
payback time for a given U-value is the more meaningful result.
Table 6, Financial payback times of financially marginal 10mm.

U-value = Carbon-optimal
0.16 point
Kingspan TP10 423 yrs 488 yrs
Warmcel 185 yrs 1,474 yrs
Rockwool 454 yrs 2,441 yrs
This shows that, in the case of marginal return of the final 10mm added, none of these
types of insulation starts to save money at Building Regulations levels within in the
lifespan used here. Even in the best case, going to the carbon-optimal point would take
almost 500 years to repay the financial investment. This is in the case of Kingspan, not
because it performs well, but because it is so high in ECO2. This skews the CO2 optimal
point downwards in comparison to the lower ECO2 materials.
Table 7, CO2 payback times of CO2 marginal 10mm.

Financial- U-value =
optimal point 0.16
Kingspan TP10 2.5 yrs 23.1 yrs
Warmcel 0.9 yrs 3.8 yrs
Rockwool 0.6 yrs 5.6 yrs

Warmcel provides the best financial investment when going to the required level of
insulation, paying back the investment twice as fast as the other two materials assessed.

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The two low ECO2 insulation types, Rockwool and Warmcel, both have a shorter
payback at Building Regulations level in this configuration. All the insulation types pay
back their ECO2 very quickly at the financially optimal point. This shows that it is correct
in terms of CROCI to go beyond the financial-optimal point and therefore that, if this is
the priority, regulations should be employed to force this (as they are). The fact that the
carbon payback time is still very short at a U-value of 0.016 W/m2K, at least in the case
of the lower ECO2 materials, means that a lower U-value could be insisted upon.
However, this may not be the most cost-effective way of reducing emissions, particularly
as returns per mm added continue to fall.

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11.4 Financial savings at U-value = 0.16 W/m2 K and optimal points


2
Table 8, Financial savings at U-value=16 W/m K and optimal points

Financial- U-value Carbon-


optimal = 0.16 optimal
point point
Kingspan £1,830 £1,017 £193
TP10
Warmcel £2,200 £2,017 £212
Rockwool £1,847 £1,017 -£2,499

Warmcel saves the most money at the financially optimal point while Rockwool and
Kingspan save less. Kingspan saves the most at the CO2 optimal point, Warmcel saves a
little less and Rockwool loses a lot of money.
When insulating using these materials, there is no marginal financial benefit to be had by
going over regulations to the CO2 optimal point. In fact even going to Building
Regulations level shows a sub-optimal financial return over 50 years for all materials.
This makes the point that if it is desired that carbon-optimal levels of insulation be
installed, either further lowering of legally required U-values, or some financial incentive
is necessary.

£3,000

£2,000

£1,000
Kingspan TP10
£ saving

£0 Warmcel
Financial U-value = 0.16 Carbon optimal Rockwool
optimal point point
-£1,000

-£2,000

-£3,000

Figure 31, Financial savings at U-value = 0.16 and optimal points

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11.5 CO2 savings at U-value 0.16 W/m2 K and optimal points


Table 9, kg CO2 savings at U-value=0.16 W/m2 K and optimal points
Financial- U-value Carbon-
optimal = 0.16 optimal
point point
Kingspan
TP10 67,048 75,680 76,182
Warmcel
72,960 78,107 80,999
Rockwool
67,773 77,953 80,375
At the carbon-optimal point all of these types of insulation save between 76 and 81
tonnes of CO2 over the 50 year period assessed. The greatest difference between carbon
and financial-optimal points is for Rockwool which saves an additional 12.6 tCO2 over
50 years at the carbon-optimal point.
A very small carbon saving can be had from Kingspan when going over regulations. With
Rockwool and Warmcel the extra savings are more significant – over two tonnes for each.
This suggests that regulations are set at the optimal level for Kingspan or similar high
ECO2, low conductivity products. Again, if a low ECO2 product is used, the optimal U-
value in regulations would be lower.

83,000
81,000
79,000
kg CO2 saving

77,000
Kingspan TP10
75,000
Warmcel
73,000
Rockwool
71,000
69,000
67,000
65,000
Financial U-value = Carbon
optimal point 0.16 optimal point

Figure 32, CO2 savings at Building Regulations and optimal points

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Chapter 12 Analysis

12.1 Introduction

12.2 Insulation can save money and avoid CO2 emissions


First, the obvious point should be made that generally insulating a home will save the
occupant money and prevent the emission of a certain amount of CO2 into the atmosphere.
Building Regulations require an elemental U-value of 0.16 W/m2K in pitched roofs. At
this U-value each of the insulation types assessed is still producing marginal carbon
savings. All but Rockwool still produce a marginal financial saving and all produce
overall financial savings.
All of the insulation types looked at here will provide the occupant with at least £1,000 of
NPV and 75.5 tCO2 saving over a 50 year lifespan at the depth required by Building
Regulations. At the carbon-optimal point Rockwool will lose £2,500 while the other two
types make a saving of around £200. However all will provide 76-80 tCO2 saving. These
results reinforce the commonplace advice to insulate homes.

12.2.1 Optimal strategies


There is a mismatch between financial and carbon-optimal insulation strategies. Under
the conditions used in this modelling exercise it is not financially optimal to put in
enough insulation to maximise avoided CO2 emissions. This shows that either measures
such as grants, a higher cost for carbon emissions, or more stringent regulations must be
put in place if the aim is to incentivise insulation closer to the carbon-optimal point. This
is further explored in section 12.4 on sensitivity to grant level and sensitivity to carbon
prices.
The U-value at the carbon-optimal point is 0.12 W/m2 K for Kingspan and 0.05
W/m2 K for Warmcel and Rockwool. This compares with an elemental U-value for
pitched roofs of 0.16 W/m2 K from Building Regulations. This suggests that even
for high ECO2 insulation, the elemental U-value could be set a little lower. This
conclusion needs to be tested in other building types through modelling and
physical data collection. It is also important to consider whether this provides
optimal CROFI as returns become very low when approaching the carbon-
optimal point.

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£3,000

£2,000

£1,000

£0
Saving

0 100 200 300 400 500 600


-£1,000 Saving

-£2,000

-£3,000

-£4,000

-£5,000
Thickness mm

Figure 33, ROI curve for Kingspan


It is interesting to note that the return on investment curve is asymmetric in the case of
insulation. This means that when designing an optimal strategy for insulation it is better
to over-specify than to under-specify. This has previously been noted by Lowe, et al
(1997) in the case of energy and carbon-optimal points although not for financial-optimal
points. In fact the effect is much more pronounced in the case of CROCI (see fig 34).

80,000

70,000

60,000
Saving kg CO2

50,000

40,000 Carbon saving

30,000

20,000

10,000

-
0 200 400 600
Thickness mm

Figure 34, CROCI curve for Kingspan


This asymmetricality means that, as it is better to over-specify, where insulation comes in
standard thicknesses it is generally optimal to add one more layer in order to go beyond
the optimal point than to stay below it. For example, Rockwool generally comes in

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150mm batts. Given that the two optimal thicknesses in this application are found to be
90mm and 560mm the optimum level of insulation using Rockwool is either 150mm for
financial optimum (although in a new build this alone would be insufficient to satisfy
Building Regulations) or 600mm for carbon optimum.
With loose-fill insulation like Warmcel this is not necessarily the case as the calculated
optimal thickness can often be installed. There may be restrictions placed by the size of
timbers used in constructing the roof. It is therefore still reasonable to add a small margin
to allow for error in the calculation.
In a situation of uncertainty over any of the parameters used, over-specification is the
better strategy.

12.3 The contribution of ECO2


The ECO2 of the insulation put into the building modelled does not make a huge
contribution to the lifetime CO2 emissions of the house, or even to the total embodied
CO2. Nevertheless it is significant. The average new build 3-bed semi-detached house as
assessed in research to be published by the Empty Homes Agency has embodied CO2 of
around 67 tonnes (Bull, forthcoming). Roof insulation to the carbon-optimal level for the
three insulation types assessed gives embodied CO2 figures of between 1 and 2 tonnes. It
should be noted that these numbers will be overstated when compared with the EHA
research so cannot be converted to percentages. This is because the EHA research used
figures from ICE (Hammond, Jones, 2006) which generally sets the boundaries at cradle
to factory gate or site whereas this thesis uses cradle to grave emissions figures from full
LCAs which are higher. If using cradle to grave or cradle to cradle figures the average
ECO2 of a house would be greater than 67 tonnes.
Table 10, Comparison of ECO2 data from ICE and from life cycle analysis
Material LCA Embodied Carbon ICE Embodied Carbon
kg CO2/kg kg CO2/kg
Cellulose 0.91 -
Rock wool 1.58 1.05
PU foam 6.63 2.41
When constructing to Building Regulations in this type of property, the use of Warmcel
instead of Kingspan would save an additional 2.5 tCO2 per house. This is equal to the
additional ECO2 in Kingspan to provide the same returns.

12.3.1 Carbon-optimal U-values


The carbon-optimal U-values for these materials are 0.05 W/m2K for Warmcel, and
Rockwool, and 0.12 W/m2K for Kingspan. This shows that the lower ECO2 materials
allow for greater savings over a given lifespan at the optimal point.
Marginal CO2 benefits of insulation to beyond the U-value required are higher for lower
ECO2 materials.

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This reveals the difficulty of achieving “zero-carbon homes” without coming up against
the carbon barrier (where more carbon is embodied than will be saved) when using high
specification materials such as Kingspan. Such materials will have greater heat losses at
the optimal points than low ECO2 materials. This will then require more renewable heat
input to offset those losses. On the other hand, the high ECO2, low conductivity materials
allow a much thinner layer of insulation to be applied. This smaller footprint (when
insulating walls) can be of significant financial benefit.

12.3.2 ECO2 more important as buildings waste less


ECO2 will become proportionally more important factor as homes become more air-tight
and well insulated. At present, according to the limited prior research on this topic,
buildings like the Gallions Ecopark development take approximately 15 years to emit the
same amount in-use as is embodied in their materials (Killip, 2007a). Given a nominal
lifespan of 60 years, this means the building lifecycle emissions are 20% ECO2 and 80%
in-use emissions. This is changing further as buildings approach very low or zero CO2 in-
use emissions.

12.4 Sensitivity to parameters


In a modelling exercise like this it is important to check how sensitive the results are to
changes in some of the values. Here, some of the parameters are systematically varied in
order to find the sensitivity to each of them.
The values for Rockwool are used as the baseline as it is closest to the centre of the range
of products assessed. Also, for the purposes of this analysis the baseline was calculated
using a 25% discount on insulation materials (equivalent to financial measures such as a
grant or tax break), and the medium price of carbon (£70/tC) from Clarkson and Deyes
discussed earlier. Each of the parameters was then doubled and halved and the change in
optimum levels of insulation recorded.

12.4.1 Conductivity
Change in conductivity affects the U-value so affects both optimal thicknesses.
• Doubling causes a 30% change in financial optimum.
• Halving causes a -30% change in financial optimum.

• Doubling causes 37% change in carbon optimum.


• Halving causes a -29% change in carbon optimum.

12.4.2 Density
Increase will decrease the carbon-optimal thickness. The insulation will save less carbon
at that optimal point. It would not affect the financial-optimal point in reality unless the
material is sold by weight. As ISM calculates financial cost by weight it is affected. With
this limitation, these are the results of sensitivity analysis.
• Doubling causes a -30% change in financial optimum.
• Halving causes a 50% change in financial optimum.

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• Doubling causes -30% change in carbon optimum.


• Halving causes a 37% change in carbon optimum.

12.4.3 Embodied CO2


Increase decreases the carbon-optimal thickness. Therefore less money and carbon is
saved at that optimal point.
• No change in financial optimum.

• Doubling causes a -30% change in carbon optimum.


• Halving causes a 37% change in carbon optimum.

12.4.4 Cost of insulation


• Doubling causes a -30% change in financial optimum.
• Halving causes a 50% change in financial optimum.

• No change in carbon optimum.

12.4.5 Carbon prices


The carbon price does not make a large difference to the optimum level of insulation at
the prices looked at in this thesis. The price of £70 is taken as a mid-point.
This lack of sensitivity indicates that they are either too simplistic, too low or that the true
value of going beyond the financial-optimal point is low.
• Doubling causes a 20% change in financial optimum.
• Halving causes a -10% change in financial optimum.

• No change on carbon optimum.

12.4.6 Emissions factor


• Doubling causes a 20% change in carbon optimum.
• Halving causes a -10% change in carbon optimum.

• Doubling causes 37% change in carbon optimum.


• Halving causes a -30% change in carbon optimum.

12.4.7 Grant level


This factor seems important. There should be an assessment of the best level of insulation,
of the best type of insulation and the best ones should be encouraged with grants/tax
breaks/soft loans.
• Doubling causes a 30% change in financial optimum.
• Halving causes a -10% change in financial optimum.

• No change in carbon optimum.


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12.4.8 Area
• Doubling causes a -30% change in financial optimum.
• Halving causes a 50% change in financial optimum.

• Doubling causes a -30% change in carbon optimum.


• Halving causes a -37% change in carbon optimum.

12.4.9 Coefficient of energy saving


Situations with a higher CoES would get greater ROI and CROCI. This might be the case
in a less well insulated building. In order to guard against this Lowe et al in their
assessment of optimal levels of wall insulation used very low U-values for the building
elements assessed (1997). This included a value of 0.085 W/m2 K for floors, ceilings and
doors and 0.6 W/m2 K for glazed elements. This is one of the more sensitive variables for
CO2 optimisation and so Lowe’s assumptions would have served to lower the EROEI and
CROCI found.
• Doubling this causes a 50% change in financial optimum.
• Halving causes a -30% change in financial optimum.

• Doubling causes a 37% change in carbon optimum.


• Halving causes a -30% change in carbon optimum.

12.4.10 Discount rate


This affects the financial-optimal point. The variation here is low since the original
discount rate is very low.
• Doubling this causes a -20% change in financial optimum.
• Halving causes a 20% change in financial optimum.

• No change in carbon optimum.

12.4.11 Energy price


This affects the financial-optimal point. The variation here is fairly high, as with some
other financial measures. See Conclusions 13.2.2 for more discussion on this.
• Doubling this causes a 30% change in financial optimum.
• Halving causes a -20% change in financial optimum.

• No change in carbon optimum.

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12.5 Analysis of sensitivity

Sensitivity of financial-optimal points

60%

50%

40%

30%
%age change

20%
Doubling
10%
Halving
0%

v el
y

e
e

ra te
ct or

a
2

S
s ity

t
tivit

Cos

p ric

pric
Are
O

CoE
-10%

nt le
EC
Den

s fa
d uc

nt
bo n

rgy
cou
-20% Gra
on
Con

Ene
Car

issi

D is
-30%
Em

-40%

Variable

Figure 35, Sensitivity of financial-optimal points


Excluding density due to the reason mentioned above, the financial-optimal point is
sensitive to variation in nine of the eleven variables. The sensitivity to doubling/halving
is of -30% to 50%. The greatest sensitivity is to cost and area. The least is to emissions
factor and carbon price.

12.5.1 Implications for financial incentives


This insensitivity to carbon price suggests that, assuming the price given to carbon is fair,
only a small amount of additional insulation is worthwhile. In the case of Rockwool, and
given a 25% reduction in the price of insulation, the additional thickness is only 10mm
when doubling the price of carbon. This means that after adding that additional 10mm of
Rockwool, there are more cost-effective ways of reducing carbon emissions.
In order to minimise emissions the Government would have to use a higher (or rapidly
rising) social cost of CO2 in their modelling. This would reflect the possibly very large
cost of the hypothetical final kg of emissions which tips the climate system beyond a
level where positive feedbacks lead to runaway climate change.
On the other hand, there are more cost-effective ways to reduce carbon emissions than
super-insulating homes to the carbon-optimal level. Such measures might involve
draught-proofing, fitting low energy light bulbs, or investment in renewable energy.
The sensitivity to grants or tax rebates towards the cost of insulation is higher. This is
perhaps due to the discount factor which mimics how many people prefer £10 today to
£20 in five years’ time. An incentive which can be felt immediately is more likely to
affect behaviour than one for which the benefit is cumulative over a number of years.
It can also be seen in the graph below that the optimal point is more sensitive to energy
price than to carbon price (around the baseline values). This will always be the case
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unless the carbon price is equal to the energy price. This would be equivalent to a 100%
tax on energy – likely to be a difficult proposition politically.
This sensitivity underlines the importance of “fuel proofing”, particularly as fuel prices
are one of the more uncertain parameters used in this modelling.

Sensitivity of financial-optimal points to financial


incentives

130
125
120
Thickness mm

115
110 Carbon price
105 Grant level
100 Energy price
95
90
85
80
50% 100% 150% 200%
%age variation

Figure 36, Sensitivity of financial-optimal points

12.5.1 Implications for embodied carbon

Sensitivity of carbon-optimal points

50%

40%

30%

20%
%age change

10% Doubling
0% Halving
l
y

e
ra te
ct or

a
2

eve

S
s ity

t
tiv it

Cos

p ric

pric
Are
O

CoE

-10%
EC
Den

s fa

nt l
d uc

nt
bo n

rgy
cou
Gra
n

-20%
Con

Ene
iss io
Car

Dis
Em

-30%

-40%

Variable

Figure 37, sensitivity of carbon-optimal points

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Six of the eleven variables affect the carbon-optimal point with a -30% to 37% sensitivity
to doubling/halving. All have similar effects with conductivity producing slightly less
than the others. It should be pointed out that a 37% increase was the maximum allowed
for in ISM (giving 1000mm of insulation). As CROCI of layer was only 1.1 at this point,
the true optimal thickness would have been slightly greater.
These results show that any way of changing the lifespan carbon emissions per functional
unit of insulation will be almost equally sensitive.
In Lowe’s analysis of sensitivity in his 1997 paper found that “optimum insulation
thicknesses appear to vary more slowly than the square root of… CO2, and that predicted
thicknesses are therefore reasonably robust to changing assumptions.”
Since all of the parameters which have an impact on carbon-optimal points are similarly
sensitive, analysis is robust to changed assumptions about any one of them.
This conclusion is true for each parameter in isolation. Better sensitivity analysis could be
carried out by varying more than one parameter at a time to uncover the relationships
between them. A more precise analysis of sensitivity to parameters would use a finer
scale than 10mm increments.

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Chapter 13 Conclusions and


recommendations

13.1 Introduction
The main conclusions of this thesis are:
• Insulation thickness in UK domestic roof construction to Building Regulations
repays the carbon produced in its manufacture.
• Financially optimal insulation thicknesses are 40 – 90mm; carbon-optimal
thicknesses are 190 – 790mm using the materials and construction specified here.
• Carbon-optimal U-values for roof insulation here are between 0.12 W/m2 K
(Kingspan) and 0.05 W/m2 K (Warmcel and Rockwool).
• Low ECO2 materials in this situation save more CO2 than high ECO2 materials.
The difference at a given U-value is the difference between the two ECO2 values.
• Therefore, if space is not an issue, low ECO2 materials should be preferred as they
provide greater CROCI.
• Conversely there will be an issue with the larger footprint (or higher walls) of
buildings where lower spec, lower ECO2 materials are used.
• Marginal CO2 benefits of insulation to beyond the level required are higher for
lower embodied CO2 materials.
• CO2 prices are less of an incentive to insulate than grants.
• Carbon-optimal levels of insulation are a cost-ineffective way of reducing carbon
emissions.
• Lifetime penalties for non-optimality are higher for thicknesses less than optimal
than for thicknesses greater. Therefore in cases of uncertainty one ought to specify
a greater thickness. This is the case, no matter what the source of uncertainty.
• If fuel prices rise then a greater level of insulation will be financially optimal.
• Either domestic gas should be included in the next phase of EU-ETS or the EEC
(or similar measures) should be expanded. This is necessary to internalise the
social cost of a large percentage of UK emissions.
These conclusions and their implications are further examined below.

13.2 Implications for financial incentives

13.2.1 Implications for grant schemes


New build roof insulation to Building Regulations level is sub-optimal in terms of
lifetime carbon emissions in the UK. This effect is more pronounced for low ECO2
insulating products.
Although this thesis looked at a specific building element – roof insulation in a semi-
detached house – some general conclusions can still be drawn about the environmental
economics of insulation. For example, grant schemes for loft insulation might consider
whether they are deriving maximum return on investment from the scheme. More

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insulation could certainly be fitted than is provided for under WarmFront before hitting
the carbon-optimal point.
However, when approaching the margins, the return on investment will become very low
and therefore a better ROI (and CROCI/CROFI) may be had by focusing on air-tightness
improvements, fitting low-energy light bulbs and other measures. This is shown by the
fact that, even at Building Regulations-required levels, the marginal cost of a saved tonne
of CO2 is £100-£480.

Implied cost of carbon by U-value

£1,000

£800

£600
Kingspan
£/t CO2

Warmcel
£400
Rockwool

£200

£0
0.00 0.10 0.20 0.30 0.40 0.50

-£200
U-value W/m2 K

Figure 38, Marginal cost of a saved tCO2.


This is a very expensive way to avoid emissions and is equivalent to a cost per tC of
£370-£1,760. This is far higher than the Government’s social cost of carbon at £70/tC (or
£75, allowing for a £1 increase per year since 2002) (Clarkson, Deyes, 2002). This means
that, barring co-benefits of insulation such as decreased fuel poverty and reduced
requirement for imported gas, Building Regulations are set higher than is rational. The
WarmFront grant scheme generally allows for 10 inches (250mm) of mineral wool
insulation (although fitted as loft insulation, not roof). In the construction used in this
model (assuming Rockwool is used) this would give a U-value of 0.15 W/m2 K and so
put it in the range of £300/tCO2 at the margin.
Recommendation: It is imperative that co-benefits are quantified, in order to find
whether best value is being obtained from providing grants for insulation to the levels
currently allowed.

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13.2.2 Financial incentives today are more effective than a carbon


price
Financial incentives such as grants which act now are more effective than a carbon cost.
This is partially to do with cost of carbon being comparatively low. Even a social cost of
£700/tC, ten times that recommended by the UK Government, does not incentivise
insulation to the carbon-optimal point for any of the insulation types looked at.
A grant of over 95% towards the cost of insulation would be required to make insulation
to the financial- and carbon-optimal level equal.
Recommendation: Grant schemes (or other ways of reducing the cost of insulation
such a zero rating for VAT) are the most effective way of encouraging insulation from a
low starting point. Schemes such as WarmFront and the EEC are therefore should be
continued. The amounts spent on insulation should be reviewed in the light of further
quantification of co-benefits.

13.3 Building Regulations and CO2 emissions

13.3.1 New build


This high implied cost of carbon reveals the difficulty of achieving “zero-carbon homes”
without coming up against the cost barrier (the marginal point where more money is
spent than the carbon saved is worth). This will be particularly true when using high
specification materials such as Kingspan. The point may soon come where renewable
heat (biomass or “green” electricity) or CHP is preferable in terms of providing cheaper
carbon savings.
Many see U-values continuing to fall with successive updates to Building Regulations,
perhaps going so far as creating Passive Houses. Perhaps the most important thing about
Passive House standards is the very low air-change rate required. It is likely that further
regulation to control this factor would provide greater value than increasing insulation.
Recommendation: Continue with changes in Building Regulations to ensure lower
domestic CO2 emissions in the most cost effective manner. This should include air-
tightness testing to increasingly tight levels. U-values appear to be set close to the optimal
level in terms of CROFI.

13.3.2 Refurbishment
The Government’s recommended price for carbon emissions is £35-£140/tC. This is
equivalent to £9.50-£38/tCO2. This means that, if it were not for the co-benefits, the
optimal level of loft insulation would be 30-80mm of Rockwool. The financially optimal
point for the house-holder, with a 50% WarmFront grant, is 100mm. With a 50% grant
and a high cost of carbon the optimal level is 150mm. With all of the above plus a high
energy price (doubled) the optimal level is 190mm.
As all of the above are not unreasonable assumptions, and as in the case of uncertainty it
is optimal to over-specify, it is found that the level of insulation installed in WarmFront-
funded refurbishment is set in the right region at 10 inches (250mm). This also allows
room for co-benefits although it is important that they be quantified.

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There are proposals to make thermal refurbishment compulsory through consequential


changes. This is where say 10% of the total cost of refurbishment must be spent on
energy efficiency measures. There is also a stipulation that this need only happen if the
measure in question is financially viable (Killip, 2007b). Dependent on the interpretation
of this final point, this may mean insulation to the financially optimal point. Alternatively
it may be interpreted as meaning insulation to the point where overall ROI is 1. In the
case of Rockwool with the baseline assumptions, this could mean either 70mm for ROI of
the marginal layer, or 360mm for overall ROI, a great difference. This should be clarified.
Recommendation: Ensure consequential changes happen by regulating that a set
percentage of refurbishment budgets be spent on efficiency measures. This should not
necessarily be financially viable unless the social cost of carbon has been included in
calculations.
Recommendation: Focus on regulating insulation of poorly-performing existing
homes over further increases in new build regulation. This is since the greatest ROI, and
lowest cost of carbon, is found from the first layer of insulation added and returns rapidly
become smaller.

13.3.3 Higher ECO2 means lower CO2 savings


It is shown by some of the results that where the insulation type specified is high in ECO2,
as exemplified by Kingspan, the level of insulation required by Building Regulations is
close to the carbon-optimal level. However, it does not save as much CO2 over a lifespan.
This suggests that the current preference for mineral wool insulation in lofts under the
WarmFront grant scheme is reasonable. However it might be explicitly extended to cover
natural and recycled insulation products such as Warmcel as the lower ECO2 leads to a
greater lifetime CO2 saving. High ECO2 materials should be excluded from the scheme as,
when insulating a loft, saving space is not normally so important.
Recommendation: Explicitly include other low ECO2 forms of loft insulation in
WarmFront.

13.4 Impacts on fuel poverty


Going beyond the requirements of Building Regulations in this new build situation would
actually save less money (assuming the occupier pays for the additional insulation
through an increase in house price). This shows that the financial effects of increasing
insulation are not a reason to go to the carbon-optimal point in new build.
On the other hand, when insulating a previously uninsulated roof the effect of decreased
sensitivity to fuel price rises has a major mitigating effect on fuel poverty (Wu, Smith,
Pett, 2005).
Recommendation: Extend the focus of Building Regulations from new build to
thermal refurbishment. Increase the EEC and ensure that it continues to focus on the
poorest members of society, most at risk of fuel poverty.

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13.5 Impacts on thermal comfort


There are also few impacts on thermal comfort to be had from going above current
Building Regulations.
Adequate thermal comfort can be achieved at Building Regulations levels of insulation,
only with slightly greater emissions and a lower cost. Again, however, a large increase in
thermal comfort may be found when insulating a previously uninsulated property.
Recommendation: Again, focus on improvement of poorly performing existing stock
over increases in new build regulation.

13.6 Implications for current orthodoxy


Many of these conclusions are counter to current orthodoxy, at least within environmental
circles. The finding that roof insulation much beyond Building Regulations levels is not a
cost-effective way of avoiding emissions appears to be at variance with PassivHaus
design, MINERGIE requirements and the AECB standards.
However, the findings are robust and follow from the physics which dictates that there
are diminishing returns when increasing thickness of insulation.
Generally people think in terms of saving space. This is not necessarily the case when
looking at roof or loft insulation, particularly in the case of new build.
Many people will insulate very highly in lofts as they see that space is not always such an
issue. Where people have already recognised this it is important that they realise there is
still a limit to what is worthwhile imposed by CROCI and CROFI.
Reasons given for using natural insulation are often not entirely based on thermal
performance or CO2 saving. Other benefits quoted include the potential for breathable
construction, low toxicity, better indoor air quality due to lower levels of off-gassing, and
lower levels of resource depletion. The implications of this thesis mean that the marginal
value of the insulation’s effects (including the value of lost performance and the value of
the co-benefits mentioned) should be positive before they are specified. Assessment of
these co-benefits will necessarily often be subjective as people place differing values on
benefits such as indoor air quality.
Natural insulation may often be preferable when there is sufficient space. However, it is
unlikely to be appropriate in situations such as urban wall insulation where footprint can
be very valuable.
A final implication is that refurbishment of uninsulated existing buildings is the most
cost-effective way of using insulation. This is necessarily true, due to the fact that the
greatest returns are found from the first insulation fitted to a building element. This
means that the Government’s focus on zero carbon new build may be misguided.

13.7 Limitations
Life-cycle analyses are generally paid for by the manufacturer. This means that they may
not be published until the company is happy with it. There are also many different
methodologies for calculating ECO2, which can and do return different results. This
makes precise comparison of products particularly difficult.

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Fuel types are likely to change over the lifetime of the insulation so CO2 saving figures
are likely to be different as emissions factors change. This is most likely to lower the
carbon-optimal level of insulation as the emissions factor of heating decreases.
When modelling an uncertain future, lack of complete confidence about prices and other
projected inputs is to be expected. This is an inherent limitation of projection-based work.
More time could have been spent on finding results had the Lowe paper on calculating
optimal points been found earlier. This would perhaps have negated the need to build
such a complex model as ISM.
More could have been done to assess the impact of the comfort factor. It is not really a
factor in looking at increase over current Building Regulations, but may be more so when
applying the findings of this thesis to grant schemes for thermal refurbishment.
Other costs associated with increased insulation thickness including the requirement for
higher walls have not been taken into account. This is a limitation and could be addressed
in further work.
This model created for this thesis focused solely on roof insulation. Conclusions are
drawn for loft insulation and may not necessarily hold.

13.8 Further research


The largest area of further work identified is on co-benefits. This thesis has shown that
the implied cost of a tonne of carbon when insulating to Building Regulations is very
high – between £500 and £2,000 for these materials. The co-benefits (including energy
security) must be immense if the Government has taken this into consideration when
setting thermal regulations. This should be assessed.
Experiments could be carried out using the model with different initial inputs from
IES:VE or physical data to see if the findings hold true in other situations such as wall
insulation.
A whole house optimisation to assess the difficulty of working with changing feedbacks
should be carried out and the model design improved to take account of the results. ISM
could be expanded to work out CROCI, CROFI and ROI for things other than insulation.
Later versions may include add-ons to assess draught-proofing, changed heating systems
and other measures. This would then enable whole-house optimisation. Lowe’s
differential calculations (1997) would simplify the modelling.
It would be useful to look at integrating a cost of lost floor area into the model so it can
handle other configurations than just roof insulation.
As more LCA data becomes available, new insulating materials can be assessed in ISM.
All of these areas of further research would assist in optimising returns, particularly
CROFI, in buildings

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AND THE FUTURE OF OIL RESOURCES, CERA

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Glossary
ACE Association for Conservation of Energy
ach Air changes per hour, a unit of air change rate
AECB Association of Environmentally Conscious Builders
Air change rate Measure of ventilation rate (ach or l/s)
BRE Buildings Research Establishment
C Carbon
CHP Combined heat and power
CIBSE Chartered Institute of Building Services Engineers
Consequential changes Efficiency measures which must be carried out when
refurbishing a property. Currently only applies to non-domestic
property
CO2 Carbon dioxide
CROCI Carbon return on carbon investment
CROFI Carbon return on financial investment
Defra Department of Environment, Food and Rural Affairs
DTI Department of Trade and Industry (now renamed BERR)
DUKES Digest of UK Energy Statistics
ECO2 Unit of embodied carbon dioxide (kg CO2/kg)
EEC Energy Efficiency Commitment, a scheme whereby energy
supply companies must spend a proportion of their turnover on
energy efficiency measures
EIUG Energy Intensive Users Group
EROEI Energy return on energy invested
EU-ETS European Union emissions trading scheme
GDP Gross domestic product
GHG Greenhouse gas
IPCC Intergovernmental Panel on Climate Change
IES:VE Modelling software, Integrated Environmental Solutions:
Virtual Environment
ISM Insulation Savings Model
kWh Kilowatt hour, a unit of energy
Lambda (λ) Unit of conductivity (W/m K)
LCA Life cycle analysis
l/s Litres per second, a unit of air change rate
Marginal cost Defined here as the cost (financial or carbon) of adding 10mm
of insulation
MTOE Million tonnes of oil equivalent
NAP National Allocation Plan
NHER National Home Energy Rating
ONS Office of National Statistics
Part-L Section of UK Building Regulations which deals with thermal
performance of building fabric

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PassivHaus A standard of house-building which insists on high levels of


insulation and very low air-change rates
ROI Return on investment
SAP Standard Assessment Procedure, the official method of
calculating compliance with Part-L of UK Building
Regulations
t Tonne
tC Tonne of carbon
tCO2 Tonne of carbon dioxide
U-value Unit of thermal transmittance (W/m2 K)
WarmFront Grant scheme to encourage insulation

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Appendix 1 Insulation price estimates from


Healey Associates, quantity surveyor

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Appendix 2 Carbon and energy prices over


50 years
Year £/KWh Year £/kgC02
1 0.02 1 0.02
2 0.02 2 0.02
3 0.02 3 0.02
4 0.02 4 0.03
5 0.02 5 0.03
6 0.02 6 0.03
7 0.02 7 0.04
8 0.02 8 0.04
9 0.02 9 0.04
10 0.02 10 0.04
11 0.02 11 0.05
12 0.02 12 0.05
13 0.02 13 0.05
14 0.02 14 0.05
15 0.02 15 0.06
16 0.02 16 0.06
17 0.02 17 0.06
18 0.02 18 0.06
19 0.02 19 0.07
20 0.02 20 0.07
21 0.02 21 0.07
22 0.02 22 0.08
23 0.02 23 0.08
24 0.02 24 0.08
25 0.02 25 0.08
26 0.02 26 0.09
27 0.02 27 0.09
28 0.02 28 0.09
29 0.02 29 0.09
30 0.02 30 0.10
31 0.02 31 0.10
32 0.02 32 0.10
33 0.02 33 0.11
34 0.02 34 0.11
35 0.02 35 0.11
36 0.02 36 0.11
37 0.02 37 0.12
38 0.02 38 0.12
39 0.02 39 0.12
40 0.02 40 0.12
41 0.02 41 0.13

Jamie Bull MSc Architecture 87


Advanced Environmental and Energy Studies
What are the financial- and carbon-optimal points for return on investment in insulation?

42 0.02 42 0.13
43 0.02 43 0.13
44 0.02 44 0.14
45 0.02 45 0.14
46 0.02 46 0.14
47 0.02 47 0.14
48 0.02 48 0.15
49 0.02 49 0.15
50 0.02 50 0.15

Jamie Bull MSc Architecture 88


Advanced Environmental and Energy Studies
What are the financial- and carbon-optimal points for return on investment in insulation?

Appendix 3 Energy savings over 50 years


Kingspan Rockwool Warmcel
mm kWh kWh kWh
0 0 0 0
10 4522 3321 3542
20 5987 4831 5061
30 6712 5693 5904
40 7144 6251 6441
50 7432 6642 6812
60 7636 6931 7085
70 7790 7153 7293
80 7909 7329 7458
90 8004 7472 7591
100 8082 7591 7701
110 8146 7691 7793
120 8201 7776 7872
130 8248 7850 7940
140 8289 7914 7999
150 8324 7970 8051
160 8356 8021 8097
170 8383 8065 8138
180 8408 8105 8175
190 8431 8142 8208
200 8451 8175 8238
210 8469 8205 8266
220 8486 8232 8291
230 8502 8258 8314
240 8516 8281 8335
250 8529 8303 8355
260 8541 8323 8373
270 8552 8341 8390
280 8563 8358 8406
290 8573 8375 8420
300 8582 8390 8434
310 8590 8404 8447
320 8598 8418 8459
330 8606 8430 8471
340 8613 8442 8482
350 8620 8453 8492
360 8626 8464 8502
370 8632 8474 8511
380 8638 8484 8520
390 8644 8493 8528

Jamie Bull MSc Architecture 89


Advanced Environmental and Energy Studies
What are the financial- and carbon-optimal points for return on investment in insulation?

400 8649 8502 8536


410 8654 8510 8543
420 8658 8518 8551
430 8663 8526 8557
440 8667 8533 8564
450 8671 8540 8570
460 8675 8546 8576
470 8679 8553 8582
480 8683 8559 8588
490 8686 8565 8593
500 8689 8570 8598
510 8693 8576 8603
520 8696 8581 8608
530 8699 8586 8612
540 8702 8591 8617
550 8704 8596 8621
560 8707 8600 8625
570 8710 8604 8629
580 8712 8609 8633
590 8714 8613 8636
600 8717 8617 8640
610 8719 8620 8643
620 8721 8624 8647
630 8723 8628 8650
640 8725 8631 8653
650 8727 8635 8656
660 8729 8638 8659
670 8731 8641 8662
680 8733 8644 8665
690 8735 8647 8668
700 8736 8650 8670
710 8738 8653 8673
720 8740 8656 8675
730 8741 8658 8678
740 8743 8661 8680
750 8744 8663 8682
760 8746 8666 8685
770 8747 8668 8687
780 8749 8671 8689
790 8750 8673 8691
800 8751 8675 8693
810 8752 8677 8695
820 8754 8680 8697
830 8755 8682 8699
840 8756 8684 8701

Jamie Bull MSc Architecture 90


Advanced Environmental and Energy Studies
What are the financial- and carbon-optimal points for return on investment in insulation?

850 8757 8686 8702


860 8758 8688 8704
870 8760 8690 8706
880 8761 8691 8708
890 8762 8693 8709
900 8763 8695 8711
910 8764 8697 8712
920 8765 8698 8714
930 8766 8700 8715
940 8767 8702 8717
950 8768 8703 8718
960 8768 8705 8720
970 8769 8706 8721
980 8770 8708 8722
990 8771 8709 8724
1000 8772 8711 8725

Jamie Bull MSc Architecture 91


Advanced Environmental and Energy Studies