Memorandum by the Energy Saving Trust
1. This is the submission by the Energy Saving Trust to the Trade and Industry Committee's Inquiry into Fuel Poverty of March 2002. This submission should not be taken as representing the individual views of Trust members.
2. The Energy Saving Trust welcomes the Trade and Industry Committee's Inquiry into Fuel Poverty. We believe it has come at an appropriate time, six months after the launch of the Government's Fuel Poverty Strategy and following the review by the PIU on Energy Policy.
3. The Trust believes that a lot of progress has been made over the past few years in addressing fuel poverty. The Government's Fuel Poverty Strategy was a useful next step in the process.
The Trust is particularly pleased at the priority placed on energy efficiency as a key tool in fighting fuel poverty. Energy efficiency has far greater potential to reduce energy bills than do any future energy price reductions. This message is being lost on most customers, by the focus of the regulator and others on unit prices. In the longer term, it is clear that energy efficiency is the only sustainable solution to fuel poverty, in the context of future price rises and wider energy policy priorities.
The Trust believes in the need to co-ordinate the tackling of fuel poverty at local level. More fundamentally, we believe there is a need for far greater integration between fuel poverty policy and housing initiatives. Local authorities are still the largest potential source of funding for energy efficiency improvements, yet there is no accurate monitoring and reporting of their expenditure in this area. Furthermore, other housing initiatives such as drawing up a definition of a "decent home" fall far short of what is needed to eliminate fuel poverty.
Finally, the Trust sees a need for more detailed monitoring and ongoing evaluation of energy efficiency initiatives. This would allow a more strategic approach to developing and improving initiatives, and assessing their relative merits in tackling fuel poverty.
4. The Energy Saving Trust welcomes the opportunity to input into the Trade and Industry Committee's Inquiry into Fuel Poverty. The Trust was established as part of the Government's action plan in response to the 1992 Earth Summit in Rio de Janeiro, which addressed worldwide concerns on sustainable development issues. We are the UK's leading organisation working through partnerships towards the sustainable and efficient use of energy by households and small businesses.
5. While the Trust's raison d'etre is to help address climate change, tackling fuel poverty is an integral part of sustainability, which includes the sustainable and efficient use of energy. In addition, many of the measures and delivery agents are the same. The Trust delivers specific programmes with direct relevance to fuel poverty as follows:
The UK-wide network of Energy Efficiency Advice Centres (EEACs). This network provides household-specific advice on energy efficiency matters to local clients, a third of whom are low-income households. The EEAC network is also rolling out a local support service for assisting local authorities with drawing up, co-ordinating and implementing their energy strategies.
Practical Help for local authorities. This is a centralised support service for local authorities on all energy efficiency related matters, including advice and case studies on developing affordable warmth strategies.
Carbon Reduction Innovation Programme. This programme offers grant support to local authorities developing innovative carbon reduction programmes. In some cases, the innovation will stretch to addressing fuel poverty. The programme is the successor to six years of HECAction, a competitive grant scheme for local authority energy efficiency initiatives, that included a number of fuel poverty projects.
The Energy Efficiency campaign. This acitvity raises awareness of and access to energy efficiency throughout the UK. Specific services include an Energy Efficiency Hotline, and a Grants information database. The latter provides information, to both customers and referral agents, on the availability of grants, and their eligibility criteria, in localities across the UK.
Energy efficiency pilots and evaluation of fuel poverty projects. The Trust has run and evaluated a number of pilot schemes, notably those for Warm Front in England and New HEES in Wales. The Trust is overseeing, on behalf of DEFRA, DH and DTI, a health impact evaluation of Warm Front, with the aim of quantifying its benefits in terms of health, quality of life, and use of health care services. We are also responsible for evaluating Warm Zones, one of the new initiatives under the Fuel Poverty Strategy.
The Partnership. The Trust facilitates, on behalf of DEFRA, the Energy Efficiency Partnership for Homes, the aim of which is to assist Government with attaining its climate change targets and eliminating fuel poverty caused by poorly insulated and inefficiently heated homes.
6. We have described this infrastructure that is already in place, because we believe that additional fuel poverty initiatives could usefully be "hung" onto it, thereby avoiding duplication of effort.
EST'S ANSWERS TO TRADE AND INDUSTRY SELECT COMMITTEE QUESTIONS
Is the Government target, of ensuring that by 2010 no members of a vulnerable household need risk ill health due to a cold home, adequate?
7. We commend the Government on developing a Fuel Poverty Strategy for the UK, and setting a target for 2010. However, this target intuitively does not seem to comply with the Warm Homes and Energy Conservation Act 2000 in England and Wales, which requires Government to produce a Strategy for the eradication of fuel poverty by 2015.
8. We believe that a well-targeted energy efficiency strategy, closely integrated with housing policy, will have a key role to play in improving the overall efficiency of homes in England and Wales. Without the integration of energy efficiency and housing policies it will continue to be difficult to prevent people falling in and out of fuel poverty as they move between properties, or change their household circumstances.
9. Finally, we are concerned that there is no clear monitoring and evaluation process, that would allow assessment of whether individual initiatives, as well as the Strategy as a whole, are effective and make progress towards the final target. It is not clear that we will be able to determine in 2010 whether the target has been met or not.
Why has the number of fuel poor households fallen recently? Can this reduction be sustained?
10. The number of fuel poor households has recently fallen owing to a combination of improving energy efficiency, lower energy prices, and improving incomes. A rigorous analysis to disaggregate the impact of these effects using the English House Condition Survey is still under way, and results will not be available until November 2002. However, we believe the picture is as follows:
(i) Fuel poverty as a whole, according to Government statistics, fell from 5.5 million to 4 million across the UK, between 1996 and 2000.
(ii) Average unit prices for domestic gas and electricity dropped by over 20 per cent over this period, with much of this drop occurring after 1998, around the time of the introduction of competition in the domestic sector. Clearly, some households were lifted out of fuel poverty by this average drop in prices.
(iii) There is no guarantee that unit prices will continue to fall, and the Government itself has suggested a long-term scenario where unit prices are likely to vary by between -10 per cent and +15 per cent for gas, and -2 per cent and +5 per cent for electricity, over the period to 2010. So the more long-lasting solution of energy efficiency will need to ensure that vulnerable households are lifted out of fuel poverty in that time frame.
(iv) Whilst evidence from Ofgem suggests that customer switching occurs equally across both low-income and affluent households, there seems to be no evidence as to whether, on average, low-income households are ultimately ending up on lower tariffs subsequent to switching. (For instance, pre-payment customers switching to a standard credit arrangement with another supplier, and then being returned to PPM with the new supplier.) Potentially far fewer fuel poor are benefiting from lower bills than figures for switching levels might suggest.
(v) The average energy efficiency (SAP rating) of the housing stock in England improved from 44 to 45 between 1996 and 1998, and by extension, to about 46 by 2000. This is the result of energy efficiency schemes, local authority housing refurbishment programmes, and new homes. The change is relatively small, but the improvement is permanent and environmentally progressive.
(vi) On income levels, these have risen, and Government figures indicate that this has been responsible for lifting twice as many households out of fuel poverty as have been fuel price reductions, over the period 1998-2000. Equally, benefits levels have risen, which has also contributed to lifting households out of fuel poverty.
What is the relative significance of factors such as poor energy efficiency, low incomes or the cost of fuel?
11. Clearly, all three of these factors contribute to fuel poverty. However, we believe that poor energy efficiency is the key contributor to fuel poverty; fuel poverty is different to ``general'' poverty because it can be solved through one-off capital expenditure, rather than constant income supplements. Furthermore, energy efficiency is the most sustainable solution to fuel poverty, because:
it is a long-term solution; once measures are in, they are in for good
on average it has the greatest potential to save on fuel bills, of about a third
it is environmentally progressive
it creates jobs in the local economy.
12. It is true, as we have outlined in our response, that unit price reductions on domestic fuel have already helped to take many people out of fuel poverty temporarily. But it is not clear that prices will remain low. It is imperative for the UK long-term energy policy that the energy efficiency of the housing stock should be improved and fuel poverty eradicated through this means as soon as possible.
13. The Trust's area of expertise is energy and energy efficiency, and we will not comment further on income related issues.
How effective are the industry-led initiatives?
14. The Trust welcomes and supports the range of industry initiatives that are being developed to alleviate fuel poverty and to promote energy efficiency more generally, and particularly supports Ofgem's Social Action Plan. We believe particularly that the Energy Efficiency Commitment is a key initiative that will help in tackling fuel poverty.
15. Our calculations suggest that the Commitment will help to take up to some 300,000 households out of fuel poverty. However, we believe that all initiativesthe Commitment, other industry schemes, and indeed Government schemesshould be thoroughly monitored and evaluated for their contribution to tackling fuel poverty, to ensure that they are delivering and contributing to the Government's target.
How can Government promote the take-up of energy efficiency measures in households whose income is just above benefit level?
16. Near-benefit households are a difficult sector to target. We agree with Government's first priority in this area, which is to ensure that as many people as possible claim benefits, where they are eligible for this. The pilot Warm Zones evaluation, overseen by the Energy Saving Trust, is assessing the effectiveness of ``softer measures'' in encouraging genuine potential claimants to apply.
17. We also strongly believe there is a need for thorough co-ordination of fuel poverty initiatives and housing policy, so that houses in a poor state generally are targeted for energy efficiency improvements. It is likely that the properties will be of poor efficiency and the householders on lower incomes, and may well be in fuel poverty. In such cases, it may be possible to target the property with energy efficiency assistance even if there are no benefit recipients within it. This is part of the solution to the issue of ``churn'', where even if the current household is not in fuel poverty, the next family to move into the property may well be. The evaluation of the Warm Zone pilots should reveal whether this approach is likely to be successful.
How much could better co-ordination between agencies or fiscal measures help?
18. The Trust believes that better co-ordination between agencies has a key role to play in tackling fuel poverty. The benefits of co-ordination are that:
households are not targeted with the same offers by different agencies, leading to confusion and duplication of effort;
a full complement of assistance measures can be directed at each household at one time, ensuring that all possible action is taken to eliminate fuel poverty, and avoiding the need to return to the house at a later date; and
lessons can be learnt, and good practice continuously developed and adopted.
19. For these reasons, we value the thinking behind initiatives such as Warm Zones, the principle of which is to ensure a co-ordinated partnership approach. We believe that the UK-wide network of Energy Efficiency Advice Centres (EEACs) can play a key role in helping with local co-ordination of energy initiatives where this is needed.
20. At a policy level, the Trust would like to see much closer interaction between fuel poverty policy and housing initiatives. We are very surprised that these are not more closely integrated. The housing budget at the disposal of English local authorities amounts to many billions, which is by far the largest potential source of energy efficiency improvements. Government estimate that one third of this budget is spent on energy efficiency, but the Trust believes this figure is an overestimate. As there are no validated figures available, the issue is difficult to manage, and this vast resource may not be spent in the most efficacious manner.
21. A recent example of apparent lack of coherence is the development of a definition for a ``decent home'', a standard that all local authority stock will be required to achieve by 2010. Unfortunately, this definition has emerged with very low thermal performance requirements, which essentially entail the presence of the most basic energy efficiency measures to very low standards. Perversely, ``hard-to-heat'' homesthose with solid walls for instancewill be considered ``decent'', despite the importance and political priority for improving these as part of the Government's Fuel Poverty Strategy.
22. On the issue of fiscal measures, the Trust is asking for a reduced rate of VAT on ``A'' rated condensing boilers. This is relevant to the fuel poor not on benefits who, even if they are not paying the full cost of a boiler, may be paying a contribution to it under a supplier energy efficiency scheme. A reduced rate of VAT should also apply to energy efficiency light-bulbs (CFLs), to assist all householders, but particularly the fuel poor, with the capital cost.
What contribution to the elimination of fuel poverty might be made by technological advances?
23. As mentioned above, many homes cannot receive the ``staple'' energy efficiency measures currently on offer under Warm Front, for a variety of reasons, including:
having solid walls, therefore no cavity that can be insulated;
having no loft space, therefore no space in which to lay insulation;
being in a state of disrepair, where the installation of measures may be inappropriate.
24. There are a variety of options for addressing these so-called ``hard-to-heat'' homes, but there seem to be only limited resources behind pursuing these. The options might be:
improved internal and/or external wall insulation;
combined heat and power or community heating;
micro-CHP ie providing heating and power from an individual household boiler;
household and local renewable options;
smart metering and controls.
25. We believe that resources and commitment should be invested to pursue these options, and implement pilots where appropriate, as a matter of some priority.
26. For a genuinely long-term, failsafe, and sustainable solution to fuel poverty, the Trust believes that energy efficiency requirements under Building Regulations need to be tightened. Although new housing accounts for only 1 per cent of total stock per year, and is already far more efficient than the average of existing stock, the volume adds up over time, and new homes are expected to last for the best part of a hundred years. There is a danger that the new homes of today will be responsible for the fuel poverty of tomorrow. Futhermore:
Compliance with Building Regulations in new-build means new standards are demonstrated, and costs are reduced the relevant technologies and techniques become the norm. This in turn leads to rapid market transformation for their use in the refurbishment of existing homes.
The installation industry and specifiers of refurbishment work try to work to consistent standards. Standards set for new-build rapidly filter through into the refurbishment market.
27. The Government's latest energy efficiency requirements for Building Regulations came into force in April 2002, but we believe every effort should be made to upgrade these on a rolling basis. We would like the Government to announce this year a target for near-zero emission new-build by 2012. By giving the industry a decade to meet these ambitious targets, techniques and technologies will be developed and refined to meet them. It will be necessary for the Government to work together with industry, and to provide key milestones by improving the Regulations at regular intervals over this 10-year period.
1 "Fuel Poverty in England in 1999 and 2000," DTI, January 2002. Back
2 The UK Fuel Poverty Strategy Consultation Draft, DEFRA/DTI, February 2001, Section 6.27. Back
3 For example: 50 mm of loft insulation, where 250 mm is the standard for new insulation. Back