Memorandum by TXU Energy
1. TXU Energy welcomes the opportunity to comment on the Trade and Industry Committee's inquiry into Fuel Poverty. In light of the publication of the UK Fuel Poverty Strategy in November of 2001 and the Government's on-going review of energy policy, this is an opportune moment to review efforts to tackle fuel poverty in the UK.
Is the Government target of ensuring that by 2010 no members of vulnerable households need risk ill health due to a cold home adequate? Can it be achieved?
2. TXU welcomes the Fuel Poverty Strategy and fully supports the Government's aim to see the end of fuel poverty for vulnerable households by 2010 and further progress thereafter. Rising incomes, energy efficiency improvements to the housing stock and the introduction of competitive energy markets together form the right prescription for tackling fuel poverty in the UK. TXU is actively involved in several initiatives, which are detailed below, and is keen to see the dynamic forces of the market harnessed in order to deliver further progress.
Why has the number of fuel poor households fallen recently? Can this reduction be sustained?
3. TXU thinks that the significant fall in energy prices in recent years, together with increases in incomes and benefits, have been the major influences to date. It is difficult to make predictions about future pricing but TXU believes that the impact of lower prices has largely taken its course. The downward pressure on prices can only go so far before security of supply is compromised. This risk is being signalled by a number of power station mothballings, which can be expected to turn into closures if wholesale prices do not recover. Future progresss in takling fuel poverty will therefore need to come from rising incomes and improvements to the housing stock.
What is the relative significance of factors such as poor energy efficiency, low incomes or the cost of fuel?
4. After the level of income, the underlying cause of fuel poverty is the energy inefficiency of the UK's housing stock. New building regulations will help ensure that new housing is built to the appropriate standard. TXU believes that improvements to the current housing stock are of the utmost importance and has backed up this belief by bidding for and winning the contract to manage the Home Energy Efficiency Schemenow known as Warm Frontin the East of England on behalf of DEFRA. TXU is the only energy company to have been awarded a Warm Front contract.
5. Over the last year TXU Warm Front has installed insulation and heating measures worth in excess of £35 million. That translates into improved energy efficiency and quality of life for over 85, 000 households.
6. The current rules which govern Warm Front mean that houses are not being made as fully energy efficient as possible. Someone who receives loft insulation cannot later receive help for cavity wall insulation. Additionally, the rules prevent grants for insulating solid walls and providing more efficient oil or LPG heating, where mains gas is not available. Warm Front is also prevented from giving advice to consumers on other grants that are available. Given the importance of this scheme a review of the rules would be timely.
How effective are industry-led initiatives?
7. TXU believes that there is considerable scope to address fuel poverty through bold and innovative schemes that succeed in harnessing the power of the market.
8. Licence conditions such as the Energy Efficiency Commitment (EEC) (formerly SoP) make a significant contibution to the reduction in fuel poverty across the UK. As the third largest gas and electricity supplier in the UK, TXU's combined gas and electricity energy saving target was set at a challenging 6.9TWh over the next three years. The targets will be reviewed annually based on the number of gas and electricity accounts held by each company.
9. One of the consequences of energy competition is the imperative for companies to differentiate themselves in the marketplace. One of TXU's objectives is to develop products with an energy efficiency component that is valued by customers and the market. Mirco-Combined Heat and Power is an example, discussed later, which shows particular promise.
10. One innovative product already on the market is TXU's StayWarm. StayWarm is a flat-rate gas and electricity service for people over 60 years of age. This ground-breaking product, first lauched as a pilot in May of 2000, goes to the heart of fuel poverty by addressing the needs of the elderlya group that makes up half of the fuel poor in the UK. There are no bills with StayWarm. Rather, customers pay a fixed rate either weekly or monthly (which is guaranteed for 12 months) based on the number of bedrooms and people in the home. StayWarm is now available to qualifying customers across Great Britain.
11. Customers join for the peace of mind that comes with knowing they can use as much energy as they needeven during the coldest winter months. There is no retrospective billing under StayWarm so customers will not get a surprise bill at the end of the year or if they change suppliers. StayWarm has grown rapidly since its launch two years ago and now has over 200,000 customers. It is not possible to know how many self-disconnections have been prevented due to StayWarm, but it has no doubt made a major contribution to tackling fuel poverty amongst the elderly.
12. StayWarm is the UK's first mass-market energy services product. By selling electricty and gas on a subscription basis TXU is incentivised to promote energy efficiency rather than usagea radical departure for an energy company. All eligible customers are automatically referred to Warm Front and TXU works with all of its StayWarm customers to educate them on energy conservation and improve their energy efficiency.
13. Energy in the Community (EiC) is a three-year TXU project designed specifically to demonstrate the benefits of partnership and the targeting of resources, which have since been adopted more widley in the "Warm Zone" concept. These ideas are demonstrated through the regeneration of Thurnscoe in South Yorkshire, a former mining village, through energy efficiency and community involvement. TXU, who funds and manages the project, is working in partnership with Groundwork Dearne Valley and Barnsley Metropolitan Borough Council, to tackle fuel poverty and improve the local environment.
14. When the local mine closed in 1986, the population of Thurnscoe was hit extremely hard. Through Energy in the Community people living in Thurnscoe can benefit from free energy checks to identify where energy efficiency, safety and security improvements can be made. Thus far over 1,700 households out of 3,700 households in the village have taken advantage of the scheme.
15. After each home has been surveyed, the project provides links to regional and national energy efficiency grants, including Warm Front. Additional support from TXU ensures that further qualifing households will benefit from energy efficiency measures such as loft and cavity wall insulation. Over 600 homes have been referred for further home improvements thus far.
16. TXU has also created a Community Energy Fund to help local groups become more energy efficient and sustainable. A committee of local volunteers considers applications and allocates funds. Twenty-one awards have been made thus far, Energy education work with the two local primary schools is also an important part of the EiC project. and volunteers from the three partner organisations have helped run electricity workshops for children.
17. A pop-in centre is located in the village high street which provides energy efficiency advice and information, as well as being the administrative centre for the project. Several local people have been employed and training has been given to manage the pop-in centre and carry out surveys. In addition, several more jobs have been created through partnerships with local installation companies.
18. The Energy in the Community project is nearing completion, having successfully demonstrated what can be achieved. TXU will be reporting on the project and is keen to share its experience with anyone who is interested.
19. TXU believes that as a longer-term vision there is merit in considering a Social Action Obligation, similar in concept to the Renewables Obligation, to provide a market mechanism for addressing fuel poverty in Britain. While this idea is only at the earliest stages, the Social Action Obligation could comprise of annual targets for removing households from fuel poverty profiled over a 10-year period. Targets would need to take due consideration of the inability of suppliers to raise basic income levels of disadvantaged customers. As with the Renewables Obligation, compliance could be tradable with recycled penalties for non-compliance.
How can the Government promote the take-up of energy efficiency measures in households whose income is just above benefit level?
20. The elderly are particularly vulnerable to the effects of cold but not all of the elderly in fuel poverty are in receipt of means-tested social benefits, sometimes due to receiving modest occupational pensions. Others are ``underoccupiers'' who are understandably reluctant to move from their family home. It would be beneficial if people over 60 years of age were included in the Priority Group for Energy Efficiency Commitment targeting, as suppliers are required to achieve 50 per cent of the EEC energy savings target from the Priority Group.
How much could better co-ordination between agencies or fiscal measures help?
21. TXU welcomes the establishment of the Government's Fuel Poverty Advisory Group (FPAG) and is pleased to be a member organisation. The FPAG should be a key facilitator in the pursuit of best practice and better co-ordination.
22. There is an increasing level of co-ordination between EEC and Warm Front and similarly between EEC and the social housing providers (Local Authorities, Housing Associations and private landlords). These partnerships have been progressively developed through EESoP and will continue. The existing strong co-operation between EEC and Warm Front within TXU, and to some extent with Eaga, enables customers to receive additional measures beyond the Warm Front grant limits. EEC funding of measures carried out by Warm Front also enables more homes to be cost effectively included in the Warm Front scheme.
23. The main experience from the Energy in the Community project in Thurnscoe is the extent of the impact that has been made by working in partnership. Co-ordination has meant the partners are able to focus on their specific areas of expertise and maximise the joint effort.
What contribution to the elimination of fuel poverty might be made by technological advances?
24. Micro-Combined Heat and Power (micro-CHP) is the second most effective energy efficiency measure after cavity wall insulation. As a large proportion of the nation's low quality housing stock is not suitable for cavity wall insulation due to its single wall structure, micro-CHP represents the best alternative for increasing energy efficiency in the home.
25. TXU commissioned research has shown that households can save up to £200 a year on their fuel bills with the installation of micro-CHP. The ideal energy efficiency scenario is obviously to have micro-CHP installed in well-insulated homes thereby ensuring low fuel bills and a warm and healthy home. Micro-CHP boilers are typically 15 per cent more efficient (85 per cent versus 70 per cent) at the point of use than conventional boilers and reduce power station emissions too.
26. TXU believes that the demand for micro-CHP will be highly cost sensitive. It is essential for the simplest possible metering solution to be adopted by Ofgem, so that costs can be kept down.
27. There is plenty of scope within the appliance sector to improve the efficient utilisation of energy, within the boundaries of current technology, by encouraging customers to purchase energy efficient models. One idea may be to introduce a graduated tax on appliances alongside the current alphabetical consumption guide. This could either take the form of a lower VAT rate for more energy efficient models or an additional tax which might start at zero for the most energy efficient models.
28. The standards applied to new buildings incorporate high insulation standards and there do not appear to be any major advances on the horizon.
29. An area receiving increasing attention is the use of the sun's energy for hot water and potentially space heating, although this technology is currently much less cost effective than exploiting existing technologies for energy savings.
I. Harnessing the power of the market is key to tackling fuel poverty and should be used where ever possible.
II. The rules governing Warm Front should be amended to that households could be made more fully energy efficient.
III. The elderly should be included in the Energy Efficiency Commitment's Priority Group.
IV. Metering connection for micro-CHP should be made as simple as possible in order to keep costs down and encourage take up.
V. A graduated tax on domestic appliances should be considered.
VI. As a long-term vision, consideration should be given to the creation of a Social Action Obligation.