House of Commons - Environmental Audit

Select Committee on Environmental Audit Written Evidence

APPENDIX 12

Memorandum from the Energy Saving Trust (EST)

EST'S INTEREST

This is the Energy Saving Trust's response to the Environmental Audit Committee enquiry "The Energy White Paper—Empowering Change?". This response should not be taken as representing the views of individual Trust members.

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, and climate change issues. We are the UK's leading organisation working through partnerships towards the sustainable and efficient use of energy by households, small businesses and the road transport sector.

This response is structured to highlight to the Committee the benefits and the challenges for delivering household energy efficiency in the Energy White Paper (EWP). The structure is as follows:

1. Progress in the policy framework for household energy efficiency;

2. Challenges for delivering the targets, including:

(a) further action needed from delivery agents such as EST,

(b) further policy action or funding needed from government,

3. The disappointments for energy efficiency in the EWP

1. ENERGY WHITE PAPER—PROGRESS ON ENERGY EFFICIENCY

We are very pleased with the recognition in paragraph 1.14 of the Energy White Paper that:

"the cheapest, cleanest and safest way of addressing all our goals is to use less energy. We have to improve energy efficiency far more in the next 20 years than in the last".

We are also pleased (with some reservations outlined in 2b and 3 below) that the major policies will be put in place to deliver the 5MtC savings from household energy efficiency per decade, as we have been calling for.

The two major policy changes are:

(a) the extension and expansion of EEC in 2005, and

(b) the early revision of the Building Regulations in 2005, making condensing boilers standard for all installations in England and Wales.

There are also a number of supportive policies (such as expanding advice on energy efficiency to the consumer) that will need further funding and development. There is also a notable lack of fiscal measures, and this we address in paragraph 2b below.

(1a) Extension and expansion of EEC in 2005:

EWP paragraph 3.33:

In addition to the general framework there is also a list of actual measures to 2010, as outlined in paragraph 3.5, and these targets are very helpful in defining the measures that will need to be installed by 2010:

— progressively raising efficiency standards to that of the most efficient type, condensing boilers, and installing around 5 million saving 0.6MtC;

— 4.5M cavity walls to be filled 2005-10 saving around 1.2MtC;

— installing an extra 100 million energy saving lights, beyond the 60 million already anticipated by 2005 saving around 0.5MtC;

— faster improvements in the standards of new household appliances and significantly increasing the uptake of A-rated appliances which could save around 0.4MtC; and

— other insulation measures, improved heating controls, revisions to the Building Regulations and community heating with CHP, saving around 1MtC.

This list of measures, and the specific carbon savings, helpfully gives energy efficiency industries a clear framework within which they can see the development and expansion of their most energy efficient products. The actual detail of the expanded EEC has to be set by Defra, after consultation with energy suppliers, Ofgem and the energy efficiency industry this year (2003), but the measures listed above give a clear framework for where the savings will occur. EST will also participate actively in this.

An expanded EEC now allows suppliers to develop long term contracts with the manufacturers and installers of insulation, condensing boilers, low energy lights, and A rated appliances. The current EEC is beginning to show some innovative energy service packages for the customer, and we hope that the security of an expanded EEC will encourage them to develop more financing deals for the consumer. EEC is also crucially important for the insulation industry, as almost all insulation jobs are carried out for either EEC or Warm Front. Achieving the cavity wall insulation target of 4.5 million cavities filled 2005-10 will require a tripling of current annual market activity. We address this issue in (2a) below

(b) Early revision of the Building Regulations in 2005

Paragraphs 3.16, and 3.13, and the Government's response to the Royal Commission on Environmental Pollution's 22nd Report (page 8) announce the early revision of the Building Regulations:

This is a very significant improvement on existing provisions. It will apply to all new and replacement boilers and so will have a very significant impact on the boiler manufacturing ad installer industry. Five million boilers will be installed in the 2005-10 period.

Condensing boilers currently account for 12% of the market (doubled in the past year due to EEC but it took 10 years to achieve this level), and this will rise to around 80% in 2005 (comparable to the Netherlands now). All UK manufacturers make condensing boilers. Some are in a good position to expand their production of condensing boilers, indeed one exports its current production to Denmark and the Netherlands. Ensuring a smooth transition from 2003 to 2005 will be crucial, and this is why EST is asking Treasury for 5% VAT in this year's budget, on condensing boilers in this budget to reduce the purchase price.

There is also a big training exercise needed to ensure installers are trained for condensing boilers, this is addressed in 2a below.

By making condensing boilers the standard installation, boilers will not be eligible for EEC credits after 2005. This will mean energy suppliers will concentrate on insulation, appliances, lighting and potentially micro CHP for additional carbon savings.

2. CHALLENGES FOR DELIVERING THE TARGETS

(2a) Further action needed from delivery agents such as EST

EST is actively working to achieve the delivery of the energy efficiency targets. There are two immediate priorities:

— Ensuring the heating installation industry is adequately trained in condensing boiler technology by 2005.

EST is also aware of the need to expand the provision of targeted advice to householders to influence their decisions, and this will be developed more significantly once new funding becomes available. Last year 670,000 people contacted our energy efficiency advice, but with 24 million households in the UK there is still a long way to go in turning around consumer attitude to energy efficiency and reducing their carbon emissions.

HEATING INSTALLER TRAINING

There are anything between 38,000-50,000 heating installers in the UK, of whom only a small percentage (around 500 companies) actively perceive themselves as energy efficiency specialists. EST has been operating a network of these 500 companies, but is now addressing the issue of how to extend energy efficiency training to the vast majority of heating installers.

It is essential that energy efficiency training (meaning the installation and maintenance of energy efficient heating systems with condensing boilers and efficient controls) is a basic requirement for any trainee installer. EST is working closely with the new Energy and Utility Sector Skills Council, and the training qualification bodies such as City and Guilds and the National Vocational Qualification (and Scottish equivalent) to ensure that energy efficiency is part of the basic training. Once this is achieved all new recruits will be adequately trained for the new Regulations. This year there will be 4,000 new installers trained through the GWINTO scheme.

However the vast majority of current installers still have not undertaken any energy efficiency training, and tackling this large and disparate body (many of whom are sole traders) will be a challenge. Manufacturers, and the whole supply chain, will play an important part in accessing installers. However it will almost certainly be necessary to require formal accreditation of an installer's competency, to ensure that installers do reach the standard necessary, potentially linking it to current safety standards such as CORGI.

We are acutely conscious that consumers need reliable and good quality installation and maintenance, with the security that any problems will be redressed. Our aim is to ensure, with the help of Government and the training bodies, that this expectation is satisfied.

INSULATION INDUSTRY

The target of 4.5 million cavity walls to be filled between 2005 and 2010 is ambitious. Cavity wall insulation is a key part of EEC, but this year (first year of EEC) there has been no increase in demand despite significant cut-price offers to the consumer. The industry fulfils the demands of EEC and Warm Front, with almost no demand outside these programmes. There are currently around 0.3 million cavity wall insulations per year, so the Energy White Paper target implies a tripling of demand.

Manufacturing capacity is not a problem because the industry expanded its production capacity before the launch of Warm Front in year 2000 (in anticipation of a big increase in demand). But as there are relatively few job orders (and all these are for Warm Front and EEC) these companies are unwilling to invest further in installer equipment and training. EST is very much aware of the pressures on the insulation industry, and is working to address this. The insulation group of the Energy Efficiency Partnership for Homes is developing a plan of how to approach the problem, and we will be taking this forward when the strategy is agreed.

(2b) Further policy action or funding needed from Government

There are no fiscal measures in the EWP to encourage household energy efficiency. However Government does admit in paragraph 3.10 "tax measures also have a role to play....we would consult further on specific measures to promote greater energy efficiency in households".

HM Treasury consulted on just this issue last year, and to consult yet again will only delay action for up to a further year.

There is one fiscal issue which EST feels deserves immediate action, and this is 5% VAT for A and B rated condensing boilers. The reason this is so crucial is because the condensing boiler market needs to increase gradually from its current level at 12% of the market to the 80% of the market that will occur when condensing boilers become the standard installation for all new and replacement boilers in 2005.

EEC has proved that price-matching condensing boilers with non-condensing has been highly successful and has doubled market share for condensing boilers. So to reduce the purchase price of condensing boilers by 12.5% (with a VAT reduction) would allow manufacturers to price-match their products, even outside the EEC cut-price offers. We want to avoid an unrealistic jump in market share so manufacturers can smoothly build up their condensing boiler production immediately, and installers can gain practical experience of them as soon as they are trained.

We at EST outlined our proposals for fiscal incentives for home energy efficiency in our submission in 2002 to Treasury's consultation on home energy efficiency. 1 In essence we recommend that a package of energy efficiency revenue-raising measures are taken, to balance the incentives for energy efficiency that reduce Government revenue. A summary of our recommendations is:

— An inefficiency charge on tungsten light bulbs, and kitchen appliances with an energy rating of D or below. This would raise £60 million in the first year from a 50p charge on tungsten light bulbs, plus £60 million from D-rated appliances and below; so raising £120 million in total in the first year;

— 5% VAT for:

— A & B rated condensing boilers 2003-05 (likely to cost c £12 million in the first year);

— A-rated household appliances (especially for cold appliances costing c£11.4M in the first year)

— DIY draught-stripping and loft insulation;

— Micro CHP once field trials have proved its efficiency.

— Tax credits, stamp duty rebates, variable Council tax bands for home owners. Tax offsets for landlords for energy efficiency work, and offsets against Corporation Tax for installer training in the insulation and heating industry.

— A tax incentive for housing developers to build beyond the 2002 Building Regulations.

— A change to the Winter Fuel Payments to allow older people to opt for a 25% Energy Efficiency Bonus for improving the insulation of their home, or installing a condensing boiler, or heating controls. The payment currently costs £1.7 billion per year for 8.9 million elderly people, in 51 million homes. We propose that the elderly should be given the option to choose the 25% bonus. By improving the efficiency (such as insulating the cavity wall) of their home, householders could make savings of £100 per year for the lifetime of the measure (30 years for cavity wall insulation). A copy of our brief on how this could work in practice is attached as an Annex.

In addition to fiscal incentives, there is a need for more funding to be allocated for the delivery of the energy efficiency measures. The Energy White Paper acknowledged (in paragraph 3.44) that advice to householders is important for supporting consumer decisions, which is especially important to ensure EEC offers are taken up. It also acknowledges EST's position that our existing network of Energy Efficiency Advice Centres could develop into Local Sustainable Energy Centres covering energy efficiency, renewables and transport. However there is no funding identified for this, and such a change cannot be made on current EST budgets. We are this year attempting to run some pilots to develop the idea at a practical level.

Over the medium term Government will need to continue to commit spending, and probably expand current levels, if they are to achieve their goal that no household should be living in fuel poverty by 2016 in England and Scotland, and 2018 in Wales.

(2c) Further delivery action needed by Government

For energy efficiency, Defra will be developing an implementation plan this year, with a report to be published in February 2004, and the Devolved Administrations are taking or considering similar action. There will be some crucial policies to develop this year, which should be included in this plan:

— the details of EEC2 negotiated between energy suppliers, the heating, insulation, lighting and appliance industries;

— concrete progress on training and capacity building in the energy efficiency industries, especially installers. EST is actively working on this, and will be participating in the Better Buildings Summit (paragraph 3.19) to be chaired by Ministers from Defra, ODPM and DTI;

— a coherent strategy of how Local Authorities can proactively help deliver the energy efficiency targets; and

— progress on the role of micro CHP in EEC2 and if appropriate in the new Building Regulations. EST and the Carbon Trust are working together on field trials to verify the energy efficiency and carbon saving advantages of the product; Ofgem will also need to make progress on the 28-day rule which energy suppliers and micro CHP developers believe inhibits long-term contracts with consumers.

It will be the final framework of EEC2 that will give the industry confidence, or otherwise, of their ability to meet these ambitious targets. EST would also like to see a longer-term timescale for EEC2 (beyond 2008) so the continued framework for meeting the 2010 targets can be met. This is something Defra, Ofgem and the energy suppliers should consider this year. For suppliers, this would allow them to arrange longer-term contracts that are more akin to their business planning cycles.

3. DISAPPOINTMENTS FOR ENERGY EFFICIENCY IN THE ENERGY WHITE PAPER

We are disappointed the government did not explicitly adopt the PIU target for a 20% improvement in energy efficiency by 2010 and a further 20% by 2020. However, there is an implicit goal in paragraph 3.7 "savings of this magnitude would need roughly a doubling through increased energy efficiency of the rate of energy intensity improvement seen in the past thirty years".

In addition we welcome the fact that Michael Meacher in his PQ answer to Sue Doughty MP on 10 March clarified the position that the 5MtC saving from household energy efficiency 2002-10 "would correspond to an energy efficiency improvement of approximately 20% relative to the year 2000."

In addition we believe targets are only as useful as the policies in place to deliver them, and we are comfortable with the policies in the White Paper, provided they are developed as set out above.

We are also disappointed that there is no longer-term ambition for where Building Regulations will go beyond the 2005 revision. EST called in its response to the PIU review, and the Energy White Paper for a "requirement for new build to be near zero emission from 2012". We believe that a longer-term goal for construction would allow the industry to develop new energy efficiency techniques and technologies. There are excellent examples such as Bedzed in South London, where this has been achieved, and where the occupants benefit from fuel bills one sixth of the average level.

As outlined in 2b) and 2c) above, we are disappointed there is no additional funding identified for energy efficiency. It is clear that additional public funds and fiscal measures will be needed to ensure the effective delivery of the targets for installer training, and targeted consumer advice.

March 2003

Annex

Winter Fuel Payments for Energy Efficiency

INTRODUCTION

This paper outlines EST's proposal to modify the Winter Fuel Payments made to all over 60s every year. The proposal allows individuals to opt for a 25% bonus, if they choose to invest in energy efficiency measures for their home. These measures would include insulation (wall and loft), and efficient heating systems.

Elderly householders are often not aware of the measures they could take in the home which would lead to reduced fuel bills, a warmer home, and which would help them avoid the health problems associated with poorly insulated and poorly heated homes. The purpose of the 25% energy efficiency bonus would be to ensure householders contact their energy suppliers and then take advantage of the cut-price offers for insulation and condensing boilers.

CURRENT STATUS OF WINTER FUEL PAYMENTS

Each winter (usually in December) the Department of Work and Pensions pays the Winter Fuel Payment to all individuals over the age of 60. The payment is made via bank transfer or Post Office cheque, and the level is:

— £200 per elderly individual, or

— £100 per individual sharing the home with another elderly person receiving the payment.

This payment costs the Exchequer £1.7 billion per year. It is paid to around 8.9 million2 elderly people in six million homes. Of these around two million3 are eligible, as benefit recipients, for assistance under Warm Front and equivalent devolved administration fuel poverty programmes.

EST'S PROPOSED CHANGE

No elderly person would receive less than his/her current level of eligibility. By agreeing to energy efficiency work, the householder would receive a 25% bonus.

In early November all WFP recipients would receive a letter from Dept of Work and Pensions which would give them two options:

(a) to do nothing, and they would then receive their normal WFP allocation (£200 per individual or £100 each for couples); and

(b) to return a reply form agreeing to receive half their normal allocation immediately ie £100 for individuals £50 each person in a couple, plus a £150 (or £75) cashback for energy efficiency work done in the home. This way the householder receives a 25% bonus for having energy efficiency work done in the home.

HOW THE PROCESS WOULD WORK IF THE ENERGY EFFICIENCY BONUS WAS ACCEPTED BY THE HOUSEHOLDER

1. If the householder returned the energy efficiency acceptance coupon, half their normal allocation would be paid into their bank account. The householder would receive a coupon and covering letter with all phone numbers for contacting energy suppliers or the Warm Front managing agents so they can contact them to arrange a home visit.

2. At the home visit the supplier would advise the householder whether they are eligible for Warm Front cost-free installations (insulation and heating), or any EEC offers for benefit recipients. The householder would be advised of the measures they could install, and which offers are available.

3. Households eligible for Warm Front would have the work done in the normal way, and the Warm Front managing agent would give the householder a receipt to prove the work had been done. The householder would take the receipt to the Post Office to cash in the voucher (£150 or £75 for each individual in a couple), or infirm people could send it to DWP for payment.

4. Households not on benefit could take any EEC offer from an energy supplier, but not this would have to include a heating or insulation measure, and could not just be limited to energy saving lightbulbs. This would include cavity wall insulation, a condensing boiler, loft tank and pipe insulation, and heating controls. The householder would have suitable work carried out, would pay the supplier up front, would then take the receipt for work and the voucher to the Post Office to receive the £150. Alternatively, infirm householders could send the voucher and the receipts to the DWP for payment.

CASE STUDY 1

The householder decides to insulate the home cavity walls:

The energy supplier would allow the householder to take an existing cavity wall offer, and the £150 voucher would be offset against the cost:

The average cost for cavity wall insulation on a 3 bedroom semi = around £468,

A current EEC offer with a supplier is a "50% off" offer = £234

The householder would use their £150 voucher to offset against this cost, while paying the money up front. The supplier would give the householder a receipt for work done, so the £150 voucher could be cashed.

The actual cost to the householder would be £84 for the house walls to be cavity filled.

CASE STUDY 2

The householder decides to insulate the loft with top-up insulation:

The energy supplier would insulate the loft to Building Regulations standard (250mm), and would charge the householder for the work, and give them a receipt. The householder would either take the receipt plus the voucher to the Post Office, or return both to DWP for payment.

A flowchart of how this would work in practice is attached.

1 Energy Saving Trust Submission to HM Treasury on Improving Household Energy Efficiency, Fiscal Incentives: Home Energy Efficiency, November 2002 (see http://www.est.org.uk/est/est.html?est-homepage.html) —not printed here

2 Official Yearbook of the UK—national statistics 2002

3 The UK Fuel Poverty Strategy 2001

31 The Energy Efficiency Commitment requires energy suppliers to offer energy efficiency measures to their customers. The current EEC runs 2002-05, and costs the customer around £3.60/fuel/year, around 1% of average fuel bills. Around £165 million/year is spent by suppliers on energy efficiency offers, and this will achieve carbon emission reductions of 0.4MtC/year by 2005. Back

32 1% of average fuel bills. Around £165 million/year is spent by suppliers on energy efficiency offers, and this will achieve carbon emission reductions of 0.4 MtC/year by 2005. Back

33 Gas and Water Industry Training Organisation. Back



© Parliamentary copyright 2003	Prepared 22 July 2003