Examination of Witnesses (Questions 360-379)
MR IAN
CHESHIRE, MS
RACHEL BRADLEY,
MR DAVE
SOWDEN AND
DR KEITH
MACLEAN
29 NOVEMBER 2006
Q360 Lynne Jones: No, the candle-shaped
ones.
Mr Cheshire: I think the problem
with those is that you always have a twist or a vacuum, a cloud-type
product. They are going to, I think, end up with a smaller twist
as a better compromise, which is still not perfect. I think there
will be situations where people, on aesthetic grounds, will just
say, "That is very nice" but actually this is a different
decision. The manufacturers are clear that that is one of the
key areas and they are very aware of it and are working hard on
it but I would not like to predict you will have it for next year.
Ms Bradley: If I could add to
that, the other way we are trying to skin this cat is by looking
at lighting design, looking at the fixtures and fittings we are
selling. There is an issue with these types of fittings that require
candle bulbs, so how can we make them a different sort of fitting
that does take these kinds of bulbs?
Mr Cheshire: The challenge is
the retrofit. People have lamps that they like and want to keep.
There is new technology coming through, particularly with things
like LED, which I think will change the game again, but that is
not much help if you have a treasured light and you would like
to have it on, in the same way that a new build house you can
do a lot to but it is the existing houses we need to retrofit.
We do recognise it is a real challenge and there are probably
some limits on the decorative end that we are going to find difficult.
Q361 Patrick Hall: One of the reasons
you cite in your evidence at paragraph 4.3.2 for people not going
ahead to install, in this particular example, home insulation,
is hassle—effort, hassle and mess are barriers to going
ahead with putting in these technologies. What do you think retailers
can do to overcome that fear of hassle? If you want to buy a fitted
kitchen, you choose the design but the package you buy is somebody
that comes to measure up and then comes back and fits it.
Mr Cheshire: There are probably
two things we can do and, along with boilers and light bulbs,
insulation is our biggest contribution we can make, so it is a
subject close to our hearts and we have sold a lot of it over
many years. We can do two things. Firstly, the technical product.
I am afraid the other prop I have not brought today is our new
insulation. The existing insulation technology is 270 mm traditional
fibreglass. If it is done in standard rolls, it is quite unpleasant
and if you have any sort of breathing difficulties, you should
not go anywhere near it. It is not a great product in that sense
and you need that much. The latest product we are coming out with
is a laminate insulation, which is more expensive, but it is literally
that thick and it gives you the same insulation benefit
and does not degrade in the way that the thick sort of insulation
does. We are quite convinced that that type of product, although
it is more expensive, and we are working to bring it down in price,
will allow people to very much more easily themselves do all sorts
of areas, including walls on angles, instead of just having to
lay stuff between the joists. So making the product more user-friendly
is one area. The other area is installation. We are currently
developing a whole range of installation offers for next year.
Insulation installation is high on the list of the ones we are
looking at. We currently do not have a national network and we
are looking at it as a trial. I would expect that to form the
backbone of the energy-saving concierge service because it is
the single quickest and best thing that you can do.
Q362 Patrick Hall: People installing
not just insulation but the micro-wind generator and that sort
of thing?
Mr Cheshire: Yes.
Ms Bradley: The micro-wind generator
is installed at the moment.
Mr Cheshire: As are solar panels.
We say they have to be installed as well. What we are trying to
see is what package of installation services we can provide. Modern
products are better than the old products, and there was this
perception that sitting up in the loft, wrestling with a role
of fibreglass, was a pretty unpleasant way to spend a day and
so people were not very keen on doing it. I think they have increasingly
understood that the products are now better, you get these space
blankets which are more contained, or the very thin foil, and
the better off customers will pay for some form of installation
service but we are not able to offer it just yet.
Lynne Jones: Would you also remove all
the stuff from the loft and put it back in again?
Q363 Patrick Hall: I would like to
bring in the Micropower Council, who have been dutifully listening
for the last half an hour or so. What we have just been talking
about is the existing stock, which is the single most important
element of what we have to deal with. However, if we want to move
on, we have to set standards in the new build. You have said in
your evidence that it is very important, for cost-effective reasons,
that we build in high standards with new housing. The Building
Regulations were upgraded last year, although less than some people
hoped for but, nonetheless, they were upgraded and I think the
Government's plans for the growth areas, for housing in growth
areas, is to see various steps up in higher standards over the
years. However, we are still far short of national minimum Building
Regulations standards for having things like PV, photovoltaics,
on the roof, or solar water-heating panels. Do you think that
the Building Regulations should be moving in that direction? Are
you prepared to or do you have any contact, not only with government
but with, say, the house builders, who are almost cited as the
people who do not want more demanding Building Regulations because
it might put up the cost of a house by £10 or so.
Mr Sowden: Thank you for the invitation
to come and give evidence. On the Building Regs point, the primary
legislation, the Building Act, was amended during the last parliamentary
session by the Climate Change and Sustainable Energy Act to create
a new power, which the Government has not yet exercised, and in
fact, we do not expect them to exercise it just yet. That new
power would allow them effectively to regulate micro-generation
into existence, much in the same way as they have done recently
for condensing boilers. We certainly see that as an important
long-term driver for the industry, and although we very much exist
to promote the micro-generation industry, we would not advocate
moving straight to that stage immediately, because this is a fledgling
industry, it is just getting going, and if we were to introduce
that level of volume into the market immediately, it is unlikely
that the industry could cope with the demand that that would create.
However, the Government has committed to introducing what it calls
the Code for Sustainable Homes, and it intends to publish that,
on the last count, before the end of this year and we are expecting
around mid-December. The Code for Sustainable Homes will have
a mandatory requirement that it is applied to all publicly-funded
new homes and within that Code the exemplar level, or level 5,
carbon neutral, is very difficult to achieve without the existence
of some form of micro-generation technology.
Q364 Chairman: If I can interrupt
you, Mr Sowden, could you just, in parenthesis, give a quick definition
for the benefit of the Committee and anybody else who is not overly
familiar with what we mean by the term "micro-generation",
because we have just been talking about windmills but there are
combined heat and power systems and there may be things that I
do not know about. Could you just help us to make certain we do
understand what it is you are talking about.
Mr Sowden: Yes, of course. "Micro-generation"
is a term which applies to a family of technologies, and there
is a statutory definition, which defines it as less than 50 kW
of electricity production, or less than 45 kW of heat production
from sustainable sources and it is the Energy Act 2004 that contains
that definition and also a list of the technologies. When we refer
to micro-generation or micropower, we refer both to heat and electricity
technologies, and we tend to use a slightly less stringent definition
than the statutory one, which is focused on sustainable heat and
power solutions for the non-expert user and, at the very smallest
end, of course, that means the householder but it can also mean
small businesses and small commercial premises.
Q365 Chairman: To bring it down to
the level of the citizen, which is what this inquiry is about—and
I do apologise to Mr Hall for interrupting his flow of thought,
but I just want to be clear on our terms. If I am a householder
and I am buying a new house that meets the requirements that you
were just discussing, what would I expect to see in my house that
fully utilised all of the micro-generation techniques and technologies
that are presently available?
Mr Sowden: I think you would expect
to see a combination of technologies. I am not sure you would
expect to see every technology available integrated in one building
but, for example, if the property is not supplied with natural
gas, running costs could be brought down to a very low level indeed
with the use of something like a ground source heat pump, which
uses the ground as a big solar storage system and extracts solar
heat from the ground in the winter, the heat in the ground being
supplied by the sun during the summer. You might expect to see
a technology like that. It could be complemented by solar hot
water panels, which would provide the hot water supply to a home
during the summer, and it may have electricity generating technology
such as the micro-wind turbine that B&Q have started selling
recently or perhaps photovoltaic panels. You might see any combination
of those technologies but I think it is important to emphasise
that those technologies need to be used in a correct context,
alongside proper levels of energy efficiency.
Q366 Patrick Hall: Is that what the
Code is supposed to incorporate and encourage?
Mr Sowden: Indeed, and the Code
is taking at its minimum level the Building Regulations and I
think the Government's intention is now to go slightly further
than the minimum level required by the Building Regs for energy
efficiency, even at level 1 in the code. The mandatory level is
about halfway between that and carbon neutral, level 3, so all
publicly-funded new homes will be required to be built to level
3. You start to see at that level certainly the requirement for
exemplar levels of energy efficiency, and if you have micropower
technologies that it is appropriate to integrate and that are
cost-effective to integrate, then you can use micropower technologies
as one way of delivering that. It gives you a menu of options.
Using a regulatory mechanism like that in a smaller subset of
the market, which would be the publicly-funded, new build sector,
and also tightening the requirements across a period of a few
years, we see as a nice, predictable glide path towards eventual
inclusion of a mandate in the Building Regulations.
Q367 Patrick Hall: For all new build?
Mr Sowden: For all new build eventually,
and we see that as a very measured and sensible way to give the
industry a predictable uptake curve to get costs down and to increase
its production levels.
Q368 Patrick Hall: What timescale
do you think would be manageable?
Mr Sowden: In our submission to
the Code for Sustainable Homes, if I recall correctly, and I will
correct this after a check, I think we were advocating something
across the course of five or six years from now to a point when
we think the industry would be ready for a mandatory requirement
across all new build.
Q369 Patrick Hall: That is for all
new build. So that would require quite a radical amendment of
the Building Regulations.
Mr Sowden: But the Government
has put in place the primary legislation power to do that. Government
does not, as you know, introduce primary legislation of that nature
and leave idle enabling powers on the statute books that it does
not intend to use. We are confident that it sets the right direction
for the micropower industry and it signals a clear intent, and
we are encouraged by that but we agree with the Government that
it would not be appropriate to enact it immediately. To come on
to your second point, about house builders and where they are,
some house builders are certainly quite forward-thinking. Some
of them have started placing reasonable sized orders for micropower
technologies, but I think the sharpest illustration was perhaps
given by the Housing and Planning Minister, Yvette Cooper, in
the summer when at a conference she said she had gone back to
a number of house builders who had participated in the £60,000
house challenge and asked them what it would take on a mass-market
scale, at mass-market volume, to take the homes that they had
proposed building at £60,000 to the requirements of the Building
Regs and take those to being completely carbon neutral. The answer
that came back was that it would cost an extra £5,000 per
household.
Q370 Patrick Hall: It is a bit more
than my £10 but you see the point; it is really insignificant
compared to the cost of a whole house, never mind the industry
as a whole.
Mr Sowden: And that is a function
of scale economy, because if the whole new build sector was in
that arena, the volume that that would pull through—and
it is not just energy either, it is things like water efficiency
too—technologies which are currently in a niche market would
be taking a quantum leap into a mass-market and that will bring
prices down.
Q371 Mrs Moon: It has been suggested
that one of the ways forward to help people make the shift is
that in fact we have environmental taxes on poorly performing
electrical goods and lighting so that people appreciate the environmental
impact they have. Would you agree environmental tax is the way
forward or should we leave it to the retail sector to make things
far more affordable rather than go the legislative route? Which
would you prefer?
Mr Sowden: I will hand over to
Keith in a moment because Keith chairs our members' Policy Development
Group on Fiscal Policy Sir Keith can talk about some of the fiscal
incentives side of things. It is a question of carrot versus stick.
If we use the example of the move from leaded to unleaded petrol
using fuel duty, using a revenue neutral mechanism, that is a
good example of where the fiscal system can be used to change
behaviour. Across a period of time, raising taxes on leaded fuel
and cutting taxes on unleaded fuel in a revenue neutral way does
not present the Exchequer with any serious difficulties. There
are sometimes social policy consequences of doing it which we
have to look at, but I think as well people can get into the mindset
of fiscal incentives. There are in fact fiscal barriers that exist.
The fact that non-contractor installed energy efficiency products
attract a VAT rate of 17½% and energy supply itself only
attracts a VAT rate of 5% acts in a perverse way if our policy
objective is to reduce energy consumption. That is a well recognised
problem. So we should not see 5% VAT on energy efficiency and
micro-generation generation products as a fiscal incentive per
se; we should see it as the removal of an important fiscal
barrier.
Dr MacLean: On the carbon issue,
underlying the whole transformation, whether at the micro or macro
level, for the developments in the power industry at the moment,
it is essential that there is a better reflection of the cost
of carbon in whatever happens, and whether that is directly through
the price that finds its way into energy or whether it is through
some tax, there is some debate about that but I think what is
absolutely essential is that there is clarity. There is a price
of carbon, that is substantial and it has to be met in some way.
Dave is right; there is a mixture of sticks and carrots which
can help. In connection also with the earlier point that was made
about buildings and how you can get builders to behave properly,
ensuring that the value of what is being put into the property
is reflected, so that consumers who are buying buildings from
the builders are demanding these things, that there is a real
need for that, and some of the measures that have been looked
at, some of the fiscal incentives that could be used are based
around the property. For instance, a Stamp Duty which, if you
have a very inefficient building would be high and if you have
a very efficient building would be low, is something which could
be introduced in a revenue and inflation neutral manner if you
are prepared to take the carrot and stick approach. Similarly,
what was very interesting in one of the energy suppliers' experience
of introducing incentives to make people more likely to take up
energy efficiency measures was that you could pretty much offer
them £100 as a subsidy towards buying something but they
literally would not take the money from you to do so, but if you
offer them a £100 rebate from the much-hated Council Tax
bill, suddenly it is a really attractive thing for them to do.
Council Tax, again, is something relating to the property or which
could be linked in as an entitlement. The behaviours around this—we
have had the example there that you can offer a very sensible,
wonderful payback on an energy-saving bulb but that does not incentivise
people to do it. You have to find the right way of making the
incentive attractive to achieve the end. We have put forward a
number of examples of that and we feel it is important that Treasury
are engaged in the debate around this, because a number of these
issues will be dependent on getting Treasury support for the measures
that are likely to be required to make the change.
Mr Cheshire: The research says
87% of customers say price or cost is the main barrier, so, broadly
speaking, anything you can do to help remove that barrier will
be most effective. Our sense is the relative incentive—and
I take the point on the leaded petrol equivalent, but to have
no incentive at the moment on VAT terms, for example—we
have called for this on light bulbs, energy-efficient over incandescent—and
then to have the unintended consequence because of the nature
of the WEEE Directive means that the 35p per light bulb is going
to go on energy-efficient light bulbs, which will not go on incandescent
light bulbs, which seems, again, ludicrous. It is about trying
to work through those things. The incentive to householders, and
30% of the carbon in the UK is household-related, I think if people
understand they can make a difference and they get a Council Tax
incentive, a Stamp Duty incentive, some form of recognition that
their house is contributing more in a positive sense, I think
that would be an important lever for people. It is all about finding
the first few levers that will make this a more mainstream process.
Q372 Chairman: Before we move on
to another area, I wonder if the Micropower Council could explain
the table that is on page 14 of their evidence.[34]
You were talking about having a stable price for carbon. This
table has lots of different prices, I presume for carbon saving,
but it was a bit confusing to try to understand what the message
was that you were trying to convey to us.
Dr MacLean: Partly, it is to reflect
that there is not an agreed cost on carbon and the measures that
are applied to addressing that are very variable in their cost.
It is absolutely essential that they are brought on to a similar
basis.
Q373 Chairman: Can we be clear? I
suspect there is some quite interesting material in here but I
have been struggling to extract it. Are you saying that the renewables
obligation, the cost of saving carbon by that mechanism, is anywhere
between £180 and £510 a tonne?
Mr Sowden: We are not saying that.
We have reported that but that is what the National Audit Office
and Oxera are saying, which is the source of that information.
The reason we put these numbers into the paper—this is the
appendix that is our proposal on how to support renewable heat
in the micropower sector—is really to give a benchmark in
putting forward that policy proposal, which is to use what we
call weighting factors within an instrument known as the Energy
Efficiency Commitment, to give some idea to officials, as they
do their calculations on our proposal, as to what they are paying
for reducing a tonne of carbon now in various other policy mechanisms.
Q374 Chairman: The renewable heat
one appears to have a minus. Is that a "minus" sign?
Mr Sowden: That is right, which
is saying that there is a negative cost attached to that proposal.
Dr MacLean: It is a minus sign
and it reflects the perception that there is a cost saving. If
you are doing something which is saving you energy, you actually
reduce your cost of doing it.
Q375 Chairman: When you say "reduce
your cost", whose costs are you reducing?
Dr MacLean: The cost to the consumer
is reduced.
Q376 Chairman: So there is a consumer
gain of £200?
Dr MacLean: If you can avoid using
energy, you reduce the amount of carbon and you save money at
the same time, so there is a negative cost of doing it. If you
still use energy and you find some other additional way of reducing
carbon, then that is the additional cost of doing it.
Mr Sowden: There is a good example
from some years ago, what was the Performance and Innovation Unit
in the Cabinet office, the precursor to the last Energy White
Paper, was their Energy Review, and there is a table in the back
of that—and I am afraid anoraks like me still remember that
it is table 6.1, if that is of any interest—and that table
looked at what they call a resource cost of various policy measures
with energy efficiency, with a prominent negative overall cost
effectively to UK plc, and that takes into account the capital
cost of a particular measure versus the reduction in wastage in
the economy, factors those two in together and produces a capitalised
or a net present value of that. Certainly, for energy efficiency
measures it is negative and that is what this table is reporting.
I am not on entirely firm ground with these numbers so, with your
permission, Chairman, what I would like to do...
Q377 Chairman: Would you like to
give more of a layman's commentary on that?
Mr Sowden: I will perhaps write
to the Committee.
Q378 David Lepper: Gentlemen, from
B&Q, one of the items you have not brought with you today
is a wind turbine. You did have one here in the House of Commons
just a few weeks ago.
Mr Cheshire: We could not get
it through security.
Q379 David Lepper: They are retailing
at £1,498 including VAT and installation. There, I have done
the advert for you. However, there was an article in The Observer
a couple of weeks ago where the headline was "Trendy roof
turbines are not as green as they look", where, among others,
Friends of the Earth were saying that they do little to reduce
greenhouse gas emissions, produce very little energy and may lead
to disillusionment. They were not necessarily talking just about
B&Q's wind turbines but what is your comment on that?
Mr Cheshire: We did a fair amount
of work with Windsave, the supplier, before launching this and
the claims we made were based, broadly speaking, on the assumption
that through the year, in a situation which, by the way, is deemed
to be providing enough wind, because all the turbines that we
sell are subject to a survey so if there is not enough wind in
the location, we would not sell it.
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