Examination of Witnesses (Questions 580-599)
MR ANDREW
WARREN AND
MR IAN
MANDERS
24 JANUARY 2007
Q580 Mr Drew: You have obviously
been critical of the Energy Efficiency Commitment; I have heard
you many times ask the Government to go further. Do the antecedents
for this actually lie with individual nation states which are
being too timid or should we be doing much more at EU level? Clearly
there are good examples in each country and if you put all the
good examples together, you would have a series of pretty effective
policy options available. What is your view on that Andrew?
Mr Warren: I certainly do believe
that there are lessons that we can learn from other European countries.
Strangely enough I think there are actually lessons that they
can learn from us. You are quite right in saying on the Energy
Efficiency Commitment that we have been critical of the relative
timidity of Government, in terms of the size of it that has been
set, and the evidence of that was the fact that for the first
phase the work got done so fast that actually about 40% was able
to be carried over into the second three-year phase. However,
the basic principle of trying to turn conventional energy suppliers
into energy service companies is a very sound one and it is one
that actually other countries are learning from us. I would not
want it to be thought that we had got it all wrong and others
had got it all right, but there is a great deal to be said for
learning lessons from other countries. Actually, there is also
a great deal to be said for learning very local lessons too, because
all round the country there are all sorts of very good ideas happening
on the ground, sometimes at District Council level, sometimes
even below that, which are delivering. I wish we could really
replicate these because over and over again we hear about how
very good Woking is for instance on delivering co-generation and
I keeping thinking yes, but there are 300 or whatever other district
councils, how come somebody else has not picked this up?'. You
hear again of the outreach from Leicester for instance. How come
other councils have not picked this up? If only we could learn
to replicate the best of things, that would be a wonderful achievement.
We do not have to keep inventing new wheels; we have the wheels.
I am not sure how much farther I can push the metaphor, but the
wheels do have to be kept rolling in the right direction.
Mr Manders: Certainly at the local
level, and I am speaking here as a former local councillor myself,
there may be an idea, which is apparently being discussed within
the Department for Communities and Local Government at the moment,
about the new performance indicators for local authorities. One
thing that I have heard is being discussed at the moment is putting
a performance indicator for carbon emissions on local authorities.
How it will act is that the local authority would have to cut
the carbon emissions from their own estate, their own buildings,
the town hall and so on, and also have to work to cut carbon emissions
from housing in their area, from local businesses and also from
transport as well, which are all things that the local government
has influence over as the policy maker for its own spending. If
that were introduced there at the grass roots level, there would
be an agency which would be working with local people to cut carbon
emissions. I do hope that is eventually agreed by the Department
for Communities and Local Government and that could be a way of
making sure that the experience of local councils like Woking,
Lewisham, Barnsley and Kirklees is reproduced over the rest of
the country.
Q581 Mr Drew: Again you highlighted
a particular problem in this whole area in that in a sense Government
have gone for the easy wins, which are cavity wall insulation
and loft insulation, which do not really equate to many of the
older properties which do not have those opportunities. So what
should we be doing with the older properties?
Mr Warren: You have identified
there one of the complications of placing what is essentially
a duty upon energy companies, and saying they have to deliver
a certain amount of kilowatt hour savings, and inevitably they
are going to go for the cheapest option. The difficulty is, as
you say, that dealing with older properties is the more expensive
option. You could turn around and say it is a level playing field
for all of them, they will just all have to pay a bit more in
order to achieve their objectives. I cannot help feeling, and
this goes back to my earlier answer to the Chairman, that one
way of making this much more palatable would be if, at the same
time as trying to ask the energy companies to deliver this, you
said "and here is some public money to assist you".
That reduces their overall cost on this, but it also means that
prospective customers are much more likely to pick up on the idea.
There is nothing like being able to say this has an endorsement
from Government. The endorsement from Government does essentially
come from saying "we so believe in this that we are producing
help on it." I can give you an example where this has worked
very well, that the Government have introduced with process plant
for heavy industry. It is something called the "enhanced
capital allowance", where companies are basically bringing
forward being able to offset capital against tax all into the
first year, if they install one of a range of energy-saving measures.
I understand from the Revenue that they have not had much claim
on this, so it is actually not costing the Government very much.
What it has done though is to produce a feeling of endorsement
there for those who are out to market some of these products—the
list is now several hundred long—and of being able to say
that the Government so believe in this that you can get a tax
break on it. In practice the tax break is relatively minimal,
there is not a lot of evidence people have taken it up, but there
is evidence that in process plant for instance, there has been
a great deal of investment which is being driven as a result of
the extra interest which has come forward.
Q582 Chairman: Just to pin you down
on David's question, I was delighted to see in your evidence the
emphasis on the fact that 50% of older properties in the United
Kingdom did have the difficulties that David mentioned. What specifically
should be being pushed in those properties, given the numbers
of them and therefore the potential for energy saving? Have you
done any calculations to work out what energy saving could be
realised from those older properties and by what techniques?
Mr Warren: There is no doubt that
techniques do exist. If you are talking about properties with
solid walls, both external wall insulation and internal wall insulation
exist, but installing that is obviously more expensive than finding
a house which has an uninsulated cavity wall. There is no question
that the technologies exist which could bring such homes up to
good energy performance standards. The question is whose job it
is going to be to do that. As we currently stand it is going to
be the job of the energy service companies, the energy suppliers
as they were. They can do that.
Q583 Mr Drew: I am not totally sure;
to me it is a nuance of a difference. Can you just define what
we now mean in terms of energy service companies? What is going
to be different about these?
Mr Warren: Essentially the concept
of an energy service company is that you are no longer in business
simply to sell kilowatt hours; you are in business to provide
the services that the customer wants.
Q584 Mr Drew: But is that not a problem?
Have our companies moved to become that yet?
Mr Warren: I was discussing with
the Chairman a little earlier the fact that in the membership
of our own Association we have three of the conventional energy
suppliers. I believe that one reason why they are doing this,
is because they have taken strategic decisions that this is where
they wish to position themselves in the marketplace of the future,
and a recognition that the days of just simply selling as many
kilowatt hours as possible have gone. It is a new world on that.
To go back to your earlier question, as we currently stand, it
will be their responsibility to improve the energy performance
of these older and more difficult, what they call more hard-to-heat,
homes and that will be an additional cost. It is not one that
is currently happening much under the existing Energy Efficiency
Commitment because it is small enough to enable the easy bits
to be done first.
Q585 Mr Drew: You have been very
critical of the short-term nature of some of the proposals out
there, whether they come from Government or whether they come
from the companies themselves. How do you change the environment
so that there is a consistency, which presumably is what is going
to cause the customer really to begin to shift in terms of their
energy efficiency obligation?
Mr Warren: One way you could do
this is obviously by setting up a programme much on the lines
I was talking about, relating to the German programme which was
an absolute declaration that across a period of 20 years, they
were going to upgrade five percent of the homes each year. Within
the five percent each year, they are including a lot of what we
would call these hard-to-heat/hard-to-reach homes as well. That
would be one way of being able to get beyond the short-term nature
of these things. Just to clarify the point relating to our worries
about the short-term offers which are available from the energy
companies, those offers are essentially there seeking to subsidise
the installation of high-efficiency light bulbs or of "insulants"
or something like that. Those are there in order to encourage
customers, both their customers and other people's customers,
to be prepared to allow them to install measures in their homes
under the Energy Efficiency Commitment. A sensible company will
obviously try to minimise their on-costs on that and it has been
fascinating to see how, over the last 18 months or so, companies
have learned to deliver what is necessary with very minimal intervention,
no longer offering £200 off, but we are now down to less
than £100 or even £50-off schemes. Basically because
it is a very good bet. We are talking about measures that save
people money.
Q586 Mr Drew: Without much change
in behaviour.
Mr Warren: Change in behaviour
is exactly the point. The Chairman was making this point a little
earlier, the fact that it is the whole approach to energy usage
which we need to be able to alter and that includes the presumption
that there is nothing you can do about it and you do not know
to whom to go. If you have energy companies who are saying they
can come in and do something to improve your home, make you feel
more comfortable and save you a bob or two, then in essence that
is a good package.
Mr Manders: Since the rise in
energy prices there has been an enormous increase in interest
from members of the public in energy efficiency measures and if
you ask any manager of any Energy Saving Trust financed energy
efficiency advice centre, they will tell you the number of calls
that they have has increased and that has resulted in further
installations of energy efficiency measures. At various times
different things stimulate the public. There is no doubt that
rising energy prices have been a particularly good stimulus for
the public in this particular case.
Q587 Mr Drew: When we visited Leicester
at the start of this inquiry and we saw those former council houses
that have solar panels and so on and energy efficiency measures,
the problem here was that it does take a lot of effort to get
out to reach the hard-to-reach. What worries me with a lot of
the schemes that are being operated by the energy supply companies
is that they will tap the middle classes and they will tap them
in a way which is attractive but short term and they are not all-embracing.
Would you agree with that, yes?
Mr Warren: It is inevitable, if
you ask a private company to do something, they will try to minimise
their costs and they will try to minimise their costs by doing
the easy bit first. To be fair, within the Energy Efficiency Commitment,
there is also a current requirement which demands that at least
half of the money is spent on those less able to pay for these
measures, and that is something which Government mandates. Of
course they will always pick what is called the low-hanging fruit
first and, as you rightly say, what you are increasingly left
with is not a set of uninsulated semis in the East Midlands; what
you are left with is a series of farm workers' cottages which
are down the end of the lane, off the gas mains, very cold in
winter and very difficult to heat. Those are the sorts of buildings
that we are actually going to have to address in the not too distant
future.
Q588 Daniel Kawczynski: I am very
interested in what you have to say and agree with it. When you
were talking about councils you expressed surprise that other
councils had not picked up on what Woking is doing. There are
tremendous budgetary pressures on councils, as you will know,
and some councils this year are going to receive far less than
the rate of inflation in terms of the government contribution
to local government. Bearing this in mind and bearing in mind
the fact that there are such huge pressures on councils to provide
more affordable housing, for example, which is one issue which
is relevant in my constituency, what would you say to the councils
about prioritising what you are saying and putting resources into
it, given those constraints?
Mr Manders: As a former councillor
in a leading role in a local authority, though not now, I understand
completely the pressures that you are talking about and it is
very difficult. Many local authorities have reached the view where
their senior officers say that if it not statutory, if they do
not have to do it and they are not measured on it, they are not
going to do it and energy of course is something which is optional
to many local authorities. The ones who are interested in energy
started off probably primarily because they wanted to save money
on their own energy bills. Then they acquired the expertise to
do that and then gradually they began to realise they could do
things which would help people in their area, often at no cost
to the local authority itself. The good thing about energy is
that it is so expensive and it is a budget heading, so if you
save it, you save revenue. Local authorities which have taken
energy seriously have managed to do that and they have managed
to apply those lessons out into the community with their own housing
stock, if they still have it, and also help members of the public.
Local authorities can actually do lots of things which are very
low cost and on the question of them saving up money themselves,
they are effectively making money by tackling the energy question
because they are saving revenue which they can use for other things
or reinvest into more energy efficiency. I accept completely there
are budgetary pressures on local authorities. If local authorities
are required to do it because it is a performance indicator, then
they will take it seriously. They will move resources from other
areas into investing in that area, but I am confident that they
actually will recover that revenue so they can cover their costs
and also they can help the local people.
Q589 Daniel Kawczynski: I am at the
moment trying to push it very hard for the council to introduce
wood-burning boilers, using woodchip, which actually would save
them a great deal of money. It is a local company in fact that
imports these wood-chip burners but do you believe that we should
be prescriptive here? Are you suggesting that we legislate to
force councils to do that or should we be encouraging them and
letting them decide for themselves?
Mr Manders: We have been encouraging
them for some time and the fact is that only a limited number
of local authorities are taking energy seriously. Barnsley, a
council in the north, has adopted biomass, in other words wood
chips for burning in their own housing stock and they have a lot
of accommodation. It is a former coalfield area so they have all
the old coal burners and so on which they have moved to wood chips.
They have saved money because it is far cheaper than coal and
it is also cheaper than converting to gas. They can produce very
good carbon figures and a financial saving. It may just be that
in your local authority, they have not got round to looking at
the financial case for it.
Mr Warren: During the course of
the last Government, the Home Energy Conservation Act was put
on the statute book which does actually require local authorities
to set up plans to move towards a 30% improvement in the energy
efficiency of all the housing stock in their area across a 15-year
period, and that 15-year period concludes in the year 2010. The
interesting thing is that a significant number of councils have
already achieved that, but an even larger number is way, way behind.
The reason why I am citing this is that the returns which have
to be made each year do demonstrate very clearly that those local
authorities that are prepared to show commitment can actually
deliver on this. There is a worry now, I have to say, because
there is a draft planning policy statement out at the moment which,
in our submission, if that draft is confirmed, will actually deter
many local authorities from wishing to help to save energy in
the housing in their area. This is for local authorities who want
to be able to set higher minimum energy standards than the building
regulations require; and unfortunately the signal that is being
sent from this draft planning policy statement is that Government
no longer consider that appropriate. They consider that even the
most go-ahead local authorities must insist that the minimum which
is required under the building regulations becomes the maximum.
In response to your question, that would be a very detrimental
step were that to happen. I know that there was a Private Member's
Bill put before this House on Friday, which was debated on Friday
but unfortunately fell and the government minister was actually
speaking at the time. Whatever the eventual fate of that particular
piece of legislation—and obviously we would like to see
it pass—the single most important thing is to be able to
ensure that local authorities are not deterred from ensuring that
in their locality people do build to better than the minimum standard.
After all, we are supposed, within the next nine years, to make
sure that every single new home is a zero carbon home; and unless
there are actual opportunities for go-ahead local authorities
of the type that we have been talking about to have this happen
in their locality, then it is going to be very difficult to see
how that is going to be achieved.
Q590 Chairman: I was going to ask
you a question about what you think EEC3 should look like. Could
you drop us a note?
Mr Warren: The answer very quickly
is more of the same, but a great deal larger.
Chairman: Right, okay. Perhaps it still
might be useful to tease that out in a little more detail.
Q591 Sir Peter Soulsby: You have
told us about what Government could be doing. We have had evidence
from the Local Government Association. Do you think there is more
the local government community itself could be doing to spread
what is undoubtedly good practice?
Mr Warren: As I said in relation
to central government, of course there is always more that can
be done. The Local Government Association has done a fair amount
on this and I know that you discussed with them a new publication
that they produced urging their members to do more. I still find
it a great shame that we can sit here and bandy half a dozen names
of local authorities when there are several hundred that we ought
to be able to approach on this. The answer is yes, we would like
to see this happen more but the difficulty is that this is an
optional area. Whilst it remains optional, with the exception
of delivering on the Home Energy Conservation Act, it will always
fall down the priority list.
Mr Manders: The Local Government
Association's brief is obviously wider than just energy and they
have, as a matter of principle, that the central direction from
Government the controls or the obligations on local authorities
should be minimised. That of course is not the view that has been
taken by governments of various political parties in this country—they
actually do say that there should be some direction of local government
and we feel that on this particular issue there is so much that
the local government can do to cut carbon emissions in their relevant
area that probably the only way will be to make it part of the
performance regime when it is revised shortly.
Q592 Mr Williams: Mr Manders said
that the public do react to particular circumstances like an increase
in energy prices and do install energy efficient adaptations in
their homes, but they seem to be very cynical still about the
role of energy suppliers and are probably unaware really of the
Energy Efficiency Commitment that the Government have put upon
them. What can be done to undo that cynicism and make people more
open to the role that energy suppliers have in these matters?
Mr Manders: This is where there
is a particular role here for local authorities. Opinion polls
do show that people do trust what local authorities say. If they
get an official letter from the local authority, then they believe
it is the truth. Increasingly, as the energy suppliers who now
have the low-hanging fruit find it increasingly difficult to find
customers, they will turn to the local authorities and work out
joint projects with them, of which several exist at the moment.
These are particularly successful because they cover the credibility
issue for those people.
Mr Warren: You are going to be
hearing in a few minutes from Centrica. They have a very interesting
way of delivering part of their Energy Efficiency Commitment,
which is to get together with certain local authorities and give
them the money to underwrite the cost of certain improvements,
and instruct them to bill that so it looks as though it is a reduction
in council tax. There is more of a conviction that if your local
authority approaches you to do something, although you may moan
about the local authority, you think basically that they are straight
and honest and not going to sell you a pup on these things and
that gives a greater likelihood of getting uptake. The experience
found on this particular one is that it has been one of the cheapest
ways of delivering the Energy Efficiency Commitment.
Mr Manders: May I just add that
there are particular groups, in other words elderly people in
particular, who are very wary indeed but they do trust the local
authority and that usually is the way to reach them. Several projects
have managed to do that.
Q593 Chairman: The only problem about
the 50% point that you were making a moment ago is that the council
tax advantage is only for half of the houses.
Mr Warren: The council tax advantage
in this particular case is actually a clever way of marketing
what is actually nothing very much to do with the council tax
but is to do with delivery of the Energy Efficiency Commitment.
It is an interesting signal that having that there does create
a greater willingness to take up things. You are quite right.
That in itself will not solve the problems, because, as you indicated,
a significant number of householders do not pay council tax.
Q594 Mr Williams: As an organisation
you are also very supportive of local schemes. Do you think actually
endorsing those local schemes as exemplars would be a better way
of achieving the EEC targets?
Mr Manders: That process is going
on all the time and in fact there used to be an Energy Saving
Trust programme, a financial grant programme, which used to help
organisations replicate successful schemes. In my previous employment
I was involved in replicating a scheme in Sussex which was really
a copy of a scheme in Cornwall, Cornwall Healthy Homes, which
was a community project which had been very successful. That process
goes on all the time and the Energy Saving Trust spends a lot
of time and effort trying to tell organisations about these various
schemes. In the end there has to be a reason why they are going
to do this and it really is compulsion or tax or a carrot or a
stick; there is a limit to what you can achieve with a tambourine.
You need the tambourine, but it is the carrot and the stick which
get results in the end.
Q595 Chairman: Smart metering: good
idea, bad idea?
Mr Warren: Manifestly a very good
idea. It means different things to different people. Smart metering
in some companies' terms means how to get the meters read without
having to send people round to knock on doors when there is nobody
there. We would regard the importance of smart metering as actually
giving information to customers, so that they are much more aware
of how much energy they are using. The arguments for smart metering
hark back to the discussion we had right at the very start to
do with energy certificates, people actually knowing and having
some yardstick of how well the building they are occupying, the
home that they live in, is performing. One thing smart meters
ought to be in a position to do is to let people know whether
or not they are gas-guzzling, or whether or not actually they
are saving energy as they would wish to. One thing that also ought
to help with smart metering is hopefully that people will then
get real fuel bills which will relate to their actual expenditure.
One big worry on this is that most people do not get actual fuel
bills; they pay by direct debit, so they do not see the fluctuations
as a result of their own individual behaviour. The other great
complication is that when you read through your bill it has an
E on the end for Estimated, and there is an astonishing number
of those. The figure that has been suggested is that something
like four in five gas bills are estimated and something like one
in three electricity bills are estimated. That means that you
are really in a very difficult position for getting any genuine
price signals there. You are paying on a monthly basis so that
you do not see the fluctuations in your expenditure in that way,
and you do not actually receive a bill which relates to what you
use. Smart metering ought to help both of those.
Q596 Chairman: In a word, is it something
that we should now incorporate as a national requirement to install?
After the trials have been completed and we have decided what
works, should we do it?
Mr Warren: Yes, and we should
do it also because under the Energy Services Directive, Article
13, there is actually a requirement for us to do it (whenever
cost effective). What we have to do is determine that actually
it is very cost effective in terms of this nation, to ensure that
smart metering is in place in as many homes and buildings as possible.
Q597 Sir Peter Soulsby: Everybody
now seems entirely convinced of the enormous potential of microgeneration.
Are the measures that have already been announced in terms of
the microgeneration strategy, climate change and the Sustainable
Energy Act and so on, going to be sufficient to make a real difference?
Mr Manders: Coming back to carrots
and sticks again, the great stick at the moment is the planning
system for many people who want to install a micro turbine or
anything like that. The Government are looking at that and seeing
how they can increase permissive development rights to include
a lot of this technology. If you talk to the microgeneration businesses
themselves, they say that they do need really to reach a critical
point where enough units are being sold that they can move from
being a cottage industry to being a mass production industry.
The current government grant scheme will probably not achieve
that, at the moment anyway. There are also issues with this as
well because it has been so successful that it has run out of
money. I have this fear that the Treasury will turn round and
say that so many people want to install these things that they
do not need public money any more, they can do it themselves.
The area still needs a subsidy until enough units are sold so
that we can then reach this critical point to move towards mass
production. That is what is primarily needed really for microgeneration.
The technology is there and it is emerging all the time. Some
of it is very long established: solar thermal, solar hot water
have been going now for 25 years; ground source heat pumps have
been going for 10 years. Enough lessons have been learned now
for it to be expanded.
Mr Warren: The argument for the
subsidy incidentally is that it also put an official imprimatur
of approval on it as well.
Q598 Sir Peter Soulsby: Are there
other things beyond providing a subsidy that the Government can
do to create and guarantee a market?
Mr Warren: You are talking about
what is a major decision as to whether or not you go for dispersed
generation or whether you continue to stick with very large power
stations as your principal source of power. That is a strategic
decision which really only Government can take, but if the decision
is taken to go for further generations of very large power stations,
then it does not facilitate moving towards a marketplace in which
basically we have given power to the people, individuals can actually
control their own power sources.
Q599 Sir Peter Soulsby: What about
the feed-in tariffs of microgeneration? What would be necessary
in order to make that work and be worthwhile?
Mr Manders: Feed-in tariffs have
been very successful in countries such as Germany and also the
Netherlands as well, possibly even Denmark. They are expensive
and somebody somewhere has to pay for them, but they certainly
have been successful in achieving large numbers of installations.
We have to realise that we have to look on this as a national
investment and that it has to be paid for; if we want to achieve
it then it will have to be paid for and obviously ultimately governments
can raise money at the cheapest rate. That is the most economical
way of doing this. Just to add to what my director was saying
about decentralised energy, there is a problem at the moment and
I will give you the example of Woking. Woking has a decentralised
energy system, a very successful one set up by the council, but
it is very hard for them to persuade private developers to add
their buildings onto the network. There probably need to be stronger
powers through the planning system for local authorities like
Woking to add buildings onto their system. If you look at equivalent
cities like Copenhagen, I believe about two thirds of the buildings
in Copenhagen are heated either by district heating or through
the CHP systems. That has not happened by accident: that is because
there has been a deliberate policy initiative by the Danish Government.
We need to think in those kinds of terms in this country if we
really want to have a change.
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