Examination of Witnesses (Questions 606-619)
MS JILL
HARRISON, MR
JON KIMBER,
MR VINCENT
DE RIVAZ
AND MR
RICHARD SYKES
24 JANUARY 2007
Q606 Chairman: We bid welcome to our
second set of witnesses in this inquiry. For the record, representing
Centrica is Jill Harrison, the Director of Energy Efficiency,
Social Programmes and Prepayment—I did not know you were
so generous that you went round prepaying all your customers'
bills, but it is always nice to find somebody who is generous—and
Mr Jon Kimber the Head of Energy Efficiency; on behalf of EDF
Energy, Mr Vincent de Rivaz, the Chief Executive and Mr Richard
Sykes, the Head of Customer Market Development. You are all very
welcome and you got a flavour of some of the things that we are
going to ask you about from the few moments you spent with us
before coming onto the witness stand. The Committee are obviously
aware of what has been going on in terms of the field of the Energy
Efficiency Commitment, but it would just be quite helpful to spend
a moment or two looking at the economics of EEC. One thing we
have learned now is the shorthand of this during the course of
our inquiry. Am I right in saying that effectively, although the
Government have set targets to energy providers under EEC, the
financing of the expenditure which delivers the EEC programme,
although it looks like it comes from you, effectively comes from
the customer? Is that right?
Mr de Rivaz: First of all thank
you very much for your invitation. We are pleased to be here and
to contribute to the Committee's inquiry. We are all in a business
which makes investments, from these investments we aim to have
an efficient business which is getting some revenues from the
customers and the investments we are making through the EEC programmes
are no different from the others in this respect.
Q607 Chairman: The reason I ask that
question is that the impression is almost given that somehow EEC
is being provided by the Government, but it is not: it is effectively
energy consumers who are paying for some energy customers up to
now to have the potential of some benefits in various ways. From
the EDF standpoint and indeed Centrica, are you able to give us
a flavour of your respective companies' investments in EEC and
what that represents as a proportion of your turnover?
Mr de Rivaz: Richard will give
you the details. Fundamentally you are right to say that EEC works
as you have described. Whilst we have to recognise that the Energy
Efficiency Commitment so far has been globally effective and has
achieved a lot, at the same time I would be in the camp of those
who think that there is room for improvement.
Q608 Chairman: Would you like to
define that, because you anticipate my next line of questioning?
Mr de Rivaz: What is probably
important is to recognise that at the moment most of the money
which is invested in EEC goes 80% to one specific type of measure,
insulation in the wall cavity. It is not very wise, if we are
ambitious, to put all our eggs in the same basket. So for the
future one improvement would be to find the way, through market
mechanisms, to embrace other measures than the one we are focused
on at the moment. The second significant improvement that we would
recommend for consideration would be to clarify the role of EEC
in terms of energy efficiency, energy savings and the role of
EEC in terms of tackling the fuel poverty. At the moment, the
fact that there is a sort of confusion between the two roles means
that we are not delivering very well on either of these roles.
I would suggest that clarification would result in a more efficient
tackling of fuel poverty and at the same time be more efficient
in energy efficiency.
Q609 Chairman: It would be very helpful
to have Centrica's perspective on that, because you have been
very involved in that in quite a high profile way. Perhaps I could
just focus for both of you. If you were now designing what EEC3
should look like, what should its characteristics be? In other
words, Mr de Rivaz indicated that there were ways that he thought
it ought to be improved and rationalised and EEC3 is obviously
the opportunity to do that and, if so, what should it look like?
Ms Harrison: I agree with some
of the comments that Vincent has made. In terms of characteristics,
we would look for a separation of some of the social aims of EEC
from the carbon objectives of the mechanism. To try to deliver
both out through one mechanism sometimes makes us sub-optimal
and it restricts us in our ability to deal with some of the social
dimensions of fuel poverty, because we know for sure that fuel
poverty needs holistic solutions that go beyond energy efficiency.
The other thing we would want to see is the encouragement of more
innovation to bring forward some of the new and emerging technologies
into the mainstream. The fact is that the current mechanism is
80% reliant on insulation and yet we have an aspiration to move
towards a low carbon economy and the new things coming through
to replace insulation, which in a diminishing market needs to
be reflected within EEC to encourage the investment and the deployment.
Q610 Chairman: Just to interject
there, would that address the point which the Association for
the Conservation of Energy made that 50% of our old housing stock,
and perhaps that also goes for old commercial buildings, are not
easily subject to an insulation solution? Would the technologies
that you are talking about address that untouched sector and what
are they?
Ms Harrison: They would go some
way towards addressing it.
Q611 Chairman: What are they?
Ms Harrison: We have microgeneration
technologies, things like biomass and combined heat and power,
but the other aspect of hard-to-treat properties is that the properties
have solid walls and at the moment the solutions for addressing
those are very expensive, so in a way EEC needs to embrace those
in a bigger way than it has done historically. The third point
for us would be that EEC should focus on outcomes not inputs.
At the moment, the way in which energy credits are earned in the
scheme is that you have to install a product; you either have
to install a low energy light bulb or insulation or a rated appliance
or whatever. We believe that a lot of energy saving can come from
behavioural shifts in consumers and yet that is not recognised
within EEC.
Q612 Chairman: Let me just ask a
question on that. Being a British Gas customer in my house in
London, as a citizen I sent off for my guidance and a little box
arrived. I opened it up with a great deal of enthusiasm and I
found two energy saving light bulbs in it, thank you very much,
and a little leaflet and a sort of rating as to what my property
was. However, there really was no positive follow-up to it. I
received the information and thought that was jolly interesting
and looked around for two places to put the light bulbs. Do you
not think that that kind of scheme needs to have a bit more positive
follow-up to say "Well, Mr Citizen, what are you going to
do now"?
Ms Harrison: Yes and in fact you
hopefully will receive some follow-up from us shortly. What we
are trying to do is get customers on a journey where we introduce
the concept of rating your home and we give advice on the energy
saving report that you saw. In fact we have had 1.5 million responses
to that which is just a phenomenal response to a form that we
sent through the post, so we do know we are getting consumer engagement
there. The next stage will be to follow up and say we had their
report, these are the recommendations we made, ask what action
they have taken and what more we can do to follow up and provide
support to them now.
Q613 Chairman: Just following your
thought process, does that response lead you as a company then
to say "Here is a range of technological solutions, some
of them mainstream, some of them newer ones" and talk with
the customer about how that will move forward? Is that part of
the strategy?
Ms Harrison: Yes. In your box
you should have had a leaflet which was describing some of the
solutions and technologies.
Q614 Chairman: I did indeed; yes.
Ms Harrison: We plan to follow
that up with another update sheet to all the people that participated,
where we go on and encourage more interest and more use of some
of those things.
Q615 Chairman: You have both described
your aspirations and the characteristics, if you like, of what
might be called EEC3. Do you sense that the Government are minded
to follow your line of thinking, bearing in mind that the emphasis,
as you have both made very clear, on EEC1 and EEC2 has been this
confused picture between some of the low-hanging fruit in the
general area of energy efficiency and the specific target for
the fuel poor? Do you see any kind of sophistication in the thinking
of Government on this?
Ms Harrison: From our discussions
with Defra, they are open to some of the suggestions that are
being developed, but often what we find is that statute does not
allow that and we have to find creative ways to work within the
statute that is there.
Q616 Chairman: Just help me out a
minute. You said that the statute does not allow it. Which statute
is this and what does it not allow?
Ms Harrison: I understand the
Energy Efficiency Commitment is vested in statute.
Q617 Chairman: So what needs to be
changed?
Ms Harrison: The challenge with
social dimensions is that you often need to deliver solutions
that go beyond energy efficiency, but the Energy Efficiency Commitment
requires you to deliver an energy efficiency saving. So if you
wanted to give assistance to consumers through some form of financial
support, by doing benefit entitlement checks or whatever to address
the income dimension, that is not provided for within the scope
of the current EEC. Until 2011 there is no real opportunity fundamentally
to shift the thinking unless we can find a creative way to do
that under the existing legislation.
Q618 Chairman: So the climate change
bill might be such a vehicle?
Ms Harrison: It could be.
Mr de Rivaz: I would like to concur
with what Jill has just said on several points. First of all,
clearly there is a role for the Government and there is a distinct
role for the market to deliver. I am pretty confident that the
Government are taking the right approach in the sense that the
quality of the consultation which is taking place in the Government
in the context of the Energy White Paper after the Energy Review
is an example of a Government which in my view is really listening
to all those who have something to say and something to contribute.
If I had to make some specific suggestion about the progress which
might be made, in addition to the distinction between tackling
fuel poverty and energy savings, there is room for the Government
to be more specific about the standards, about the norms that
should be compulsory, in terms of buildings, in terms of some
technologies which will be used. There is an example on which
I think there is an interesting debate and that is how to make
a breakthrough in the use of smart meters, an element of which
could be part of EEC, or at least part of the global picture on
energy efficiency. I am not sure at the moment that we are taking
the clear decision which would help to make this breakthrough.
So some decisions are clearly in the camp of the Government, but
in time we as companies, we as the market in charge of delivering
this policy, have to be both ambitious, which we are, and modest
about what we can achieve because it is a journey, it is gradual.
We are in the industry after all to deliver power to our customers
and we are doing so, but we are more and more in the business
of giving empowerment to our customers, giving the customers the
ability to make real choices. One example I would like to share
with the Committee is the product which at the moment is already
taken by 3% of our customers—3% is not 30%, but it is a
good beginning—a product, Read, Reduce, Reward, by which
we incentivise our customers to read and to reduce their consumption.
Ninety-five% of those customers are really doing what this product
is designed for: they are taking responsibility for understanding
better what their consumption is and they are doing that with
the clear goal of reducing their consumption. Having said that,
we have to recognise that in terms of energy efficiency in this
country there is a big gap between the awareness of the issue
and the commitment. It is like a brand: you can have a strong
brand with a strong awareness rate but not the level of commitment,
which is the moment when the customer's view really changes positively
towards a brand. Awareness regarding climate change is huge and
the Energy Review, the Stern review and many, many statements
from the politicians, from the media have contributed to that.
If we look at the surveys we have made amongst our customers,
it is impressive how much our customers are interested in this
topic. It is impressive how much they think that something has
to be done and at the same time, the commitment level is not yet
there. They do not yet see what their individual role is, what
their individual behaviour can do to contribute.
Q619 Chairman: Why?
Mr de Rivaz: First of all we have
to recognise that we are in a new paradigm; it is a new context.
The climate change agenda, the importance of acting now, have
only been understood very recently and maybe five years ago we
were not at all aware of the importance of this issue. There is
this kind of timeline between consciousness of the problem and
change in the vehicle. The second thing is that at the moment,
for many reasons the customers are still very much focused as
a priority in their behaviour on the price issue, which we can
understand. The price has been going up, there is a lot of volatility
and there is a real issue of the bills. One day they look at us
as suppliers and as a priority ask us to keep the price affordable.
However, the example I have given of our product is encouraging.
It is encouraging because it shows that there is a growing appetite
and our role as an industry is to lead our customers on that journey,
to embark them on that journey towards being realistic, being
ambitious and it is what we in EDF Energy are committed to do.
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