Further supplementary memorandum submitted
by Centrica plc (Cit 40b)
1. When we talked at the NEA parliamentary
dinner a couple of weeks ago, you asked met to let you have some
further thoughts on a few issues that you felt the Committee could
usefully consider.
INNOVATION WITHIN
EEC3
2. As you will be aware, Defra is currently
running an interim consultation on changes to the next phase of
EEC. This is in advance of a fuller consultation which we are
expecting in the spring. British Gas has responded to that consultation
and I am happy to let you have a copy of our response if you think
that would be helpful.
3. Although the detail of EEC3 is still
under consultation, there is no doubt that a consensus has emerged
that the next phase of EEC, due to start in 2008, should be predicated
on a significantly increased commitment from suppliers, both in
terms of fiscal spend, and on the carbon savings required.
4. If the carbon savings being envisaged
are to be achieved, we believe that EEC3 has to provide an environment
where new approaches and technologies that contribute to demand
reduction are nurtured and embedded. In that context, we welcome
the proposed inclusion of microgeneration, feedback devices, and
behavioural changes within the product/measure mix, and would
urge the Environmental, Food and Rural Affairs Committee to actively
support this approach.
5. EEC needs to provide a sustainable environment
for suppliers and third parties to proactively pursue innovation.
To create this environment, stakeholders, including the Government,
and energy suppliers, will need to share the risks associated
with innovation. This is essential to nurture demand reduction
technologies for the future. It is our view that the structure
and processes associated with the current EEC programme have made
little, if any, contribution towards stimulating innovation.
6. Innovation can be categorised in a number
of ways.
— Firstly, through substantial improvements
in traditional energy efficiency products. A mechanism already
exists within the EEC framework to support these kinds of products
although due to the high level of improvement required (around
20% for most products) this is rarely used. British Gas would
like to see the improvement threshold lowered to a more appropriate
level.
— Secondly, there are a range of new
products that require support to establish a market foothold.
We believe that all categories of renewable and microgeneration
technologies should qualify for an innovation uplift in EEC, probably
of 50%, something that is currently only afforded to MicroCHP.
We would also like to see the current practice of restricting
energy savings when interacting with the Low Carbon Building Programme
removed.
— Finally, there are new products or
services where the energy saving potential has yet to be quantified.
For these products we recommend the introduction of an ex-ante
score, and a faster way of accrediting new innovative measures.
The aim should be to ensure that all potential measures are assessed
and a decision to approve or not approve made within 3 months
of the initial submission.
INCREASING INSTALLATION
LEVELS IN
TENANTED PROPERTIES
7. You are right to identify that in the
tenanted market it is extremely difficult to drive behavioural
change. The key problem is that even with a reduced cost of installation
through a supplier scheme, there is an initial outlay for landlords.
All of the benefits, however, in terms of lower bills and warmer
properties, accrue to tenants. It is not yet clear that more energy-efficient
properties command a higher market rent, and there is likely to
be a preference from landlords to spend money on those areas that
will increase rental value, for example, painting and furnishings.
8. Furthermore, this sector of the domestic
housing stock is difficult to engage with. The recently introduced
Green Landlord scheme, is a good example. The scheme provides
significant tax breaks for private landlords to invest in energy
efficiency. However, the landlord must still fund the installation
of energy efficiency measures. Private Landlords' prime objective
when investing in improvements is to enhance the property's rental
or resale potential, and energy efficiency is not a key driver
at present.
9. In that context, some kind of mandated
scheme will be necessary to encourage the take-up of insulation
measures in the UK's rented sector.
AN OVERARCHING
CARBON POLICY
10. As the issue of climate change becomes
more acute, we believe that government and opposition parties
have rightly recognised that every sector needs to contribute
to emission reductions. There are a range of policies currently
being discussed that aim to drive emissions reductions, and the
policy environment in which Centrica is operating is changing
quickly. Whilst supportive of efforts to reduce emissions, we
believe that some consideration needs to be given to an overarching
climate change strategy, and in particular, how different policies
will interact with each other.
11. In particular, the desired behavioural
change needs to be considered and the most appropriate policy
driver introduced. The potential for double taxation where environmental
taxes are introduced is a further consideration. Customers, for
example, already pay a carbon tax on electricity bills through
the EUETS which feeds through from generators, as well as contributing
to renewable generation development through the Renewable Obligation,
and domestic energy efficiency measures through an EEC payment.
In that context, we would question the equity of introducing further
environmental taxes on customer bills.
12. I hope this has helped to clarify our
thoughts on the areas you raised at the dinner. Please give me
a call if you think I can be of further help.
Centrica plc
March 2007
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