ENERGY SERVICES
103. The idea that consumers are interested in the
services energy provides (e.g. heating and lighting) rather than
in the supply of energy itself has been recognised for a long
time. It is an approach commonly used in businesses and other
large organisations, but it has not taken hold in the household
energy market. The Government has been considering the conditions
under which energy companies might extend energy services to
households for several years. As early as 2000, the DTI published
a report on rationales for this which also assessed some of the
barriers.[148] During
the Energy Review of 2005/06, Ministers began to highlight this
potential. In a speech in June 2006, the then Trade and Industry
Secretary Alistair Darling signalled the Government's intention
to encourage energy services for households:
[w]e are looking at how to create a shared incentive
between consumers and energy suppliers to reduce energy use. We
must look at how [energy suppliers] can change from just selling
units of electricity to providing energy services—heating
and lighting homes—making it their business to increase
energy efficiency and cut demand.[149]
104. Whilst this vision has yet to be realised in
the UK, it has already been implemented in some other countries.
During its visit to California in March 2006, the Committee heard
about a scheme whereby an electricity company would install more
efficient refrigerators in small businesses, and charge the businesses
for the goods over a period of time through their fuel bills.
The size of the bills remained the same owing to the reduction
in the quantity of energy being used, until the cost of the refrigerator
had been paid back, at which point the bills would decrease to
reflect the reduced energy demand and the business would own the
energy-efficient refrigerator outright.
105. A number of witnesses told the Committee that
they supported this vision. The Energy Saving Trust argued that
"the long term goal we believe the Government should be working
towards is a constraint on household carbon emissions. Ultimately,
this may require incentivising energy suppliers to make energy
demand reductions, as opposed to delivery of energy efficiency
measures".[150]
The Association for the Conservation of Energy (ACE) also takes
the view that energy suppliers should ultimately become energy
services companies (ESCOs), which provide "for each household
levels of warmth and ability to power an agreed number of appliances".
ACE argues that in the long term this approach will be more cost-effective
for the companies, helping them to avoid expensive investments
in increasing energy generation and supply by helping their customers
to reduce demand, despite involving a significant change in working
practices for energy companies:
Unlike today, where a customer is just a number on
a computer file, and the relationship purely transactional, energy
services companies, to provide their services adequately, will
have to know their customers, their lifestyles and the state of
their property.[151]
106. The Chief Executive of EDF Energy told us that
"we cannot afford to be just a provider of units and that
a way to differentiate ourselves will be to embark our customers
on this journey".[152]
The Energy Retail Association was more cautious and noted that
shifting energy suppliers towards an energy service model would
be a "considerable challenge".[153]
107. Alan Simpson MP expressed concern that the current
approach to the EEC is "fragmented, partial and short term
[…] Energy companies are not stepping in with offers to spread
equipment installation costs over a 2-3 year period so that households
can effectively make the repayments out of reductions in energy
consumption".[154]
108. Currently the energy market is set up such that
consumers can opt to terminate their contract with an energy supplier
after 28 days. This system is likely to deter energy suppliers
in making investments in customers' homes—for example, by
installing solar thermal panels—as the consumer could opt
to change provider with little notice. Ofgem is currently proposing
to remove the "28 Day Rule" through the Supply Licence
Review, with the aim of encouraging investment by the supplier
in energy efficiency or microgeneration technology in the customer's
home, in exchange for that customer's commitment to a fixed term
contract.[155]
109. The Chief Executive of the Energy Saving Trust
told the Committee that whilst a move to an energy services model
was an attractive prospect, there was a "fundamental problem":
Customers do not trust the suppliers. Why is that
important? It is important because, for years and years and years,
energy suppliers have been intent, very open, about the need to
sell more energy to their consumers, and the consumers know this.
What the energy services model seeks to do is to turn that on
its head, effectively, and persuade the consumers of the product
that the suppliers wish to sell them less. Given the distrust
that exists between many consumers and the brands, that is going
to be a very, very difficult thing to pursue.[156]
110. Following the publication of the Energy White
Paper, in June 2007 Defra launched a formal Call for Evidence
on options for an obligation on energy suppliers beyond 2011.[157]
A leading option is to set up a new cap and trade scheme which
will require suppliers to reduce the carbon emissions from energy
they supply or the amount of actual energy they supply to consumers.
Energy services is an established concept outside the UK (for
example, in California) but has yet to be established fully in
the UK's domestic energy market. As stated in the Energy White
Paper, the Government envisages shifting the focus from energy
supply to energy services after 2012.
111. The Government must match ministerial rhetoric
with tangible regulatory reforms that change incentives on suppliers.
We commend the move to an energy services model beyond 2011, but
the Government must make clear in its response what its intentions
are to inspire consumer confidence in this model. Given the volume
of evidence we received discussing the 'credibility barrier' associated
with the Energy Efficiency Commitment (EEC), it must be made crystal
clear to consumers that this is something that they are paying
for through their bills. We recommend that householders' contributions
to the EEC are listed separately as part of the Government's move
towards better billing.
GREEN TARIFFS
112. Green energy tariffs are available through which
energy consumers pay their supplier for the provision of 'green'
energy. However, there is some confusion as to what actually constitutes
a 'green tariff'. According to energywatch (an independent gas
and electricity watchdog), some suppliers may provide renewable
electricity (a 'green' source), others may invest in renewable
technologies (a 'green' fund), while yet others may offset the
emissions from conventional fossil-fuel sources (carbon offset).
According to Ofgem, 350,000 energy consumers (between 1 and 2%
of the total) in Great Britain are signed up to a 'green tariff'.[158]
energywatch believes this low level may be attributed to consumer
confusion. Accordingly, it has now produced a guide to all the
'green tariffs' available, and details what they actually provide.[159]
Ofgem is currently consulting on a rating system for green tariffs.[160]
We are concerned that the provision of 'green tariffs' by energy
suppliers may not be as transparent or consistent as it could
be. This could cause confusion and, at worst, result in a loss
of consumer confidence in these products. The use of green tariffs
could be an important step forward in the UK emissions reduction
strategy, especially in those households where it is difficult
to reduce emissions through energy efficiency measures. It is
vital that Ofgem and bodies like energywatch investigate the plethora
of tariffs which claim to be green and develop an independent
assessment of those proposed in order to boost consumer understanding
and confidence in reducing emissions via this approach. We look
forward to the results of Ofgem's consultation on Developing Guidelines
on Green Supply.
58 Q 512 Back
59
Department for Communities and Local Government, Review of
Sustainability of Existing Buildings, The Energy Efficiency of
Dwellings - Initial Analysis, November 2006 Back
60
EUROPA, Saving 20% by 2020: European Commission unveils its
Action Plan on Energy Efficiency, Press release IP/06/1434,
19 October 2006 Back
61
Ev 338 Back
62
Uncorrected transcript of oral evidence taken before the Trade
and Industry Committee on 23 October 2006, HC 1664-ii (2005-06),
Q 134 Back
63
Ev 198 Back
64
Ev 3 Back
65
Department for Communities and Local Government, Building a
Greener Future: Towards Zero Carbon Development-Consultation,
December 2006; the Government defines 'zero carbon' as a home
with zero net carbon emissions from energy use over a year. Back
66
www.communities.gov.uk Back
67
www.40percent.org.uk Back
68
www.est.org.uk/housingbuildings/regulations/ Back
69
Ev 128 Back
70
Ev 124, 126 Back
71
Ev 149 Back
72
Department for Communities and Local Government, www.communities.gov.uk/index.asp?id=1503251 Back
73
Department for Communities and Local Government, Building a
Greener Future: Towards Zero Carbon Development-Consultation,
December 2006 Back
74
Q 298 Back
75
Ev 375 Back
76
Q 579 Back
77
Department for Communities and Local Government, Review of
Sustainability of Existing Buildings, The Energy Efficiency of
Dwellings - Initial Analysis, November 2006 Back
78
Ev 59 Back
79
Ev 146 Back
80
HM Treasury, Budget 2006, HC 968, March 2006 Back
81
Environmental Audit Committee, Fifth Report of Session 2005-06,
Sustainable Housing: A Follow-up Report, HC 779, March
2006 Back
82
Q 810 Back
83
www.gos.gov.uk/goem/news/newsarchive/carbonhomesavings/ Back
84
Ev 248 Back
85
Ev 184 Back
86
Department for Communities and Local Government Green light
for home energy improvements, News release 2007/0075, 4 April
2007 Back
87
Q 750 Back
88
Q 893; with reference to Eoin Lees Energy, Using Stamp Duty
to bring about a Step Change in Household Energy Efficiency,
2005 Back
89
HM Treasury, Budget 2007, HC 342, March 2007 Back
90
Q 579 Back
91
Ev 301 Back
92
HM Revenue and Customs, www.hmrc.gov.uk/budget2006/bn50.htm Back
93
HM Treasury, Budget 2007, HC 342, March 2007 Back
94
Q 832 Back
95
Q 834 Back
96
BBC News, UK 'tops energy wasters league', 23 October 2006
[the other countries were Italy, France, Spain and Germany] Back
97
BBC News, Energy cost of PCs on standby, 21 April 2006 Back
98
National Consumer Council, Information blackout: why electronics
consumers are in the dark, March 2007 Back
99
The Independent, UK's gadget-mania blamed for surge in emissions,
4 July 2007 Back
100
Q 454 and Ev 199 Back
101
Department for Trade and Industry, Our energy future-creating
a low carbon economy, Cm 5761, February 2003 Back
102
National Consumer Council, Information blackout: why electronics
consumers are in the dark, March 2007 Back
103
Department of Trade and Industry, The Energy Challenge: Energy
Review Report 2006, July 2006 Back
104
International Energy Agency, Light's Labour's Lost -- Policies
for Energy-efficient Lighting, June 2006 Back
105
BBC News, Shedding light on call to ban bulb, 20 April
2006 Back
106
The Guardian, Push for energy-saving bulbs, 3 November
2006 Back
107
Ev 199 Back
108
Ev 183 Back
109
Ev 145, 146 Back
110
Energy Saving Trust, Energy Efficiency Innovation Review, Household
Sector-Final Report, December 2005 Back
111
The Guardian, Australia switches on to light bulb change,
Tuesday 20 February Back
112
HC Deb, 31 October 2006, col 272W Back
113
EUROPA, Energy efficiency requirements for light bulbs and
other energy-using products on track for adoption, IP/07/867,
22 June 2007. In response to a Parliamentary Question, the Government
noted that "it is known that some people living with lupus
and epilepsy, and other long-term conditions, may be affected
by energy saving light bulbs." HC Deb, 12 June 2007, col
992W Back
114
ENDS Europe Daily, UK, France call for VAT cuts for green products,
Issue 2365, 20 July 2007 Back
115
Ev 104 Back
116
Ev 249 Back
117
Ev 250 Back
118
Ev 237 Back
119
Gill Owen and Judith Ward, Sustainability First, Smart Meters:
Commercial, Regulatory and Policy Drivers, March 2006 Back
120
Ofgem, Domestic Metering Innovation - Next Steps, Decision
Document 107/06, June 2006 Back
121
Ev 104 Back
122
Q 281 Back
123
Ofgem, First trials for smart energy meters in Britain are
to begin, Press release R/31, Thursday 12 July 2007 Back
124
Ev 254 Back
125
Q 819 Back
126
Department for Environment, Food and Rural Affairs, The Household
Energy Supplier Obligation from 2011: A Call for Evidence,
June 2007 Back
127
Department of Trade and Industry, Meeting the Energy Challenge:
A White Paper on Energy, Cm 7124, May 2007 Back
128
Ev 102 Back
129
Department for Environment, Food and Rural Affairs, Departmental
Report 2007, Cm 7103, May 2007 Back
130
Ofgem, EEC Update 20, 11 May 2007 Back
131
HM Treasury, Budget 2006, HC 968, March 2006 Back
132
Department for Environment, Food and Rural Affairs, The Energy
Efficiency Commitment April 2008 to March 2011: Initial Consultation,
July 2006 Back
133
Department for Environment, Food and Rural Affairs, Carbon
Emissions Reduction Target April 2008 to March 2011: Consultation
Proposals, May 2007 Back
134
Department of Trade and Industry, Meeting the Energy Challenge:
A White Paper on Energy, Cm 7124, May 2007 Back
135
Department for Environment, Food and Rural Affairs, Departmental
Report 2007, Cm 7103, May 2007 Back
136
Ev 300-301 Back
137
Q 129 Back
138
Ev 60 Back
139
Ev 247 Back
140
Ev 235 Back
141
Ev 251 Back
142
Ev 183 Back
143
Ev 59 Back
144
Ev 235 Back
145
Q 136 Back
146
Ev 235 Back
147
Ev 254-255 Back
148
D Macklon, Energy Services in the UK Domestic Sector: Barriers
to Development and Recommended Action Plan, (Report for the
DTI), 2000 Back
149
Alistair Darling, Speech to the Fabian Society, 5 June 2006 Back
150
Ev 3 Back
151
Ev 235 Back
152
Q 627 Back
153
Q 428 Back
154
Ev 216 Back
155
Department of Trade and Industry, Meeting the Energy Challenge:
A White Paper on Energy, Cm 7124, May 2007 Back
156
Q 10 Back
157
Department for Environment, Food and Rural Affairs, The Household
Energy Supplier Obligation from 2011: A Call for Evidence,
June 2007 Back
158
Ofgem, One in five households choose an innovative energy deal,
Press Release, 4th July 2007 Back
159
www.energywatch.org.uk/help_and_advice/green_tariffs/index.asp Back
160
Ofgem, Developing Guidelines on Green Supply Consultation
- 137/07, June 2007 Back
