House of Commons - Environment, Food and Rural Affairs

Select Committee on Environment, Food and Rural Affairs Written Evidence

Memorandum submitted by energywatch (CIT 13)

— Quality information is a necessary precursor to change people's understanding and use of energy.

— Consumption information currently provided to households is inaccurate, unappealing, arcane and outdated.

— We are all different—understanding the information requirements of all segments of society will allow potential benefits to be realised.

— People should be aware of the obligations they are, and will continue, to pay for.

1. SETTING THE SCENE

1.1 A consumer's view

Virtually all 25 million households in Great Britain have access to mains electricity, with approximately 21 million having access to mains gas. Since market liberalisation in the late 1990s licensed energy suppliers have competed for 46 million gas and electricity accounts.

Gas and electricity supplied to the home is so commonplace that most of us take it for granted that a flick of a switch will instantly provide us with energy, without any thought of where it comes from or if it is being used efficiently and effectively.

For the majority of people conscious engagement with their energy needs occurs when they are billed and have to pay for their energy use. For customers who have prepayment meters (PPMs), this engagement is often more frequent. Often these customers have low incomes and prefer to budget on a regular basis, and therefore purchase regular "top-ups".

1.2 Note on prices—a blunderbuss?

Prices rises alone cannot be relied on to deliver the desired change in lifestyle. Since 2003 the average household bill has nearly doubled, yet energy demand continues to increase (although current energy efficiency measures are restraining this rate) and over half of households have never opted to switch away from their incumbent suppliers. Even the most price-sensitive vulnerable households continue to prioritise energy and heating spending (as has been shown by energywatch research) [13]and the number of fuel poor households is now on the increase—by Government estimates, rising prices put an extra 1m households into fuel poverty between 2004 and 2006, bringing the UK total to over 3 million households. [14]

In short relying on price alone to mitigate climate change impacts would need an increase of a magnitude which would result in unacceptable social and economic detriment.

1.3 Tariff structure—upside down?

Indications are that the price of energy will continue to rise over the next few years. Most energy tariffs are structured in a way which runs counter to sustainability ambitions. Unit charges for the initial amount of energy is higher than subsequent units (the exact level depends on each tariff) effectively rewarding higher consumption as the average unit cost will decrease the more energy is used.

2. WHAT IS STOPPING US?

In general consumers do not understand the complexities which underpin energy markets, and it is unfair to expect effective participation to require a detailed knowledge of market mechanics.

2.1 Bad bills—bad for so many reasons

Last year energywatch received 62,000 complaints and 160,000 enquiries from energy consumers. Two-thirds of the complaints received were about billing. This problem should not be underestimated: for every consumer who doggedly tries to resolve their billing problems, there are likely to be others—particularly the poor and vulnerable—who may have fallen by the wayside. The problems caused as a result of this are manifold. Bad billing can lead to unexpected debt. This is turn has knock-on effects on peoples willingness to engage with the market and puts pressure on other household expenditure. Any bill which isn't accurate is a bad bill, including estimated bills. In the liberalised energy market consumers rely on price signals to inform them whether or not it would be in their economic interests to switch to another energy supplier or different tariff. energywatch maintains that until consumers receive accurate, timely, well presented information about their household consumption people will be unable to make fully informed (ie not solely on price) decisions about their household energy needs.

Provision of better energy consumption information to households, through the introduction of smart metering systems, will be a significant step towards giving people the necessary information to seek out carbon abatement and energy efficiency opportunities [see below].

2.2 Government strategy—when will it become action?

The Governments' own sustainable development strategy focuses on the need to enable, encourage and engage people and communities in the move toward sustainability; recognising that Government needs to lead by example. While these elements are all necessary for change to take place they may not be sufficient to bring about the changes needed when behaviour is entrenched. In these circumstances, there may be a need to go further and think about how policies can be designed to catalyse people to behave differently.

Therefore when examining how the "ordinary citizen" can change his or her lifestyle to minimise the impact of climate change and to mitigate its effects energywatch argues that one obvious issue to reassess is the relationship between energy consumers and their energy supply. We recognise that providing households with more relevant, accurate, timely, well presented information about their household consumption will not be sufficient to deliver the desired scale of lifestyle change on its own.

Within the context of the liberalised market if other strategies, such as media campaigns, fiscal incentives, community action and Government leading by example through sustainable procurement strategies are to succeed then it is necessary to provide households with a degree of information substantially more useful than is currently provided.

For example households are not sufficiently enabled to make informed decisions about the value of fiscal incentives or grants (the Engagement part of sustainable development strategy) and are presently unable to engage with forums, community action and campaigns in any way which is significant to their personal circumstances. The Government should also make it clear to people their intention to lead by example.

2.3 Who pays and who knows?

There is generally very low awareness of the environmental obligations placed on energy companies by Government, such as the Energy Efficiency Commitment and the Renewables Obligation. This lack of awareness stifles moves by the market, consumers and the Government to meet low carbon energy policy goals because it removes the very people (consumers and constituents) who ultimately fund the measures from any meaningful debate on how they, as individuals, can make a difference.

In 2004 it was estimated that these two measures accounted for about 3% of a customer's bill. [15]It is likely that the Energy Efficiency Commitment target will double from 2008 (which will double the cost of the programme, and be passed straight through to consumers) and in the same year the Renewable Obligation target will be double that of 2004, and continue to increase until at least 2015. Yet because people are unaware of this, mis-trust of Government and energy companies' intentions is likely to increase.

3. NEW APPROACHES

3.1 Point of use information—the necessary precursor

energywatch recently commissioned Ipsos MORI to undertake a review of the latest research on the impact of information provision on behaviour change to find out: why information provision is important; why choosing the effective communication mechanism is important for people to understand and engage with the information and finally why it is also necessary to consider who is doing the communicating.

Unlike measures to promote energy efficiency (such as increasing the thermal efficiency of a dwelling with insulation or installing energy efficient appliances) provision of accurate, timely, well presented consumption information can engage and inform people about their consumption at the point-of-use. Giving people point-of-use feedback information has three main functions: [16]

1. Learning—people can better understand how their behaviour influences the amount of energy they use.

2. Forming habits—people can use their new knowledge to alter their activities which may result in a change in routine.

3. Internalisation of behaviour—new habits can change attitudes to suit the new behaviour.

Therefore substantially improved information is a necessary precursor to enable energy consumers to begin to alter lifestyles and habits to mitigate impacts on climate change.

3.2 Appealing to real people—the importance of presentation

How this information is presented is the second consideration to ensure that the potential carbon savings from behaviour change can be realised.

Effectiveness is measured by the following factors: consumer relevance (potential for individualised information); raising awareness of an issue; enabling understanding; translating into action (conscious) and sustainable action (unconscious action).

Advertisers and marketers have a wealth of experience in which communication methods are most effective in getting people to buy products or use services. Evidence and experience from this field is relevant when trying to understand how people interpret and react to communications about using energy more efficiently—and in particular, what types of communications lead to behavioural change.

3.3 No such thing as an "ordinary" citizen—why segmentation is necessary

Consumers are not homogenous and will react to various methods of presentation differently. energywatch published a paper in January 2006 which summarises the crucial importance of providing energy consumption information in a manner which engages people (there is little point in providing accurate and timely information to consumers if it is presented poorly, uses arcane units such as BTUs and kWhs etc and tries to offer more information than is necessary). Consideration is also given to the needs of vulnerable members of society. [17]

Segmenting energy consumers is important because consumers have different characteristics which affect the way we should communicate with them. While it would be unfeasible and possibly ineffective, in most cases, to communicate with each consumer on a one-to-one basis, segmentation enables an organisation to cluster groups of consumers with similar characteristics. The clusters need to be specific and of interest to the organisation as a target market, as well as realistic communication targets—ie the organisation can reach them and provide a valid product/service/idea. As a result, the organisation is then able to:

— Understand and differentiate between the characteristics of each segment.

— Target them with tailored products or services that best meet their needs.

— Communicate with them in the most relevant way according to their different characteristics (demographics, lifestyle, attitudes and behaviour).

— Build loyalty and engagement (eg Customer Relationship Management).

Experience shows that unlike private sector campaigns—and also many well-known social marketing campaigns such as encouraging people to stop smoking—campaigns to encourage sustainability face the additional challenge of striking a balance between having a compelling call to action while simultaneously not encouraging energy saving to the detriment of the health and well-being of at-risk groups. For example, some vulnerable groups who may already be efficient in their use of energy may still feel obliged to cut their usage with potentially detrimental impact on the living conditions in their homes.

Additional challenges faced by those developing social marketing strategies—in the energy sector and beyond—include:

— the knowledge that traditional marketing methods appear to be increasingly ineffective: evaluation of traditional mass media campaigns suggests that in general, whilst these have raised awareness, this awareness is rarely translated into action; and

3.4 Who to trust...

To encourage the greatest number of people to alter their lifestyle the issue of who delivers complementary information and advice on how new found knowledge can be utilised to mitigate their impact on climate change.

A number of studies conclude that people are generally mistrustful of environmental messages communicated by Government and energy suppliers. In 2003 the Audit Commission commissioned Ipsos MORI to quantify the levels of trust people have in public institutions. [19]Of the 16 institutions people were asked to consider the three which were least trusted were "big companies", the press and political parties. The Powergen Energy Monitor 2004[20] concluded that consumers were least likely to trust energy efficiency advice given by in store sales staff, whilst energy suppliers and Government agencies were mid table, with energywatch and independent consumer organisations topping the list of trusted advice providers.

Therefore it is essential to accept that people's perceptions of various institutions' intentions may differ from actual intentions. Instead, future strategies should identify and support those agencies and people who are most trusted.

4. ACTIONS

Until people become more energy literate by substantially improving the information they receive about their personal energy consumption all other measures, policies and strategies will cost more have their objectives frustrated—as can be seen from today's energy lifestyles.

4.1 Potential for "smart metering"

energywatch believes that smarter metering systems are a means to many ends. Most importantly they will end estimated bills and the damaging impact these have on consumers' finances. An industry that can effectively bill its customers will enjoy a better and more trusting relationship.

They will also enable consumers to access the information necessary to understand their household energy needs and make energy efficiency more visible, relevant and attainable. They may also be the ideal mode for communicating the most relevant, bespoke message to the private household. Other possibilities from such technologies are the introduction of time of day tariffs or utilisation of dynamic demand appliances.

Updating metering infrastructure for the 21st century will undoubtedly have a cost. However consideration should be given to the wider social, economic and environmental costs if the present metering infrastructure remains in-situ for the foreseeable future—given that replacing the current stock with smarter systems could reasonably take a decade. In 2003 Ofgem stated that metering installation, servicing and reading costs were £800 million a year. [21]

The forthcoming smart meter pilot is an ideal opportunity for lessons to be learned which can be used to improve energy literacy to ensure that the potential carbon savings from behaviour change can be realised.

4.2 The Energy Efficiency Commitment (EEC)

Energy suppliers have successfully met their EEC obligations in the past and are likely to meet their targets for the current round. However consumer awareness of this scheme is nil. This in practice means that consumers are passive bystanders who have energy efficiency done to them, and often equate such measures as improvements to household fabric rather than improvements in energy efficiency.

If we assume that the target for EEC3 will be double that of EEC2 then the level of money raised from consumers bills will be in the order of £500 million-£750 million a year between 2008 and 2011. This can be justifiably seen as a stealth tax without representation—compounding consumers' negative perceptions of energy companies and Government intentions.

4.3 The potential for, and barriers to, microgeneration

When considering lifestyle change perhaps the most significant potential that microgeneration offers is how it can engage a household with their own energy needs. The fact that consumers also become generators has been shown to engender enthusiasm in their energy needs. Installations have the potential to become desirable and increase the value of a property.

energywatch represents consumers in work to develop a framework by which "export" tariffs are made available and understandable. Parallel work to make the planning system more sympathetic to microgeneration and resolving contractual issues between consumers, suppliers and distribution network operators should enable such technologies to become easy to adopt and therefore prevalent in the near future.

4.4 Domestic Tradable Quotas

Introducing personal carbon allowances may be a viable market measure to encourage behavioural change if sufficiently accurate information was available concerning individuals' "carbon footprint". Until such information can be obtained though it is difficult to see how such a measure could begin or be administrated. Smarter metering systems appear to be the obvious route to quantify the gas and electricity fraction for an individual's carbon allowance.

5. CONCLUSIONS AND RECOMMENDATIONS

Affecting lifestyle change is a complex issue which needs further research, but is obviously something which cannot be realistically or solely achieved by increasing prices. However, price signals, and more importantly energy consumption information, needs to be greatly improved in order for consumers to engage with, trust and understand the liberalised market within which many energy efficiency measures are and will continue to be delivered.

Such action will drastically increase the success of climate change campaigns, fiscal incentives and provide the opportunity for "social influencers" or "catalysers" to break habits and create new lasting behaviours.

energywatch

August 2006