Memorandum submitted by RWE npower (CIT
32)
INTRODUCTION
1. RWE npower, part of the RWE Group, is
one of the UK's largest energy suppliers, with around six million
customers and a diverse portfolio of over 9,000MW of generation
capacity in the UK. We sell our expertise in power generation
in key markets and are one of the UK's leading renewable energy
developers and operators.
2. We welcome the opportunity to contribute
to the Environment, Food and Rural Affairs Committee's inquiry
into the citizen's role in tackling climate change. As one of
the UK's largest energy suppliers, we recognise that we have a
duty to engage with Government and other stakeholders, including
NGOs, in order to ensure that energy resources are used responsibly
and efficiently. In meeting our Energy Efficiency Commitment (EEC)
target, we also work in partnership with organisations from the
public, private and voluntary sectors to achieve energy savings
through the installation of a range of energy efficiency improvements
in homes throughout Great Britain.
3. Following some general observations,
our response below focuses on the aspects of the inquiry where
we believe that we as a company can most usefully make a contribution,
particularly in the areas of energy efficiency, new technologies,
such as microgeneration, and smart metering.
BACKGROUND
4. In order to meet the Government's carbon
reduction targets in an affordable manner while providing reliable
supplies of energy, we believe that all available measures have
to be employed. This involves not only deploying a diverse range
of low carbon electricity generation resources but also ensuring
that as a society we use energy in the most efficient ways. In
our view, there is considerable further scope for action by individuals
which could result in a material reduction to carbon emissions,
helping to mitigate climate change.
5. However, while in this submission we
focus on energy-related matters, we also believe that a holistic
approach is required which addresses the main climate change-related
issues for the average citizen namely, energy, transport and resource
efficiency. Although there may be more that individuals can do
themselves directly to have an impact on energy and transport,
all three aspects require actions across the supply chain to minimise
the climate change impact.
6. Raising awareness of climate change and
the contribution that the individual can make is fundamental to
engaging all citizens. While we welcome the Government's proposal
to spend £20 million on increasing consumer awareness of
the benefit of installing energy efficiency measures, we nonetheless
consider that this falls well short of the resource needed for
a truly effective programme. While perhaps more citizens are engaged
than a decade ago, there is still a long way to go.
7. Personal carbon allowances or domestic
tradable quotas (DTQ) may in future present a viable way to incentivise
energy savings at the level of the individual. However, we do
not underestimate the practical challenges of introducing a DTQ
scheme[60]
and believe that there are other significant challenges to be
addressed first. These include stimulating customer take-up of
energy efficiency measures, for example through fiscal incentives,
the introduction of new technologies where economic, and increasing
efficiency standards for domestic appliances. A key element of
this will be to make the public more aware both of the energy
they are using and the energy saving solutions available to them.
ENERGY EFFICIENCY
Stimulating the Energy Efficiency Market
8. We believe that energy efficiency measures
must be placed in the context of a much broader and more flexible
policy framework that provides incentives for domestic customers
to give greater consideration to energy savings. It is currently
difficult even to "give away" energy efficiency products
to some customers. The recent Energy Efficiency Innovation Review
confirmed that consumers do not understand the long-term benefits
of such measures and often decline to improve the efficiency of
their home on the basis of the "hassle factor".
9. The Government needs to radically change
this view in order to stimulate the market. While we support the
current reduced VAT charges for energy saving materials and measures,
we believe that consumers need to be given further fiscal incentives.
This could be achieved through council tax or stamp duty incentives,
which would encourage the "consumer pull" needed to
encourage a real take-off of the energy efficiency market. Equally,
"penalising" inefficient products or properties, for
example, through higher VAT rates or higher council tax respectively,
may also encourage consumer pull. Smart metering too (see below)
will have an important role in improving consumer awareness by
providing real time information about the amount of energy being
used.
The Energy Efficiency Commitment
10. We welcome the Government's commitment
as part of the recently published revised Climate Change Programme
to redefine the EEC target to deliver reduced carbon emissions
rather than energy efficiency. We also welcome the Government's
commitment in its Energy Review report ("The Energy Challenge")
to carry out an interim consultation on extending the range of
allowable measures under EEC ahead of its consultation on EEC3
next year. The broadening out of the EEC target to carbon reduction
would enable energy suppliers to extend the range of energy saving
solutions on offer to consumers to include microgeneration technology
and low or zero carbon technologies. It would also help to ensure
the EEC programme is focused on outputs (absolute energy or carbon
reductions) rather than the measures deployed.
11. We also believe the EEC could be more
effective if it were separated from fuel poverty goals; it is
disappointing that the Energy Review report does not appear to
support this proposal.
Reducing Energy Consumption—Building Regulations
and Appliances
12. We support a continued tightening of
building regulations to improve long-term energy efficiency and
welcome the proposed Building Regulations dissemination programme.
Bold steps could be taken that would effectively require the installation
of low or zero carbon technologies on every new house or building
design to achieve equivalent carbon savings (passive solar, ultra-efficient
insulation, heat recovery ventilation, etc). It is important that
"outputs" are achieved rather than specific technologies
favoured or backed. We welcome the Government's commitment in
The Energy Challenge to set stretching energy efficiency levels
for the Code for Sustainable Homes which will guide the future
direction of building regulations. We believe that the Code should
also be used as a vehicle for delivering new technology into new
builds.
13. Although appliances and lighting account
for just less than 20% of household energy use, longer-term energy
and cost savings do not drive customers' decisions to purchase
many electrical goods—price is the key factor, as is personal
recommendation. Market penetration by energy efficient class A
appliances has increased steadily over the past five to six years;
however, fewer A+ or A++ appliances are sold in the UK than in
the rest of Europe. Product policy built around the use of minimum
energy performance standards and labelling provides a cost-effective
means of reducing carbon. The success of current minimum energy
performance and energy labelling schemes indicate that there is
scope to introduce standards and labels to a wider range of products
and to uplift existing standards at the EU level.
14. We support the Budget 2006 initiative,
which, in partnership with major retailers and the Energy Saving
Trust, will introduce voluntary schemes in the retail sector to
encourage the purchase of more energy efficient alternatives.
However, we believe that this needs to go further. An example
of the effectiveness of legislation is the boiler market. Introduced
in April 2005, new legislation has transformed the market from
less than 10% A-rated installations in 2000 to more than 70% by
January 2006.
MICROGENERATION TECHNOLOGIES
15. Microgeneration units, such as solar
panels, domestic and small commercial micro-CHP units and small-scale
wind turbines, could usefully contribute to reducing CO2 emissions
by displacing more carbon intensive centralised generation and
cutting losses arising from electricity transmission. They could
also stimulate action amongst consumers and small and medium sized
enterprises. However there remain significant barriers hindering
the growth of microgeneration, particularly in the areas of settlements
and metering.
16. All projections indicate significant
growth in microgeneration between now and 2020, possibly stimulated
by the adoption of the technology in Building Regulations around
2010. Assessing the potential of microgeneration in the longer
term (for example, up to 2050) is more difficult given the uncertainties
involved. It is, for example, very difficult to predict the effect
on average domestic electricity consumption of increases in the
use of domestic electrical appliances or increased use of air
conditioning or electric vehicles over the next forty-five years
and the effect of this on overall demand.
17. However, our assessment at this stage
is that it is unlikely that microgeneration will significantly
affect overall electricity demand in the medium term. Even under
the most optimistic of scenarios, the characteristics of electricity
producing microgeneration technologies mean that they are only
likely to reduce peak electricity demand rather than reduce dependence
on major generation.
18. Instead, we can foresee a situation
where electricity demand actually increases. As the thermal efficiency
of new houses increases many properties can be adequately heated
using electrical heating systems (whether heat pumps or traditional
storage heating). Provided that new and replacement generating
capacity takes the form of a diverse range of low carbon technologies,
this move towards electricity may lead to reduced reliance on
other primary fuels, increase fuel diversity (which may be attractive
given present concerns over security of energy supplies) and lower
carbon emissions.
SMART METERING
19. Successfully reducing energy demand
through energy efficiency requires "customer pull".
In addition to the fiscal incentives mentioned above, raising
customers' awareness of how they use their energy and the measures
available to support them in reducing their consumption is essential.
We therefore would support the introduction of smart metering
technology in all households by 2015. This would help increase
consumer awareness of the importance of energy efficiency providing
real-time information which can be used to advise them on measures
to improve their patterns of consumption, reduce their costs and,
at the same time, reduce carbon emissions.
20. We support an industry-wide programme
for universal implementation of smart metering, which should be
agreed by 2008 in accordance with the Energy Services Directive
and lead to the installation of smart meters in all domestic premises
by 2015. It would be possible to deliver this programme in such
a way that the provision of devices that deliver information to
customers is a competitive supplier activity, but where the devices
that capture the raw metering information are built to a standard
technical specification with common protocols, fitted by distribution
businesses and financed under the relevant price control.
21. The Climate Change and Sustainable Energy
Act and the Energy Review (paragraph 2.35) suggest the possibility
of a supplier obligation based on a tradable target for an absolute
reduction in energy demand or carbon emissions from the household
sector. Given the upward pressures on electricity consumption
noted elsewhere in this submission, such an obligation is unlikely
to be achievable unless accompanied by effective measures to stimulate
consumer pull (eg education, information through smart metering,
and fiscal incentives).
CONCLUSION
22. In conclusion, while we believe that
there is ample scope for the citizen to play their part in tackling
climate change, a holistic approach is required which enables
them to address climate change issues in all the areas where they
can have an impact, including energy, transport and resource efficiency.
Complex DTQ mechanisms are presently too sophisticated for the
market and consumers and in any event enabling technology (eg
smart metering) would be required to make this happen. Encouraging
consumers to make choices and change behaviour by introducing
fiscal incentives is simpler. Decoupling fuel poverty from EEC
will allow suppliers to place a greater and more efficient focus
on carbon reduction. Finally, other industries must also play
their part in finding and delivering the appropriate solutions.
RWE npower
September 2006
60 Practical challenges could include: the case of
those with large energy needs for health reasons would need to
be taken into account; a means would need to be established to
identify the number of individuals in a household; a means would
need to be established to identify those who own or live in two
or more properties such as students; in some cases there may be
issues in separating domestic from business consumption where
this occurs on the same premises. Even if it proved possible,
in theory, to record all this information, the transaction costs
and civil liberties issues would need careful consideration. Back
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