Memorandum submitted by the Mayor of London (EN 08)

 

Summary

 

1. The Mayor's view is that the scope of the Energy Bill as currently drafted, with its focus on large scale upstream energy issues , misses a key opportunity for introducing legislation to support the rapid development of sustainable energy solutions further downstream - in Britain's homes and businesses. Cities such as London, with their increasing population and growing economic activity, are the areas of energy consumption and greenhouse gas emissions where government must look to support new solutions.

 

2. The Mayor considers the Government's decision to build new nuclear power stations to be a mistake. New nuclear power stations will do little to combat climate change, but will poison Britain's future with a legacy of radioactive waste for which the Government has advanced no serious strategy for dealing with. The Government's own nuclear decommissioning authority has already admitted that the cost of clearing up the last generation of nuclear power stations has soared to 72 billion. Our work on London has shown that a decentralised energy vision means that we can meet our carbon reduction targets without recourse to nuclear power.

 

3. The Government's energy policy covers four key priorities, including tackling fuel poverty. The Government's annual report on fuel poverty, published in December 2007, shows that it has all but accepted failure with regard to its statutory target of ensuring that no vulnerable household would be in fuel poverty by 2010. The Mayor is disappointed that, despite recent significant concerns over increasing fuel price rises, the Energy Bill is silent on the issue of fuel poverty.

 

 

Renewable Energy

 

4. The UK's new target to achieve 15 per cent of its energy from renewables in 2020, as set out in the European Commission's proposed renewable energy Directive in January, is far more ambitious than the 5 per cent the Government said would be achieved with current policies in last year's Energy White Paper.

 

5. The Government need to bring on new, more effective, support mechanisms if it is to exploit the very significant potential for renewable energy that exists in the UK. In response to the EU's announcement, BERR have reiterated its commitment to introduce a new renewable energy strategy in 2009, and also published a long-awaited call for evidence for supporting the use of low-carbon and renewable heat: this will be followed by a formal consultation in Summer 2008.

 

6. The Mayor welcomes the Government's support through the Bill to strengthen the Renewables Obligation (RO) to drive greater and more rapid deployment of renewables in the UK. The Bill seeks to amend the RO to give more support to new and emerging technologies such as offshore wind, wave and tidal by banding the Obligation, all of which are critical in helping decarbonise the UK's electricity system.

 

7. However, the Bill does not go far enough to helping support micro-renewable generators (50 kW or less) or small to medium scale community based applications (up to around 1MW in capacity). The Government's recent conclusions on the RO banding process[1] recognises that the complexity of the current arrangements for smaller scale generators and goes part way to help resolve the solution, whilst also offering an increase in the level of support under the obligation to these technologies. However, the RO remains too complicated a mechanism to attract and then reward households and other smaller scale players who have a strong desire to use these technologies. The current system will fail to drive forward and exploit fully the very significant potential that exists for small scale and microgeneration technologies.

 

8. The Mayor's top priority for reducing carbon emissions is to move as much of London as possible away from reliance on the national grid and on to local, lower-carbon energy supply (decentralised energy, including combined cooling heat and power (CCHP), energy from waste, and onsite renewable energy - such as solar panels). This approach is often termed 'decentralised energy'. The Mayor's goal is to enable a quarter of London's energy supply to be moved off the grid and on to local, decentralised systems by 2025, with more than half of London's energy being supplied in this way by 2050.

 

9. The Mayor's view is that a feed-in tariff is a far more efficient mechanism for supporting these technologies as has already been shown in countries such as Germany and Spain. The provision of a fixed, long-term price for the sale of electricity generated removes market risk, and complexity - both of which are inherent in the RO system - and will result in the rapid uptake and deployment of mass-market microgeneration systems.

 

10. If properly supported, a feed-in tariff can also help support the development of community scale projects. These schemes are increasingly required under the Government's carbon-reduction targets under the Code for Sustainable Homes and future requirements under building regulations. Community-renewable projects will also be key to helping support develop low-carbon regions and cities under the Government's proposals for the Thames Gateway and the carbon neutral eco towns.

 

11. The Mayor is in agreement with both Ofgem as well as the Carbon Trust, who undertook a comprehensive study of renewable energy mechanisms in 2006, both of which have called upon Government to bring forth proposals to support feed-in tariffs. Ofgem, stated that:
"There is also increasing evidence that there are more efficient and effective policy tools which can be used to encourage renewables deployment. The European Commission compared the costs and associated effectiveness of "feed-in tariffs" to support renewables implemented in Europe with corresponding quota schemes, such as the RO [Renewables Obligation]. The analysis showed that the RO was the most expensive and least efficient method of support."[2]

 

12. The Mayor is also disappointed that the new banding regime fails to support the role of renewable heat. Heat makes up one-third of the total energy consumption in the UK, however, the Government has very limited policies in terms of supporting both the efficient use of heat and the production of low-carbon and renewable heat. This is an oversight on the part of the RO mechanism, which solely incentivises the production of renewable electricity.

 

13. The UK has the best resource and potential for exploiting renewable energy systems. The Mayor therefore calls upon Government to show leadership and to adopt the 20 per cent renewable energy target as a critical element of its climate change goals, and to support measures to accelerate the take up of decentralised energy.

 

 

Nuclear Power

 

14. The scenario work for London[3] has shown that relative to the nuclear path, a decentralised energy future for London means lower overall demand for gas, (and hence gas imports), as well as lower prices for consumers. There are also benefits in terms of lower required investment in transmission and distribution systems, greater resilience of electricity supply - particularly crucial for the City of London - and affordable warmth for more vulnerable households.

 

15. Developing such an infrastructure for decentralised energy will also be cheaper than the nuclear alternative. We have presented evidence in "Powering London into the 21st Century" that decentralised electricity generation can be accommodated on the local distribution networks with minimal extra investment, while saving around 1 billion per year in avoided costs in upgrading and renewing the centralised transmission network that nuclear would require.

 

 

Fuel Poverty

 

16. The consequences of fuel poverty can be severe - children, older people and those who are sick or disabled, in particular, can suffer serious health implications. Fuel poverty is associated with a significant number of additional deaths that occur in the winter.

 

17. The Government's fifth annual fuel poverty report, published in December 2007, stated that that 1.5 million households in England were in fuel poverty in 2005, of which 1.2 million were households where at least one person has a disability or is elderly or has children[4]. The Government's latest research has shown that the trend, which saw the number of people in fuel poverty fall from 5.1 million to 1.2 million between 1996 and 2004, is now reversing because of steep rises in fuel costs[5].

 

18. National Energy Action (NEA) has estimated that in 2008 at least 2.7 million households in England are living in fuel poverty.

 

19. The Government is set to fail on the target to eradicate fuel poverty in vulnerable households by 2010. Looking at central energy price and income scenario, government projections show that around 1.6 million households in England will remain in fuel poverty in 2010, of which around 1.3 million are vulnerable. Given that these projections are based on central energy price scenarios, should energy costs persist or further increase in 2010, this suggests the number of fuel poor will be greater still.

 

20. Increases in the cost of energy have serious implications for fuel poverty and result in further increases in the number of fuel poor. Fuel prices have fluctuated significantly between 1996 and continue to rise. Following the recent price increases by EDF, npower and British Gas, the average household energy bill is more than 1,000 compared to 572 in 2003[6].

 

Effectiveness of schemes

 

21. The Government has established a number of schemes where the main or subsidiary objective has been to reduce the number of households in fuel poverty. These schemes include Warm Front, Priority Group targets within the Energy Efficiency Commitment (EEC) and Carbon Emission Reduction Target (CERT) and the Decent Homes Standard. There are also sub-regional schemes, for example in London the London Warm Zone and Coldbusters, which draw on a number of funding sources, as well as individual borough schemes.

 

22. London faces particular challenges in tackling fuel poverty because of its housing stock and the way it is occupied. The age of the property, the type of walls, the large number of flats and housing tenure mean that London has a disproportionately high number of properties that are classified as hard-to-treat, as they cannot benefit from very cost effective loft or cavity wall insulation.

 

23. Although the existing schemes have had some success in tackling fuel poverty, further important changes must be made to ensure that London's hard-to-treat properties are adequately addressed.

 

24. National schemes (such as Warm Front, EEC, soon to become CERT) have not delivered to the same extent in London as other regions mainly because cavity wall and loft insulation are not appropriate for large proportions of London's housing stock. (Ninety per cent of the measures EEC carries out nationally are compact fluorescent lights, cavity wall and loft insulation.) By concentrating on these measures, suppliers have delivered more outside London per capita than in London[7]. As an example it has been estimated that between 2002 and 2005 at best, 7 per cent of the total EEC investment available was received by London as against its 12 per cent share of the population.

 

25. Changes need to be made to these programmes to ensure that they deliver in areas where they are not presently. Firstly, no information on the level of delivery in each region by EEC/CERT is publicly available. This lack of transparency hides regional inequality. This needs to be provided by energy suppliers to Ofgem and then reported on by Ofgem. In addition, in order to develop effective proposals and policies to contribute towards the achievement of eradiating fuel poverty it is essential that Government provide detailed information at the regional level not just on the number of fuel poor, but also how this relates to factors such as housing type, age, tenure, construction type, energy efficiency measures, heating system and whether the decent homes definition is met.

 

26. The EEC scheme and proposals for CERT do not include geographical targets to require energy companies to make a proportion of their target savings in each region (or those that are presently disadvantaged). Such requirements might address the imbalance of delivery between regions.

 

27. Should regional targets for CERT and Warm Front not be adopted, an alternative would be to redesign them so that they can provide further options for hard-to-treat properties. For example to insulate solid wall housing, or to upgrade or introduce community heating schemes ensuring they use CHP schemes In regions where CERT and Warm Front are not delivering proportionately, this could by increasing flexibility of measures in the case of Warm Front or an uplift in carbons savings for these alternative measures when applied to hard-to-treat properties including those on the gas network. In tandem with these measures a greater emphasis is needed on increasing take up of benefits.

 

Social Tariffs

 

28. The Mayor supports the introduction of social tariffs. There is a strong moral argument for the introduction of social tariffs in light of the recent comments from Ofgem of the considerable sums made by energy companies through the introduction of the EUETS. (It is calculated they will make 9 billion calculated at today's market prices over the period 2008-2012.) These should be a statutory requirement on all gas and electricity suppliers above a certain size. Energywatch have recommended on social tariffs:

that the social tariff should be lower than any other tariff that a supplier offers and that this should apply regardless of payment method;

in order to avoid market distortion, suppliers be set targets on the number of social tariff accounts to provide, proportional to their market share (which is similar to the way they are set their Energy Efficiency Commitment targets).

 

29. In conclusion, the Energy Bill should face the challenge of fuel poverty. It should acknowledge the scale of the challenge and how this challenge will change in the future, the shortfalls in existing schemes and take steps to ensure that households in fuel poverty have access to energy efficiency measures and a social tariff.

 

 

February 2008

 

 



[1] BERR: Renewables Obligation Consultation: Government Response - January 2008

[2] Ofgem Response to BERR consultation on reform of the Renewables Obligation, 13 September 2007

[3] "Powering London into the 21st Century" Mayor of London and Greenpeace , March 2006. Available at: www.london.gov.uk/mayor/environment/energy/docs/powering-london-21st-century.pdf

[4] Vulnerable households are those who are most likely to feel the full force of fuel poverty in ways that can detrimentally impact upon health and well-being. A vulnerable household is considered to be one containing children, or those who are elderly, sick or disabled.

[5] All the figures in this briefing are based on the Full Income Definition, the government's preferred definition. The Mayor prefers to use the Basic Income definition, which takes account of housing costs before the percentage of income spent on fuel is calculated.

[6] Energywatch estimated that the average household energy bill in 2006 was more than 1,000 compared to 572 in 2003 (Social Responsibility, The Energywatch Consultation on the nature of social tariffs in the energy market report and recommendations, 9 May 2007). Energy prices fell in 2007 and then increased to over 1,000 towards the end of 2007/2008. This figure comes from recent media reports of price increases by EDF, npower and British Gas. NEA has similar figures to support this.

[7] CERT could have made steps to tackle this imbalance through the flexibility mechanism, which aims to increase the number of energy efficiency measures to hard-to-treat homes. However, as proposed it can only be applied to homes off the gas network. This will mean the lack of delivery in London is unlikely to be reduced by this 'flexibility' because 95 per cent of households in London have gas connection.