Memorandum submitted by eaga plc
RESPONSE TO THE BUSINESS ENTERPRISE AND REGULATORY
REFORM COMMITTEE TO INVESTIGATE POSSIBLE ANTI-COMPETITIVE BEHAVIOUR
IN THE UK'S ENERGY MARKET
SPECIFIC QUESTIONS
FOR CONSIDERATION
Below is eaga's response to the question raised
by the enquiry. Where a question is asked in the call for evidence
and not listed below, eaga has no views.
Progress in reducing fuel poverty and the appropriate
policy instruments for doing so
In considering the usefulness of Government
policy instruments for reducing fuel poverty eaga's response will
focus on the following:
— Local area based initiatives;
— Carbon Emissions Reduction Target
(CERT);
— Energy Performance Certificates;
— Winter Fuel Payments; and
— Energy company voluntary schemes
and initiatives.
Warm Front
eaga has delivered the current phase of the
Warm Front Scheme across England since 2005, and has been at the
heart of the Scheme's development, implementation and delivery
since its inception in June 2000.
The Scheme is the Government's primary tool
for tackling fuel poverty at a national level. Help provided by
Warm Front means the most vulnerable households in England can
stay warm, through the installation of efficient central heating
and energy efficiency measures such as loft and cavity wall insulation.
The improvements lift families out of fuel poverty due to average
bill savings of almost £300 per year. These measures also
mean householders need no longer risk ill health because their
homes are cold and damp.
Warm Front is a central part of the Government's
pledge to eradicate fuel poverty in vulnerable households in England
by 2010. By significantly reducing the carbon footprint of the
homes we improve, it is also helping deliver the UK's climate
change commitments.
We strongly believe that, in an era of rising
energy prices, there should be greater coordination of Warm Front,
CERT, Trust Funds, Local Authority discretionary funds and other
sources of help to ensure that the most comprehensive range of
services are delivered in each low-income home treated.
Warm Front has been a very successful scheme
in a number of ways:
— It has reduced fuel bills for low
income customers by an average of almost £300 every year
or 30%. Of course, this is an average figure, meaning a substantial
amount of people save far more.
— The Scheme currently fits or repairs
a heating system every minute of every working day.
— It has reduced CO2 emissions in a
very cost effective way, indeed the Scheme was independently ranked
as Defra's third most cost-effective carbon saving instrument
in the domestic sector.
— The Scheme has helped more than half
a million homes in the last two years alone.
As the Fuel Poverty Advisory Group, of which
eaga is a member, have already raised, the question of resources
for fuel poverty programmes is important. In light of this, there
is a concern that the 2010 and 2016 statutory targets for reducing
and eradicating fuel poverty will now be missed. On the subject
of resources for fuel poverty, we note the Fuel Poverty Advisory
Group's most recent annual report said:
"The cut in Warm Front is, to put it mildly,
difficult to understand—given the programme's success and
given the still more pressing need, in the wake of the price increases,
to improve the energy efficiency of homes and heating systems.
The programme has been cut when fuel poverty is at its highest
level for nearly a decade".[47]
Warm Front's Benefit Entitlement Check service
is another extremely important tool in moving households out of
fuel poverty. By improving benefit take-up while delivering energy
efficiency measures we reduce fuel bills in conjunction with improving
income, making a real difference to the lives of people on low
incomes. Last year some 55,000 people received Benefit Entitlement
Checks, and in 2006-07, 22,761 Benefit Entitlement Checks were
carried out under the Scheme (39% were subsequently found eligible
for Warm Front). The average increase in income was thus increased
weekly by £26.51 and annually by £1,378 per client.[48]
The Warm Front Scheme has been extremely successful
in reducing fuel poverty through installing traditional measures.
This success could be underlined if the Scheme was opened up to
other technologies and energy efficiency options, such as external
cladding, that would better enable it to assist residents of "hard
to treat" homes.
A key area for consideration in the inquiry
should be the next step for fuel poverty programmes, the most
logical of which is the introduction of renewable technologies,
such as air source heat pumps and solar thermal heating. This
could facilitate market transformation in the renewables sector
through guaranteed volumes, supply and economies of scale.
In addition, these options have potentially
greater potential for carbon savings, and would be important for
Government climate change targets. They would also provide solutions
to lack of heating in hard-to-heat homes off the gas network.
Of course, the associated question of how the introduction of
said technologies might impact on resource requirements should
also be considered.
Local Area Based Initiatives
The most widely known local area based initiatives
for tackling fuel poverty are Warm Zones.
Warm Zones are a targeted programme that are
intended to provide appropriate assistance to householders in
privately owned, rented or social housing. The Warm Zones broker
funds and grants from a wide range of sources to deliver benefits
such as energy efficiency, carbon savings, fuel poverty reductions,
benefits advice, health improvements, fire and home security,
employment skills and training.[49]
eaga continues to work in partnership with Warm
Zones and is exploring other local area based solutions to fuel
poverty, including work on projects under the `Community Energy
Efficiency Fund' (CEEF) banner. We believe many of these projects
will play a valuable role in continued efforts to reduce fuel
poverty levels, while recognising that they serve in an ancillary
role to a national programme like Warm Front.
Carbon Emissions Reduction Target (CERT)
While we recognise the vital nature of ensuring
energy suppliers play a large and active role in improving domestic
energy efficiency, we have some concerns with the apparent increased
reliance on CERT from Government.
There has been a shift from Government-funded
programmes such as Warm Front to the benefits provided under CERT
through energy supplier programmes. This means customers, including
those on low incomes, consequently bear a greater share of the
costs as a result of this reliance on the CERT mechanism. This
is potentially detrimental for those in or near to fuel poverty.[50]
eaga would question the growing reliance on CERT to provide energy
efficiency measures when these instruments are primarily intended
to reduce carbon consumption, as opposed to cutting fuel poverty.
Government suggestions that expenditure on energy
efficiency will increase over the next four years, while accurate,
do not acknowledge that the cost of some elements of this equation
will fall on consumers. Additionally, it is hugely important that
the measures provided by CERT are not as comprehensive as those
delivered by Warm Front and do not include heating options, the
most meaningful in tackling fuel poverty.
Nonetheless, the obligation on energy suppliers
to focus a significant amount of energy savings in low income,
vulnerable householder groups will also remain. This means that,
as well as funding continued growth within the "able to pay"
market, significant opportunities for further interaction with
schemes such as Warm Front will continue to develop and expand.
In addition, the Government has confirmed that
innovative measures such as external wall insulation will receive
substantially greater incentives under CERT than was the case
with EEC. This further underlines the importance of companies
like eaga being able tp provide the volume of improvements necessary
if the Government's 2010 target is to be achieved. The size, scale
and structure of the CERT obligation provides significant opportunities
for eaga to use its experience to ensure maximum benefits for
householders.
Energy Performance Certificates
Energy Performance Certificates will identify
issues in existing housing stock for new purchasers and should
over time drive up energy saving initiatives by house owners to
help sell their property. This behavioural shift is to be welcomed
and eaga are positioned at the heart of driving this initiative
forward, with considerable resource delivering EPCs on the ground.
However, this will be a slow process and will
not impact where it is most needed: those private homes held by
the more elderly in our society with little capital saved to invest
in energy efficiency.
An appropriate focus must be maintained on improving
existing housing stock. Even by 2050 it is estimated that over
60% of all UK buildings will pre-date 2006 regulations.[51]
Their standards must be improved—they are the key to meeting
Government carbon emissions targets. The emissions of these homes
can be substantially reduced by improving the thermal efficiency
of the building itself, alongside improving the efficiency of
heating systems.
Providing energy efficiency measures to existing
housing is an extremely cost-effective method for lifting people
out of fuel poverty, and for making substantial carbon savings.
Existing homes account for a clear majority of the 150 million
tones (a 27% share) of the UK's carbon emissions that housing
is responsible for.[52]
The Decent Homes Standard
The Decent Homes Standard has been extremely
successful in delivering energy efficiency improvements to social
housing. However, more remains to be done in ensuring that thermal
comfort standards set under Decent Homes are properly aligned
with mainstream programmes. It is important to remember that despite
only 20% of housing stock being social housing, it includes over
one third of those in fuel poverty.
Winter Fuel Payments
We acknowledge the importance and usefulness
of the annual Winter Fuel Payment in alleviating seasonal pressures
on the fuel costs of pensioners.
However, it is critical in tackling fuel poverty
that an appropriate balance is struck between capital investment
and revenue expenditure, with a view to implementing the most
sustainable policy solutions.
Whilst we recognise there may be apparent political
difficulties in doing so, we would suggest that targeting the
payment to those in greatest need would be a more effective use
of resources. The funding this would save could more than restore
funding to key fuel poverty programmes.
Energy company schemes and initiatives
The Government has recently announced a voluntary
agreement with energy suppliers to move a theoretical 100,000
homes out of fuel poverty. While this is to be welcomed, it is
a small step when recent fuel price increases have already pushed
far in excess of that number into fuel poverty.
eaga would welcome a mandatory scheme requiring
suppliers to meet agreed targets for assisting their most customers
using the most appropriate means—primarily through robust
(mandatory and regulated if necessary) social tariffs, and real
energy efficiency improvements, delivered through measures not
currently catered for in mainstream programmes (eg solid wall
insulation).
May 2008
47 FPAG Annual Report 2007, p 12. Back
48
The UK Fuel Poverty Strategy 5th Annual Progress Report 2007,
p 15. Back
49
http://www.cse.org.uk/pdf/pub1028.pdf, http://www.warmzones.co.uk/c_what_is_warmzones.html Back
50
FPAG Annual Report 2007, p 14. Back
51
"Transforming Existing Buildings: The Green Challenge",
Royal Institute of Chartered Surveyors, 2007. Back
52
Stock Take, Sustainable Development Commission July 2006;
Review of Sustainability of Existing Buildings DCLG 2006. Back
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