Memorandum submitted by Centrica plc
ABOUT CENTRICA
Centrica plc was formed in 1997 when the former
British Gas plc was demerged to form BG Group and Centrica. In
the UK, we trade under the brand names British Gas, British Gas
Business, Scottish Gas and Nwy Prydain. We are the UK's largest
energy supplier, supplying around 11 million gas and six million
electricity customers in the domestic sector and around 900,000
customers in the Industrial and Commercial sector.
DOMESTIC ENERGY
EFFICIENCY—A
SNAPSHOT
Gas and electricity used in the home are responsible
for around a quarter of the UK's carbon dioxide emissions. Every
home in the UK creates about six tonnes of carbon dioxide each
year. Using less energy will help to reduce carbon emissions,
enhance the security of our energy supply and reduce fuel poverty.
The UK Government's long-term goal is to reduce
the country's carbon emissions by 60% on 1990 levels by 2050,
with significant progress by 2020. Energy efficiency continues
to be an important element of UK energy policy and is regarded
as the most cost-effective way to meet energy goals.
Historically, consumers have been generally
apathetic towards energy efficiency and have been reluctant to
invest in energy efficiency measures such as cavity wall and loft
insulation. This situation is compounded by a general lack of
awareness of the extent to which the individual can make a difference.
In general consumers do not understand the cost
benefits of installing energy efficiency measures, and the savings
that can be made. In our view, there is more scope to encourage
energy efficiency measures as money saving initiatives, rather
than specifically carbon saving initiatives.
Energy efficiency products such as loft and
cavity wall insulation are fairly dry subjects and some people
perceive a high-hassle factor in terms of installation. Microgeneration
products could change this perception as they seem to grab the
public imagination more.
There is an additional challenge in the rented
sector when landlords may be reluctant to incur a capital cost
of installing energy efficient equipment when the benefits accrue
to tenants. Centrica believe that the most efficient way to tackling
this would be by direct landlord incentives in the form of a tax
break to the landlord for installing energy efficient measures,
perhaps against VAT/ Corporation or Income Tax.
BRITISH GAS
AND DOMESTIC
ENERGY EFFICIENCY
Green Streets
British Gas is aiming to launch an 18 month
social experiment in the autumn which will bring households in
eight different locations come together to collectively reduce
their energy usage and carbon emissions using a variety of means
including behavioural change, insulation and microgeneration technologies.
British Gas will provide more information to
the Committee once the campaign is launched in the autumn.
The Energy Efficient Commitment (EEC)
Under the Government's Energy Efficiency Commitment
(EEC), electricity and gas suppliers are required to achieve energy-saving
targets by promoting improvements in domestic energy efficiency.
The primary objective for EEC is carbon abatement to tackle climate
change. Within EEC there is also a social element targeting the
vulnerable and fuel poor, with half of the energy savings targeted
at the "priority group"—households receiving income-related
benefits or tax credits.
Our residential business, British Gas, is committed
to helping Government deliver these targets. We have customer
relationships with over 13 million UK households and therefore
have the reach to make a significant contribution to driving carbon
emission reductions in the domestic sector. We work with a range
of commercial partners, voluntary organisations, charities and
the public sector to deliver energy efficiency initiatives, and
the effectiveness of these partnerships is a key factor in our
success.
We go beyond legislative obligations, however,
to provide a range of energy efficiency and low carbon solutions
for our customers. In 2006, British Gas subsidised more than 13
million energy efficiency measures, such as cavity wall insulation
and low energy light bulbs, with an equivalent lifetime carbon
saving of one million tonnes, benefiting more than six million
households.
Innovation works: the British Gas Council Tax
scheme
This British Gas council tax scheme has confirmed
that linking energy efficiency to local council tax bills is appealing
and cuts through customer apathy. It shows the important role
of innovation in delivering domestic energy efficiency measures.
Working with a number of local authorities,
British Gas has developed an initiative that encourages the take-up
of energy efficiency measures by offering customers a discount
of up to £100 on their council tax bills after having subsidised
cavity wall insulation installed in their home.
Although the householder has to initially invest
around £225 to install the insulation, the resulting savings
on energy bills average around £150 per annum. Householders
can also spread the cost of the cavity wall insulation—discounted
from a normal retail price of around £430—over two
years.
In addition, under the scheme customers are
also entitled to a "Home Energy Audit" that highlights
other areas where they may be able to save energy in the home,
and potentially reduce their bills. Coupled with the council tax
rebate of up to £100, householders could see their investment
paid back within two years.
The installation of the cavity wall insulation
is managed by British Gas and is installed by installers contracted
to British Gas. Once the installation work has been completed,
British Gas notifies the participating Local Authority who then
arrange for the customers to receive the "rebate" on
their council tax, £50 of which is funded by British Gas.
The customer has the option of receiving the payment as a single
payment to use as a rebate against their annual Council Tax bill
or to spread the payment across 12 direct debit instalments.
The scheme was initially trialled at Braintree
Council, Essex in 2004 and has now been extended to 64 Councils
across the country. The scheme is promoted through enclosures
in council tax bill mailings and the local press.
Not all Councils have taken the decision to
match British Gas' funding, which is why customers participating
under the Braintree Council scheme receive a payment of £100
and customers in South Hams and South Cambridgeshire, for example,
receive a payment of £50.
We believe the scheme offers real benefits to
householders by offering both lower energy and council tax bills
and more energy efficient homes. So far the response to the scheme
has been encouraging, demonstrating that there is an appetite
for energy efficiency improvements that are linked to fiscal incentives.
Energy efficiency and vulnerable customers: here
to HELP
British Gas' multi-million-pound "here
to HELP" programme is a national venture tackling the root
causes of household poverty in Britain's most deprived areas.
It was launched in 2002 with an aspiration to help make one million
households warm, safe and comfortable.
The programme offers energy efficiency improvements,
benefits assessments, essential appliances and adaptors, home
security measures, and advice from our charity partners—all
for free. It has identified almost £10.4 million in unclaimed
benefits, making a real difference to help improve people's quality
of life.
The programme works through a partnership with
six major national charities, each of them offering their own
skills and experience in improving the quality of life for vulnerable
families, older and disabled people. We refer people in need to
the charity we think can offer them most help.
Many local authorities and housing associations
have signed up to the programme and have seen the difference it
can make to their communities.
Our here to Help partners are Help the Aged,
Family Welfare Association, National Debtline, Scope (includes
Capability Scotland), Royal National Institute for the Blind and
Save the Children.
Providing advice: the starting point
Energy efficiency is as much about a change
of lifestyle and behaviour as about practical measures. Through
our advice and education programmes we aim to show customers the
financial, social and environmental benefits of being more energy
efficient.
Our Energy Advice Service (0845 965 0650) offers
free advice and information on energy-saving ideas. Our highly
trained advisers are qualified with a certificate in energy awareness
from the City and Guilds of the London Institute. We are constantly
reviewing our training programmes to ensure our advisers have
the right skills to help our customers.
Our team of community energy advisers works
with local authorities and housing associations to promote energy
efficiency and generate referrals to our energy efficiency grant
schemes. They help ensure that those customers most in need receive
our support and assistance.
Providing information: a first-step to behavioural
change
The British Gas Energy Savers Report
The British Gas Energy Savers Report, a bespoke
home energy efficiency audit, has been completed by well over
1.5 million householders. This innovative service helps consumers
save money and reduce their household emissions. The report gives
consumers the energy rating of their home, and makes a range of
suggestions to help improve that rating where necessary.
The Energy Savers Report is thought to be the
biggest energy census of Britain's homes, has highlighted savings
of around £175 per annum per household for those who have
responded.
Energy Performance Certificates
In 2007, British Gas launched a service to provide
the new Energy Performance Certificates (EPCs) to the residential
market. EPCs give an energy efficiency rating to potential buyers
in a market where approximately 1.4 million homes are sold annually.
British Gas has an ongoing programme to train up to 500 engineers
to become fully qualified and licensed Domestic energy Assessors
to carry out the EPC surveys.
Delivering products: condensing boilers
The majority of our customers' energy carbon
footprint is generated by our burning the gas we supply them in
our homes. The most effective way to reduce these emissions today
is to install efficient boilers. Currently, British Gas installs
around 7% of all residential boilers. British Gas' energy-saving
boilers release less CO2 emissions than conventional
boilers and can help to reduce our customers' heating bills by
as much as 40%. British Gas currently installs over 100,000 domestic
boilers each year. We have taken the lead in the market and now
only install A-rated boilers with maximum energy efficiency that
also have the capability to be linked up to solar heating equipment
or other renewable sources of energy.
Delivering in partnership
We are working in partnership with electrical
retailer Currys to offer customers substantial discounts and trade-ins
for "A"-rated energy efficient appliances. In partnership
with B&Q, we provide funding to promote energy efficiency
products. Customers receive savings on a wide range of products,
including loft insulation, low energy lighting and energy efficient
appliances.
We are also working in partnership with retailers
to increase awareness of energy efficiency at the point of purchase
and provide incentives for consumers to buy products with high
energy efficiency ratings.
FUTURE DOMESTIC
ENERGY EFFICIENCY
PROGRAMMES: CERT
The Energy Efficiency Commitment (EEC) has been
extremely successful in delivering energy efficiency measures
to the domestic sector. It is, however, very much an input, as
opposed to output, based scheme. It is also effectively reliant
on a limited range of measures to deliver the programme.
The development of EEC into CERT from 2008 gives
an opportunity to improve the scheme and significantly increase
the delivery of energy efficiency measures into the domestic sector.
The significant step change in activity proposed
by DEFRA, however, takes the programme beyond current practical
experience and into theoretical possibility. It is impossible
to say with any certainty whether the programme is deliverable
within the timescale or cost projected by Government. The proposed
accelerated growth goes far beyond anything previously experienced
in this sector and introduces significant uncertainty for all
stakeholders.
Success will be dependant on all products and
services delivering at their maximum theoretical capacity throughout
the three year period. We believe the target can only be met by
significant year on year growth to meet the desired capacity.
If market conditions prevent this growth in any single year the
target will not be achievable. All stakeholders, including Government,
will need to align their efforts to ensure successful delivery.
Most particularly, we remain very concerned
that the predicted level of consumer demand, currently unproven,
will not emerge unless Government introduces a range of measures
to incentivise demand.
FUTURE DOMESTIC
ENERGY EFFICIENCY
PROGRAMMES: SUPPLIERS
OBLIGATION POST
2011
We would like to see serious consideration given
to enhancing the Supplier Obligation Post 2011 to make it a more
flexible and efficient mechanism, capable of transforming domestic
household energy consumption. This should include the separation
of the social and environmental objectives, recognising and rewarding
behavioural change, encouraging investment in, and inclusion of,
new technologies, and greater integration between the post-2011
Supplier Obligation and other energy market emissions reduction
legislation within a joined-up policy suite. In particular we
would welcome the linkage between the Supplier obligation and
the emission trading mechanism.
We support a more flexible, practical, outcome-focused
approach to delivering greenhouse gas abatement in the household
sector, but would stress the importance of a sensible transition
from existing programmes to any post-2011 obligation.
We believe that in order to be sustainable in
the longer-term, reducing emissions in the domestic sector needs
to be consumer-led, rather than pushed through mandatory reduction
targets. A balance needs to be found between customer-pull and
legislative-push.
The imposition of targets in this sector without
consumer understanding and support to reduce emissions could be
counter-productive. We believe that consumer pull for the creation
of low-carbon energy services does exist, and we have responded
with the creation of a new business unit, British Gas New Energy
specifically to lead our drive to offer green, low carbon products
and services to customers who want to manage their impact on climate
change.
Any suppliers' obligation that is introduced
will need to establish clear objectives at the outset. Most notably,
the industry response may change depending on whether it is primarily
a measure to reduce greenhouse gases through a reduction in carbon
intensity, or whether the primary purpose is to reduce energy
demand.
Winning heart and minds: the important role of
government
Despite a considerable growth in media coverage
of climate change issues and growth in consumer awareness, this
has not translated into a marked increase for energy efficiency
products. Government must take an active role in encouraging householders
to take action to reduce their household CO2 emissions.
A lack of consumer awareness around domestic
energy efficiency measures can be addressed via consumer awareness
campaigns by government and other agencies. The public sector
also has a key role to play in leading by example. Community and
school schemes are also valuable in creating awareness.
National government has a role to play in setting
improved building and appliance standards, reforming the planning
regime to encourage low-carbon development.
Government should explore introducing a range
of fiscal incentives, through, for example, council tax, stamp
duty, VAT, to stimulate increased consumer pull for energy efficiency
solutions.
MICROGENERATION
The micro-generation market remains fairly small
in the short term but post-2010 we believe that there is the potential
for the micro-generation market to grow rapidly.
We have had a relationship with Ceres Power
since 2005 to develop the world's first mass-market, household
boiler powered by solid oxide fuel cells. Unlike many fuel cells,
the Ceres fuel cell can work on natural gas as well as hydrogen,
making the technology immediately accessible by UK households
with a gas central heating system.
In 2006, British Gas signed a £2.7 million
contract with Ceres Power to accelerate the introduction of fuel
cells into UK. The contract, part-funded by the Department of
Trade and Industry, represents a strengthening of the partnership
between the two companies. We hope to start offering solid oxide
fuel cell boilers to customers as soon as technically possible,
and we currently expect that the first prototype unit should be
ready later in 2007.
Until earlier this year we had a separate relationship
with Microgen to develop a domestic combined heat and power boiler
for UK homes. This product utilised Stirling engine technology
which generated heat and electricity from a domestic unit. Microgen
is a subsidiary of BG Group, and the company was offered for sale
by its parent company. As a result, Microgen staff are no longer
developing MicroCHP boilers. British Gas remains committed to
working with microgeneration developers and is open to working
with any new owner of Microgen, or other developers, to take forward
new technology where we believe there is scope for marketing on
a commercial scale.
From March 2007, we trialled a solar proposition
in six local authorities with existing experience of our council
tax proposition. These are Braintree, Taunton Deane, Conwy, South
Cambridgeshire, Runnymeade and Salford.
The proposition for solar installation offers
council tax rebates ranging from £300 for Solar Thermal to
£500 for Solar PV. These rebates are in addition to existing
grant schemes, for example under the LCBP Phase 1. Unlike the
cavity wall installation proposition which is funded from our
EEC budget, the Solar Thermal and Solar PV propositions will be
funded from the suppliers product and installation margin, although
we are hopeful that in time these propositions can be extended
and funded through the EEC/ CERT programme. Our partners under
the Low Carbon Building Programme consortium provide the technical
expertise and installation capability. Worcester Bosch manages
Solar Thermal installation, Sharp manages Solar PV installations.
SMART METERS
Centrica strongly supports the Government's
ambition to deploy smart meters as rapidly and efficiently as
possible. Smart Meters offer the opportunity to make a step-change
in the efficiency of our industry materially improving customer
service and reducing operating costs, whilst at the same time
providing advice to customers on their consumption and spend patterns
during the day.
British Gas has considerable experience of installing
smart meters having installed 50,000 smart meters in a domestic
trial in 2004. More recently British Gas Business has installed
16,000 meters, and we are trialling 115 domestic electricity prepayment
meters in Manchester.
The recent Energy White Paper envisaged a domestic
deployment of smart meters over 10 years. We welcome the ensuing
consultation process which has sought to align industry and government
views on how that can best be done. An industry consensus will
be important to ensure an effective and efficient roll-out.
Our analysis demonstrates the considerable benefits
that can be realised from a coordinated approach to rollout, enabling
energy saving benefits for both gas and electricity customers.
It is vital that an acceptable solution is found for the problem
of meter asset stranding as a result of any government inspired
accelerated meter deployment in the domestic sector.
There has been much interest in the use of real
time displays (RTDs) as a driver towards greater domestic energy
efficiency. We accept they are an interesting stop-gap for interested
consumers until smart meters can be installed. Given the likelihood
of mandated smart meters though, we don't see merit in mandating
RTDs at meter replacement which will be expensive and will dilute
industry focus in delivering universal smart meters.
For government to realise its ambition of an
accelerated domestic smart meter deployment, a deployment "mandate"
is urgently required together with a resolution to asset stranding.
With this, British Gas and industry stand ready to deploy universally
and rapidly.
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