Select Committee on Communities and Local Government Committee Written Evidence


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 EFFICIENCYA 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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