Memorandum submitted by the Office of
Gas and Electricity Markets (Ofgem)
INTRODUCTION
1. Ofgem is the regulator of the gas and
electricity industries in Britain. Our principal objective is
to protect the interests of present and future gas and electricity
consumers. We do this by promoting competition, wherever appropriate,
and regulating the monopoly companies which run the gas and electricity
networks. Other priorities include helping to secure Britain's
energy supplies and contributing to the drive to curb climate
change. Our work on sustainability includes helping the gas and
electricity sectors to achieve environmental improvements as efficiently
as possible and taking account of the needs of vulnerable customers:
particularly older people, those with disabilities and those on
low incomes.
2. Ofgem welcomes the Committee's inquiry
into the UK's existing housing stock and climate change. Improving
Britain's domestic housing stock has an important role to play
in combating climate change and fuel poverty and reducing the
UK's carbon emissions. This will be achieved through improving
the energy efficiency of the existing housing stock and encouraging
the take up of new technologies such as smart meters and microgeneration.
These measures give customers more knowledge and control over
their energy use and household scale generation lets customers
produce their own renewable energy.
3. Ofgem has responded positively to the
growing environmental and social issues that affect the energy
sector. Ofgem has a clear role in helping deliver greater energy
efficiency by breaking down barriers, for example, to the development
of smarter metering and helping to remove obstacles to progress
in microgeneration. We are also committed to helping the Government
tackle fuel poverty.
ENERGY EFFICIENCY
4. Ofgem will administer the Carbon Emissions
Reduction Target (CERT), previously the Energy Efficiency Commitment
(EEC2). This is the Government's main policy instrument for reducing
carbon emissions from existing households. CERT is due to run
from 2008-2011. Under CERT suppliers will be set a specific emissions
reduction target. Using less energy was highlighted in the Government's
Energy White Paper as being a cost effective way of achieving
cuts in carbon emissions. Under CERT at least 40% of the activity
should be targets at certain low income domestic customers. The
first phase of the Energy Efficiency Scheme helped six million
low-income families to install energy saving measures in their
homes. We will use our experience of the suppliers' activity to
help with the design of the new Carbon Emissions Reduction Target.
5. Ofgem is also, on the behalf of the Government,
managing the Energy Demand Reduction pilots which aim to evaluate
the energy savings from a range of metering, billing and information
measures.
SMART METERING
6. Smarter meters could give consumers more
information about their energy usage, thus allowing them to manage
their household energy costs and reduce their emissions. The roll-out
of smart meters should rely on the competitive market as this
will provide strong incentives on suppliers to keep roll out costs
to a minimum; place technology risk on suppliers not consumers;
and allow smart meter delivery to start relatively quickly.
7. Ofgem has taken a lead role in tackling
barriers to the development of smart metering. For example, we
are working with industry on the interoperability of meters and
we are managing and co-ordinating a series of Energy Demand Reduction
pilots which launched on 12 July 2007 with 40,000 households taking
part. Our work has helped to speed up progress on smart metering
and we would like to see the roll-out accelerate so that more
consumers can get the full benefits of smart meters.
8. We have also completed our review of
the standard conditions of the gas and electricity supply licences.
We believe that simplifying the regulatory framework will further
sharpen competition between existing suppliers and lower the barriers
to entry to new suppliers, while ensuring protection for consumers,
in particular vulnerable customers. Our review has removed the
"28-day rule" which many saw as preventing suppliers
from offering long-term energy services such as the installation
of household-scale generation or measures to improve energy efficiency.
It also amends the rules to make it easier for suppliers to install
smart meters that have the potential to help to cut emissions
and improve the accuracy of customer bills.
DISTRIBUTED GENERATION
9. Distributed generation is also part of
Government's strategy for tackling climate change. It means that
electricity can be generated nearer to where it is used, using
renewables or high quality combined heat and power systems. This
can reduce emissions, because of the technologies used and by
saving the power lost in transporting it. Earlier this year Ofgem
and the then Department of Trade and Industry (DTI) jointly published
a review of Distributed Generation (DG) alongside the Energy White
Paper. Having set up a Distributed Energy Working Group from a
cross section of the industry, we will consult by the end of 2007
on options for the creation of more flexible electricity market
and licensing arrangements for distribution-connected, low carbon
electricity. We will seek to identify workable solutions that
minimise the barriers to entry for DG; ensure that DG receives
appropriate rewards for the benefits that it provides; and ensure
that consumers are adequately protected. Our solutions will not
compromise the integrity of the competitive market; or impose
unnecessary costs or complexity on DG schemes, or those parties
that seek to purchase from them.
MICROGENERATION
10. In the 2007 Budget, Gordon Brown asked
us to examine how homes that generate more electricity than they
consume can benefit more from exporting that electricity back
to the grid. Our review of export reward for microgeneration builds
on work to promote microgeneration begun in 2005. We have supported
industry work to reduce barriers, challenged suppliers to raise
their game in responding to microgeneration, and encouraged distributors
to remove network charges for export, achieved with effect from
April 2007. This builds on innovations such as allowing domestic
microgeneration to connect to distribution networks without requiring
permission or prior approval.
11. In April 2007 we made a number of changes
to simplify access to Renewables Obligation support. We have published
guidance and Frequently Asked Questions for small generators and
simplified the accreditation process.
FUEL POVERTY
12. Poor housing conditions are one of the
key causes of fuel poverty, along with low incomes and the cost
of energy. It is estimated that four million people are currently
living in fuel poverty. The Government has a target of eradicating
fuel poverty for vulnerable customers by 2010 and for all customers
by 2016.
13. Improving the quality and energy efficiency
of housing in Britain will reduce both carbon emissions and consumers'
energy bills, helping to eradicate fuel poverty. The Fuel Poverty
Advisory Group (FPAG) has estimated that programmes of £1
billion per annum are required to meet the 2016 fuel poverty target.[47]
Our view is that additional funding should come from general taxation
and not from consumers via fuel bills given their regressive nature.
The increased prices required could impact hard on those who,
while not in fuel poverty, may be struggling to pay their bills.
Alternatively, additional funding could be made available by recycling
revenues from environmental schemes. For example, if government
were to auction allowances under the European Emissions Trading
Scheme (EU ETS) some of the revenue generated from this could
be used to fund further measures to help tackle fuel poverty.
14. Improving the quality of housing stock
should remain a key focus. Significant strides have been made
through measures such as the Decent Homes standard, Warm Front
and the Energy Efficiency Commitment, to improve energy efficiency
and install cost effective heating systems in homes. These measures
provide enduring and sustainable solutions to fuel poverty.
15. However, we share the concerns set out
in FPAG's response about the lower standards of thermal comfort
provided for in social housing under the Decent Homes Standard
compared to Warm Front which is focussed on the private sector
housing. We would encourage DCLG to take a "find and fix"
approach: ensuring that, where work is being done on a property
under the Decent Homes Standard, a comprehensive solution is provided
to secure a Standard Assessment Procedure (SAP) rating of at least
65 where practical.
16. The challenge is not simply financial
but also one of identifying those in fuel poverty and persuading
them to take up the help available. We have consistently highlighted
the need for an holistic approach to tackling fuel poverty and
for Government, suppliers and third parties to work together to
target help where it is needed most. An example of this was the
Ofgem-led "winter initiative". This pilot took place
in November 2006 and used Department of Work and Pensions data
to send a targeted mailer to nearly 100,000 pensioners encouraging
them to take up energy efficiency measures, benefit entitlement
checks and energy tariff advice. This highlighted the value of
information sharing where we believe there is a real prize for
Government both in tackling fuel poverty and its wider commitment
to providing a seamless service. For DCLG there are real opportunities
in allowing local authorities access to the energy efficiency
data of the Energy Performance Certificates and facilitating sharing
within local authorities of information on council tax and housing
benefit recipients. Tackling fuel poverty therefore requires a
joined-up approach across Government involving BERR, Defra, DCLG,
DWP and DoH.
17. We would be very happy to provide any
further information that the Committee would find helpful.
47 Fuel Poverty Advisory Group for England, Fifth Annual
Report (2006), p.2. Back
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