Memorandum submitted by E.ON UK
1. Improvement to the energy efficiency
of the UK's existing housing stock is essential if the UK is to
meet its carbon emission reduction targets by 2020, given that
housing accounts for 27% of total UK emissions. Suppliers have
already played a significant role in reducing household emissions
largely through the Energy Efficiency Commitment scheme which
has been in effect since 2002 (EEC 1 2002-05 and EEC 2 2006-08),
which requires suppliers to install energy efficiency measures
which deliver predefined levels of carbon savings. From April
2002 to March 2008, E.ON UK will have installed measures which
will deliver discounted lifetime energy savings of over 30TWh
at a cost of over £250 million.
2. The scheme to run from April 2008 to
March 2011 will be known as the Carbon Emissions Reduction Commitment
(CERT) and will require suppliers to achieve savings about 50%
higher than under EEC 2. The Government has said it intends to
retain some form of supplier obligation until 2020 and expects
to achieve total annual savings of 5.4MTC per annum by 2020 from
EEC, CERT and future obligations, about one fifth of all the savings
it currently expects to achieve through energy efficiency measures
across the economy as a whole.
3. The current EEC/CERT approach essentially
requires suppliers to subsidise the provision of energy efficiency
measures to customers who receive them with the costs reflected
in tariffs to customers as a whole. While this has been effective
in rolling out more efficient lighting, cavity wall and loft insulation
to a large number of properties, it has done little to engage
customers directly in the need to reduce the carbon emissions
impact of their homes and their use of energy or to encourage
suppliers to adopt a more innovative approach to encouraging customers
to use less energy. We believe this current subsidy based approach
is not sustainable in the longer-term particularly as the relatively
low cost measures such as cavity wall insulation begin to be exhausted.
4. Our belief is that customers are becoming
increasingly engaged with climate change and energy efficiency
issues and that by the next decade a policy framework is required
which will incentivise suppliers (and indeed other service providers)
to offer a wider range of energy products and services on a more
innovative and commercial basis, engaging customers more directly
and leading to a sustained reduction in energy consumption.
5. We believe this approach is much more
likely to be achieved with a policy which focuses on outcomes
(ie the required level of emission reductions expected from suppliers
in the domestic sector) rather than the provision of specific
measures as at present. An outcomes-based obligation, with auction
of carbon allowances to suppliers, with Government only setting
the overall target demand reduction, will create the right positive
framework. Our views on this are set out in our response to the
recent DEFRA call for evidence on the supplier obligation after
2011 which we would be happy to provide to the committee if that
is helpful. However, whatever model is adopted, the policy framework
for suppliers must be stable over the next decade, to create the
best possible environment for investment in skills and technology
and the development of customer relationships and propositions.
6. The provision of "smart" metering
which the Government has said it wishes to see rolled out to the
domestic sector within ten years will complement this approach
by giving consumers and suppliers more accurate and specific information
about their energy consumption. The Government is currently consulting
on how this should be achieved.
7. Government itself has an important role
in incentivising customers to take up energy efficiency measures.
It will in particular be essential to capitalise on the introduction
of Energy Performance Certificates (EPCs):
— for owner occupiers, to link energy
services investment to improved house value and saleability. The
aim should be to highlight any shortfall in achieving the home's
potential rating, both to inform the new owner of the potential
need to investment and incentivise the existing owner to carry
out any improvements when opportune (for instance to install microgeneration
or boiler replacement). The introduction of tax incentives, such
as rebates on stamp duty or council tax, to reward investment
to improve the energy efficiency of properties will be desirable
to reinforce these incentives;
— for rented property, to enable reliable
information about the energy efficiency of a property to be given
to potential tenants. We think the introduction of EPCs would
make it practical to encourage (or require) landlords to provide
information on the energy efficiency of the property and to make
available both rental and estimated average energy costs to tenants.
This type of presentation would give landlords an economic rationale
to invest in energy efficiency improvements, as tenants will look
at the total occupancy costs and landlords would more easily see
a return from investment in energy efficiency measures. The attached
annex presents this idea in more detail.
8. In view of the importance of EPCs to
raising consumer interest in energy efficiency measures we consider
that more flexibility is required in current DCLG rules governing
who can carry out assessments.
9. The current DCLG proposals are that the
assessor must be completely independent from any organisation
that will carry out the energy efficiency work. The rationale
for this is to avoid undue pressure on the customer to take-up
recommended measures, at the time of the assessment. We agree
that this is important but the effect is also to place an additional
burden on householders as they must then seek out service providers
when the key objective is to encourage them to undertake the necessary
upgrades.
10. The DCLG's proposed approach goes further
than the requirements of the Energy Efficiency in Buildings Directive
(the legal basis for EPCs) which state that the certification
is to be carried out "in an independent manner". We
believe that customers can be protected effectively by requiring
assessors both to carry out assessments in an independent manner
and to declare any affiliation with an organisation which may
carry out energy efficiency work. Customers would then have the
choice of selecting an assessor who could offer to provide the
necessary upgrades or an assessor who will provide only the basis
assessment. This will then protect customers, whilst at the same
time providing suppliers with an effective means of delivering
carbon saving measures to customers.
Annex
ENGAGING LANDLORDS—COMBINING RENT AND
ENERGY
Bills for heating and lighting—£120
per month.
Total (rent and bills)—£770 per month.
— The property has no cavity wall insulation
and insufficient loft insulation, and has an EPC rating of "F".
— Rent is £650 per month.
— Bills are £120 per month.
In this advert to rent a 3 bed semi detached
house, the rent and heating and lighting bill per month are shown,
along with the EPC rating of the property.
Bills for heating and lighting—£75
per month.
Total (rent and bills)—£725 per month.
— Cavity wall insulation and loft insulation
have been fitted, as well as low energy lighting for all fixed
outlets to give the property a new EPC rating of "D".
— The bills have been reduced by £45
per month due to these measures.
This demonstrates what happens when the EPC
rating of the property is improved through installing cavity wall
insulation, loft insulation and low energy lighting for all fixed
outlets. Along with an improved EPC rating, the heating and lighting
bills have reduced by £45 per month. This reduced level
Bills for heating and lighting—£75
per month.
Total (rent and bills)—£740 per month.
— Cavity wall insulation and loft insulation
have been fitted, as well as low energy lighting for all fixed
outlets to give the property a new EPC rating of "D".
— Rent has been increased by £20
to be £670 per month.
— Both the tenant and the landlord
benefit.
This example demonstrates how the landlord can
take advantage of the bill reduction from an improved EPC rating.
The landlord can increase the rent by around half of the reduction
in the monthly bill. In the example the monthly bill reduced by
£45 so the landlord increased the rent by £20 per month.
Both the tenant and the landlord benefit.
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