Memorandum submitted by the Energy Retail
Association (EEFP 07a)
ENERGY RETAIL ASSOCIATION RESPONSE TO FURTHER
CALL FOR EVIDENCE
EXECUTIVE SUMMARY
Following the evidence submitted by the Energy
Retail Association (ERA) to the original call for evidence in
April, this response addresses the additional questions posed
by the Committee as it examines the UK Energy Efficiency Action
Plan. The Committee has asked respondents to consider the following
questions:
1. Defra's Departmental Report 2008 shows
slippage against PSA 7 on eliminating fuel poverty in vulnerable
households by 2010, with a rise in the number of households in
fuel poverty. Does Defra need to redefine its approaches to ensure
it meets the statutory 2010 target?
1.1 The ERA believes that the Government
and Defra need to re-cast their fuel poverty strategy entirely
in order to meet statutory fuel poverty targets. The current strategy
was published in 2001, when energy retail prices were much lower,
and the rising numbers of households in fuel poverty demonstrates
that the current approaches are not working. An effective fuel
poverty strategy must:
— Have clear leadership and accountability
from one Government Department.
— Take into account the three drivers
of fuel poverty: poor quality housing stock, low incomes; and
high energy prices, and formulate specific programmes for tackling
each.
— Have coordinated but separate energy
efficiency and income maximisation schemes.
— Use data-sharing more effectively
to identify fuel-poor and vulnerable customers.
— Review all existing programmes to
maximise effectiveness and avoid duplication.
2. How effectively can policies aimed at addressing
the energy efficiency of dwellings tackle fuel poverty, given
recent rapid increases in fuel prices, and how can strategies
be developed to join up energy efficiency approaches with those
on fuel prices and income maximisation?
2.1 As outlined in our previous submission,
the ERA strongly believes that, while there is some overlap between
energy efficiency and fuel poverty objectives, they cannot be
seen as synonymous. The Energy Efficiency Commitments (EEC) 1
and 2 illustrate that energy efficiency measures will not automatically
resolve fuel poverty: over the six years of EEC suppliers successfully
achieved the target of savings of 249 TWh, but only 100,000 people
were taken out of fuel poverty as a result of the programmes.
This comprises a small minority of the households reached through
EEC, and shows that, while the scheme was successful in reaching
its energy efficiency targets it cannot be assumed increased efficiency
will resolve fuel poverty.
3. Does the UK Energy Efficiency Action Plan
2007 give sufficient weight to the need to address fuel poverty
as well as tackle greenhouse gas emissions through increased use
of energy efficiency measures?
3.1 The ERA does not believe that the UK
Energy Efficiency Action Plan is the appropriate vehicle to successfully
deliver fuel poverty objectives. Poor housing stock is one of
the causes of fuel poverty, and energy efficiency measures can
therefore alleviate the problems faced by some households, but
an effective strategy for the eradication fuel poverty will have
separate, coordinated, programmes to tackle the three drivers
of fuel poverty.
3.2 Energy efficiency has a part to play
in tackling fuel poverty and although suppliers have invested
in solid wall insulation and microgeneration, it has not yet become
part of the mainstream market it needs to be. CHP, PV, solar thermal,
heat pumps, biomass boilers all have long pay-back periods and
are dependent on building structure. Although rising prices may
make alternative technologies more cost effective, there may still
be an impact on our bills.
3.3 The fuel poor will benefit from generated
heat more than electricity and take benefits in warmth rather
than consume less energy.
4. What should be the comparative contribution
of government and energy supply industry programmes to achieving
fuel poverty objectives, and what levels of investment are required
(for example for Warm Front, the Carbon Emissions Reduction Target
(CERT) and the Supplier Obligation post 2011)? How can these programmes
be better integrated?
4.1 The energy supply industry recognises
that it has an important role to play in tacking fuel poverty,
and, as such, has recently tripled its investment in this area.
The industry far exceeds its statutory obligations to help fuel
poor and vulnerable customers, and will spend £375 million
over the next three years on a comprehensive package of measures
including social tariffs, winter rebates, price freezes, replacement
appliances, free insulation, home visits, writing off debt, debt
and finance management advice, and working with charities. Following
recent Government announcements, energy suppliers have committed
to an additional estimated £910 million to invest in making
homes more energy efficient. This will be in addition to the existing
obligation on companies (the Carbon Emission Reduction Target
(CERT)) to spend £2.8 billion over the next three years helping
customers save energy, with an estimated £1.5 billion focused
on a priority group of lower income consumers.
4.2 We work closely with Government Departments
on initiatives like the winter mail-out offering free insulation
to vulnerable customers in England, Scotland and Wales, and believe
that much more could be done to coordinate Government and industry
programmes. For example, closer collaboration and data-sharing
could help identify fuel poor customers more readily. We also
feel that, rather than focusing on increasing funding for fuel
poverty, much more could be done to ensure that programmes are
effective and avoid duplicating programmes which share similar
objectives (like Warm Front and CERT). For that reason, we propose
that Government leads a comprehensive review of all existing Government
and industry programmes to ensure that the considerable funds
invested in fuel poverty are being used effectively and reaching
those who need it most.
5. What should the longer term strategies
be, in particular for those in the social housing sector after
Decent Homes, and what role should the energy supply industry
have post CERT (post 2011)?
5.1 The energy industry is discussing with
Defra currently how to fulfil its obligations post 2011. We believe
that a better market model would be created by suppliers offering
subsidies to fuel poor homes but developing a market in the able-to-
pay sector for energy services packages. This model would enable
suppliers to work more closely with local authorities both to
identify vulnerable households and/or poor-quality homes and to
incentivise able-to-pay households to increase the energy efficiency
of their homes—eg by offering fiscal measures like discounted
council tax.
6. How can we make greater progress on hard
to treat homes (for example solid wall properties or those not
connected to mains gas supplies)?
6.1 There are currently 1.3 million homes
off the gas network, and at least two million homes are heated
by solid fuel—wood and coal or oil. Around 50% of solid
fuel heated households are in fuel poverty, but solid fuel providers
are not within CERT. Off gas mains homes were excluded from CERT
because carbon benefits do not exceed capital costs of energy
efficiency. There may be a need to incentivise networks to increase
the number of gas network extensions and ensure new gas provision
is affordable for low income households.
6.2 Local authorities could provide information
which would enable hard-to-reach homes to be mapped, and a strategy
developed for increasing their energy efficiency. Currently programmes
like CERT incentivise industry to direct 40% of their activity
towards priority group customers, and the focus on the vulnerability
of the recipient rather than the energy efficiency of the home
does not necessarily deliver the most significant improvements
to hard-to-reach or hard-to-treat homes. Likewise, the targets
are set in such a way as to bring about smaller reductions in
emissions in a large amount of households, not a large reduction
in a small number of homes. Government could consider how the
successor to CERT could be re-designed to bring greater progress
in this area.
6.3 We believe that there should be an examination
of the innovation options within CERT. This remains a small percentage
of the overall CERT target, which means the volumes are not sufficient
to achieve a critical mass and therefore new technology cannot
be installed cheaply in fuel poor homes. The percentage attributed
to innovation options should be larger to justify the levels of
investment required from industry to bring new products to market.
There should also be more incentives for suppliers and consumers,
so that the industry is not required to push new energy efficiency
measures onto reluctant energy users.
6.4 There are still several challenges that
remain:
— Industry capacity: there are some
doubts that all measures would be available for take up.
— Consumer understanding: how microgeneration
can improve homes and household expenditure.
— Cost: the most cost-effective microgeneration
technologies may only be supported at the end of the CERT period.
— A national domestic roll-out of smart
meters with import/export capability that will facilitate microgeneration.
— Financial incentives: Government's
attention could also be focused on increasing financial support
for the Low Carbon Buildings Programme and expanding its effectiveness.
7. How should smart metering, new technologies
and micro-generation be deployed and incentivised in fuel poverty
approaches? Is there sufficient scope in current approaches to
apply the most appropriate solutions?
7.1 The greatest challenge to the deployment
of smart meters in fuel poverty approaches at the moment is the
absence, so far, of a Government mandate. Although the June 2007
Energy White Paper outlined an ambition for every home to have
a smart meter within 10 years, so far the Government has not given
the industry the mandate it seeks. Rolling out smart meters to
every home in Britain will be a programme even larger than the
conversion to North Sea gas in the 1970s, and the industry is
very keen to begin. However, it cannot begin without a mandate
from government to do so, because of statutory requirements concerning
competition. The industry is pleased that the Efra Committee recognises
that smart meters can help alleviate fuel poverty, and hopes that
it will recommend to Government that it makes a decision quickly
to issue a mandate to industry to implement a speedy roll-out
of smart meters to every home in Britain.
7.2 Once the mandate is given, smart meters
will enable more effective fuel poverty approaches in a number
of ways:
— The display of accurate and real-time
consumption data will put consumers in control of their consumption
and expenditure, enabling consumers to identify how both can be
reduced.
— Accurate billing and the facility
to switch between prepay and standard credit methods will enable
better budgeting for low-income families.
— A greater range of tariffs to help
fuel poor families can be developed and targeted at those who
would benefit most.
— The import/export capabilities of
smart meters will support the widespread use of microgeneration
technologies.
— Self-disconnection can be identified
by the supplier and appropriate support and help offered quickly,
backed up with robust strategy that delivers a comprehensive package
of measures.
8. Is there a problem identifying those who
are already, or are at risk of becoming, fuel poor, and how can
data sharing across the public and private sector be improved
so that assistance can be targeted?
8.1 Government is starting to work with
industry more closely to share data to identify fuel poor customers,
and progress has been made via amendments added to the Pensions
Bill will help target vulnerable pensioners more quickly. This
work can be built on to ensure that other vulnerable groups (low-income
families with young children, or the long-term sick) can be identified.
However, it should be noted that this work must be done in conjunction
with a root and branch review of the fuel poverty strategy and
existing programmes. The ability to identify fuel poor households
or families must be backed up with a package of appropriate and
effective measures that will deliver real improvements.
9. What are the specific issues for new homes
and how can strategies ensure that all new homes minimise the
potential for occupiers to experience fuel poverty?
9.1 Building regulations must be tightened
to ensure that all new-builds adhere to the very highest standards
of energy efficiency, and must be backed up by rigorous enforcement.
The ERA also believes that more could be done to incentivise home-builders
and buyers to invest in microgeneration technologies when homes
are being built. Measures like photovoltaic panels or ground or
air-source heat pumps can reduce significantly household energy
bills, and more widespread use would also reduce domestic carbon
emissions.
10. How does the Winter Fuel Payment system
impact on fuel poverty and could this funding be better utilised
to tackle the underlying issues leading to households becoming
fuel poor?
10.1 The ERA believes that the winter fuel
payment provides valuable support for some fuel poor and vulnerable
customers, but that it must be restructured to deliver meaningful
assistance to those who need it, when they need it. While 50%
of the fuel poor population are over 60, fuel poor pensioners
account for a minority (12%) of the pensioner population. This
means that the vast majority (over 80%) of the over 60s who have
received a total of £14.4 billion spent on winter fuel payments
since 2000 have not been fuel poor.
10.2 The industry feels that the scheme
should be urgently reviewed to ensure that:
— Payments coincide with the arrival
of winter bills (January-March).
— Other fuel poor groups receive the
payment.
— Better targeting ensures that recipients
get higher payments on the basis of need rather than age.
This response is submitted on behalf of the
Energy Retail Association (ERA). The ERA, formed in 2003, is the
trade association which represents Britain's electricity and gas
suppliers in the domestic market. ERA members are: British Gas,
EDF Energy, E.ON UK, RWE npower, Scottish and Southern Energy
and Scottish Power.
Energy Retail Association
October 2008
| 
