Memorandum submitted by RWEnpower
INTRODUCTION
As an industry we have perhaps never experienced
such a hostile PR environment, and it is therefore very politically
attractive also to criticise the energy sector. There has been
little coverage of the industry's actions towards the three objectives
of affordability, security of supply and reducing carbon emissions.
Last year was marked by severe pressure on margins, a massive
increase in investment in energy efficiency from the industry,
a substantial increase in social programmes, and billons committed
by the industry to the low carbon economy (vastly more than the
profits generated). The following paragraphs provide more detail
on the issues.
PRICES
(a) The Ofgem Energy Supply Probe (paragraph
8.6) found that, in contrast to the previous four years when retail
margins were materially higher, the average pre-tax margin on
sales in energy supply between 2005 and 2007 was around 2%. The
lack of new entrants into the retail market is not driven by any
structural issue but by the current low levels of retail energy
margins.
(b) The Energy Supply Probe report found
that the premium charged to prepayment customers is broadly justified
by the costs incurred; indeed that the average dual fuel PPM customer
is around £11 less profitable than a DD customer (paragraph
7.58). Nevertheless RWEnpower announced late last year that with
effect from Monday 8 December gas pre-payment prices were reduced
by £30 to be aligned with standard quarterly cash/cheque
prices. In August 2008 electricity pre-payment prices had been
similarly aligned.
(c) The Ofgem report also commented particularly
on the disadvantages suffered by off gas grid customers. Npower
has taken action through a £20 reduction, for customers not
connected to the gas grid in its principal areas (Yorkshire, the
North East and West Midlands), in electricity bills from 01/12/08.
(d) A range of commentators have alleged
that prices follow wholesale prices up quickly, but down slowly.
In fact, Ofgem's investigation found no evidence of this (paragraph
7.17). On the contrary, Ofgem has found that the competitive market
has afforded protection from wholesale cost volatility by holding
back from consumers the full force of global commodity price shocks.
(e) We attach a graph (the first attachment,
headed Commodity Cost Data) showing the movement in Brent oil
and in petrol prices over the last two years (showing a doubling
in petrol prices net of tax over that period and subsequent reduction
in line with the movement in the oil price) and the movement in
wholesale gas costs and npower's gas prices over the same period.
In fact in the last two years npower has managed to limit the
net increase in gas prices to 27% (after one decrease and two
increases) despite the fact that gas costs today are still double
those existing in January 2007.
(f) Ofgem also carried out an analysis within
its Energy Supply Probe—their analysis is also attached
for information (the second attachment, headed Ofgem Graph).
FUEL POVERTY
AND ENERGY
EFFICIENCY
(a) Many of the developments during and
since the Energy Supply Probe have particularly been to the advantage
of vulnerable customers. In relation to fuel poverty, the industry
has in 2008 committed vastly increased sums to both its social
and energy efficiency programmes.
(b) The industry's expenditure on energy
efficiency, through CERT and CESP, in the three years beginning
2008 is estimated at £3.7 billion. For our part RWEnpower
has increased its expenditure on its energy efficiency programme
from £40 million in the three years beginning April 2002
and £150 million in 2005-08 to £500 million from 2008-11.
At least 40% of this expenditure will benefit priority group customers.
(c) RWEnpower is assisting small local trades
to access CERT training and a variety of support—to date
over 1,350 businesses with new capacity have participated in this
initiative and are installing over 300 loft insulations per week.
(d) RWEnpower is launching in early 2009
a major new DIY loft insulation service with Build Centre and
Rockwool.
(e) RWEnpower is engaged in a series of
smart meter trials—expected to install circa 4,000 display
devices. We are also planning to utilise real time displays (a
new proposed measure for CERT). We have provisional plans to install
100,000 in 2009.
(f) RWEnpower began its Warm Wales Scheme
in 2004 in Neath Port Talbot and Wrexham. The scheme adopts a
comprehensive approach, visiting and assessing all households
within a specific local authority area and aims to offer help
to make a property more energy efficient and help identify and
secure additional benefit payments for low income residents. To
date it has installed over 45,000 measures (the majority to vulnerable
customers) and identified income of £2.8m through benefit
entitlement checks. In 2008 we added Denbighshire Council to Neath
Port Talbot and Wrexham as our local authority partners and the
three schemes are achieving annual carbon savings of some 8,000
tonnes per annum.
(g) During 2008 RWEnpower established Community
Warmth projects (approaching the community door to door, street
by street offering insulation, low energy light bulbs and referral
to Warm Front) in Leeds and Lincolnshire and has just launched
it in Bradford where 170,000 homes will be assessed on a single
visit for all measures including Warm Front referral.
(h) RWEnpower is working in partnership
with Doncaster Metropolitan Borough Council to promote and install
home insulation measures through the Doncaster Save and Warm Scheme.
The scheme insulates more than 100 homes per week.
(i) In total RWEnpower plans to deliver
more than one million home insulation jobs during CERT. In particular
the number of cavity and loft insulations is increasing by more
than 100,000 per year between 2007 and 2009.
(j) In winter 2008-09 RWEnpower has increased
its loft insulations by 160% compared to winter 2007-08, and cavity
wall insulations by 39%.
SOCIAL TARIFFS
(a) The industry last year increased its
expenditure on its social tariffs from £150 million to £375
million for the period 2008-11.
(b) RWEnpower's Spreading Warmth and First
Steps programmes are targeted at vulnerable low income customers
and encompass debt relief, social tariffs, account management,
energy efficiency advice and measures and benefit entitlement
checks. We have committed over £50 million to fund benefits
to customers on these programmes over the next three years.
(c) RWEnpower's Warm Response Line provides
a central access point for vulnerable customers, provides a personal
response to each customer and acts as a fully-integrated internal
referral mechanism to maximise the assistance provided to each
customer.
(d) The priority services register, Warm
Response, provides additional services for our vulnerable customers
who are disabled, chronically sick or of pensionable age. This
includes free gas safety checks; quarterly meter reads; audio,
Braille and large print bills; a password protection scheme to
prevent fraudulent visits and calls; meter moves; and controls
and adaptors to make appliances easier to use.
(e) RWEnpower's First Steps programme provides
one-to-one account management for customers who are struggling
to pay for their energy usage. A customer is provided with a named
account manager who will work with them to help them manage their
account.
(f) RWEnpower's Spreading Warmth tariff,
which was launched in July 2008, provides vulnerable customers
(the elderly, chronically sick, disabled and families with children
under 16 with a gross household income of less than £13,500)
with a discount of up to £250 per annum from this winters
bills (£125 per annum off each fuel we supply to them). We
worked closely with fuel poverty advisory groups to develop these
eligibility criteria. With the help of these stakeholders we have
so far identified over 60,000 eligible customers who have been
transferred onto the tariff.
(g) We have also invested heavily in communicating
our First Steps and Spreading Warmth programmes to all of our
staff, particularly those who speak to customers every day. Our
front line employees are best placed to identify those who are
most vulnerable and to refer them to our specialist team to make
sure they receive the most relevant help.
HEALTH THROUGH
WARMTH
(a) RWEnpower's Health Through Warmth Scheme
benefits vulnerable people whose health is affected by cold or
damp living conditions, irrespective of whether they are RWEnpower
customers.
(b) It operates in partnership with local
authorities, primary care trusts, housing associations and other
community based organisations and obtains grants and funds from
various sources including the Health Through Warmth crisis fund.
(c) Health Through Warmth has established
schemes operating in fourteen area and we attach the Press Release
(the third attachment, headed Swindon Post) on its extension to
Swindon in October of this year.
(d) RWEnpower has recently committed funding
to continue the Health Through Warmth scheme for a further two
years.
INVESTMENT
(a) RWEnpower is planning investments totalling
approximately £1 billion per year for the next 10 years in
the UK.
(b) Construction of a new modern gas power
station at Staythorpe in Nottinghamshire (1,650MW) will be completed
this year.
(c) The company has this week received consent
for a new £1 billion (2,000MW) gas fired power station at
Pembroke.
(d) The generation programme will reduce
by 2015 the amount of CO2 RWEnpower emits per unit of power generated
by 33% compared to 2000 levels.
(e) Last year RWEnpower renewables was granted
consent to construct a 750MW offshore wind farm at Gwynt-y-mor
off the North Wales coast, which will be one of the largest offshore
wind farms in the world. In addition a 90MW offshore wind farm
is currently under construction at Rhyl Flats, North Wales. npower
renewables currently operates the UK's first major offshore wind
farm at North Hoyle, off the North Wales coast Npower renewables
also has a 50% interest in Greater Gabbard, which plans to construct
500MW of off-shore wind capacity. npower renewables is also working
with marine energy technology partners to deliver new wave and
tidal stream power projects in the UK.
(f) RWEnpower has 75% stake in a company
which has successfully pre-qualified for the Government's CCS
Demonstration competition. The competition relates to the development
of a capture facility of up to 400MW. Independently RWEnpower
has already commissioned a separate test facility at its Didcot
station in Oxfordshire, capturing CO2 using both Post-Combustion
and Oxyfuel carbon capture methods. RWEnpower is also due to begin
construction next year of a CCS pilot plant at its Aberthaw coal-fired
station in Wales. The plant will be the first to capture CO2 direct
from a commercially operating power station in the UK.
(g) RWE and E.ON entered into a joint venture
in January of this year to develop new nuclear power stations
in the UK. The joint venture will aim to develop at least 6GW
of capacity in the UK. New nuclear build is a key part of RWEnpower's
commitment to meet the UK's energy needs and to reduce carbon
dioxide intensity.
(h) The UK has to replace a third of its
generating capacity in the next 15 years in a way that ensures
security of supply, reduces carbon emissions and keeps energy
as affordable as possible. At current run rates some 20% of coal
plant will be closed by 2015, having used up their remaining quota
of hours under the Large Combustion.
Plant Directive. The attached DECC Energy
Markets Outlook graph (the fourth attachment, DECC Slide) further
highlights, assuming no new construction, the security of supply
issues.
(i) The UK power industry needs significant
investment to replace ageing coal and nuclear plant and to drive
the change to a lower carbon economy. What is needed to encourage
such extraordinary levels of investment is stability, not further
changes to the market structure and its evolution or other intervention
that undermines confidence in the UK.
February 2009
Attachment 1
COMMODITY COST DATA
2007 to 2008 Indexed Commodity Cost Movements vs Retail Prices for Gas & Unleaded Petrol (Index = 100 at 01/01/2007)
Attachment 2
OFGEM GRAPH
Attachment 3
SWINDON POST
10 October 2008
ALL ABOARD IN SWINDON FOR A HEALTHY OUTLOOK
Prime Minister Gordon Brown attends official
launch of Health Through Warmth Scheme in Swindon
A double-decker helping of energy efficiency
was on offer when the Health Through Warmth bus arrived to mark
the launch of the npower Health Through Warmth scheme in Swindon
today.
Prime Minster Gordon Brown opened the official
launch event at the Sir Daniel Gooch Theatre at the Steam Museum,
with South Swindon MP Anne Snelgrove also on hand to help lead
the celebrations.
Since it started earlier this year in partnership
with Ridgeway Community Housing Association, Swindon Primary Care
Trust and Swindon Borough Council, the scheme has set out to help
improve the health, warmth and comfort of vulnerable residents
affected by cold and damp related illnesses in households across
Swindon.
The specially converted double-decker bus rolled
up to help raise awareness of the scheme, the problems faced by
vulnerable people and the measures available to them.
The bus has been designed to allow visitors
to experience first hand the cold, damp living conditions which
could put the health of vulnerable residents in Swindon at risk
this winter, while also demonstrating the measures provided by
the scheme to create a healthier, warmer home environment.
The scheme, delivered in partnership with Ridgeway
Care and Repair, works by training health and other community
workers (including nurses, police and firemen) who carry out home
visits to spot the signs of ill-health caused or aggravated by
living in cold and damp conditions. The local Health Through Warmth
co-ordinator then accesses the most suitable grants or other types
of funding, including charities and the dedicated npower Health
Through Warmth Crisis Fund, to ensure homes are properly heated
and insulated for eligible clients.
Health Through Warmth aims to improve the quality
of life, warmth and comfort levels of vulnerable residents in
Swindon whose health is adversely affected by living in homes
which are not properly heated or insulated. The scheme can help
people of any age whose health is being affected by their living
conditions and they do not have to be an npower customer.
Helen Bonner, Swindon's Health Through Warmth
Co-ordinator, based at Ridgeway Care and Repair Swindon, said:
"The Health Through Warmth bus is a fully interactive way
to find out more about the scheme, the measures available or how
to become a referrer to help identify vulnerable people in the
community. By alerting people to the contrast between cold, damp
homes and warm, efficiently heated homes, the bus tour will have
a positive impact on the health of people in the area".
Elaine Midwinter, Health Through Warmth scheme
manager, said: "Thanks to the support and commitment of all
the local partners involved we look forward to making Health Through
Warmth in Swindon as successful as it is in other areas of the
UK".
Since the launch of Health Through Warmth in
2000, the scheme has trained 15,000 referrers, received over 40,000
referrals and accessed more than £32 million of grants and
other funds for insulation and heating measures that help create
warmer, more comfortable and healthier homes.
The npower Health Through Warmth scheme is operational
in the following areas:
— East Riding of Yorkshire;
The Health Through Warmth scheme works in partnership
with Primary Care Trusts (PCTs) and local authorities within the
14 areas listed above. All vulnerable residents that are covered
by these PCTs or local authorities are entitled to help through
the scheme, regardless of whether or not they are an npower customer,
provided they have a cold or damp related illness and they are
referred by a trained community worker.
Community workers visiting people in their homes
as part of their day-to-day jobs are ideally placed to assess
circumstances so the most vulnerable can be reached through the
scheme. The local Health Through Warmth Co-ordinator in each area
the scheme covers then seeks grants and other funds to facilitate
the installation of the necessary energy efficiency and heating
measures to make homes warmer and more comfortable.
For further details about the areas covered
or more information about the Health Through Warmth scheme please
email healththroughwarmth@npower.com
Attachment 4
DECC SLIDE: ENERGY MARKETS OUTLOOK GRAPH
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