Memorandum submitted by RWE npower (EC 4)

 

 

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 8th 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.  

 

g)  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 £3.7bn.  For our part RWEnpower has increased its expenditure on its energy efficiency programme from £40m in the three years beginning April 2002 and £150m in 2005-2008 to £500m from 2008-2011.  At least 40% of this expenditure will benefit priority group customers.

 

c) RWE npower 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 p.a.

 

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 08/09 npower has increased its loft insulations by 160% compared to winter 07/08, and cavity wall insulations by 39%.

 

SOCIAL TARIFFS

 

a) The industry last year increased its expenditure on its social tariffs from £150m to £375m for the period 2008-2011.

 

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 p.a. from this winters bills (£125p.a. 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 RWE npower 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) RWE npower has recently committed funding to continue the Health Through Warmth scheme for a further two years.

 

INVESTMENT

 

a) RWE is planning investments totalling approximately £1bn 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 £1bn (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 npower 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) RWE npower 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 RWE npower has already commissioned a separate test facility at its Didcot station in Oxfordshire, capturing CO2 using both Post-Combustion and Oxyfuel carbon capture methods. RWE npower 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 RWE npower’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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attachment 2: OFGEM GRAPH

 

 

Attachment 3: SWINDON POST

10th 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.

 

Anyone who would like more information about Health Through Warmth in Swindon can call Helen Bonner on 01793 429292 or visit www.healththroughwarmth.com. Information and advice on energy efficiency is also available from Warm Front on 0800 316 2805 and the Energy Savings Trust (EST) on 0800 512 012.

 

 

ENDS

 

Notes to Editors:

 

For further information please contact Terry Gilligan, Kelly Gough or Hayley Sadgrove at Ptarmigan Consultants on 0113 242 1155 or email terry@ptarmiganpr.co.uk / kelly@ptarmiganpr.co.uk / hayley@ptarmiganpr.co.uk

 

Or

 

Nick McHugh / Sunita Patel in the npower press office on 01905 340 854 or email nicholas.mchugh@npower.com

sunita.patel@npower.com

 

 

The npower Health Through Warmth scheme is operational in the following areas:

 

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