3 Resourcing programmes
Current programme expenditure
122. Table 2 summarises the budget and funding sources
for the main income, price and energy efficiency programmes as
at March 2009. Over the next three years the Government and energy
supply industry are set to spend around £6.5 billion on Britain's
housing stock, including funding energy efficiency schemes such
as CERT, CESP and Warm Front. A further £2 billion is budgeted
for energy efficiency programmes in social housing stock under
the broader Decent Homes programme.[162]
123. CERT, Decent Homes and Winter Fuel Payments
have the largest budgets, although only a proportion of the expenditure
of these programmes will go directly to tackling fuel poverty.
Table 2:
Key fuel poverty programme expenditure and budgets
Programme | Expenditure
2007-08
| Budget
2008-2011
| Who pays? |
ENERGY EFFICIENCY
|
Warm Front | £350 million.[163]
| £959 million.[164]
| Government. |
Carbon Emissions Reduction Target (CERT)
| £700 million spent by energy companies in 2005-08 under Energy Efficiency Commitment.[165]
| £3.36 billion[166] of which £1.9 billion is to be spent on the "Priority Group."[167]
| Energy supply industry able to pass on costs to customers.[168]
|
Community Energy Saving Programme
| Not applicable. | £350 million.[169]
| Energy industrygenerators and suppliers.
|
Decent Homes | Not identified separately.
| £2 billion.[170]
| Government. |
INCOME SUPPORT
|
Winter Fuel Payment |
£2.071 billion.[171]
| £2.7 billion for 2008-09.[172]
| Government. |
Cold Weather Payment |
£4 million.[173]
| Weather dependent.
Estimated £209 million for 2008-09.[174]
| Government. |
PRICES |
Social tariffs | £33.87 million (from a total spend of £57.12 million on social initiatives).[175]
| £375 million on all social initiatives.[176]
| Energy supply companies.
|
Source: Information in this table is derived from
a number of different sources. See footnotes.
Scale of funding required
124. We heard a range of views on the level of investment
necessary to meet the Government's 2010 and 2016 fuel poverty
targets. FPAG suggested that around £1bn a year would be
needed between 2008 and 2016 but noted that the figure was dependent
on fuel prices.[177]
The Committee on Climate Change estimated that it would cost £500
million annually to take the additional 1.7 million households
that could be in fuel poverty by 2022 as a result of climate change
mitigation policies back out of fuel poverty and mitigate the
impacts on those already in fuel poverty. The CCC's analysis noted
that while there is scope to remove almost 400,000 households
from fuel poverty through energy efficiency improvement, "continuation
of current arrangements where costs of energy efficiency improvements
are added to energy bills could increase the number of households
in fuel poverty by over 400,000, more than offsetting the initial
gain".[178]
125. In May 2009 the Centre for Sustainable Energy
and the Association for the Conservation of Energy estimated that
it would cost £3 billion annually over seven years to raise
fuel poor households to the SAP 81 (or Energy Performance Certificate
Band B) level necessary to remove most households from fuel poverty.
They considered that this would require a "three fold increase
in current annual expenditure" on energy efficiency programmes
aimed at the fuel poor.[179]
126. Dr Boardman of the Environmental Change Institute
told us that getting the five million households in fuel poverty
up to a SAP rating of 81 would cost around £5 billion a year
although she referred to the Energy Saving Trust view that costs
could be up to £8 billion per annum for 2009-2016 inclusive.[180]
However she noted that "an annual expenditure of £4.7
billion [
] is about four times more than current expenditure
on energy efficiency improvements by the Government and utilities
combined, but only 50% more than the cost of all fuel poverty
programmes (including Winter Fuel Payments)".[181]
127. The Minister told us that to get all households
up to a level of SAP 81, at a cost of £7,500 per household,
would mean "a programme in the order of £25 billion"
and "frankly at the moment that is unrealistic".[182]
In a subsequent debate on the floor of the House she revised that
figure upwards to £50 billion.[183]
128. We consider around £4 billion a year
over the next seven years to be a realistic estimate of the cost
of raising the energy efficiency levels of fuel-poor households
to SAP 81, sufficient to remove the majority of households from
fuel poverty. This would require nearly a trebling of current
funding for energy efficiency programmes directed at fuel poor
households. However redirecting other "fuel poverty"
programme funding into energy efficiency measures would reduce
the need for additional public money.
Balance of funding responsibilitiesenergy
supply industry and Government roles
129. Defra's Departmental Report for 2008 stated
that the increase in CERT activity and the ongoing commitment
to Warm Front meant that spending on energy efficiency and other
measures in low-income, elderly and disabled households was "expected
to rise, by £680 million to around £2.3 billion"
in 2008-12 compared to the previous spending period.[184]
Subsequently, in September 2008, the Prime Minister announced
that the CERT investment target would increase by £560 million,
an increase of 25% over three years.[185]
However it was not made explicit that much of this programme would
require an increased contribution from all fuel users.
130. The majority of the energy supply companies
recognised their role in tackling energy efficiency, however,
they differed in how this should be framed in future. E.ON UK
said that it would "expect suppliers to continue to have
a central role in delivering solutions",[186]
but it argued that Government should determine who was eligible
for support and the extent to which it was "appropriate to
fund these benefits either from taxation or from raising costs
for customers as a whole".[187]
The company believed the current balance of funding to be reasonable.[188]
131. RWE npower did not consider it sensible or sustainable
for energy companies uniquely to make financial contributions
to deal with social issuessuch as general deprivation and
poverty.[189]
It agreed with Ofgem that the Government
should take primary responsibility for addressing poverty because
obligations on the energy companies "markedly increase the
complexity of the business and potentially deter new entry [and]
distort competition".[190]
As examples RWE npower cited that "the retail obligation
is not borne by domestic oil suppliers" and that "the
CESP obligation is borne by producers of electricity, but not
producers of gas".[191]
132. Similarly Centrica recognised its role in tackling
fuel poverty and climate change, but considered that fuel poverty
was "part of a wider problem of poverty and social exclusion"
which were issues for the Government.[192]
DECC stated that "the Government is strongly of the view
that energy companies also have an obligation to customers that
runs wider than simply the generation and supply of energy at
competitive prices".[193]
133. Several energy companies referred to practice
overseas. The German Government, for example, provides heating
benefits to those receiving benefits or on very low incomes. Long-term
unemployed and welfare recipients have the full the cost of heating
paid by the Government.[194]
Similarly in Romania local authorities provide vouchers towards
the cost of winter heating bills to low income households.[195]
134. Whilst it is right that energy companies
contribute to improving the overall energy efficiency of the UK
we believe that policies designed to address fuel affordability
should be funded from general taxation.
Transparency of funding sources
135. The regulatory impact assessment for the original
CERT scheme gave an average annual cost borne by the customer
of £38.[196] The
extension of CERT announced in September 2008 added around £4
per annum to that sum, according to Consumer Focus, and the new
CESP programme added a further £1.20,[197]
to give an average annual figure of £43.20 for each dual
fuel customer.
136. The actual costs of delivering CERT will vary
from supplier to supplier, and are commercially sensitive. We
were told that the Defra/Ofgem figure of £38 was broadly
correct (see Table 3). Ofgem's energy supply probe noted concerns
about lack of transparency in the recharging to customers of energy
efficiency programmes.[198]
Ofgem recommended that "companies should produce more financial
information and do more regular financial reporting so that it
is much clearer how costs are being transferred through the business".[199]
The regulator, however, does not monitor companies' actual spend
on CERT. A Defra review has suggested that suppliers have been
able to comply with their obligations at roughly 20% below the
cost in the impact assessment for the programme.[200]
Ofgem considered it a judgement for energy companies whether to
increase bills.[201]
137. Consumer Focus noted that there was "no
mechanism to prevent suppliers passing the additional costs of
these programmes onto consumers through increased bills, despite
the Prime Minister claiming that he did not 'expect the £910
million [
]to be passed on to the consumer by the energy
companies' ".[202]
Gearóid Lane, Managing Director of British Gas New Energy,
told us that there was no policy of passing all the costs of CERT
to the customer.[203]
138. According to Ofgem, supplier obligations such
as CERT and the Home Energy Saving Programme (HESP) could "result
in increases to energy bills and therefore can be regressive,
impacting most on low income and fuel poor consumers".[204]
CERT's Priority Group mechanism is designed to mitigate this impact
but Ofgem said that a significant number of fuel poor will be
"paying for the costs of these programmes and not receiving
any benefits".[205]
The Energy Saving Trust supported greater public expenditure as
it is less regressive.[206]
FPAG considered the regressive nature to have been exacerbated
by the rebalancing[207]
of CERT.[208]
139. After 2011 there will be a "very limited"
number of cost effective measures available for installation in
the priority group post-2011. Ofgem warned that the Government
would have difficulty requiring suppliers to target "such
a high proportion of the scheme's activity on the low income group
in future".[209]
The regulator warned that in such circumstances the Government
would have to ensure that low income and fuel poor consumers were
adequately protected. Centrica said that "CERT should remain
the predominant vehicle for delivering domestic energy efficiency
measures", but added that there should be commercial incentives
for suppliers to go beyond their regulated target.[210]
140. The Parliamentary Warm Homes Group considered
that CERT "should be paid for out of central taxation",[211]
a view echoed by Ofgem who told us that revenue raised through
the general tax system was more progressive and would have less
adverse impact on those in fuel poverty".[212]
The regulator recommended additional funding come from "recycling
revenues from environmental schemes" such as the EU Emissions
Trading Scheme.[213]
141. Help the Aged considered CERT funding has reached
its limit and referred to the scheme as "bribing people with
their own money" but "with few people having any understanding
of what their supplier may be prepared to offer by way of help".[214]
142. Centrica noted that "suppliers will aim
to meet their carbon target in the most cost-efficient way, something
the programme was designed to achieve as clearly this limits the
impact on customers' energy bills".[215]
RWE npower referred to the Ofgem view that the costs of CERT were
"legitimate components to be considered when setting prices",[216]
and E.ON UK said that "the costs of our CERT obligation form
part of our operating cost base and, as with any business, we
aim to cover our costs and make a profit".[217]
143. Table 3 below provides details of the average
annual costs charged to customers for environmental schemes.Table
3: Household energy bill components 2008
SCHEME | COST PER CUSTOMER
|
EU Emissions Trading scheme
| £31 (electricity bills only) [218]
|
Renewables Obligation |
£10 (electricity bills only)
|
Carbon Emissions Reduction Target (CERT)
| £38 (combined cost for both electricity and gas bills)
|
Source: Ofgem "Household energy bills explained,
Factsheet 66", January 2008.
144. In our report Climate change: the "citizen's
agenda" published in July 2007 we called for better billing
to be in place within the next 12 months incorporating "not
only energy consumption in kWh, but how this related to cost,
carbon dioxide emissions, and with individual historical usage
to help consumers make informed decisions about energy use reduction
and efficiency savings".[219]
AWARENESS OF SUPPORT
145. The Energy Saving Trust plays a leading role
in promoting energy efficiency and renewables to the domestic
household sector. Supported through grant funding from Defra£29.1
million in 2007-08it provides domestic energy efficiency
advice through its network of advice centres and works in partnership
with local organisations such as local authorities. The Government's
Heat and Energy Saving Strategy plans to "roll out a Home
Energy Advice Service".[220]
146. There are concerns about how a lack of awareness
of the assistance available under Government and industry schemes
impacts on take-up of grants. Information from the Energy Retail
Association shows that there is a low awareness of the availability
of help through schemes such as CERT. In a survey undertaken in
2008, 32% of respondents were unaware that "there are grants
available to fit free or reduced cost home insulation and other
energy saving measures".[221]
147. There is a lack of clarity about what companies
are spending on CERT and to what extent this expenditure is being
recouped from customers. Equally customers are largely unaware
of the assistance available to them under the scheme. We called
over two years ago for action to clarify information on fuel bills
and have been disappointed with the lack of consistent action
from the energy supply industry in response to this.
148. We recommend that Ofgem requires all energy
suppliers to apply improved and consistent standards for the provision
of information on bills. Bills must include a clear breakdown
of the costs per household of CERT, so as to give every indication
of the cost/benefit of this intervention, as well as giving a
cost per household of other programmes required by the regulatory
regime such as the European Emissions Trading Scheme and the Renewables
Obligation. Billing must also provide signposted information to
encourage customers to take up home energy assistance available
under its CERT scheme.
149. We recommend that Ofgem requires energy companies
to report annually on the expenditure undertaken to meet CERT
or its successor programmes. This information should show clearly
the proportion of spending funded by both the company and its
customers.
Windfall tax on energy companies
150. The free allocation of EU Emissions Trading
Scheme permits is potentially worth around £2 billion per
year to electricity generators.[222]
Several organisations have recommended a windfall tax against
that benefit, to be used for funding home energy efficiency schemes.
Friends of the Earth recommended that in addition to a windfall
tax the auctioning of permits should be "used to help sustain
this fuel poverty programme".[223]
Centrica also told us that the revenue accrued from the sale or
auctioning of carbon emission allowances should be "used
in areas of fuel poverty or delivering low carbon or zero carbon
technology".[224]
151. Scottish and Southern Energy, however, referred
to a report by Morgan Stanley which said that "there was
no windfall in energy supply, and that the carbon allocations
received by energy generators had been put to good use through
subsidising customers' fuel bills, and investing in new generation
capacity".[225]
The Minister told us that the Government was not in favour of
a windfall tax at present but that such a tax could be considered
in the future.[226]
152. It is not clear whether Ofgem has sufficient
access to the energy companies' financial information. We received
conflicting evidence on this from Ofgem who told us "we do
have powers that we use in our energy supply probe exactly to
get all the detailed information that we need from companies",[227]
yet also that "there are some areas where we are seeking
additional powers [
] in respect of the wholesale gas and
electricity market we want to have additional powers that tackle
market abuse".[228]
153. We are concerned that Ofgem has been slow
to address failings in some parts of the energy market and has
not communicated clearly to customers what steps they and energy
companies have taken to ensure prices for all customers are kept
as low as possible.
162 "Save money, Save Energy; Government takes
action on family fuel bills", Defra news release, 11 September
2008. Back
163
Report by the Comptroller and Auditor General, The Warm Front
Scheme, HC 126 (2008-09), p 10. Back
164
Report by the Comptroller and Auditor General, The Warm Front
Scheme, HC 126 (2008-09), p 11. The £959 million breaks
down into £395 in 2008-09, £369 in 2009-10 and less
than £200 million in 2010-2011. Back
165
"Energy efficiency key facts", Energy Retail Association,
web pages, www.energy-retail.org.uk/energyefficiency Back
166
Information on household energy efficiency, Defra website. http://www.defra.gov.uk/environment/climatechange/uk/household/supplier/cert.htm Back
167
Department of Energy and Climate Change, Amendments to the
Carbon Emissions Reduction Target Consultation Proposals,
February 2009, p 14. Back
168
"Updated household energy bills explained", Ofgem Factsheet
66, January 2008. This explains that in 2008 a customer using
gas and electricity would have paid on average £38 towards
the CERT programme. This is prior to the September 2008 announcement
of a 20% extension of the CERT obligation. Back
169
Department of Energy and Climate Change, Community Energy Saving
Programme Consultation Document, February 2008, p 5. It should
be noted that the Government is proposing that the CESP and CERT
programmes should run until the end of 2012. Back
170
"Save money, Save Energy; Government takes action on family
fuel bills", Defra news release, 11 September 2008. In addition
the April 2009 Budget announced £100 million to improve insulation
in 150,000 social homes. HM Treasury, Budget 2009, Building
Britain's Future", HC 407, April 2009, p 140. Back
171
HC Deb, 10 February 2009, col 1806W Back
172
HC (2007-08) 1099, Ev 13 Back
173
HC Deb, 10 February 2009, col 1806W Back
174
HC Deb, 20 March 2009, col 1201 Back
175
Ofgem, Monitoring Suppliers' Social Programme 2007-08, December
2008. Back
176
HC Deb, 13 January 2009, Col 550W. £100 million 2008-09,
£125 million 2009-10, £150 million by 2011. Back
177
HC (2007-08) 1099, Ev 5 Back
178
Committee on Climate Change, "Building a low-carbon economy-the
UK's contribution to tackling climate change", 1 December
2008, p 395. Back
179
Report to Consumer Focus by the Centre for Sustainable Energy
and the Association for the Conservation of Energy, Raising
the SAP: Tackling fuel poverty by investing in energy efficiency,
May 2009. Back
180
Q 12 Back
181
HC (2007-08) 1099, Ev 123 Back
182
Q 331 Back
183
HC Deb, 20 March 2009, col 1206. The £50 billion figure is
the cost of achieving a SAP 81 rating for fuel poor households,
except for hard to treat homes where a SAP 69 level is assumed. Back
184
Defra, Departmental Annual Report 2008, Cm 7399, May 2008,
p 19. Back
185
"Save money, save energy: Government takes action on family
fuel bills", Defra press release, 11 September 2008. Back
186
HC (2007-08) 1099, Ev 27 Back
187
HC (2007-08) 1099, Ev 25 Back
188
HC (2007-08) 1099, Ev 27 Back
189
HC (2007-08) 1099, Ev 32 Back
190
Ibid Back
191
Ibid Back
192
HC (2007-08) 1099, Ev 62 Back
193
Ev 65 Back
194
Ev 36 Back
195
Ev 34 Back
196
Q 206 Back
197
HC (2007-08) 1099, Ev 15 Back
198
Ofgem launched a study in February 2008 of the functioning of
competition in the British electricity and gas retail supply market
for domestic and Small and Medium Enterprise consumers. Initial
findings were published in October 2008. http://www.ofgem.gov.uk Back
199
Q 204 Back
200
Q 208 Back
201
Q 206 Back
202
HC (2007-08) 1099, Ev 15 Back
203
Q 152 Back
204
HC (2007-08) 1099, Ev 49 Back
205
Ibid Back
206
HC (2007-08) 1099, Ev 107 Back
207
The EEC scheme, which preceded CERT and ended in 2008, required
at least half of the energy savings to have been generated by
work with the "priority group"-households in receipt
of certain income-related benefits or tax credits. The proportion
of savings from the priority group under CERT was reduced to 40%
but the criteria for inclusion in the priority group were expanded
to everyone over 70 regardless of their income. Back
208
HC (2007-08) 1099, Ev 4 Back
209
HC (2007-08) 1099, Ev 49 Back
210
HC (2007-08) 1099, Ev 63 Back
211
HC (2007-08) 1099, Ev 88 Back
212
HC (2007-08) 1099, Ev 49 Back
213
Ibid Back
214
HC (2007-08) 1099, Ev 97 Back
215
Ev 32 Back
216
Ev 38 Back
217
Ev 35 Back
218
Average cost to typical domestic customer using 3,300kWh. Back
219
Environment, Food and Rural Affairs Committee, Eighth Report of
Session 2006-07, Climate change: the "citizen's agenda",
HC 88, para 89. Back
220
Department of Energy and Climate Change and Department for Communities
and Local Government, Heat and Energy Saving Strategy Consultation,
February 2009, p 30. Back
221
"Most Britons waste energy despite credit crunch", Energy
Retail Association press release, 9 December 2008. Back
222
Business and Enterprise Committee, Seventh Special Report,
Energy prices, fuel poverty and Ofgem: Government Response to
the Committee's Eleventh Report of Session 2007-08, HC 1069. Back
223
HC (2007-08) 1099, Ev 80 Back
224
Q 158 Back
225
Ev 92 Back
226
Q 362 Back
227
Q 209 Back
228
Q 238 Back
|