Energy efficiency and fuel poverty - Environment, Food and Rural Affairs Committee Contents


Examination of Witnesses (Questions 121-139)

MR JIM MCDONALD, MR ALAN SMITH AND MR GEAROID LANE

10 DECEMBER 2008

  Q121 Chairman: Can I welcome everybody to the second of our three evidence sessions on our inquiry into fuel poverty and associated issues. Can I, for the record, welcome our first set of witnesses for E.ON UK, Mr Jim McDonald, the commercial director of the retail part of that business, for RWE nPower Mr Alan Smith, head of government and regulatory relations, and for Centrica, Gearoid Lane, managing director of British Gas New Energy. This is a subject with which you are very familiar. It is a subject which has been the focus of public attention for some time and yet, Mr Lane, in your evidence you said "Centrica believes that a fundamental review of the government's Fuel Poverty Strategy is therefore now necessary to ensure that the government's fuel poverty targets are reached." It is almost like saying everything we have done up to now has not worked so we better start again when you talk about a fundamental review. Let me ask you the reverse of that. What has been so fundamentally wrong in what we have done that now you are recommending a fundamental review, if by that I think you mean you are not going to hit the 2010 target and you hope to meet the 2016 target? Would you like to respond?

  Mr Lane: The starting point is to say that by saying there was a need for a fundamental review we were not trying to suggest that everything that had been done up until now has been worthless or indeed a failure but just a recognition that the Fuel Poverty Strategy was conceived and put together in 2001 which was a time when energy prices were at very different levels to where they are now. There was a much more benign pricing environment for energy and many other factors were different as well particularly in relation to security of supply. The concerns we have now are different to the ones we had then. We were a lot more comfortable as regards security as a nation back then and the focus on the need to deliver radical changes in respect of technologies for reducing CO2 emissions was lower than it is now. Against that backdrop it is widely recognised that the 2010 target is very unlikely to be met and the mix of policy instruments that we have might not be fit for purpose in delivering the 2016 target of elimination of fuel poverty. It was really with that in mind that we said it would be sensible rather than focusing around the edges of existing policy instruments to say should we look at the whole thing again and look at all the things we have and will deliver in 2016 or whether we need a different approach.

  Q122  Chairman: Do our other two witnesses share the same view that we are at a watershed moment and there needs to be a fundamental change? I was looking at Ed Miliband's speech entitled The Rise and Fall and Rise Again of a Department of Energy. He seems to be taking quite a robust line on the whole subject of fuel poverty; in fact the words used in the speech are rather less brutal than the interpretation given by some newspapers. For example The Times describes his approach as "a more muscular approach would be needed from the government to tackle the challenges of fighting climate change, curbing fuel poverty and securing long-term energy supply". I do not know whether you interpret that as a sea change moment in government policy which affects this area of fuel poverty but it would be interesting to have your reaction to what both Mr Lane and the Secretary of State have said.

  Mr Smith: What we do need is a road map that quantifies the scope and scale of the task, and with that in mind we do welcome the creation of the Department of Energy and Climate Change. Hopefully that will bring together the key policy areas of government as an enabler to take account of the energy policy objectives of sustainability, security of supply and affordability. We do need to achieve various different targets with different drivers, and we have touched on some of those: we have the 80% reduction in carbon that we need to do by 2050, we have the 20% renewable energy targets, and we have the fuel poverty targets. To date we have had a lack of a clear long-term action plan and the industry has experienced a set of relatively short-term obligations. Just as we get geared up to deliver one set of issues another target is set.

  Q123  Chairman: Do you mean by that the succession of EEC1, EEC2, CERT and now the new Community Energy Savings Programme?

  Mr Smith: That is exactly what I mean. Energy efficiency must be the long-term way to reduce and alleviate fuel poverty because it delivers year-on-year sustainable benefit, but we need a greater coordination of the programmes that currently exist which should avoid resource duplication and address some of the tensions that exist between carbon saving and energy efficiency.

  Q124  Chairman: Who should do all this? It sounds like a big job that has to be done in a great rush. If we are talking about 2016 and here we are in 2008 that is seven working years away. If people talk about fundamental change to achieve the redirection or coordination of policy that you delineated, it will probably take a year's work so that is six years to do it. We are already running out of time. Who is going to do all this?

  Mr Smith: I think we all need to do that.

  Q125  Chairman: When you say "we all need to do it", who do you mean by "we"?

  Mr Smith: Government and industry. Industry is set out to deliver many of the objectives that have been set and it is working with government. I think the relationship we have with government is very good.

  Q126  Chairman: If it is very good, why has it not delivered this coherence and coordination of policy which you just said needs to be improved?

  Mr Smith: In terms of the policy that has been set to date, we have always delivered on EEC1 and EEC2 and we will deliver on CERT. What I am saying is that at times there may be a tension within some of those policies; for example, with the priority group within CERT and EEC, the tension between delivering energy efficiency and then priority on fuel poverty issues. It is those sorts of things which need to be clarified and that is why I believe we are at a stage, particularly with the creation of DECC, where we should start working on a very clear road map.

  Q127  Chairman: If you have had all these excellent working relationships with government, why did you not say "Excuse me, we are on our third or fourth phase of this particular thing, could you clarify what the priorities are?" You very helpfully put before the Committee they need to be done now, but Mr Lane quite rightly pointed out you started off in 2001 on this programme and here we are in 2008, seven years on, craving clarification.

  Mr Smith: As we move on, it is a learning process.

  Q128  Chairman: It is a long time to learn about it. You, from the world of business, work against the background of very clear plans, that is what corporate management structure planning is all about, and if you were not quite clear what the aims and objectives of the policy was did you raise this with government during the previous period?

  Mr Smith: Of course we raised them with government but I think business would not on its own always have the same policy drivers and objectives that the government has. It is trying to make sure that we deliver what is right so that businesses can be competitive, that we can deliver things in an efficient way and that government also meets the objectives and targets which it sets itself.

  Mr McDonald: I will not repeat what has already been said as that would not be helpful. Can I turn the debate around very slightly from Gearoid's viewpoint? It is important that we turn around and focus on the customer who is the individual, at the end of the day, we are trying to make the change on behalf of. There are three important elements, and certainly we focus down as a business from that. Without any shadow of doubt energy efficiency is a fundamental part of that, and will be going forward. That is the sustainable solution to fuel poverty, however there are two other very important aspects of this we need to look into: one is there is already specific help out there in terms of government benefits that a lot of these people are not claiming at this point in time. We have access to that and we believe responsibility should sit with those who have the capability of delivering it. We have access to customers and one of the key things we have been trying to do is to ensure that in terms of fuel poverty that we make sure our customers actually are claiming what they are entitled to. I can give a quick example of that. Last year we went out on about 2,000 cases and in 1,000 cases we were able to help those people who were in fuel poverty. The average amount we were able to help them, which was not a contribution from us but was actually entitlement they were entitled to, was on average about £2,000 per annum. I think there is a duty, and we are happy to take it on, to get out to these customers and make sure that what currently exists we are utilising to an optimised basis to ensure that it is there. The third element is we need to focus then on those who are most at risk. I pull together in essence fuel poverty and energy efficiency. We want to certainly focus down on those most at risk from not being able to heat their homes during the winter and we are trying to focus down specifically on the elderly and those over 60.

  Q129  Dr Strang: We all agree that the industry and government collectively have to have multiple objectives in dealing with security of supply, affordability, tackling fuel poverty and our responsibilities in relation to climate change. I was interested in what was said about the timetable. I do not want to make a meal of this, Mr Smith, but you said long term in terms of energy efficiency in homes. The key clearly to fuel poverty, and Mr McDonald was implying this, is to tackle all these energy inefficient homes that many of our elderly constituents, and others who are disabled, are living in. I put it to you that the Warm Front Scheme could be doing so much more, if the ceiling was lifted at a time when the Chancellor is trying to spend a lot more money in the short-term and taking it from the future. Pensioners have great difficulty; they have to arrange for somebody to come, they have to lift their carpets, and all this sort of thing, before somebody can come to do it. If somebody took a grip of this and said we are going to put up the ceiling, we are going to put more money into this. We know we will get more work in relation to this for the industry and jobs in the construction sector. We should be doing that now. This is a chance surely to actually bash on with getting people into these houses and getting work done and paying the bill afterwards.

  Mr Lane: If I could pick up in answer to that. There was a question asked earlier in this inquiry around whether CERT has been a success in that context and I guess some of the responses were somewhat negative in that respect. I would turn that around and say that EEC and EEC2 and CERT had two very specific policy objectives: to fund amounts of energy efficiency measures and carbon emission reduction measures and to a deliver a certain proportion of those to people in fuel poverty or to a priority group of people on benefits and now people over 70. It is important to note that despite a doubling and then doubling again of the size of those objectives no single supplier has ever failed to deliver that objective. I would say, from that point of view, CERT has been an unqualified success and EEC also. I would also point out that it has been further evidence of success in terms of the early delivery that we have seen by most suppliers of their obligations which has brought forward the measures more quickly than government might have expected. It has been a highly cost effective means of them delivering the simplest and most effective energy efficiency measures, i.e. cavity wall, loft insulation and lighting. Suppliers have been able to innovate to find the types of solutions that you were talking about. For example, our Here to Help scheme pulls together a multi-agency approach involving ourselves, five different charity partners and the local authority in any particular area to deliver a much more coherent response to those citizens. I think that is what you are talking about, that kind of more coherent response. In addition to that, I would say that the levels of customer satisfaction we have seen in the millions of people to whom measures have been delivered have been very, very good. The Warm Zone and Warm Front programmes are different programmes that are meant to be deeper and narrower and provide a very holistic response to a much smaller number of householders. I think over the six years about half a million homes have been dealt with whereas CERT and its predecessors have been shallower but much broader. The new Community Energy Saving Programme, which we are now about to hear the details of, will be a further example of a programme that takes that whole community whole house approach looking right across the piece and including benefits assessment. I would say there is a place in tackling energy efficiency for all of these programmes, and CERT, in that context, has been a very important part of the policy mix.

  Q130  Dr Strang: I make the point that housing is fundamental to this. The reality is there is social housing both north and south of the border, a lot of Housing Association houses really in need of proper insulation. Surely the energy industry and the suppliers can at least do their best to help raise the profile and get some action from yourselves and everyone including the local authorities and central government, the Scottish government and the Welsh Assembly, on housing.

  Mr Lane: We have delivered millions of home insulation jobs.

  Dr Strang: It is a matter of how can you can deliver in the next couple of years.

  Q131  Chairman: Are any of you involved in an initiative I heard recently announced by Dame Tanni Grey-Thompson, who set up an organisation under the heading of Home Heat Help where you ring up a line and it is focused particularly on families, I think I am right in saying, with people who have a disability. It has attracted quite a large sum of money to promote help. I thought it was a most laudable objective but I was concerned that it was an indicator to us, with our public programme and the programmes you have been following, that there is still an awful a lot of unmet need, of people unaware of what help exists who are fuel poor. Is that a fair assessment? Have you done any work to identify the unmet need amongst the fuel poor of access to the schemes of which you have been talking?

  Mr McDonald: With regard to your first point, I think that contact is via the ERA so I am sure is does involve us but I do not have any specific knowledge of that. You raise a very valid point, and I made the point earlier, that capability should sit with responsibility. As energy companies we do have the capability of accessing those specific customers with specific needs. For example, from an E.ON point of view, we are working very closely with Age Concern again to identify the over 70s. We have sent out a direct proactive communication to those over 70s who we think actually are using less gas than we would expect to be able to keep the house warm and offering them direct energy efficiency advice as well as a warm assist product which is a 15% discount. I do think, without trying to say E.ON is doing all this, it is fundamental that we target down on those who are most at need and we go out and identify them. We are doing a lot on it and I am sure there is more we can do.

  Q132  Chairman: E.ON as a company is involved in other European Union countries. Most of our focus has been looking at fuel poverty as a United Kingdom issue but I cannot believe that there are not fuel poor elsewhere within Europe. Do you have any experience of other programmes outwith the United Kingdom which are judged to have been more effective in dealing with this type of problem than the programmes we have been following here?

  Mr McDonald: I must apologise I do not. However, we do operate, as you say, in other countries. If you wish we will look into that and supply a written report.

  Q133  Chairman: It would be very helpful. I do not know if you have anything to add on that point, Mr Smith.

  Mr Smith: No. The German market is very different to the market in the UK and we have not drawn too many comparisons with our views here.

  Q134  Chairman: Should the focus in dealing with this matter from the government's standpoint be on income, because what we are talking about is a ratio between people's incomes and the price or the amount they spend on energy? You could be in an absurd situation of still having people in numerical fuel poverty even though they were living in totally beautifully insulated homes. Should the emphasis be on raising the income or dealing with the energy aspects either by price or efficiency?

  Mr Lane: I would observe that to try to simplify fuel poverty into one particular driver will inevitably narrow the focus too much. Fuel poverty is a complex combination of the fabric of the home, the price of energy and the income of the family and unless you focus on all three then you will get a suboptimal response particularly across an economical cycle where sometimes energy will be cheaper, sometimes it will be more expensive, sometimes there will be more or less unemployment. Unless you look across all three aspects you do not get the right answer and that is why a more fundamental review is called for. If you look at income maximisation, for example, you have winter fuel payments as something that is helping to deal with the denominator rather than the numerator but I am sure much could be done, if you were looking in a more holistic way, of reforming the Winter Fuel Payments to make sure they are more targeted and more directed on the people who need it most and on the energy needs.

  Chairman: What I will say to all three of you, as your first piece of homework if I may give that to you today, is would you be kind enough to very rapidly send us what the agenda for the first meeting of the fundamental review should look like. What would be on your agenda and who would you invite to come around the table to conduct the review, obviously including your good selves?

  Q135  Lynne Jones: In terms of the input that your companies can give to such a review or to the road map, as Mr Smith referred to it earlier—I do not know whether that was just your own terminology but it was something that our witnesses on Monday raised—have your companies made any estimate about what order of magnitude of expenditure needs to take place to meet the government's targets both in terms of eliminating fuel poverty amongst, first of all, vulnerable households and then households in general?

  Mr Smith: I am not sure that our company has done that. What we have done is we have looked at the FPAG 2007 report that estimated that in order to eradicate fuel poverty you needed to spend in the order of £1 billion per year from now until 2016. I think that was clearly based on lower prices so that will have gone up significantly.

  Q136  Lynne Jones: That was just on Warm Front.

  Mr Smith: I would have thought it was more than Warm Front if it is to eradicate fuel poverty.

  Q137  Lynne Jones: With CERT we are spending that sort of figure.

  Mr Smith: Absolutely. In terms of the companies, the total financial commitment in energy efficiency and fuel poverty alleviation that the vertically integrated companies and generators are going to do over the next three years is closer to £4 billion. We do believe that we are playing our part in funding many of these measures and we need to look and see how we can get a more joined up approach with government on some of these issues. We have talked about some of them already in terms of increasing the Warm Front budget for future years and simple better targeting of the Winter Fuel payment to those who need it, and possibly improving the processes to ensure that the estimated £10 billion per annum from income-related benefits is actually paid to those who need them. There are those fairly straightforward issues that can be dealt with on the income side which would also be a good way of addressing some of the fuel poverty issues.

  Q138  Lynne Jones: The companies are contributing through CERT, or perhaps more correctly your customers. We know that the reason the government's fuel poverty targets are way off course is because of the huge rise in fuel costs. Although there has been a huge rise in fuel costs there has also been a huge rise in the profits of your companies. Are your companies doing enough? Clearly we have to gear up in this area to a higher order of magnitude than we are currently spending if we are going to achieve those targets. What more can the energy companies do? What scope is there from the money you are making, or appear to be making, to actually do more?

  Mr McDonald: Could I just pick up on one point from an E.ON viewpoint? From the point of view of profitability, our profitability is 25% down this year as opposed to up and as a retail division we will not be reaching money from that.

  Q139  Lynne Jones: What about the year before?

  Mr McDonald: That, in essence, is what I am saying. I do not want that to detract from the correct sentiment that you are making. Can I turn round to what we are doing? There is a huge investment and we are probably not particularly good at getting out there to say exactly what we are doing to help. That does not mean to say there is a lot more, of course there is, from that. From an E.ON perspective over the next three years we will spend between £450 million and £500 million on the insulation on CERT. This year there is a three-fold increase in terms of insulations and we are very much trying to target those who are most at risk at this point in time. We have also committed £56 million over the next three years in terms of social programmes to try to alleviate those most at risk of fuel poverty. Over and above that, we have particular measures through Age Concern on Winter Fuel Payments through them and particularly social programmes that sit behind that as well. It is very difficult for me to give you an answer to say is that enough; all I can say is it is a huge amount from that perspective.


 
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