Supplementary memorandum submitted by
Centrica (EEFP 21d)
DOMESTIC ENERGY
EFFICIENCY POST
2012
1. Under CERT, and its predecessors, suppliers
have consistently delivered the targets set for them. This has
led to significant energy savings, delivered at least cost. Suppliers
have competed with each other and there has been much innovation
for example the British Gas `Here to Help' scheme and Council
Tax rebate scheme, free lightbulb distribution driving consumer
acceptance of CFLs, products such as "standby savers",
and partnerships with major DIY retailers. This proven model can
be a foundation for successful delivery in future.
2. We will soon begin to move in to an era where
the lower cost measures begin to be exhausted, and higher cost
measures are needed to reduce the carbon footprint of homes. These
include, for example, solid wall insulation and microgeneration.
This brings a number of challenges:
— no one knows what the right delivery
mechanisms and customer propositions are to roll these out on
a mass scale;
— the industries which deliver these
measures are currently small and need to be dramatically scaled
up; and
— the higher inherent cost of these
measures means that cost control and fairness will become even
more important than they are today.
3. We believe that creating a central delivery
agency as mooted in the Heat and Energy Saving Strategy is not
necessarily the best way to tackle these challenges:
— Innovation to find the right model
would be more difficult—a single agency would tend to pick
a single model and then engage contractors to deliver it.
— Large players who are currently looking
to enter the market might be put off by a "tendering"
business model, as it would not play to their strengths of innovation
and customer engagement; this would prevent their expertise coming
in to scale up the industry.
— Cost would depend on a single buyer
hammering out deals with a panel of contractors; in a market where
the right delivery model is uncertain, there could be significant
variations in what contractors would be asked to provide, leading
to significant "cost to change".
4. We recognise that "house by house, street
by street" works very well for certain segments of the market.
For example, it is suitable where measures are being delivered
to social housing where the housing stock is very similar, the
usage patterns are similar, a fairly set menu of measures is required
and the owners (social landlords) prefer co-ordinated simultaneous
activity across areas of their stock.
5. However, we don't think that a central delivery
agency is a necessary condition for this approach. Under CESP,
suppliers and generators will deliver community schemes using
exactly this sort of approach.
6. Also, we believe that the "house by
house, street by street" approach has limitations:
— Given that the future model is uncertain,
specifying a single approach for all homes seems short sighted;
it would seem more likely that a variety of approaches for different
markets will be needed (e.g. different ownership patterns, less
uniform housing stock), and that a number of different approaches
to each of these may be tried before the industry hits on the
right one for each.
— Proponents of "house by house,
street by street" claim there will be economies of scale,
however scale economies are a result of enough work in any given
area to support an installer base and whilst this could be provided
by a high proportion of households in a single street, it is not
a prerequisite; the choice and combination of measures will be
bespoke to the individual property, so there will not always be
whole streets requiring a single set of measures; and a single
installer won't be able to fit every type of measure, and co-ordinating
one visit which delivers everything to each house in a street
needs seems like a very difficult logistical challenge.
— In fact, costs under this model could
in fact be higher_instead of targeting the most interested consumers
at key events (e.g. moving home, retiring, having a new baby)
the industry would be hitting the most and the least enthusiastic
at the same time, which will require deep discounts to all to
maximise roll out, thus driving up the cost.
— Customers want the freedom to choose
a contractor, particularly where they are contributing to the
cost of the measures and where the measures are intrinsic to the
fabric of the home (for instance, solid wall insulation or renewable
heat technologies)—this would seem counter to the "house
by house, street by street" approach.
7. The British Gas Green Streets programme demonstrated
the power of communities acting together. We see huge potential
for communities to play a significant role in energising communities
to take action on energy efficiency. However we believe we need
to engage with communities in the ways they want, recognising
that this will be different for different types of community.
This is likely to include working with local authorities and other
partners including community groups and voluntary organisations.
The delivery model could include a street by street approach,
but other approaches will need to run alongside and mandation
will not be the answer in every case.
8. Our fundamental belief is that a model in
which suppliers compete to find the right solutions for each segment
and deliver it at scale can best meet the challenges of tomorrow:
— Competition will drive innovation—and
the varied range of propositions available to the customer under
CERT will grow even further in the search for the right delivery
model for higher cost measures.
— Customers will welcome the freedom
to choose the company they want to deal with—and if they
want a hassle free one stop shop solution, the market can deliver
that too.
— Suppliers will help drive the rapid
professionalism and scaling up of the industry.
— Competition will maintain pressure
on costs, and the willingness to try different models and approaches
will mean that the most engaged consumers will be found first
at the key events in their lives, helping keep costs down for
all customers.
March 2009
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