Memorandum submitted by E.ON UK plc (FP
33)
SUMMARY
— We believe that energy suppliers can
play a key role in helping our most vulnerable customers receive
the support they need to adequately heat their homes.
— The support may come from a supplier
led scheme or be government funded, but must provide a solution
for all customers. For this to be affordable, Government must
now look at a more targeted, effective and sustainable way of
supporting customers in fuel poverty, which offers a solution
to those customers who are more severely fuel poor.
— Where customers in fuel poverty are better
able to help themselves, we call on the Government to use the
availability of social price support to encourage customers to
take up energy efficiency measures. This must be supported by
data-sharing to ensure that support is well-targeted.
— For those customers who are more severely
fuel poor, spending more than 20% of income on energy and may
have been in fuel poverty for a long period, a holistic package
of measures, covering energy efficiency, income levels and support
with energy costs, to improve their quality of living will be
necessary.
— Work that we are currently undertaking
shows that partnership working, including local authorities, local
community groups, the third sector and energy suppliers, is essential
to ensuring that effective and efficient support reaches the most
severely fuel poor.
— It is important to consider how the funds
required to provide support to those in fuel poverty will be raised
in the future. The broader customer base will see an increase
to their energy bills as a result of a number of different Government
schemes and levies. We would propose the Government adopt a fairer
and more progressive approach to the funding of their low carbon
and social obligations. Social price support should be effective
for those that receive it and fair for those who fund it.
INTRODUCTION
1. The latest Government fuel poverty statistics
showed that there were 4million people in fuel poverty in the
UK in 2007, an increase of 2 million since 2003 and, within this
group, there is a wide variation in the severity of fuel poverty.
2. Fuel poverty is a complex issue arising
from a simple problem—the inability to adequately heat one's
home. There are three main drivers of fuel poverty—inadequate
household income, low energy efficiency levels and high energy
(unit) costs—and it is useful also to consider a fourth,
whether the property is the appropriate size for the number of
people living in it. This complexity means that there cannot be
a "one size fits all" solution to tackling fuel poverty.
3. It is important to consider the value
of working closely with customers in severe fuel poverty and providing
a holistic package of measures, rather than merely short term
financial support. For example, benefit entitlement checks could
provide additional support in the region of £1,000[96]
per annum, energy efficiency improvements could see a reduction
of £360[97]
on the average energy bill, whereas financial support for vulnerable
customers may be less than £150.[98]
4. Work that we are currently undertaking
shows that partnership working, including with local authorities,
local community groups, the third sector and energy suppliers,
is essential to ensuring that effective and efficient support
reaches the most severely fuel poor.
5. It is also important to consider how
the funds required to provide this level of support to those in
fuel poverty will be raised in the future. The broader customer
base will see an increase to their energy bills as a result of
a Government levy for a mandatory social price support scheme.
It is important that this is levied in a way that is fair and
transparent.
6. As we expect wholesale energy prices
to continue to rise in the long term, resulting in more customers
being categorised as fuel poor, it is vital that the Government
now looks at a more targeted, effective and sustainable way of
supporting customers in fuel poverty.
Supporting our most vulnerable customers
7. We are committed to helping our most
vulnerable customers who may be in fuel poverty and we offer a
range of sustainable measures including energy efficiency advice
and measures, benefits entitlement checks, and discounted tariffs.
In 2008-09, we increased our spend on social assistance to £20.1
million and our expenditure per customer account on our social
programme was the second highest of the main energy suppliers.[99]
8. Our key beliefs are that:
— the most effective and sustainable way
of tackling fuel poverty is through improving the energy efficiency
of housing; resources should be focused on these measures; and
— effective targeting is needed to ensure
that support is focused on the severe fuel poor.
9. We develop these themes further below.
Progress against Government targets
10. Government has a variety of targets
relating to fuel poverty:
(a) To eradicate fuel poverty by 2016
as far as reasonably practicable;[100]
(b) To improve homes, eg through CERT
Priority Group, CESP, WarmFront and Decent Homes;
(c) To increase spend eg by suppliers
on social programmes.
11. The targets for delivery (b) and (c)
are being achieved. Suppliers, as the principal delivery agent,
are due to increase activity between 2008 and 2012 from £600
million per year[101]
to over £1 billion per year.[102]
The question is not over how much is being done, but whether activity
is as well targeted as it could be at the fuel poor, in particular
on the most severely fuel poor.
12. This uncertainty in part arises from
the lack of clarity as to what the first target really means.
It seems clear that the resources are not available to fully fund
the housing improvements necessary to eradicate fuel poverty but
Government has to decide what it perceives as reasonably practicable
in a strategy to eradicate fuel poverty. The strategy must therefore
recognise different customer circumstances and be clear on what
is reasonably practicable for each segment. For instance, the
difference between owner occupiers and tenants, between pensioners
and those more able to choose where to live, between those where
higher than average energy need is the principal factor, and those
where it is lower income. Above all, it is important to recognise
differences in customers' ability to help themselves and so ensure
that support reaches the most vulnerable.
The definition of households in fuel poverty commonly
used—ie those households where more than 10% of income has
to be spent on fuel for adequate heating.
13. The simple fuel poverty definition obscures
the severity of fuel poverty for some households, who may need
to spend more than 20% of their income on heating their home and
may have been fuel poor for some time. This group of customers
is in greatest need of financial support, to alleviate fuel poverty
now and to protect them from the future cost of measures to support
investment in a low carbon economy.
14. Furthermore, it is important that problems
with the current fuel poverty indicator are recognised. In the
fuel poverty indicator calculation, an additional £100 has
a value of £100 if classified as a negative fuel cost but
of only £10 if classified as an increase in income. For the
average low income customer, a rise in fuel costs may be covered
by indexation of benefits (albeit with a lag), but still show
as an increase in the numbers in fuel poverty. For the severely
fuel poor customer, the same rise will be much more serious, and
yet not show in any current measure.
15. It is not necessary to change the definition,
but these limitations should inform the debate on what is reasonably
practicable for each segment.
The coherence of the Government's initiatives
on energy efficiency
16. The most effective and sustainable way
of tackling fuel poverty is through improving the energy efficiency
of housing which allows either consumers to reduce their fuel
costs or to achieve a higher level of warmth at the same cost.
The potential savings are greater than is likely to be affordable
in price support, and are sustained.[103]
Resources will be targeted at those in lower standard housing
and hence most vulnerable to rising prices.
17. The larger part of measures funded,
or about to be funded, through energy bills are for investment
in measures which will reduce household energy costs:
Initiative
| Dates | Targeting & Scale, 2012
| Measures |
| CERT | April 2008 to March 2011, proposed extension to December 2012
| Priority Group, on benefits and over 70s
£730 million per year[104]
| Insulation, heating, lighting |
CESP | October 2009 to December 2012
| Areas in lowest income decile
£96 million per year[105]
| Whole house, insulation focus |
FITs | From April 2010
| No special provision for low income | Microgeneration
|
RHI | Planned from April 2011
| No special provision for low income, but very relevant to off gas grid
| Heat Pumps |
| Energy Bill support scheme | April 2011 onwards (voluntary agreement April 2008 to March 2011)
| To be decided. Most effective for Pension Credit recipients through data-sharing.
£250 million per year[106]
| To be decided. Should include energy efficiency, money advice and price support
|
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18. We welcome the strong bias towards sustainable measures
within programmes funded from energy bills.
19. However, two[107]
additional steps are required to make these programmes more effective
at alleviating fuel poverty:
(a) implementation of low interest loan scheme (eg PAYS),[108]
so that access to capital is not a barrier to takeup of measures
which are supported by the core initiatives; and
(b) clarity over the eligibility rules for the Energy Bill
support scheme (and for Warm Front post April 2011) to ensure
that additional support is available for fuel poor households
to overcome barriers to take-up of PAYS, eg to cover the interest
costs on repayments.
20. These steps will also assist the targeting of measures
at the most vulnerable customers (see paragraph 2) by ensuring
that an offer is available to any household who seeks assistance.
If CESP is successful, the post 2012 Household Energy Management
Strategy should include further area based programmes.
The methods used to target assistance at households which need
it most
21. No one, other than the household itself, has all
the information to identify fuel poverty. Any strategy to reach
customers, which does not engage them, will be imperfectly targeted,
potentially offering insufficient support to the most vulnerable
in order to be affordable with wider take-up, or alternatively
not reaching some vulnerable customers.
22. Suppliers are working together with the UK Government
(the Department for Work and Pensions and the Department of Energy
and Climate Change) on a data sharing trial. The Government proposes
that, under the Energy Rebate Scheme, a group of Pension Credit
recipients[109] will
receive a one-off rebate on their electricity bills worth £80.
23. We are committed to this scheme as a trial to assess
the role data sharing could play in future fuel poverty plans.
If this process is proven to be successful then further data sharing
may be appropriate.
Social tariffs and plans to put social price support on a statutory
footing
Mandatory Social Price Support
24. The Energy Bill will give government wide powers
to introduce mandatory support schemes. These powers must be used
to provide well targeted support with a clear objective. We see
the need for three types of support:
(a) support to a "kernel group" of elderly customers
on low fixed incomes who are less well placed to cope with the
cost of levies on energy bills to support investment in a low
carbon economy. The support would be an ongoing fixed rebate on
their bills;
(b) as part of a broader fuel poverty strategy aimed at identifying
households most in need and incentivising them to take up energy
efficiency measures. We outline a potential method in paragraph
25 below; and
(c) Energy efficiency and other measures as described in paragraph
10b above.
25. The support schemes should not be used to deliver
general ongoing price support which could be delivered more effectively
and efficiently by increasing state benefits.
26. Whilst a high level of financial support will be
essential for some customers, the majority of owner occupiers
may be able to lift themselves out of fuel poverty by reducing
the amount spent on energy through improved energy efficiency.
In order to encourage the take-up of these tools to eradicate
fuel poverty, mandatory social support should be linked to the
provision of energy efficiency measures and advice for the Government's
"broader group" of eligible customers. Under this model,
social support would be provided to customers identified as being
in a fuel poverty risk group with the condition that continuing
support depended on them working with their supplier or other
nominated party to identify ways of reducing energy spend through
improved energy efficiency.
Funding of low carbon and social obligations
27. Currently, each supplier's contribution, under obligations
such as CERT and the voluntary agreement, is calculated according
to their number of electricity and gas accounts. This means that
the cost is passed on as a "flat tax", ie with each
customer account paying the same amount.
28. An alternative approach would be to structure obligations
based on energy units used—on an amount per unit basis.
Higher income households on average have substantially higher
usage than lower income households[110]
and so would contribute more to funding social support than those
with lower incomes.
29. To make this approach even more progressive, the
allocation method applied by Ofgem could give a credit to each
customer account and increase the weighting to units. This would
mean that customers have lower fixed costs, but pay a higher unit
price. Under this approach, those in the lowest income decile,
with the lowest consumption, would pay a very small amount towards
social support. Those in the highest income decile, with the highest
consumption, would pay significantly more.
30. A small percentage of households in the lower income
deciles are in the higher usage deciles. These are particularly
vulnerable to the costs of carbon policies and would be further
affected by the introduction of an equalisation mechanism.[111]
It is therefore very important that government develops policies
to improve the homes of the most severely fuel poor, for instance
through more precise targeting of energy efficiency measures through
CESP, CERT, Warm Front and the Decent Homes Programme.
Winter fuel payments and cold weather payments
31. In contrast to the universal Winter Fuel Payment,
Cold Weather Payments are made only to vulnerable households on
low incomes and only if the weather is especially severe.
32. E.ON gives additional cold weather payments through
our Age Concern product over and above what government offers.
In 2008-09 we made payments totalling £3.6 million to 160,000
customers.
33. However, neither Winter Fuel Payments nor Cold Weather
Payments reflect need, since those in good housing receive the
same benefit as those in poor housing. Nor do they provide a sustainable
solution to the underlying causes of fuel poverty. Short term
solutions must be accompanied by a more long-term sustainable
approach.
34. Given the lack of targeting, Winter Fuel Payments
should be viewed as an addition to the basic state pension, rather
than as part of any fuel poverty strategy. Any review of their
effectiveness should be considered as part of the Government's
broader pension policy.
Support for households which are not connected to the mains
gas grid
35. Households that are not connected to the mains gas
grid are more vulnerable to fuel poverty. Mains gas connection
can help to alleviate fuel poverty and so we support initiatives
that aim to help improve access for communities to the gas grid.
36. The introduction of Feed-in Tariffs from April 2010
and the Renewable Heat Incentive from April 2011 should help to
increase the attractiveness of eligible microgeneration and renewable
technologies. Heat pumps are particularly effective for off gas-grid
customers and will become increasingly attractive as the grid
decarbonises. It is important that a PAYS scheme is available
to allow all households access to renewable heat measures,[112]
with additional support provided to the most vulnerable through
suppliers' Energy Bill support schemes or the post 2011 development
of Warm Front.
February 2010
96
In 2008-09 we conducted 1,890 benefit entitlement checks, of which
1,226 (65%) were found to be eligible for additional benefits.
The average annual increase per successful check was £1,637. Back
97
On average in 2008-09, each household receiving Warm Front assistance
had the potential to save £362.23 in energy running costs
every year. Warm Front scheme annual report 2008-09. Back
98
The average saving per customer account for social tariffs was
£130 in March 2009. Monitoring suppliers' social programmes
2008-09, Ofgem. Customers eligible for the Government's Energy
Rebate Scheme will receive a rebate of £80. Back
99
Ofgem "Monitoring suppliers' social programmes 2008-09",
18 August 2009. Back
100
In England, Scotland and Northern Ireland, 2018 in Wales. Also
to eradicate fuel poverty in vulnerable households by 2010 (England,
Wales, Northern Ireland). Back
101
Priority Group for CERT £500 million; Suppliers' Voluntary
Agreement £100 million. Back
102
See footnotes 101-103. Back
103
To illustrate-consider £300 million per year spent in a similar
way to Warm Front:
— Based on their 2008-09 performance (Warm Front Annual Report
2008-09-233,594 households received assistance, average saving
£362.23, budget £395 million) almost 200,000 households
per year could be helped to save an average of £360 per year
on their energy bills;
— Over the period 2011—2016 (assume £200 million
in 2011-12, £250 million in 2012-13 and £300 million
per year thereafter—see footnote 99) the number of households
helped would be 1 million;
— At the end of 2016—1 million households could be
£450 per year better off (allowing for a 25% increase in
energy prices)—if expenditure was on energy efficiency;
— Social price support would only provide £300 per
household, and would need to continue indefinitely.
Back
104
Supplier contribution for CERT Extension. Further £294 million
per year contribution from social housing providers. Back
105
Supplier contribution £312 million, over 3¼ years. Back
106
Based on increase from £150 million per year in 2010-11 to
£300 million per year in 2013-14 signalled in PBR. Back
107
A third key step-to confirm that an integrated package of support
to fuel poor customers, including benefits entitlement checks
and money advice, is eligible under the Energy Bill support scheme-should
be resolved by a Government amendment to the Bill. Back
108
Pay As You Save. Repayments would effectively be secured against
the property by including them with the distribution charge, which
the supplier would pass on the the customer. The low risk (in
principle only that the property was unoccupied) would allow a
low interest rate, although for the lowest income customers some
additional support would be required. Back
109
Those aged 70 or over in receipt of the guarantee credit element
of Pension Credit only (this does not include those receiving
the savings credit element) on a given qualifying date. Back
110
Centre for Sustainable Energy (2007). Assessing the Social Impacts
of a Supplier Obligation-A study for DEFRA. Back
111
EUETS, RO, FITs and the proposals for a CCS levy and the RHI are
projected to increase average consumer bills by over £200
by 2020 and, as they are recovered in proportion to units, would
increase bills for the most severely fuel poor customers, by up
to £500. Changing the allocation methodology for CERT, CESP
and the energy support scheme would reduce bills for the most
low income consumers by up to £100, but could increase those
of the most severely fuel poor by a further £150. Back
112
It is important to making the RHI accessible to all customers
that the loan is low cost; payments must therefore be secured
against the property through an arrangement such as PAYS, ideally,
for simplicity, with the support provided by the RHI netted off
a customer's repayments. Back
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