Memorandum submitted by Calor Gas Ltd
(FP 40)
SUMMARY
— Fuel poverty has risen by 2.2 million
households since 2005; pressures, including the levy on fossil
fuels to be introduced soon, will push fuel poverty up by a further
50%.
— OFGEM has called attention to the looming
energy shortages and the increasing number of consumers unable
to afford adequate levels of energy.
— mCHP gas-fired fuel cell boilers have
the potential to reduce household bills by 25% while meeting carbon
emission targets and providing local back up in the case of power
outages. BERR estimated that with feed-in-tariffs such boilers
might provide up to a quarter of electricity generation by 2050.
— Rural areas, where there are particular
problems with fuel poverty, and where there is little or no access
to natural gas can benefit from these price reductions and carbon
savings, too, because the mCHP boilers can run on LPG.
FUEL POVERTY
PROJECTED BY
OFGEM TO RISE
BY 50%
1.1 HMG is committed to ending fuel poverty
in vulnerable households in England by 2010 and ending all fuel
poverty by 2016 (there are similar targets in Scotland and Wales).
The figures have been going in the wrong direction since 2005.
The Sixth Annual Report on Fuel Poverty" (October 2008) read:
"In 2006, there were approximately 3.5 million households
in fuel poverty, an increase of around 1m households since 2005.
Around 2.75 million of these were vulnerable households, an increase
of around 0.75 million ... Projections of fuel poverty in England
for 2007 ... show that prices are likely to have pushed a further
0.7 million households into fuel poverty. Projections for 2008
show a further increase in fuel poverty for England, of around
0.5 million households." On 16 December 2009, an OFGEM presentation
(on smart metering) admitted 4 million households in fuel poverty
and forecast fuel poverty to rise to cover 6 million. It is hard
to believe that fuel poverty targets can be hit in 2010 or 2016.
1.2 The Impact Assessment of the UK Renewables
Strategy published by HMG on 13 July 2009 puts the annual cost
of the policies at £4.3 billion: this delivers an annual
average benefit of £0.3 billion (monetised carbon benefits).
Over a 20 year period the net benefit of the policy is minus £56
billion. The total value of carbon saved over the same period
is put at £5 billion. Thus, the a combination of the consumer,
the taxpayer and the economy is going to have to pay twelve times
as much as the computed disbenefit of the carbon to remove it.
This does not make sense, particularly at a time of recession
and when the taxpayer is probably going to face possible rises
in taxation and cuts in public services.
1.3 Turning to the future burden on the
consumer, the same Impact Assessment makes clear the impact on
consumers' bills as a result of adopting the Renewable Energy
Strategy: "By 2020, we estimate that the measures set out
in this consultation document, taken together, could result in
increases in electricity bills of 10% to 13% for domestic and
11% to 15% for industrial customers; increases in gas bills of
18 to 37% for domestic and 24% to 49% for industrial customers"
(paragraph 74). Paragraph 54 admits, "Poorer households are
likely to spend a higher proportion of their income on energy
and so increases in bills will impact more on them". We do
not think it alarmist then to predict a big rise in fuel poverty
contrary to all policy statements. The current climate change
and energy strategy is a driver of fuel poverty, not an antidote
to it. The Draft Overarching National Policy Statement for Energy
(EN-1) states that the energy and climate change strategy has
as one of its aims: "To support the elimination of fuel poverty
and protect the vulnerable" (paragraph 2.1). It is clear
that Government policies are internally conflictive.
DEFINING THE
CENTRAL PROBLEMS
2.1 OFGEM's publication of Project Discovery
(3 February, 2010) highlights two major deficiencies in the Government's
policy trajectory:
— The upward rise in fuel poverty ("The
higher cost of gas and electricity may mean that increasing numbers
of consumers are not able to afford adequate levels of energy
to meet their requirements and that the competitiveness of industry
and business is affected").
— And, the risk of blackouts after 2015—("There
are real risks to supply"—Summary, Energy Market Scenarios
Updated, 4 February 2010).
2.2 In addition, it is clear not least from
debate during the passage of the Energy Bill that there is particular
concern about fuel poverty in rural areas. Rural homes are harder
to heat, and often do not benefit from the lower prices normally
associated with natural gas.
ADDRESSING THE
PROBLEMS
The real solution lies in reducing household
electricity consumption while encouraging citizens to produce
their own energy," Philip Selwood, Chief Executive, Energy
Saving Trust, "Total Politics", October 2009.
A. FUEL POVERTY
3.1 Gas fuel cell boilers run on natural
gas in urban areas, and on LPG in rural areas are highly efficient,
allowing the generation of 80% of the electricity in a home—as
well as heating the home. mCHP units can reduce total household
energy bills by 25%. It will be very cost-effective per tonne
of carbon saved. HMG have promised that the first 30,000 mCHP
units installed will benefit from FITs so householders will be
able to sell electricity back to the grid. mCHP thus will lower,
not raise household energy bills. Just as gas generation looks
like plugging the energy gap nationally, local generation of electricity
by gas can play its part, too. In both urban and rural areas,
gas or LPG powered micro-CHP fuel cell boilers allow us to reach
the carbon output targets by low-cost, close to market solutions
without the need for punitive levies which will impact disproportionately
on poorer households (see paragraph 1.3). Since the need for subsidy
is limited the burden on the economy, consumers and industry will
be reduced.
3.2 These fuel cell boilers will cut carbon
emissions on an average property using oil by up to 50% through
an investment of only approximately £2,000 more than a modern
condensing boiler. Combined with solar technology and insulation
measures a fuel cell boiler should be able to achieve the 80%
emission targets that government is seeking by 2050. These boilers
will be able to be serviced by engineers with existing skills.
Micro-CHP units can reduce total household energy bills by 25%.
They will be very cost-effective per tonne of carbon saved.
B. BLACKOUTS
4.1 Fuel cell boilers will also provide
greater stability to the power supply, providing protection against
power cuts now widely expected to occur after 2015, since the
majority of electricity needs will be generated in-house. They
are not only compatible with existing grid infrastructure, but
will actually reduce the necessity for capex requirements on the
grid network. Since mCHP if adopted en masse reduces peak demand,
it will also reduce generation investment requirements, lessening
the cost of the climate change strategy. Generating electricity
locally also avoids the wasted energy associated with power stations
and transmission systems.
C. RURAL FUEL
POVERTY
Background
5.1 The fuel poverty status of a household
depends on the interaction of three factors:
5.2 The first two factors are inextricably
linked to the nature of living in the countryside. This was highlighted
by the Rural Services Network (of which Calor is a member) in
their 2010 manifesto which stated that, "At present, people
who work in rural areas earn significantly less that those living
in urban centres. On average, the discrepancy between earnings
is over £7,000 per year."[135]
In addition to this, it is widely acknowledged that delivering
products and services in rural areas is inevitably more expensive
than in urban areas—in fact RSN research suggests that the
additional costs for delivering rural services can be "as
much as 90% higher".[136]
In relation to cost, natural gas tends to be unavailable in rural
areas and inherently more expensive alternatives such as oil or
LPG need to be used.
5.3 The third major contributing factor
to fuel poverty—energy consumption—is driven largely
by the energy efficiency of the dwelling. Rural buildings tend
to be older and possibly stone built, very often with solid floors
and solid walls. The nature of this existing building stock means
that rural homes are often more difficult, and costly, to make
energy efficient than their urban counterparts.
5.4 Tackling rural fuel poverty is a challenging
and complex task. The dispersed and often isolated nature of rural
housing and the expense of delivering services within remote communities,
combined with the "hard to treat"nature of the building
stock as outlined above, has resulted in relatively little action
being taken to address this issue, beyond small locally driven
initiatives. Furthermore, the RSN has called on the Government
to recognise that rural deprivation is often masked within areas
of apparent rural affluence, indicating that the rural fuel poor
may not be immediately or easily identified, and therefore overlooked
by current Government schemes.
Cost of LPG
6.1 The Business and Enterprise Select Committee
described the LPG market to be "highly competitive"
in a 2008 report[137]
and 2009 saw the introduction of the Competition Commission's
LPG Bulk Domestic Order designed to encourage competitiveness
within the industry, make it easier to switch supplier and provide
greater transparency of pricing. Calor, as a supplier of LPG,
which is generally a more expensive fuel than oil—is very
alert to its social responsibilities.
6.2 Calor has long supported rural communities
through a variety of rural initiatives and sponsorship programmes,
including the highly successful Calor Village of the Year competition.
However Calor has become increasingly concerned about the growing
issue of rural fuel poverty, and frustrated by the lack of dedicated
support in tackling this problem. As such Calor is suspending
the Village of the Year programme to divert all funding into a
comprehensive rural energy efficiency programme with the dual
aims of improving the energy efficiency of rural housing and reducing
rural fuel poverty.
6.3 To accurately determine the size of
the problem, Calor has undertaken research with the fuel poverty
charity, National Energy Action to identify the extent of fuel
poverty in rural England. We have reached a consensus that approximately
2.45 million households do not have access to the mains gas network
(1.55 million in rural locations and 950,000 located across urban
town and fringe). Of the rural dwellers, 365,000 are categorised
as being in fuel poverty.[138]
6.4 Combining this information with Calor's
non-mains gas database and the Commission for Rural Communities'
fuel poverty data, we have identified the most fuel poor areas
of rural England, and developed a dedicated programme to tackle
this problem. Future Rural Energy in England (FREE) has brought
together a coalition of rural experts to undertake a national
energy advisorship campaign with the aim of bringing balanced
information and advice to rural householders regarding fuel choices,
energy efficient technologies, and carbon reduction measures.
6.5 Working with Calor, the Commission for
Rural Communities, National Energy Action, and the Rural Community
Action Network, will deliver a focused energy advisorship programme
aimed at off-grid rural communities—particularly those with
a high index of fuel poverty. The campaign will run for three
years and will represent a £1 million investment for Calor.
The campaign will provide:
— Information and advice for households
and communities on how to improve their efficient use of energy
and reduce their carbon footprint.
— Information and advice on the various
grant schemes which are available to improve insulation and heating
systems.
— Balanced information on the fuel options
and various energy efficient technologies available.
The campaign will not only help individual households
to focus on their energy consumption, but also encourage local
communities to work together to promote best practice in energy
efficiency and carbon reduction.
FUEL CELL
BOILERS IN
RURAL AREAS
7.1 Of course, the best answer to driving
down the cost of homes heated by LPG is to convert them to heating
by fuel cell boiler as outlined above. Calor is investing with
the UK company, Ceres Power to bring the next generation of boilers
to market by 2012. These boilers will be able to be installed
and serviced by engineers with existing skills.
7.2 Other solutions in rural areas are limited
by practicality and cost. District heating would represent a severe
challenge in rural areas, and is not a cost-effective retrofit
option here. Building of new properties in rural areas is relatively
limited. So, reducing carbon emissions in rural housing will be
predominantly about cutting carbon emissions from the standing
housing stock. Much of the electricity in rural Britain is single
phase, limiting the power available for electric powered heating
systems to approximately 3.5kW. In turn, this limits the applicability
of ground source or air source heat pumps which suffer limited
output on single phase electricity; moreover, they have limited
practicality in older properties. Biomass boilers cost up to £14,000,
require large wood storage areas, are difficult to turn on and
off, do not generate electricity, but do generate significant
amounts of health-damaging particulates, and climate damaging
black carbon.
THE POTENTIAL
OF MCHP
8.1 The projections of take up and electricity
generation potential by BERR (The Growth Potential for microgeneration
in England Wales and Scotland—June 2008) are very impressive,
especially if mCHP benefits from FIT:
8.2. The recent announcement on FITs limited
the benefit to the first 30,000 units installed. While this kick-start
is welcome, 30,000 units is a minute fraction of the potential
identified—over 31,000,000 by 2050. Without a more extended
FIT, those in fuel poverty—not least in rural areas—will
have to wait longer for relief; there will be less protection
against blackouts; and, a two tier system of ownership will exist—those
early adopters benefiting from FITs and the majority of adopters
not enjoying the benefit, and with longer payback periods for
their investment.
February 2010
135 The Rural Services Manifesto 2010 and Beyond, p
13. Back
136
Ibid, p 10. Back
137
Business and Enterprise Select Committee, "Energy prices,
fuel poverty and Ofgem: Government response to the Committee's
Eleventh Report of Session 2007-08" paragraph 33). Back
138
Figures taken from the English House Condition Survey 2007 and
the Department of Energy and Climate Change (Quality Indicators
for Regional and Local Authority) Gas and Electricity Consumption
2007. Back
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