Memorandum submitted by the Co-operative
Group (FP 51)
EXECUTIVE SUMMARY
The Co-operative Group believes strongly in
decentralised energy systems and sees smaller scale embedded generation
as playing an important role in the future of the UK's generation
mix. The Co-operative Bank has invested significantly (over £100 million)
in CHP, district heating and affordable warmth schemes and is
keen to expand its work within this area. Decentralised energy
systems will help tackle carbon reduction, energy security issues
as well as fuel poverty.
Delivery at community level can be greatly assisted
by the strength of the co-operative model. With the right levels
of support funding, community energy co-operatives are able to
both involve individuals and deliver real change. The co-operative
model holds many benefits for its members, can create a mechanism
to pay back initial grants thereby reducing lender risk and can
be very cost effective, highly innovative and flexible.
Fuel poverty can only truly be tackled by delivering
renewable heat and energy savings. In the UK this requires a sharp
increase in the understanding of how the technologies work, how
they are installed and delivered and as importantly how they are
procured (especially by Government and Local Authorities who have
a key role to play). As such, investment is needed in the further
and higher education sectors with additional incentives to encourage
people to undertake training through apprenticeships and vocational
study.
There is a role for financial incentives and
alternative approaches to individual up-front householder investment
in order to drive swift changes in energy usage. The Co-operative
Group believes that it is at a community scale where there exists
a cost effective investment market that can deliver high energy
savings. The Co-operative Group supports the proposed Renewable
Heat Incentive (RHI) but believes that it should be developed
more quickly than at present.
The Co-operative Group sees a vital role for
Energy Services Companies ("ESCOs") to help fund new
heat and energy saving schemes. ESCOs provide a bridge for developers
and local authorities to help deliver upon planning requirements
in new developments for example. The flexibility of ESCOs also
allows for them to fill a number of different roles in delivering
new heat or energy saving projects.
The Co-operative Group recommends that Building
Regulations should be widened in order to provide cost-effective
energy saving alongside a streamlined planning system to ensure
speedy delivery of projects. This could help better plan for district
heating and heating networks to be installed at the same time
as major infrastructure developments, reducing overall costs and
maximising new community benefits. Local authorities should be
encouraged to be anchor customers for such projects, using their
procurement strength to assist.
This submission draws heavily upon The Co-operative
Group responses to the Government's "Renewable Electricity
Financial Incentives" and "Renewable Heat Incentive"
consultations. In these submissions, we outlined our broad support
for a tariff based system to stimulate decentralised and community
energy. The growth in demand will inevitably create new employment
and manufacturing and is aligned to government commitments to
create a new green industry in the UK. The same rationale applies
for energy generation as applies for energy efficiency and tackling
fuel poverty and this underlines our response to the points below.
1. The Co-operative Group is one of the
world's largest consumer co-operatives and has a turnover of more
than £14 billion per annum. It has more than five million
members and operates food, financial services, funeral parlours,
travel, legal services and farming amongst other businesses.
2. The Co-operative Group has pioneered
a range of renewable energy initiatives. 99% of the electricity
for our 4,000 outlets is sourced from good quality renewables,
through wind and water-power. Since 2008, with support from the
Low Carbon Buildings Programme, we have match-funded the installation
of 160 photovoltaic systems and other renewables in schools
across the UK. In 2006 the Coldham Wind Farm was launched,
which is a joint venture between The Co-operative Group and Scottish
Power. The £17 million, eight-turbine wind farm, built
on a farm estate owned by The Co-operative Group, supplies approximately
4% of The Co-operative Group's energy requirements (equivalent
to 9,000 homes) and is now set to expand with local community
backing. The CIS Tower in Manchester became Europe's largest vertical
solar array when it was clad in energy generating solar panels
in 2005. In September 2004, an innovative £4 million,
eight-year green electricity purchase agreement was entered into
whereby The Co-operative Financial Services receives a guaranteed,
cost-effective green electricity supply, while stimulating the
construction of a six wind turbine project in Lincolnshire. In
2003 The Co-operative Insurance became the first institutional
property investor to transfer all contracts for its £2 billion
investment property portfolio to green electricity. In addition,
other wind farm developments are proposed on both Co-operative
Group and third party owned land as well as various exemplar sustainable
development projects, which will incorporate a range of renewable
power generation initiatives. The Co-operative Enterprise Hub
has helped to create new market entrants that deliver co-operative
solutions at community level in the UK. One example is Energy4All,
which via funding from The Co-operative Group has set up further
community energy projects, each owned by members of a local co-operative.
3. Renewables are also central to The Co-operative
Financial Services' commercial strategy from asset finance to
institutional investments. The Co-operative Bank has committed
£400 million to be invested in community renewable energy
and low carbon energy technologies. The Corporate Banking team
has been involved in funding a variety of renewable energy investments
in recent years, from hydro schemes, to wind farms and CHP plants.
These schemes underline the Bank's leading commitment to community
renewables, generating significant carbon savings. Our first hydro
scheme has now been completed in New Mills, we are looking to
fund several anaerobic digestion and biomass projects and developing
financial models to support the energy efficiency sector.
4. The Co-operative Group's work on energy
efficiency and fuel poverty is underlined by a strong corporate
approach to energy investments. Our Ethical Engagement Policy
encourages investees to reduce their reliance on fossil fuels
and to increase their usage of renewable energies and energy efficiency.
Furthermore, The Co-operative Bank's Ethical Policy includes a
commitment for our business not to invest in other businesses
that are considered to be integral to the extraction and/or production
of fossil fuels. The Co-operative Group is firmly committed to
high quality, voluntary carbon offsetting which allows for investment
in projects such as fuel-efficient stoves in Cambodia; reforestation
in Kibale Forest National Park, Uganda; and treadle pumps in Uttar
Pradesh and West Bengal, India.
CONSULTATION RESPONSE
Progress against Government targets
5. The rise in fuel poverty from 1.2 million
in 2004 to 4 million in 2008 demonstrates clearly
that the fuel poverty challenge is getting more difficult to resolve.
Factors such as fossil fuel prices and changing demographics have
played a huge part in the rise in fuel poverty. However the statistics
also underline how policies are not solving the root cause of
fuel poverty—namely how we supply heat and energy to homes
in an efficient, decentralised and cost effective way. It is telling
that very often those on the lowest incomes in our society have
the most inefficient heating systems.
6. Delivering heat and energy saving at
a significant rate requires partnership working between financing,
production and delivery bodies—this includes government
(both nationally and locally), lenders, businesses, manufacturers
and communities. Whilst enabling legislation for incentives such
as the Renewable Heat Incentive (RHI) are welcome, more needs
to be done to create a requirement on each of these bodies to
work together. The prohibitive costs for example of heat networks
have prevented their potential being realised. New infrastructure
such as roads and housing provide perfect opportunities to ensure
heat networks from the outset and provide linkages to existing
communities. Not enough progress is being made in these areas
at present.
7. Local Authorities should be required
to take a strategic approach to energy generation (heat and power)
and distribution within their authority area in that the allocation
of areas for major new development should be integrated with such
a strategy. Local authorities are key to the success of district
heating networks as public sector buildings can provide the base
load to make a project viable. Local authorities are already required
to build up an evidence base on the potential for new renewable
projects—including location, scope and type—as outlined
in Planning Policy Statement 1 (PPS1)—and central Government
should be further encouraging this. We recommend that Local Authorities
should review their asset registers to plan when energy related
plant (boilers etc) are due for replacement to ensure they look
to employ the best solution for their tenants and own building
stock. Often the best whole life solution requires a larger upfront
capital investment.
8. There has been too much focus through
various initiatives on tackling fuel payment problems and not
reducing the cost of supply. We are not addressing the root problem
ie there is to much focus on providing a subsidy rather than reducing
consumption through greater efficiency. We recommend that government
moves away from tackling fuel poverty with subsidies aimed at
meeting costs, to a model where funding targets reducing consumption
and increases efficiency.
9. More needs to be done to target investment
in decentralised energy and alternative emerging markets. It is
not enough to allow the lack of manufacturing or skills in these
areas to argue against a roll-out of proven models. As with any
initiative, investment, education, manufacturing and skills will
follow such investment—it should be the government's role
to identify the most efficient solutions to the root problems
of fuel poverty and then invest to give confidence that an industry
will form to support this. It is The Co-operative Group's firm
view that there is a huge untapped potential for new employment
in building the UK's decentralised energy infrastructure—beginning
with quick win projects based on workable models at scale. Targets
will not be met with a piecemeal approach or by looking at investing
on a building by building basis—the model has to build in
scale to realise cost effectiveness eg. local/district or a regional
approach. There are quick wins which can be achieved and priorities
need to be set. There are high rates of fuel poverty in tower
blocks were the heating systems are predominantly electrical powered.
We should move to install wet system retrofits using CHP biomass
boilers (once the RHI is confirmed) and energy efficiency measures.
An opportunity exists to fund strategic de-centralised energy
generation facilities to benefit fuel poverty areas under the
Carbon Reduction Target (CERT) scheme which may in some cases
provide greater wider benefit to the fuel poor than the sometimes
ad hoc energy efficiency measures delivered under the scheme.
Standardised structures utilising CERT funding should be developed
through dialogue between utilities, local authorities and funders.
The definition of households in fuel poverty commonly
used
10. The broad definition is a useful barometer
in order to measure the success of investment decisions though
there will always be alternative measures suggested. The key point
is that fuel poverty figures move in the right direction and this
appears not to be the case at present. It is perhaps as useful
to measure those households in the most energy inefficient properties
and therefore are the ones at most risk of fuel poverty even if
currently they do not fall into that definition.
The coherence of the Government's initiatives
on energy efficiency
11. The Co-operative Group supports the
introduction of tariffs for renewable heat and recognises the
important role of targeted initiatives such as better home insulation—both
of which could be important in helping families out of fuel poverty
by taking control of their energy generation and usage. The Co-operative
Bank was the first mortgage provider to offer a green mortgage
product—the "Energy Efficient Advance"—which
gives customers additional secured lending at a low rate on energy
efficiency products and services. While secured lending and tariff
income works from a homeowner point of view it is not clear how
the same policies can be applied easily for those in social housing
or in the private rented sector.
12. The Co-operative Group supports the
aims of initiatives such as the Low Carbon Communities challenge
which provides grant funding to indentify best practice at local
level. However, we would caution against a further pilot "project-led
approach" and maintain that direct funding for infrastructure
investment should start to take precedence as it is this which
is under the most threat from the current economic situation.
Similarly government subsidy has driven down energy prices in
a competitive market but investment has not kept apace with subsidies
so that effects are felt disproportionately when the subsidy is
eventually removed or replaced. The unintended consequence is
the sharp rise in energy costs when subsidy is removed which could
exacerbate fuel poverty levels. Government and its agencies also
needs to be aware of how grant support can impact on the take-up
of technologies—with considerable delays being caused and
industry players becoming frustrated when decisions are reliant
on when grant applications have been decided on.
13. With infrastructure investment, there
needs to be a greater focus on "quick wins" in partnership
and at a scale that delivers efficiently on any public sector
investment. This would be best undertaken through an analysis
using existing installations or sites that can provide the best
financial case to deliver renewable heat or energy schemes. There
is also a role for local authorities and developers to work in
partnership to look at areas where in future developers are not
able to meet low carbon targets on-site and have to draw on "allowable
solutions" elsewhere. (note: Allowable solutions for non-domestic
zero carbon development is currently under consultation by CLG)
We recommend that surplus public sector land, schools, hospitals
or other sites that exist in or near local communities are ideal
anchor points for schemes that can deliver low cost district heating
or CHP.
14. The Co-operative Group would question
the rationale for limiting support to only micro-CHP through the
Feed-in Tariff (FIT) regime. The cost effectiveness of larger-scale
CHP led by community co-operatives or equivalents would make much
more sense from a subsidy point of view.
15. Simple measures such as educating people
to use their boilers properly ie. setting the thermostat and the
timer would go some way to help manage energy demand and usage
in low income households. This is indeed the case with the old
and vulnerable of our society. We recommend targetted support
for education and a new public awareness campaign regarding energy
efficiency.
16. Historic initiatives such as equity
release in relation to "care and repair" schemes should
be re-examined. It remains the case that many who are in fuel
poverty find themselves "asset rich but cash poor" and
unable to find the funds to invest in efficiency measures. Financial
models should be developed with lenders to create a low-risk product
that is easy to understand and access. We recommend central Government
have its own delivery mechanisms to support local authorities
who do not have the necessary skill sets or resource to run such
schemes.
17. Given the huge health and social costs
associated with fuel poverty there is a case for targeted health
budgets to be set out purely to assist with district heating systems.
Studies have shown the link between well heated properties and
healthier individuals. Also, as shown elsewhere in this submission
hospital sites are often close to homes and other public sector
buildings and offer both a good location to install a district
system but also often have excess land or facilities to keep upfront
costs to a minimum. They are also necessarily linked to local
authorities and communities and offer a good focal point for community
awareness on the benefits of energy saving and good health. We
recommend that an assessment of cost savings is made in other
government departments (eg. Department for Health) in order to
release further targeted funding for energy efficiency investment.
18. The Co-operative Group supports the
removal of barriers to district heating and also welcomes the
formal discussions that could take place in the Heat Markets Forum.
We recommend that the Government should consider innovative schemes
to encourage renewables in the rural communities where fuel poverty
is high. The natural resources are such that there should be no
reason why communities cannot be self sufficient in their energy
needs where forestry, wind and hydro resources are all available
or close to hand.
The methods used to target assistance at households
which need it most
19. As referenced elsewhere in this submission,
The Co-operative Group actively supports the role of identifying
"anchor" sites at which heat and energy generating systems
can be installed but offer benefits to the surrounding community.
It is not clear that pilot projects to date or indeed the early
takers of the FIT or RHI support will be in areas that suffer
from the worst fuel poverty rates. Local authorities have a key
role in identifying the geographic locations that are likely to
suffer from fuel poverty and alongside this, to find locations
with good local links that could house a renewable facility such
as a district heating network. A co-operative could be formed
at a community level to facilitate the funding, installation and
ownership of the necessary technologies in discussion with banks
and the renewables industry. Central government funding in this
model relies on bridging the gaps between these stages in the
process rather than being a one-off grant and therefore builds-in
a legacy to protect households from fuel poverty. We recommend
grant funding to act as a "bridge" to help bring other
finance together rather than seeking to cover the majority of
costs as shown in some of the recent pilot schemes. This would
allow funding to go much further in economically constrained times.
20. In addition to targetting district heating,
The Co-operative Group supports measures to encourage the rapid
growth of CHP at scale in the UK. At present, the CHP market remains
in a poor position. Current incentives need to become more effective
to counteract high fuel input costs. We hope that this will be
partially addressed by new planned tariffs. As a business and
investor, this is a sector in which The Co-operative Group has
a strong track record. For example, The Co-operative Bank invested
£1 million in a heat and power scheme in Aberdeen which
is now a self funding ESCO. See:
http://www.scotland.gov.uk/Publications/2009/05/28154437/1
Social tariffs and plans to put social price support
on a statutory footing
21. The concept of the social tariff should
be supported. However linking it to the volatile fossil fuel market
is a risk given the likely rise in oil and gas wholesale prices
in the coming years. We must consider the matter of security of
supply and look to encourage the use of local resources.
Winter fuel payments and cold weather payments
22. The winter fuel payment should be reformed
as it is currently not targeted at those in fuel poverty, is not
ringfenced (so can be spent on non-fuel items) and is simply aimed
at cushioning higher winter bills—not investing in a decentralised
heat system that can cut energy costs, consumption and reduce
carbon emissions. Investing in infrastructure and using subsidy
as a "bridging" fund to bring individuals and communities
into district heating schemes would present a far better cost
efficient model with the potential for free heat where the scale
and model is right. We recommend that the Winter Fuel Payment
is re-examined and more focus given to low-cost or free heat provision
through district heating systems.
Support for households which are not connected
to the mains gas grid
23. Clearly the RHI provides a good opportunity
to set up local networks or community scale electricity to replace
current localised gas installations. As recommended at point 18 in
this submission, rural areas and those off-grid should be encouraged
to use natural resources to ensure energy self-sufficiency. This
requires a range of actions from Local Authority-led analysis
of land and resource assets, bridging funding from government
and its agencies to reduce lender risk and empowering local communities
through forming co-operatives to take control of their own energy
supply.
CONCLUSIONS AND
KEY RECOMMENDATIONS
— We recommend that Local Authorities should
review their asset registers to plan when energy related plant
(boilers etc) are due for replacement to ensure they look to employ
the best solution for their tenants and own building stock. Often
the best whole life solution requires a larger upfront capital
investment.
— We recommend that government moves away
from tackling fuel poverty with subsidies aimed at meeting costs,
to a model where funding targets reducing consumption and increases
efficiency.
— We recommend that surplus public sector
land, schools, hospitals or other sites that exist in or near
local communities are ideal anchor points for schemes that can
deliver low cost district heating or CHP.
— We recommend targetted support for education
and a new public awareness campaign regarding energy efficiency.
— We recommend central Government have
its own delivery mechanisms to support local authorities who do
not have the necessary skill sets or resource to run schemes (such
as "Care and Repair").
— We recommend that an assessment of cost
savings is made in other government departments (eg. Department
for Health) in order to release further targeted funding for energy
efficiency investment.
— We recommend that the Government should
consider innovative schemes to encourage renewables in the rural
communities where fuel poverty is high. The natural resources
are such that there should be no reason why communities cannot
be self sufficient in their energy needs where forestry, wind
and hydro resources are all available or close to hand.
— We recommend grant funding to act as
a "bridge" to help bring other finance together rather
than seeking to cover the majority of costs as shown in some of
the recent pilot schemes. This would allow funding to go much
further in economically constrained times.
— We recommend that the Winter Fuel Payment
is re-examined and more focus given to low-cost or free heat provision
through district heating systems.
February 2010
| 
