Supplementary memorandum submitted by the Department of Energy and Climate Change (FP 01A)

 

ENERGY & CLIMATE CHANGE SELECT COMMITTEE INQUIRY INTO FUEL POVERTY, FOLLOW UP TO WEDNESDAY'S ORAL EVIDENCE SESSION

 

As promised when we met on Wednesday, I am writing to give the further information the Committee requested on social price support, price differentials relating to various means of payment for energy and costs associated with the Government's work on the National Energy Efficiency Database.

 

 

Social Price Support

 

Members of the Committee expressed interest in how much it would cost to give SPS to a wider group, for example those entitled to Winter Fuel Payments or Cold Weather Payments.

Suppliers agreed to spend 150m in the final year of the voluntary agreement on a combination of direct financial support (like social and discounted tariffs) and the provision of other activities (like the home heat helpline and partnership working).  We have said that we are minded to continue to provide support to those being helped under the voluntary agreement, and some of the non financial activities such as those mentioned above.  We are still considering the eligibility criteria and the appropriate level of the benefit for the additional support provided under social price support post 2011.

In PBR 2009 we said that, subject to the successful passage of the Energy Bill, the Government would require energy suppliers to make available at least 300 million per annum by 2013-14 for mandated social price support.   This would mean helping up to an additional 1 million households on top of the existing voluntary scheme, which is already providing help to around 1 million customer accounts. However, the actual final number helped will depend on, amongst other things, the level of discount offered through social price support. There are currently over 4m households eligible for Cold Weather Payments and approximately 9m households eligible for Winter Fuel Payments.

We have said that we are minded to focus a significant proportion of the additional spend on older pensioners on low incomes.  We have not however made final decisions on eligibility, and will not do so until after the consultation this summer. 

We are working with consumer groups and other stakeholders in developing the detail of the policy, and our proposals, including the underlying evidence, will be published as part of our consultation this summer.

We have said that we are minded to focus on older poorer pensioners, and the reasons for this include that they:

 

Have a high propensity to be fuel poor - over 50% of all fuel poor households have someone over 60 in them[1].

Are significantly more likely to suffer from excess winter deaths - 91% of those suffering from excess winter death in 2008 were over 65[2].

 

We have however said that we are minded that some resource should be available for other groups, and that we are minded to continue to provide support to those receiving help under the voluntary agreement.

 

 

Payment Method Price Differentials

 

I promised to provide current information in relation to price differentials between different payment methods.

 

The table below gives a breakdown of the payment methods of the 2.8 million households identified as being in fuel poverty in England in 2007.

 

 

Direct debit

Standard credit

PPM

No Gas

Electricity customers

1.1m

1.2m

0.5m

N/A

Gas customers

0.9m

0.9m

0.4m

0.6m

 

 

Of the 2.8m fuel poor households in England, only 20% of them (0.6m) use a pre-payment meter (for gas or electricity, or both). Around 40% of fuel poor households pay for their electricity and around 30% of fuel poor households pay for their gas by direct debit, therefore benefitting from the cheapest payment method available.

 

Ofgem introduced a license condition change last September to ensure cost reflective pricing between payment methods and will be reporting on the effect of this change in the coming month.

 

The most recent data available on tariff differentials, as provided by Ofgem shows:

 

 

Average PPM/ standard credit differential (at July 2008)

Average PPM/ standard credit differential (at Oct 2009)

Average Gas

N/A

-5

Average Electricity

N/A

-5

Average Dual Fuel

41

-4

 

Average PPM/ direct debit differential (as at July 2008)

Average PPM/ direct debit differential (as at Nov 2009)

Average Gas

N/A

49

Average Electricity

N/A

28

Average Dual Fuel

125

97

607mer 2009tricity PPM tariff tandard credit; these are:hey

*figures provided are without prompt pay discount for standard credit.

 

These figures are provided by Ofgem and are the average of the differentials across all regions for the Big 6 suppliers based on average consumption levels, 20,500 kWh gas, 3,300kWh electricity.

 

 

In November 2009, the average PPM-Direct Debit differential stood at 97, a 22% decrease from its level in July 2008.  At PPM-adjusted levels of consumption the differential is 86, which again represents a significant (22%) decline from the 2008 level. 

 

Ofgem estimated in their Probe into retail energy markets that the difference between costs of direct debit and PPM was around 88 per year (however, this will vary, for example. between suppliers).

 

Ofgem are monitoring the impacts of their new licence conditions closely, both in terms of their overall impact on the market, and in terms of detailed differentials. They intend to publish a Probe follow-up document shortly, updating stakeholders on their monitoring activities, with a particular focus on what they have observed since the introduction of the Undue Discrimination licence conditions in September of last year.

 

Ofgem has reported that over 1 million customer accounts are benefitting from a suppliers social tariff. Ofgem has defined a social tariff as the best tariff a supplier offers in the customer's area, regardless of their payment method. This will mean that many of the most vulnerable customers will be benefitting from a suppliers cheapest tariff regardless of their method of payment.

National Energy Efficiency Database

 

DECC is leading the development of a National Energy Efficiency Data Framework (NEED). This is a major matching exercise of GB-wide address level energy consumption records with building and individual characteristics. It will deliver its first nationally matched dataset by July 2010, with further analytical tasks expected later in the year.

 

Phase 2 (to be completed by Spring 2011) will allow for linking of additional data-sets, determine NEED maintenance strategy and will allow other users to have access to the database. This is a very complex and challenging task.

 

We expect that the main output of the NEED project will be improved evaluation of energy efficiency and related policies across domestic and non-domestic buildings. It is envisaged that NEED could eventually be used to help appraise and target fuel poverty policies more effectively, it is difficult to say however at this early stage of the NEED project when will this be possible.

 

The research costs of scoping and pilot work have been around 300,000 (which excludes internal staff time which has also been deployed). We are now in the process of commissioning Phase I and decisions around future funding will be made in the normal course of business. It is also worth noting that the Engineering and Physical Sciences Research Council has, independently of DECC, engaged University College London's Energy Institute to investigate and advise on making best use of the NEED and DECC are in regular contact with them to discuss their emerging findings.

 

Finally, the Committee asked what the waiting times for the installation of Warm Front measures in my Stafford constituency. I can confirm that for insulation, customers the waiting time is currently an average of 12 days and for heating measures, 36 days.

 

March 2010

 



[1] 2009 Fuel Poverty Statistics, p 33 - http://www.decc.gov.uk/en/content/cms/statistics/fuelpov_stats/fuelpov_stats.aspx

[2] ONS statistics on Excess Winter Mortality - http://www.statistics.gov.uk/statbase/ssdataset.asp?vlnk=7089