Memorandum submitted by Warm Zones Community Interest Company (FP 35)

 

Executive Summary

 

Progress against Government targets

 

The Government will not meet its statutory target to eradicate fuel poverty amongst vulnerable households by 2010 and is likely to fail to meet the second statutory target of eradication fuel poverty amongst all households by 2016 without a significant increase in the level of investment, particularly in so called hard to treat properties.

 

The definition of households in fuel poverty commonly used - i.e. those households where more than 10% of income has to be spent on fuel for adequate heating.

 

The current definition is adequate, although it is not helpful in delivering many of the programmes. WZcic believes concentration should be on delivering programmes to provide affordable warmth rather than discussing the definition.

 

The coherence of the Government's initiatives on energy efficiency

 

The current initiatives are not coherent or well coordinated and tend compete with each other to deliver the same measures in the same properties. CERT does not always deliver the most appropriate measures to address fuel poverty and the stop start nature of many of the schemes mitigates against coherent, consistent, long term delivery.

 

The methods used to target assistance at households which need it most

 

The current schemes are not well targeted on those in fuel poverty with many of those benefitting from the schemes not in fuel poverty and significant numbers of fuel poor households not eligible for the assistance available.

 

Social tariffs and plans to put social price support on a statutory footing

The clarity that putting assistance on a statutory footing is welcome, however, WZcic would welcome a degree of flexibility for the energy supply companies to invest in more effective and sustainable support for their low income customers such as income maximisation services.

 

Winter Fuel Payments and Cold Weather Payments

 

Support for increased income and reduced fuel bills is welcomed, however, the current level of investment in short term income and price support is three times the level of more sustainable investment in energy efficiency improvements. WZcic would like to see a more balanced provision.

 

Support for households who are not connected to the mains gas grid

 

WZcic supports the extension of the mains gas network where this is cost effective, however, to be an effective way to address fuel poverty, ways must be found to fund the necessary heating systems to enable low income households to take advantage of the gas supply. Other measures must also be found for properties where the extension of the network is not a cost effective option.

 

 

1. Background

 

1.1 Warm Zones Community Interest Company (WZcic) is a social enterprise, which is a wholly owned subsidiary of national energy efficiency charity National Energy Action (NEA). The company was formed in 2000, initially to operate five pilots to test the Warm Zone approach to the delivery of energy efficiency and related services to address fuel poverty. This approach involves the proactive, door step assessment of the energy efficiency standards and income and welfare benefit status of all the households in the Zone area. This assessment is followed by the coordinated delivery of energy efficiency measures and a range of related services to meet the needs of the households identified. Although primarily targeted at low-income and other vulnerable households, Warm Zones aim to offer something to all households in the areas in which they operate. Since the completion of the initial pilot phase in 2004, WZcic has continued to refine the Warm Zone model and developed new zones.

 

1.2 In nearly 10 years of operational experience WZcic has assessed almost 900,000 properties and delivered high quality, customer focussed, energy efficiency and related services to over 290,000 households. In 2008-09 the 15 operational Warm Zones delivered energy efficiency measures to 65,000 households. In addition, during the same period, the company's income maximisation services achieved over 7 million of verified additional welfare benefits with an average increase in household income of almost 3,000 pa for each successful household.

 

1.3 WZcic welcomes the Committee's decision to conduct an inquiry into the effectiveness of policies to address fuel poverty and the opportunity to comment on the range of issues identified by the Committee and welcomes the opportunity to submit written evidence.

 

2. Progress against Government targets

 

 

2.1 The Government has two statutory based fuel poverty targets: ensuring, as far as reasonably practical, that no vulnerable households suffer from fuel poverty by 2010 and ensuring, once again as far as practical, that no households are in fuel poverty by 2016. It is clear that the first target will not be met. The Government's own estimate indicates that there are currently 4.6 million households in fuel poverty in England. Recent increases in energy prices and the impact of the economic slow down have reversed the progress made in reducing fuel poverty achieved the early 2000's.

 

2.2 It is the view of WZcic that without significant additional investment, particularly in the so called hard to treat properties off the mains gas network and those with solid walls, the 2016 target is also in jeopardy. As well as additional resources, more effective targeted delivery will be required to ensure the available assistance is delivered to those households most in need.

 

3. The definition of households in fuel poverty commonly used - i.e. those households where more than 10% of income has to be spent on fuel for adequate heating.

 

3.1 WZcic regards the current definition as adequate. Any move to amend the definition could be seen as an attempt to "define the problem away". The definition is not particularly helpful in targeting fuel poor households as it is necessary to conduct an assessment of the energy efficiency of the dwelling and the income of the household before determining whether a household is in fuel poverty. Very few schemes carry out such assessments, even after measures have been installed. However, the definition is useful in measuring progress against the statutory targets.

 

3.2 WZcic would prefer that, rather than debating the adequacy or otherwise of the definition, efforts were concentrated on developing and implementing effective policies and programmes to ensure that all homes can be adequately and affordably heated.

 

4. The coherence of the Government's initiatives on energy efficiency

 

4.1 There are a number of programmes that provide funding to deliver energy efficiency measures in the homes of low income household and as a result can contribute to addressing fuel poverty. It is the view of WZcic that these policies are not currently coherent or well coordinated. The main programmes are:

 

4.2 The Government's Warm Front scheme provides grants to private sector households claiming a range of means tested and other welfare benefits to install a range of insulation measures and heating systems in England. There are similar Government grant schemes in the devolved nations.

 

4.3 The six major energy suppliers have a licence obligation to invest in measures to reduce carbon emissions resulting from energy consumption in the home. The primary aim of this obligation, the Carbon Emissions Reduction Target (CERT), is to reduce carbon emissions, although the companies much achieve a proportion of the savings (currently 40%) from so called Priority Group households. The Priority Group is defined as those households claiming a range of welfare benefits (roughly the same as the Warm Front qualifying benefits) and households containing someone over the age of 70. CERT delivers a range of measures that provide the companies with cost effective carbon savings. These include a limited range of insulation measures including cavity wall and loft insulation. CERT measures can be delivered in any home irrespective of tenure.

 

4.4 In addition local authorities and other social landlords invest in energy efficiency measures in their properties to meet the thermal comfort criteria of the Decent Homes Standard.

 

4.5 These programmes represent considerable investment in energy efficiency, a significant proportion of which can be invested in schemes to address fuel poverty. However, it is the view of WZcic that these schemes are not well coordinated. Warm Front and CERT often compete directly to install the same measures in the same properties. There is also considerable competition between the six energy supply companies and their installers and agents to identify opportunities to install the limited range of cost effective measures funded by the scheme. This competition is wasteful with the companies and their agents contacting the same households to offer them the same measures. Perhaps of more concern, it is the experience of WZcic that this competition and the resulting plethora of choice can prevent many households from taking up energy efficiency measures. Faced with too many options, many households simply do nothing.

 

4.6 The energy supply companies are given a considerable amount of freedom to deliver their programmes in the way they wish. While this flexibility may deliver the savings at the lowest cost to the companies and hence to their customers, it does limit the value of the investment devoted to physical energy efficiency measures and therefore to tackling fuel poverty. For example, approximately 29% of the CERT targets delivered to date have resulted from low energy lighting[1]. While this may be cost effective for the companies, a few low energy light bulbs will have a limited impact on fuel poor households. Low energy light bulbs are being phased out of the scheme, however, the recent introduction into the scheme of Real Time Display units and advice could deflect significant amounts of CERT resources from hard insulation measures.

 

4.7 The companies also switch schemes on and off, often at short notice, to manage the delivery of their targets. While this may be logical from the financial planning perspective of the companies, it creates significant problems for the supply chain and makes it difficult to deliver coherent, consistent, long term programmes. The stop start nature of the programmes is also likely to increase costs as the supply chain, including materials manufacturers and suppliers, installers and programme managers, have to contract and expand their businesses to accommodate the variations in the funding stream.

 

4.8 The Thermal Comfort criteria of the Decent Homes Standard has encouraged considerable investment in energy efficiency in social sector properties. However, the standards are low and properties which meet the basic standards are unlikely to provide affordable warmth to the majority of tenants. While it is accepted that many social landlords have gone beyond the minimum standards, WZcic believes that the aim of the standard should be to provide affordable warmth to the majority of social tenants. As such the thermal comfort criteria should, as a minimum, guarantee that properties meet the current Building Regulations standards for insulation and heating system efficiency. The Government is in the process of reviewing the Decent Homes Standard. This review offers the opportunity to revise the Standard to the extent that it represents a more effective tool to address fuel poverty in the social sector.

 

4.9 Increasingly, local authorities are setting targets for the proportion of private sector properties in their areas required to meet the Decent Home Standard. As a result an enhanced Thermal Comfort requirement in the Standard could also help to combat fuel poverty in owner occupied and private rented properties.

 

4.10 It is interesting to note that the Scottish Government is developing a more coherent approach to their energy efficiency programmes than those in England. The Energy Assistance Package provides a single customer interface for energy efficiency schemes and seeks to combine Government funding with resources available from the CERT programme, to deliver the required energy efficiency improvements. This programme could point the way for more coherent energy efficiency programme delivery in the rest of the UK.

 

5. The methods used to target assistance at households which need it most

 

5.1 WZcic would argue that in general current energy efficiency schemes are not well targeted at those most in need. The programmes identified above are largely demand led and require potential beneficiaries to contact the companies or the managing agents directly. The companies and managing agencies utilise a range of methods to target those eligible for assistance, however, there is only limited attempts to target those most in need. In deed, many of the methods used to promote the schemes and identify eligible households actually make it difficult for the most vulnerable households or those who need the assistance most, to access the schemes. For example, press advertising which contains freephone numbers and free post addresses, are unlikely to elicit significant numbers of responses from those who lack the confidence to use the telephone or who have literacy difficulties.

 

5.2 The design of some schemes also mitigates against effective targeting of those most in need. For example, the inclusion of all over 70's in the CERT Priority Group, meant it was easier for the energy supply companies to promote their schemes to more articulate, aware and better off over 70's than those most in need.

 

5.3 The direct, proactive approach taken by Warm Zones is much more effective at identifying those most in need, those who tend not to make direct applications for assistance. This approach, together with the partnership building with local caring agencies and other voluntary organisations, can provide vulnerable households with reassurance and result in improved take up amongst the most vulnerable and needy households.

 

5.4 As was noted above, the current schemes use proxies, mainly welfare benefits, for fuel poverty. It is well documented that welfare benefits are not good proxies for fuel poverty. For example the National Audit Office found that 75% of households eligible for Warm Front were not in fuel poverty[2], although the report did acknowledge that subsequent increases in energy prices would be likely to push a large proportion of these households into fuel poverty. The same report suggested that the scheme is only available to 43% of vulnerable fuel poor households suggesting that over half of such households are not eligible for assistance.

 

5.5 The Warm Zones door step assessment process involves an energy efficiency assessment of the property, together with an income and welfare benefit assessment of the household. As a result the Warm Zones are able to identify those household who are in actually in fuel poverty rather than relying on benefit proxies. Where the necessary funding is available, many of the zones provide free measures to all non qualifying fuel poor households.

 

5.6 The direct, proactive approach and door step assessments utilised by WZcic provides the most effective way to target the available assistance to those households most in need.

 

6. Social tariffs and plans to put social price support on a statutory footing

 

6.1 WZcic supports any measures that reduce the cost of energy to low income households. In addition, putting social price support on a statutory footing should ensure consistence of approach across the companies. This consistency will make it more straightforward for those agencies providing advice to low income households to ensure such households get the most appropriate tariff from their energy supplier.

 

6.2 However, there alternative ways to support low income consumers that can be more cost effective that simple subsidising their energy bills. The current voluntary expenditure on social programmes by the energy supply companies, contains flexibility to fund a range of initiatives to support their low income customers. Some of the companies have utilised this funding to support income maximisation services that assist households to claim the welfare benefits to which they are entitled. Each 1 invested in such a service produces increased income of up to 20 for successful households. This increased income will continue for a number of years, whereas 1 spent on price support will represent a one off benefit.

 

6.3 It is WZcic experience that successful claimants obtain an increase of almost 3,000 in their annual income. As a result WZcic would argue that the companies should be allowed flexibility in their social expenditure once the statutory social tariff is introduced.

 

 

7. Winter Fuel Payments and Cold Weather Payments

 

7.1 As a non means tested payment, the Winter Fuel Payment is not well targeted on those most in need and goes to significant numbers of better off households. WZcic accepts that the universal nature of the benefit makes it easy to administer and does ensure that those over 60's who are in need do receive the benefit.

 

7.2 Cold Weather Payments are better targeted, being linked to the benefit system and the recent increase in their value make the payments significantly more useful to the low income households in receipt of the benefit.

 

7.3 There is a significant disparity between the level of short term income or fuel bill support for elderly and other low income households and the long term, sustainable investment in energy efficiency improvements. The cost of the Winter Fuel Payment alone is approaching 3 billion per annum while the Warm Front budget is 369 million in the current year and the sum spent on the CERT Priority Group is unlikely to be more that 500 million per year. Investment in energy efficiency improvements provides sustainable reductions to fuel bills in addition to reductions in CO2 emissions.

 

8. Support for households who are not connected to the mains gas grid

 

8.1 WZcic is concerned that current energy efficiency schemes provide a limited range of support for households occupying a number types of property, including those not connected to the mains gas network. There is clear evidence that mains gas is currently the cheapest fuel for space and water heating. WZcic has welcomed the recent introduction of arrangements by the energy regulator, Ofgem, to fund the extension of the mains gas network to households and communities living in the most deprived areas.

 

8.2 However, the experience of WZcic, in trying to implement such schemes, is that although the installation of the new gas network can be funded, the stumbling block is identifying funding for the necessary new gas heating systems. Unless there is a high proportion of social housing in the area and the social landlord has the resources to fund the new heating systems, these schemes are unlikely to be viable. To trigger the Ofgem funding, a certain proportion of households in the area need to be able to take advantage of the gas supply. It is difficult to see how new heating systems could be funded in low income private sector households as it is unlikely that the householders will have the necessary capital to invest in the systems themselves. Unless a source of funding for the necessary heating systems can be found, this exciting initiative is likely to have a limited impact.

 

8.3 There are a significant number of properties where, because of their distance from the gas network and other physical factors, it will never be economic to extend the network. As a result, WZcic supports the inclusion of alternative technologies, within the current schemes, to provide affordable space and water heating in properties off the mains gas network. Measure such as heat pumps, bio fuel boilers and solar thermal systems could make a contribution to the provision of affordable warm in off gas network properties. The main drawback is that these technologies tend to be more expensive than gas and oil heating systems. As a result, these measures are not attractive to the energy companies CERT funding and fewer households could be helped from tax payer funded programmes such as Warm Front, if these measures are included in the scheme.

 

February 2010



[1] Carbon Emissions Reduction Target Update; Ofgem December 2009

[2] The Warm Front Scheme: Report of the Comptroller and Auditor General; HC 126 Session 2008-2009; 4 February 2009