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 16th 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 13th July 2009 puts the annual cost of the policies at 4.3bn: this delivers an annual average benefit of 0.3bn (monetised carbon benefits). Over a 20 year period the net benefit of the policy is minus 56bn. The total value of carbon saved over the same period is put at 5bn. 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" (para. 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" (para. 2.1). It is clear that Government policies are internally conflictive.

 

Defining the Central Problems

 

2.1. OFGEM's publication of Project Discovery (3rd 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 , 4th 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 para. 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:

Income

Energy cost

Energy consumption

 

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." [1] 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".[2] 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[3] 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.[4]

 

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 3 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

 



[1] The Rural Services Manifesto 2010 and Beyond, p.13

[2] Ibid, p.10

[3] Business and Enterprise Select Committee, "Energy prices, fuel poverty and Ofgem: Government response to the Committee's Eleventh Report of Session 2007/08" para. 33)

[4] 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.