Energy Bill

25 This simple illustration suggests that at market rates of interest combinations of several of the most common measures will not be able to meet the Golden Rule.

· We question whether many people will want to take out this long-term finance for low-cost measures alone.

· With interest of 8% +, the repayment period already exceeds the likely lifetime of boilers [13] .

· Some high-cost measures would not meet the Golden Rule with interest rates of 6% or above.

26 A recent report by E3G modelled energy price increases for whole house retrofit: "even quite modest Green Deal retrofits require significant support from subsidies to meet the Green Deal ‘golden rule’. For example, if the subsidy was used to reduce the interest rate, a 25 year loan would need to be offered at an interest rate of 2% or less compared to commercial rates of 8% or more [14] ".

27 The Green Deal cannot stand on its own feet without subsidy in many cases. The Government is assessing the potential and necessity for the Green Investment Bank (GIB) to support the financing of investment in domestic energy efficiency during the first stages of Green Deal delivery [15] . Which? believes that GIB funding should be applied to the Green Deal because investment in energy efficiency achieves carbon savings much more cost-effectively than investment in renewables. The GIB could subsidise the upfront costs or interest payments. The recent report by E3G has also concluded that the GIB is the most obvious provider of finance, and has recommended its provision of low-cost up-front capital in the first phase [16] .

28 Which? asks that the Government:

· set out worked examples showing which measures or packages of measures are viable with (a) different interest rates (b) different repayment periods and (c) different levels of ECO subsidy

· provide an assessment of the likely costs of financing – including capital market costs, setting up and administering the Green Deal.

· commit to the Green Investment Bank being used to support the Green Deal in early years, with clarity on the amount of GIB funding that will be applied and the consequent reduction in the amount of ECO subsidy.

Protecting consumers from nasty surprises

29 Consumers could be better off financing energy efficiency measures through non-Green Deal routes, such as loans or adding to a mortgage.

30 Which? asks for:

Transparency on other financing options available.

IV. Which? suggested amendment

[Clause 4, Subsection 9, page 6, line 11, at end insert-
"(10) The ninth condition is that the Green Deal provider has made clear to the improver that improvements recommended under an energy plan need not be achieved either wholly or in part through a Green Deal plan."

31 The Green Deal Code require provider to inform the consumer in writing of the range of financing options.

32 Assurances from Ministers that some form of consumer protection on interest rate structures will be put in place. It is critical that Green Deal Providers are not permitted to structure interest payments such that they are lower in early years to increase the short-term attractiveness of the product at the expense of subsequent occupiers.

33 No hidden or unexpected fees should be introduced through the Green Deal process. Which? Money Magazine recently found that some mortgage lenders are now charging as many as 30 different types of fees, with no correlation either between fees and a interest rates [17] . Green Deal providers, must not load or hide costs in fees.

Which? asks that:

34 All communications on Green Deal must show clearly the entire cost to the customer, including interest and all charges and fees.

V. Which? suggested amendment

Clause 5 Terms of Plan, page 6, line 45, at end insert-
"(5) The fourth condition is that all possible fees that may be incurred throughout a Green Deal Plan are communicated clearly to improvers prior to the deal being secured."

35 Ministers provide assurances to require Green Deal Plans to set out all costs in an up-front and transparent way. The Green Deal Code could specify what is permissible and the guiding principles.

Ensuring a fair Energy Company Obligation

36 It is hard to judge the impact of the ECO as no concrete information has been provided on the scale of this funding nor how much ECO subsidy will be applied. However, Which? has the following concerns:

37 The objectives of the ECO are unclear – supporting hard to treat homes and supporting the fuel poor are very different things, as are reducing energy use and promoting ‘affordable warmth’ [18] . DECC also says that the ECO can be applied sometimes within, sometimes without the Green Deal. A full debate in the next stages of the Energy Bill, and including to assess the likely take-up of the Green Deal by the fuel poor, is needed to provide clarity.

38 The ECO presents serious cross-subsidy issues – The ECO means that all consumers end up paying for the Green Deal. Yet the numbers of people who might benefit from the ECO could be relatively small and the amount of benefit those people get could be very large. A debate is needed on the scale of the ECO because as currently drafted it seems to Which? to have the potential for significant cross-subsidy.

39 Funding energy efficiency from energy bills is more regressive than through taxation – Levies on energy bills hit the fuel poor hardest and so funding programmes through fuel bills is a more regressive approach than funding through taxation [19] . It will leave the consumer who does not take up the Green Deal worse off than before. The Government must publish urgently its estimates of the likely scale of funding of the ECO, its impact on energy bills and also the consequent impact on fuel poverty.

40 The need for transparency on costs and their pass-through – Under CERT, suppliers are not required to report on their costs: it is not possible to determine what costs are passed through to consumers’ energy bills and how these relate to the actual costs of suppliers. Which? research found 87% of consumers would like greater transparency on their energy bills around additional costs such as environmental levies.

41 A more robust reporting mechanism is needed to show the impact of ECO on energy bills and fuel poverty.

42 Funding energy efficiency from energy bills is more regressive than through taxation – Levies on energy bills hit the fuel poor hardest and so funding programmes through fuel bills is a more regressive approach than funding through taxation [20] . It will leave the consumer who does not take up the Green Deal worse off than before. Directing the subsidy to hard to treat homes, not just the fuel poor, increases this problem. The Government must publish urgently its estimates of the likely scale of funding of the ECO, its impact on energy bills and also the consequent impact on fuel poverty.

43 The need for transparency on costs and their pass-through – Under CERT, suppliers are not required to report on their costs: it is not possible to determine what costs are passed through to consumers’ energy bills and how these relate to the actual costs of suppliers.

VI. Which? suggested amendment

Ensuring transparency in the ECO

Clause 69, page 53, line 23, at end insert-
"(7) No later than one year after this section comes into force and in every subsequent calendar year, the Secretary of State will be required, by means of the information obtained by virtue of this subsection, to report to Parliament on the operation, costs and effect of a carbon emissions reduction order or home-heating cost reduction order."

44 Cost of ECO to consumers – The Budget 2011 committed to introduce a new framework to cap the impact of levy-funded support on energy bills. Assuming that the ECO comes within this – as it should, this should at least provide some welcome control on the amount of the consumer subsidy to be provided through the ECO. A debate is needed on what upper level of ECO cost (a cap) would be acceptable for consumers.

45 Large cross-subsidy for one measure – CERT subsidises low-cost measures, and we consider this acceptable. Yet this is not the case with the ECO. The latest DECC proposals state that ‘for more expensive measures, and where Green Deal finance is not a suitable option, ECO subsidy may need to cover the full cost of installation’. Yet this could mean up to £15,000 for a single solid wall insulation installation. Therefore a debate is needed on a cap on the amount of subsidy per measure.

46 Analysis of the consequences for solid wall insulation – If a cap on the individual ECO subsidy means poor take-up of solid wall insulation then there is a need to consider other forms of support, such as the Green Investment Bank.

37 Risk that the ECO could give energy suppliers an unfair advantage in the Green Deal market – It is essential that all Green Deal providers, including the small ones, should be able to access ECO subsidy. Whether this will be the case, and how this would work, is not yet clear but energy companies should not be given free rein and arrangements should be put in place to ensure a level playing field.

38 Risk that ECO targets cause pressure-selling - Finally, we are concerned that targets on energy suppliers set through the ECO could lead to energy suppliers’ pressure-selling. For example, that during a smart meter installation they push the Green Deal. The ECO targets must be set in a way that means that this is not the case.

Maximising the appeal of the Green Deal to consumers

49 The Green Deal must tackle the cost, awareness and motivation barriers to energy efficiency [21] . Lack of awareness and motivation have been shown to be among the key barriers for loft and cavity wall insulation [22] ; which is why millions of people have not installed these (relatively low-cost) measures even if free or heavily subsidised. Only 15% say they would like their home assessed for energy efficiency [23] . Research for the CBI has found that only 9% of homebuyers see energy efficiency as a key factor when buying a house [24] . Nor do many people know what form or amount of insulation they have already [25] .

50 Additional cost incentives will help improve take-up, such as use of funding from the Green Investment Bank alongside the ECO. Which? believes that the complexity of the Green Deal will mean that selling it will be even harder. Which? recommends:

· All communications must be in simple, easy to understand language.

· Communications must not be misleading for example presenting Green deal as a Government subsidy. There must be no talk of ‘free money’: it is a market mechanism provided by profit-making companies. The Green Deal Code must include appropriate guidelines.

· One symbol is needed under one scheme – so consumers can easily recognise and be assured about uniform Green Deal standards.

· Householders should be encouraged not just to see the Green Deal benefits as financial but also for health, comfort and quality-of-life.

· The impact on the house-buying process needs to be scrutinised further in the next stages of the Bill and beyond with a focus on how to tackle change of owner/change of use issues that will question the efficacy of the Golden Rule.

· The Green Deal Plan should include information around behaviour change and lifestyle choices to help realise the predicted bill reductions [26] . Installers also have a role in ensuring that householders know how to operate the systems (e.g. new heating controls).

· Non-financial barriers are significant, such as the ‘hassle’ factor [27] . Green Deal providers should consider introducing help with these as part of the package, e.g. helping clear the loft space before putting in insulation.

June 2011

ANNEX

New Which? research shows consumers prefer specialist independent assessors

51 Thinking about the process you might go through from considering energy efficiency measures to actually installing them in your home - please indicate who you would prefer to use for providing an energy efficiency assessment (i.e. a face-to-face assessment of your whole home to determine which energy efficiency measures could save you energy). The top 5 preferred sources were:

A specialist energy assessor (independent) 26%

Energy Savings Trust 18%

Your or any energy supplier 13%

Local council 7%

A specialist energy assessor (contracted) 6%

52 In summary, consumers’ preferred source for an energy efficiency assessment is a specialist energy assessor (independent of the company selling the measures). There is evidence to show that those who prefer energy efficiency suppliers to sell them energy efficiency measures don’t mind if they also offer advice or energy efficiency assessments, the single more preferred source for the assessment is still a specialist energy assessor.

Which energy ‘omnibus’ research, May 2011 (unpublished). Using an online panel we surveyed 2,003 UK adults aged 16+ who were responsible/jointly responsible for energy bills. Fieldwork in April – May 2011 and the results were weighted to reflect the UK adult population.