Written evidence submitted by the Energy
Saving Trust
1. SUMMARY
The use of new financial mechanisms could be instrumental
in bringing about a step change in the level of investment in
this sector.
Barriers to basic measures of loft insulation and
cavity wall insulation are awareness, motivation, and affordability.
Low awareness suggests an important role for information and advice
provision.
Bill savings from energy efficiency or renewables
are typically heavily discounted by consumers. People apply short
time frames, three to five years. Even with grant support, high
upfront costs are likely to remain a significant barrier, particularly
for lower income households.
Proactive provision of information can help overcome
the hassle involved in seeking out advice. Intensive local activity
can help motivate residents to get involved. Local authorities,
community groups, third sector organisations and charities are
typically highly trusted, so their involvement in local schemes
can help increase consumer appetite and buy-in.
Levels of interest attached to loans and the source
of finance will have a significant impact on the attractiveness
of finance packages. Many consumers do not believe they should
be exposed to commercial levels of interest when borrowing money
to undertake such work.
It could be financially viable to deliver emissions
reductions of 30% by 2020 against a 2013 baseline at 6% cost of
capital, with 10% of the value passed to the resident. Lower costs
of capital or higher energy price inflation would allow a proportion
of the benefits to be passed on to the occupier through lower
energy bills, for example with 3% cost of capital it would be
possible to pass 20% of the value to the resident.
2. BARRIERS PREVENTING
GREATER TAKE
UP OF
ENERGY EFFICIENCY
MEASURES
2.1 The Energy Saving Trust has conducted research[33]
into barriers to the uptake of basic energy efficiency measures;
we did this by surveying households that have not taken up basic
measures of loft insulation or cavity wall insulation. The barriers
fall into three categories:
Awareness - residents
claim they don't know about taking the measures, or don't know
how to take them. 15% say they have never thought of installing
cavity wall or loft insulation.[34]
Motivational - they have
not taken the measures because they consider it a hassle, or they
are "putting it off".
Affordability - installing
loft or cavity wall insulation is considered to be too expensive
or the payback period too long.
2.2 Once informed of the true costs, benefits,
the speed, and simplicity of the process, people are often pleasantly
surprised. Low awareness of insulation suggests an important role
for information and advice provision.
Figure 1
KEY BARRIERS FOR CAVITY WALL INSULATION
Figure 2
KEY BARRIERS FOR LOFT INSULATION
2.3 The greatest challenges relate to the take-up
of high cost measures which are least familiar to consumers, such
as microgeneration technologies and solid wall insulation. Solid
wall insulation faces particular challenges due to consumer concerns
over visible impacts and the disruption during installation. Initiatives
that provide access to finance may help make such schemes affordable
and more attractive, but the terms of such schemes will be important.
2.4 The Climate Change Committee estimates that
2.3 million homes will need to have solid wall insulation fitted
by 2022 to meet climate change targets. On a linear trajectory
that suggests 210,000 installations per year between 2011 and
2022. At present it is estimated that there are only 16,000 to
23,000 solid wall insulation refurbishments undertaken per year,
with the majority of these, over 65%, being external wall insulation.
The vast majority of these jobs are in social housing.
Figure 3
AWARENESS OF MICROGENERATION TECHNOLOGIES
2.5 Although solid wall insulation has a similar
cost to a number of microgeneration technologies, the challenges
are very different. 42% haven't heard of or thought about solid
wall insulation.[35]
2.6 The top four barriers to external wall insulation
are: "appearance of house"; "too expensive";
"changes the character of my home"; "physical disruption
to install". The top barriers to internal wall insulation
are: "physical disruption"; "having to redecorate";
"too expensive"; and "hidden costs".[36]
2.7 The understanding of microgeneration technologies
is low. Very few have heard of heat pumps. 48% of people would
like to know the suitability of their home for renewable energy.[37]
There is a clear demand for information and advice on microgeneration,
people report being confused over the amount of information available
and not knowing where to start or who to trust.
2.8 Bill savings from energy efficiency or renewables
are typically heavily discounted by consumers. People apply short
time frames up to five years and often only up to three years.
Willingness to pay is related to socio-economic circumstances.
Our experience of managing the Low Carbon Buildings Programme
suggests that, even with grant support, high upfront costs are
likely to remain a significant barrier, particularly for lower
income households. 71% of households who received the grant were
from social groups ABC1 (and over 45 years old).[38]
2.9 Both microgeneration and solid wall insulation
cost thousands of pounds, however stated willingness to pay does
not match up to this. Among socioeconomic groups A and B stated
willingness to pay is on average £1127, C1 and C2 state £899,
and D and E £795.
Figure 4
WILLINGNESS TO PAY
3. MEASURES NEEDED
FOR THE
UK TO IMPROVE
DOMESTIC ENERGY
EFFICIENCY
3.1 Proactive provision of information can help
overcome the hassle involved in seeking out advice. This can help
deliver take-up among the sizeable proportion of people who are
open to measures but not sufficiently motivated to act on their
own and to investigate options. Intensive local activity can help
motivate residents to get involved, by tapping into an area's
sense of community and making the process of having measures installed
feel more normal and attractive. 25% of people say they would
be more likely to install energy efficiency measures if their
friends and neighbours were doing it.[39]
3.2 Local authorities, community groups, third
sector organisations and charities are typically highly trusted,
so their involvement in local schemes can help increase consumer
appetite and buy in.
Area based scheme case study
Sheffield City Council is running an area based insulation
scheme offering cavity wall, loft and water tank insulation. Energy
advisors go door-to-door in priority areas to sign up householders
to the scheme where they are referred on for installations to
be installed. The energy advisor visit helps increase appetite
for measures and removes much of the hassle from the perspective
of the householder.
Funding from CERT (Carbon Emissions Reduction Target)
was supplemented with funds from the council to enable measures
to be offered free and the scheme to cover additional costs of
scaffolding where necessary. A free loft clearance is also offered.
Of those contacted 71% have actively participated, 16% have had
cavity wall or loft insulation installed, with an additional 5%
in the pipeline.
3.3 It is important that ways are found to incentivise
the take up of energy efficiency measures, including solid wall
insulation. Levels of interest attached to loans and the source
of the finance will have a significant impact on the attractiveness
of finance packages. Many consumers do not believe they should
be exposed to commercial levels of interest when borrowing money
to undertake such work.
3.4 Trigger points—The best time to undertake
significant improvements to the efficiency of the home is when
other work is already planned or underway.
4. CURRENT AND
FUTURE FINANCING
OPTIONS OPEN
TO CONSUMERS
TO FUND
ENERGY EFFICIENCY
MEASURES
4.1 The Feed in Tariff (FIT) is projected to
support the uptake of 750,000 domestic scale installations (predominantly
solar photovoltaics). The impact assessment for the proposed Renewable
Heat Incentive (RHI) estimated that it would deliver 1.7 million
installations by 2020.
4.2 The Carbon Emissions Reduction Target (CERT)
is a statutory obligation on electricity and gas suppliers to
reduce CO2 emissions from homes in Britain. CERT commenced
in April 2008 and December 2012, and focuses on the installation
of cavity wall and loft insulation. The Community Energy Saving
Programme (CESP) requires gas and electricity suppliers and electricity
generators to deliver energy saving measures to domestic consumers
in specific low income areas of Great Britain between October
2009 and December 2012. As all the finance for CERT and CESP is
provided by energy suppliers (recovered through customer bills)
under statutory obligation this funding will not be affected by
the economic downturn.
4.3 Warm Front is a government funded fuel poverty
programme that improves energy efficiency of the homes of the
fuel poor. Grants are available for a package of insulation and
heating improvements up to £3,000 (or £6,000 where oil,
low carbon or renewable technologies are recommended). The scheme
runs until March 2011. As yet there is no clarity on what happens
after this date.
4.4 Scotland Home Insulation Scheme is funded
by the Scottish Government. Cavity wall and loft insulation is
offered at a special price or free of charge to certain eligible
households. Households are targeted as part of an area-wide, door-to-door
approach.
4.5 Energy saving materials receive reduced rate
VAT if professionally installed. If installed in a new house there
will be no VAT at all.[40]
4.6 The Boiler Scrappage Scheme has been very
successful with many householders interested in upgrading their
old G rated boilers for a new A rated boiler. The scheme has now
closed and all vouchers have been allocated. In total, 133,976
vouchers were allocated under the scheme. 118,249 boilers have
been installed, based on the number of claims to date.[41]
4.7 Our research shows that there is a preference
for short rather than long term loans (five compared with 10 years).
There is a distrust of 25 year loans as it was stated that they
"can't predict energy bills" or determine saving cost
effectiveness for such a long period of time. 37.7% of those surveyed,
who claimed that they would invest in a package of energy efficiency
measures in the near future, favoured an interest free loan from
the Local Authority as a means of financing those measures.[42]
4.8 We have recently completed research into
financing options for low carbon retrofit of homes.[43]
The study demonstrates how it could be financially viable to deliver
emissions reductions of 30% by 2020, against a 2013 baseline.
This would be through a comprehensive refurbishment package that
includes various energy efficiency measures such as double glazing
and heating controls, and selected low carbon technologies such
as heat pumps and solar PV. The study examines the value of low
carbon housing refurbishment by comparing the capital cost of
different levels of intervention against the potential to generate
energy savings and revenue from the renewable energy financial
support mechanisms.
4.9 The use of new financial mechanisms could
be instrumental in bringing about a step change in the level of
investment in this sector. The modelling showed great potential
for financially viable investments in low carbon refurbishment.
4.10 Across the British housing stock, at 6%
cost of capital it could be financially viable to deliver emission
reductions of 30% by 2020, 50% by 2030 and 80% by 2050 against
a 2013 baseline, with 10% of the value passed to the resident.[44]
Note, this is dependent on grid decarbonisation taking place according
to DECC's projections. It also assumes there is no limit to the
number of projects that can be supported by FIT and RHI. Modelling
is based on RHI rates used in the Government's RHI consultation
and are indicative only.[45]
However, it is encouraging as the reductions are broadly in line
with the UK's targets under the Climate Change Act. The opportunities
would be enhanced by a lower cost of capital or higher energy
price inflation, which would allow a greater proportion of the
benefits to be passed on to the home occupier through lower energy
bills. For example, at 3% cost of capital it would be possible
for around 20% of the value to pass to the resident.[46]
The modelling has shown that long contract lengths are important
- typically 25 years - in order for the investor to generate maximum
return on their investment.
4.11 Pre-capitalising part of the Renewable Heat
Incentive tariff to help cover the high up-front cost that investing
in renewables represents could make purchase of renewable heat
technologies more attractive. This could be combined with a smaller
ongoing subsidy to satisfy the Government's intention to ensure
the equipment is maintained and used. Such an approach would ensure
that the costs of the scheme are kept down whilst still generating
the same amount of renewable heat.
4.12 Further research[47]
we have completed looks at how a seven million homes programme
of large scale eco-refurbishment across Britain might be financed
over the next 10 years. The model we present is only one approach
to long term financing. We believe it is worth trialling and we
are working with local authorities to do so.
4.13 This financing and delivery model is based
on current legislation but uses mechanisms - such as Pay as You
Save - which will be central to the government's planned Green
Deal. Our report[48]
suggests that the eco-refurbishment financing programme could
be considered in two phases. Phase one signs up householders and
deploys the measures and then runs the programme until cash flows
are stable. This would be based on a finance mechanism set up
by the Local Authority known as a Special Purpose Vehicle. The
SPV would consist of a project finance layer using non-recourse
debt from private sector banks and a buffer capital layer probably
from local authorities to provide some protection to the banks,
financed from the Public Works Loan Board. Phase two then packages
these cash flows into a refinancing programme that enables capital
to be redeployed to bring on more householders. In essence, phase
two is the long-term target financing state and phase one provides
bridging finance to get there. The fund will enable house owners
to have access to low cost finance for an energy efficiency programme
supported by additional income through rental payments from the
hosting of renewable energy systems where appropriate.
15 October 2010
33 Energy Saving Trust, At Home With Energy: a selection
of insights into domestic energy use across the UK, July 2010.
Back
34
Energy Saving Trust, At Home With Energy: a selection of insights
into domestic energy use across the UK, July 2010. Back
35
Energy Saving Trust, At Home With Energy: a selection of insights
into domestic energy use across the UK, July 2010. Back
36
Energy Saving Trust, At Home With Energy: a selection of insights
into domestic energy use across the UK, July 2010. Back
37
Energy Saving Trust, Attitude Tracker, 2010. Back
38
Energy Saving Trust, At Home With Energy: a selection of insights
into domestic energy use across the UK, July 2010. Back
39
Energy Saving Trust, At Home With Energy: a selection of insights
into domestic energy use across the UK, July 2010. Back
40
http://www.hmrc.gov.uk/vat/sectors/consumers/energy-saving.htm Back
41
http://www.energysavingtrust.org.uk/Home-improvements-and-products/Heating-and-hot-water/node_422772 Back
42
Energy Saving Trust, Green Finance Uptake research, January 2009. Back
43
Energy Efficiency Partnership for Homes and Energy Saving Trust,
New Finance Mechanisms for Housing - stage 2, soon to be published.
Back
44
Energy Efficiency partnership for Homes and Energy Saving Trust,
New Finance Mechanisms for Housing - stage 2, soon to be published. Back
45
DECC, Consultation on Renewable Heat Incentive, February 2010. Back
46
Energy Efficiency partnership for Homes and Energy Saving Trust,
New Finance Mechanisms for Housing - stage 2, soon to be published. Back
47 Energy
Saving Trust, An Approach to Financing Household Eco-refurbishment
in the UK, forthcoming. Back
48
Energy Saving Trust, An Approach to Financing Household Eco-refurbishment
in the UK, forthcoming. Back
| 
