HC 1605 Energy and Climate Change and Environmental Audit CommitteesWritten evidence submitted by Consumer Focus
Introduction
Consumer Focus is the statutory consumer champion for England, Wales, Scotland and (for postal consumers) Northern Ireland.
We operate across the whole of the economy, persuading businesses, public services and policy makers to put consumers at the heart of what they do. We have specific responsibilities for the energy and postal sectors.
We are yet to respond formally to DECC’s consultation on its proposals and are still considering their possible impacts. In areas this submission represents policy in development rather than finalised views. We are happy to copy our formal response to DECC to the Committee when it is ready.
Following the executive summary, we provide high level feedback on four of the five key themes listed in the Committees’ Call for Evidence. We do not have new evidence on experience of feed-in tariffs in other countries.
Executive Summary
Consumer Focus supports the review of the feed in tariff for solar PV at this time. The aim of the feed in tariff is to overcome barriers to investment by providing a guaranteed return. It should not overcompensate investors, particularly as it is paid for through a levy on everyone’s electricity bills.
We understand that the new tariffs will provide a return on investment sufficient to incentivise investment in areas with higher irradiance. As with any policy we are concerned about regional and national differences, but just as energy efficiency measures, and potentially the renewable heat incentive, will have greater benefit for homes in colder areas so an investment in solar PV will have higher returns for homes in southern parts of the country.
However, we are concerned that the tariff for aggregated systems will prevent the installation of solar PV systems on social housing properties and the homes of vulnerable consumers. We therefore believe that the Government’s proposed community tariff (or tariffs) should cater for these schemes, to bring the benefits of decentralised energy to a wider group of consumers than is possible under the proposed tariffs.
Consumer Focus disagrees with the combination of short notice and the use of an eligibility date over which the consumers has no control. Renewable technologies are a long-term investment, and consumers cannot change their plans in as little as six weeks; and the industry and its investors cannot continue to function effectively with this cliff-edge approach. Changes must give investors (in industry and in installations) confidence that whilst market costs may change, Government policy will deliver stable returns.
Impact to Date of Solar PV Feed-in Tariffs and the State of the Solar Energy Market
1. The Feed-in tariff was working: it has engaged consumers, created thousands of jobs, and delivered efficiencies in the supply chain. Here we focus on the customer attitudes and experience based on research undertaken by Energy Saving Trust on consumer attitudes and our work on customer satisfaction which will be published by mid December.
Attitudes
2. Consumers who have installed renewable technologies to date are likely to be older or retired professionals living in large detached homes, often in rural areas, who demonstrate a high level of environmental concern.
3. They have often introduced energy efficiency measures into their home, and of the consumers who have taken up the feed-in tariff, just over two-thirds are “very” or “quite interested” in the Renewable Heat Incentive.
4. Overall the main barriers to uptake are financial: the up-front costs, inability to afford the installation costs, a lack of finance and a payback period of over five years.
5. Consumers lack confidence in the feed-in tariff:
Lack awareness and knowledge of the feed-in tariff scheme, only gaining an understanding after undertaking specific research;
Find the scheme complex and confusing;
Are concerned about the reliability of feed-in tariff income; and
Struggle with the key barrier of up-front installation costs, particularly if that cost is greater than £5,000 and the payback is greater than five years.
6. Consumers are also concerned about the experience or skills of installers and tend to undertake a range of online research but recommendations from family, friends and neighbours are used most consistently as both a source for general information and a source for finding potential installers.
7. Additional triggers are needed to widen interest in the market:
Communications to promote technologies as a desirable long-term investment, raising awareness of technologies and benefits.
Industry working with television and other general media to promote renewable technologies as an aspiration for a 21st century home.
Detailed case studies and advice on technologies for specific property types.
Exemplar homes open to the public.
Tailored advice through EPCs, and access to free, trusted advice.
Reliable financial incentives.
Trustworthy advice and project management from installers.
Technical assurance and guarantees.
Remove or significantly reduce upfront cost barrier, or shorten payback period to five years.
8. Industry and Government need to learn from those who have installed renewable technologies: rather than talking about costs and payback, they tend to talk of an investment in their home and their belief that the systems will add long-term value. The value of such systems therefore needs to be set out clearly in the Energy Performance Certificate, for example through the inclusion of the annual value of the feed-in tariff, and incentives are needed to prompt interest in the energy performance of homes during their sale or rental.
Experience
9. Our survey of 2,600 microgeneration consumers in October 2011 found high levels of satisfaction. However there are areas where consumers are dissatisfied, and the results show that the three key stakeholders in the market all have a role in making it work more effectively.
10. Consumers need more than cost estimates to give them confidence. They are influenced by personal recommendations, which may be the reason for the acceleration of uptake in the second year of the Feed-in Tariff scheme.
11. They are most influenced by information provided by installers, which is why we are concerned that installers are failing to help consumers understand the value of their system or how to get the best out of their investment:
10% of installers do not discuss energy performance.
29% do not discuss planning and building control.
40% do not discuss current energy use.
64% do not discuss energy efficiency.
two-fifths of consumers are not provided with a guide to maintaining the system.
two-thirds are not given a guide to getting the best out of their system.
12. Lack of information was the largest cause of dissatisfaction with the sales process, but more significant problems arose that contravene the REAL Assurance Code, as some consumers said they were dissatisfied by the sales process because they were:
Pressurised by an offer of a discount.
Given misleading information.
Subject to changing conditions, price or the scope of the project after contracting.
Sales visits too long.
Pressurised by the future reduction in the FIT or by a claim of limited availability.
13. During the summer Consumer Focus worked to raise awareness of mis-selling in the solar PV market due to reports of such activities and concerns about a likely increase in the run-up to the planned reduction in the tariff in April 2012. Mis-selling is likely to appear in any rapidly growing market, particularly one where aspects of the advice and sales process occur in the home, and any deadline is going to be used as a trigger for pressure selling. We are particularly concerned about mis-selling as it is clear from REAL Assurance and Consumer Direct complaints that vulnerable consumers have become victims of misleading claims.
14. Our research found that consumers could take relatively simple actions to protect themselves, such as seeking 3 quotes, verifying companies’ claims of Microgeneration Certification Scheme (MCS) registration via the MCS website; never paying more than 25% of the contract price upfront; checking the right to cancel the contract within 7 days with no penalty; and refusing to sign a waiver of this period.
The Balance between Affordability and Delivering the Objectives of the Solar PV Feed-in Tariffs
15. Consumer Focus was part of the stakeholder coalition that campaigned for the introduction of Feed-in tariffs. In doing so we recognised the need to balance affordability and the desirability of policy goals that ranged from consumer empowerment to an industrial policy mechanism.
16. We recognised, and continue to recognise, the need to invest in new systems and technologies that enable consumers to take action on their energy supply and demand. We understand that to meet the nation’s carbon targets, solar thermal and photovoltaic arrays are needed on 75% of homes
17. We agree with Government policy that the barrier to uptake of solar PV is lower than other technologies, and therefore were satisfied with the original intention that PV tariff levels provide an average 5% return on investment (point 36, FIT impact assessment, DECC, 1 February 2010).
18. The biggest barrier to balancing the costs and benefits is that the short term direct benefits of the scheme are not received by 99.5% of those funding it. The scheme is funded by energy consumers but the economic benefits are felt elsewhere in Government:
DWP: tens of thousands of jobs created.
Treasury: VAT receipts and income tax.
19. It is unfortunate that these economic benefits are not recognised in the Treasury’s control framework for DECC levy-funded spending through a mechanism to feed in additional funding from the public purse, as this means the framework effectively caps the scheme rather than allowing success to breed success.
Government Management of the Solar PV Feed-in Tariffs, including the Consultation
Business as usual.
20. Renewable energy generation is perceived to be beyond the reach of most people, particularly in the current economic climate. That will remain the case unless the barrier of upfront cost is tackled. However Energy Saving Trust research for our upcoming report on consumer attitudes and experience shows that finance is not the only lever, nor is payback always the primary motivation.
21. We found that people who have invested renewable technologies see them as a long-term investment in their home. However, it is questionable as to whether they will recoup that investment if they move out before the end of the “payback” period. The calculation engine behind the Energy Performance Certificate is not able to set out the value of future FIT payments. The development of the Green Deal and the related reformatting of the Energy Performance Certificate must tie renewable technologies into other activities promoting low carbon homes:
Government-backed calculation methods for EPCs and Green Deal advice should include the calculation of the value of Feed-in Tariffs:
to promote the value to potential investors in renewable technologies; and
to promote the value of systems to prospective buyers and tenants where already installed.
Consumers should be able to use Green Deal finance to cover upfront costs of renewable technologies, subject to meeting energy efficiency eligibility requirements.
22. Consumers are uncertain about installers’ skills, and misselling has been a growing problem, particularly to elderly and more vulnerable consumers. We and others, including REAL Assurance, have sought to raise awareness of the risks and how consumers can protect themselves but the assurance framework is difficult to communicate. It is difficult to communicate the combination of MCS and REAL Assurance schemes to consumers.
23. Government could simplify consumer-friendly assurance branding as part of the development of Green Deal accreditation branding, but it seems that this could duplicate rather than simplify consumer protection schemes. More resource needs to be made available to support independent monitoring and enforcement of such schemes, for example through Trading Standards, as the experience of early adopters is so key to getting these low carbon schemes off the ground.
24. The largest cause of dissatisfaction amongst consumers is the process for obtaining the Feed-in Tariff (FIT), with just over one-quarter dissatisfied. The most common complaint is the FIT is paid from the date of registration rather than the date of commissioning the system (ie the date it starts generating electricity). Delays in receipt of paperwork are also a significant cause of complaint and Consumer Focus has heard that some installers hold back the registration process for their own ends, such as to hold power over the consumer during a dispute over payment or damages.
25. The Government should revise the rules of the scheme so that consumers are paid from the date of commissioning as this is the date that they start generating electricity and because they lack control over the registration process and are carrying the cost of others’ inefficient processes (or worse, deliberate delays).
26. The Government should enforce current rules on energy suppliers to ensure generators are paying for imported energy where net meters are installed. Over one-fifth of consumers, at the time of installation, had a net meter, ie one which runs backwards when energy is exported. Of those consumers with a net meter, just under half have been asked by their supplier to change their meter, and in almost all cases the consumer was not charged for this change. However, 10% of all consumers surveyed have not been asked to change their net meter. These consumers have the additional benefit of their meter running backwards, increasing the value of exported electricity from 3.1p to around 16p depending on their electricity tariff.
27. The cumulative value of this could be around £1.2 million, and it is not clear who currently carries the costs, although it is likely, again, that energy consumers pick up the tab. We do not want microgeneration consumers to have to pay for a new meter, as smart meters are on the near-horizon, but nor do we want them forced on to smart meters that are being rolled out prior to the setting up of consumer protections. At the very least, these consumers must receive smart meters in the first year of accredited installation, with a requirement that smart meters are installed with renewable technologies from that point.
28. Finally, the Government and its agents could enable monitoring of consumers experience by seeking permission from Feed-in tariff applicants to be contacted for research purposes. It must also ensure that the current review of the consumer landscape delivers good quality complaints data to relevant stakeholders (such as Consumer Focus’s successor).
Consultation
29. We understand the time pressure behind the review, and support a change prior to April 2012, but Consumer Focus disagrees with the combination of short notice and the use of an eligibility date over which the consumer has no control.
30. From a policy perspective, we believe that maintaining the current tariff and dropping to 21p in April would see an even greater acceleration in uptake, with the potential for more misselling and putting more pressure on the FIT budget.
31. However, the Government’s proposal does not recognise the risk to consumers who had signed contracts prior to the launch of the consultation but who had not yet had systems installed. This is our principle concern, and was raised immediately with DECC at our first sight of these proposals. It is of concern for the consumers who are directly affected, but will also undermine future consumer confidence as it has a significant retrospective impact on consumers’ contracts.
Contracts—Cancellation
32. Consumer Focus has used the model contract provided by REAL Assurance to its members in order to understand the impact of Government’s decisions on consumers in general terms. We recognise that there will be variations of the contract in use, and consumers may have to seek their own legal advice in order to understand how Government decisions have retrospectively impacted their contract.
33. We believe that at the time of the launch of the consultation there were consumers who had entered into a contract for the installation of a solar PV (of which they become the owner and thereby FIT Generator) where the contract:
had an installation date of prior to 12 December 2011,
had an installation date on or after 12 December 2011, or
had no specific installation date.
34. None of these groups is protected against the installers’ inability to complete the registration of installation by 12 December 2011, despite the benefit of the system’s generation-related income falling by 50%.
35. If they have paid a deposit they will be unable to cancel their contract without financial penalty. In September we surveyed 2,600 consumers who have installed microgeneration. The majority (86%) of consumers purchasing a system were asked to pay a deposit before installation.
36. However, the amount requested as a deposit varies. Almost three-quarters (70%) of installers ask for between one and 25% of the contract price to be paid as a deposit upfront. One in ten consumers are not asked to pay any percentage of their contract price as a deposit upfront, but a slightly larger minority (15%) are asked to pay between 26 and 50% of their contract price as a deposit upfront. Under the REAL Assurance Consumer Code consumers should pay no more than 25% as a deposit so this is a concern in terms of Business as Usual, but the risk is heightened for consumers who are affected by the 12 December deadline.
37. The REAL Assurance model contract does not allow for a cancellation of contract due to major delay to installation (Clause 8.2.1), and whilst the customer is entitled to cancel the contract if there are major delays to delivery, it appears they can only get their deposit refunded if the delays are within the installer’s control. It may be down to the small claims courts to determine the extent to which delays are within the installer’s control, particularly if the contract included a timetable for registration of an installation by 12 December.
Contracts—Compensation
38. Where the Model Contract has an installation date which is before 12 December 2011 and that installation date is not met, the position appears to be that the customer can:
cancel the contract—where the reason is because the delivery of the goods is delayed, or
ask for compensation—if the delay in the installation date is significant or unreasonable and is caused by factors within the installer’s control.
39. It is not stated in this model contract how compensation would be calculated. It may therefore be possible in these circumstances for a customer to claim that any compensation payable should be calculated by reference to the [potential] loss arising as a result of a lower feed-in tariff being applicable.
40. However to make such a claim, the consumer would have to prove all of the following:
that the delay in the installation date was significant or unreasonable,
that the loss being claimed is not too remote, in other words that it is a loss which flows naturally from the breach or which was in the contemplation of the parties at the time the contract was made as a probable result of the breach, and
that the loss was caused by the breach of contract—the customer must prove that it was the breach of the contract caused the loss rather than any other event occurring.
41. Each case would, and will have to be considered on its merits, but we fear that it will be difficult for consumers to prove their loss on the basis of the above tests, particularly (b) as the change in the tariffs was unexpected.
42. If consumers have been sold PV on the basis of a “beat the deadline” claim after the launch of this consultation then they are likely to be in a better position to meet these tests as the installer will have understood, or could have predicted, the pressure facing the supply chain.
43. They may also be able to prove that the installer misled them on the deadline (see Figure 2 below)
44. Compensation is mentioned in the REAL Assurance model contract, but it is unclear as to what the customer may need to do to claim such compensation or how any such compensation may be calculated .
45. Consumers with an installation date set for after 12 December appear unlikely to be able to cancel or claim compensation unless the installer delays that installation date. Again, consumers would have to prove their claim for loss against the three tests above.
46. It appears there is no remedy available for consumers whose contract does not include an installation date.
47. Consumers are highly unlikely to be protected by their contracts, as the model contract from the industry’s Consumer Code did not foresee these circumstances. Therefore the Government’s approach to consumer protection is reliant on clear communication, a responsive supply chain and installers’ processing of paperwork to deliver contracted systems in time.
Communication
48. The success of the Feed-in tariff is the engagement of thousands of individual households and hundreds of small businesses. But this also means the notice of the Review had to get out quickly across a network of organisations, some of which will be better equipped than others to update websites and other marketing material. There will still be old marketing material circulating. Whilst a range of consumer-facing organisations and industry itself has sought to advise consumers on the impact of the changes, the message is confusing:
The eligibility date is one that the consumer has no control over.
The date is prior to the end of the consultation—causing uncertainty (perhaps the cause of the misleading information in Figure 2 above).
Consumers have been told that the FIT is reliable and no changes will be made retrospectively—but if consumers have already signed a contract they will see this as a retrospective move.
49. We think this is unacceptable as it is the consumer who will carry the cost if the eligibility date, even though the delivery of goods, their installation and the processing of paperwork is not in their control.
Paperwork Processing
50. The processing of paperwork is of particular concern:
DECC notes the backlog in MCS registrations in paragraph 32 of the consultation.
Our recent survey of 2,600 microgeneration consumers found the biggest cause of dissatisfaction to be the registration for the Feed-in Tariff, and delays relating to the paperwork were two of the top three biggest issues.
REAL Assurance has told us there have been instances of accredited installers holding back the MCS certificate in order to give them power over consumers in disputes over payment. This goes against the Consumer Code.
51. The eligibility date must be within consumers’ control and therefore we want it to be based on the date of contract, not the completion of paperwork.
52. If not, we expect to see thousands, perhaps tens of thousands, of claims for compensation where installations are not completed in time to meet the eligibility date proposed by DECC.
Affordability of Solar Photovoltaic Energy versus other Renewable Energy (given the Overall Levy-funded Cap for Energy Bills) and the Impact of Feed-in Tariffs on Energy Bills
53. The relevant comparisons with other technologies are the cost of subsidy per unit of energy generated; and the change in cost of technology.
54. The buy-out price for ROCs in 2010-11 was £36.99 per ROC, equating to about 8.6p per KWh in support for solar photovoltaic. This should be compared with the current price of 43p/kWh for the Feed-in tariff for domestic-scale solar PV, and the proposed price of 21p/kWh.
55. Clearly larger renewable energy projects are more cost-effective but we still consider that the FiT was working:
30% cut in costs in the supply chain, and price reductions for consumers.
Directly engaged over 70,000 households in the low carbon transition.
Generated positive word-of-mouth, which has in turn given more consumers confidence to invest.
Economic benefits of jobs.
56. We then expected tariff degression to bring the cost to the consumer down until such time grid parity was achieved or more cost-effective options to deliver low carbon homes (such as Green Deal finance) were proven. Degression is a key feature of feed-in tariffs as:
A rise in demand will deliver savings, and has done so with the FiT.
There is a risk that suppliers will price to the tariff, and not pass those savings on to consumers.
The more people taking up the FiT, the fewer left to pay for it.
57. The change in the cost of solar PV technology has been substantial, but this has in part been due to the reliability of the market. Due to the speed and scale of the cut, and the way in which it is being implemented, there is now a risk that whilst consumers will pay less per unit generated by new systems, cost reductions will be more difficult to achieve and this could cause problems in the future as Britain tries to reach more challenging targets.
58. Whilst we think that the FIT should continue to enable investment in small-scale systems, the cap on spending requires Government to look at ways to achieve consumer engagement more cost-effectively. We think this is best achieved through more support for community-scale projects.
Community Renewable Energy
59. We support the Feed-in tariff on the basis that it incentivises and encourages consumer engagement in energy services. Our consumer research shows that many people who install renewable technology are likely to have taken action on energy efficiency and are also likely to be interested in the renewable heat incentive.
60. But it is clear that the barriers to solar PV are relatively low for wealthier property owners, whilst the barriers of upfront cost and property ownership remain for most consumers. We therefore want to see greater attention and encouragement for more cost-effective community scale systems. These face greater barriers but have more potential to generate social as well as environmental benefits, and those benefits can be felt both by investors and other members of the community.
61. We also know that investors in community schemes are not primarily motivated by financial return
62. Participants at a recent workshop at Hockerton Housing Project told us that the key barriers to community scale systems are:
Leadership—successful projects often have a leader who gives significant time, and has both good social and technical skills.
Negotiating a site.
Upfront cost of planning applications, a particularly high risk cost for community-owned wind turbines.
Range of skills necessary either in-house, or that must be funded from external sources.
Engineering.
Community engagement.
Financial.
Legal.
63. They identified two types of community that may or may not overlap, and the benefits of community scale systems for them:
The community of investors—there is a low entry barrier to investors, dependent only on the cost of a single share. It should be remembered that not every physical community has a source of renewable energy that it can access cost-effectively.
The host community—Company Rules can require profits from an Industrial Providential Society or Community Interest Company to be returned to the community for the purposes of sustainable development.
64. Our principle recommendation to DECC regarding a community tariff is therefore to maintain current returns on investment but to offer additional support with the upfront cost barrier—particularly the cost of planning applications. National and local Government could also require commercial schemes engagement of consumers, for example by requiring them to open up a share of the scheme to community investment.
24 November 2011