Draft Renewable Heat Incentive Scheme (Amendment) Regulations 2012 Draft Green Deal (Energy Efficiency Improvements) Order 2012 Draft Green Deal Framework (Disclosure, Acknowledgment, Redress Etc.) Regulations 2012 Draft Green Deal (Qualifying Energy Improvements) Order 2012 Draft Electricity and Gas (Energy Company Obligation) Order 2012
The Committee consisted of the following Members:
Kate Emms, Committee Clerk
† attended the Committee
Draft Renewable Heat Incentive Scheme (Amendment) Regulations 2012
The Chair: With this it will be convenient to consider the draft Green Deal (Energy Efficiency Improvements) Order 2012, the draft Green Deal Framework (Disclosure, Acknowledgment, Redress Etc.) Regulations 2012, the draft Green Deal (Qualifying Energy Improvements) Order 2012 and the draft Electricity And Gas (Energy Company Obligation) Order 2012.
If I may, I propose that the Committee first considers the orders on the green deal and energy company obligations as a group, given they have been designed as a joint policy, and then the order on the renewable heat incentive afterwards. I will cover them both in my introduction.
It was just over a year ago that many of us were in a similar Committee Room, discussing the Energy Bill, which laid the legal foundations for the green deal. I am sure that the hon. Member for Liverpool, Wavertree and my hon. Friends the Members for Mid Norfolk, for Stourbridge and for Norwich South remember it well, given the time that they dedicated to the Bill. I remember saying on more than one occasion that we would bring forward more detail in secondary legislation. Well, here we are.
Since that time, the Bill has become an Act, we have published draft legislation and consulted widely on the policy detail, we have reviewed it in the light of all the stakeholder views, and we have now brought forward the final policy and legislation for Parliament to scrutinise. In the meantime, we have been working closely with the stakeholders delivering the green deal to ensure that we have created a robust framework for them. We have appointed the green deal oversight body and the green deal ombudsman.
Now, we are funding roadshows across Britain to highlight the commercial opportunities offered by the green deal, particularly for smaller businesses—small and medium-sized enterprises right across the country who we hope will take advantage of the opportunities that the green deal will present. Those roadshows are happening in places such as Glasgow, Bristol, Plymouth, Chester, Tunbridge Wells—that one happened today—Ipswich, Reading, Carlisle, Swansea, Birmingham and York. Given the popularity of those events, it is our intention to lay on more. If any hon. Member has a particular suggestion to make of where we might usefully have roadshows, I would be happy to take representations.
We have opened a new national energy saving helpline providing impartial advice to consumers. Such advice will clearly be right at the heart of the new green deal. We announced £3.5 million to train up a thousand green deal insulation installers and a thousand green deal assessors. That is clearly just the tip of the iceberg of the number of assessors and installers that we anticipate will follow, but we thought that getting that number up early was important. That £3.5 million is alongside the additional £200 million that has been committed to encourage early uptake of the green deal. We have run numerous stakeholder groups as we co-created policy, and I would like to thank the hon. Member for Sheffield, Heeley (Meg Munn) and my hon. Friend the Member for Stourbridge for their valuable service on the green deal women’s panel.
We have also signed a memorandum of understanding with 22 pioneer green deal providers, and the Government have been working with the finance community to ensure that private finance will be available in the market to support the green deal. UK Green Investments is in discussions with a number of private sector entities, including the Green Deal Finance Company, regarding potential investments of up to £300 million, subject to its investment criteria, and the subsequent investment criteria of the Green investment bank, being met.
So it has been a busy year on all things green deal, and I am sure that the next year will be just as busy as we roll out the green deal in earnest, as well as the energy company obligations. The legislation before the Committee today establishes the legal framework that will underpin those policies, and give the industry the green light to bring the green deal energy efficiency market into being.
For those less familiar with the detail of the ECO and the green deal, it is worth reiterating the importance of energy efficiency and how they are designed to deliver it. More and more families are being hit by the rising cost of gas and electricity, but our inefficient homes are using far more of it than they need to. Millions of homes do not have full double-glazing. More than half do not have enough insulation or an efficient condensing boiler. Most do not even have proper heating controls. Those leaky buildings are needlessly generating greenhouse gas emissions and putting people into fuel poverty by making it much more expensive for them to heat their homes.
The Government-backed green deal programme will help bill payers to make energy-saving improvements to keep their homes warm and cosy as well as cost-effective. Under the green deal, people will be able to pay for some or all of the work done with the savings expected to be made on energy bills. The ECO will require energy suppliers to promote energy-efficiency measures to those most in need and for those properties that are harder to treat, offering in effect a subsidy to make them available to all.
We received 600 responses to the consultation on the green deal and the ECO. They directed us to make changes to four key policy areas. These changes are definitely improvements. The first area is strengthening consumer protection. From the outset, we have been concerned to strengthen consumer protection and are therefore very grateful for the suggestions made by stakeholders. We have wanted to ensure that robust consumer standards are met, creating a market that balances consumer protection on one hand and burdens
As always, the consultation yielded alternative views, including on fundamental protections such as the golden rule. For example, Which? called for the amount of the green deal finance offered to be capped at the level that could be saved by the original occupier rather than, as we proposed, the typical savings level. However, the majority agreed with our proposal and thought it important to limit the finance to the average savings estimate in order to help to ensure costs are offset by savings for future occupants as well as the original customer. The green deal occupancy assessment, which specifically considers how the original occupant uses energy, will help to ensure that the green deal is appropriate for them.
Following the consultation, we have strengthened protections for lower than average energy users. For that subset of customers, providers will be required to obtain written acknowledgement from the consumer that they are aware that, based on their current energy use, the green deal charge may not be fully offset by their energy savings. That is important to ensure that customers seek the right deal for their circumstances, while not stifling the ambition of those who wish knowingly to maximise their package of measures.
The second area is reducing red tape. A change to the warranties proposal eases requirements on businesses, particularly smaller businesses, to hold warranties for the length of a green deal plan, while maintaining robust minimum standards of protection for consumers, including 25-year warranties in the case of wall insulation.
The third area is improvements for behind-the-scenes operations. For example, we have introduced a change to make it easier for energy companies administering the green deal charging to deliver a smoother customer experience.
The fourth and final area is revisions to the design of the ECO. The energy company obligation will commence in October 2012—as we said it would—with energy suppliers delivering against their targets by March 2015. When and how energy suppliers start delivering against their targets and when or if they pass the costs of delivery through to customers is a matter for their own discretion. There are no interim targets. For the first time, though, there will be transparency of reporting.
We have also changed the ECO to allow more “hard to treat” cavity walls to qualify for support and to increase the amount of support for low-income and rural areas, helping to tackle fuel poverty. Those changes will help the insulation industry, which has been supported by existing schemes, to transition successfully to take advantage of the new market opportunities created by the green deal and the ECO. An estimated technical potential of about 2.8 million hard-to-treat cavity wall properties will now be eligible under the ECO. An increased focus on poorer areas should result in an extra 100,000 households in low-income areas benefiting each year, compared with our original proposals, bringing the total number of low-income households and those in low income areas assisted to over 230,000 a year.
We have confirmed that we will introduce the green deal through supporting a responsible and controlled approach with full national systems testing. That managed approach is designed to ensure that the market has the opportunity to build over the next 18 months, meeting Government ambitions for a national energy efficiency retrofit across the next decade and beyond. Subject to parliamentary approval of the necessary secondary legislation, we are on track to have the green deal and the ECO authorisation framework in place by October 2012. Given the scale of our ambition, it is right that we support a responsible and controlled approach to green deal implementation with full national systems testing.
We have listened to the clear message from stakeholders that they support a managed, tested and careful introduction of the green deal to ensure successful delivery at scale. That fits exactly with our objective of a green deal that provides an excellent customer experience from day one and a market in which a growing range of new players can readily participate.
The completed green deal and the ECO framework will allow the market to come into existence. It will of course be up to companies themselves to decide when and exactly how to enter. We will continue to work with delivery partners to begin the green deal with an early period of focused testing that will build into a national roll-out.
From October, green deal assessors will be able to complete assessments and providers will be able to use the assessment to issue quotes so that consumers are ready to complete a green deal plan at the end of January, when the relevant parts of the framework regulations come into effect. By “complete” I mean that they can have the finance of a completed plan attached to their electricity meter. In addition, green deal- authorised installers will be able to complete work for consumers before the end of January if it is paid for up front or is wholly supported by the energy company obligation. We expect the number of offers available to build, as more providers enter the market.
Those policies will boost the burgeoning low-carbon economy by supporting up to 60,000 jobs in the insulation sector alone by 2015, up from about 26,000 now. Opening up that market, increasing the number of jobs and growing investment will empower consumers by giving them new ways of funding and more options for making home improvements, and it will empower businesses by enabling them to compete for energy efficiency opportunities in new and innovative ways.
The renewable heat incentive, or RHI, is another scheme designed to improve the way in which we use energy in the UK. It was launched in November 2011, provides financial, tariff-based support for commercial, public sector, industrial and community renewable heating installations for a 20-year period. The RHI is essential if we are to meet the UK’s legally binding target of 15% of our energy from renewables by 2020, and our carbon emissions reduction targets. In 2020, 12% of our total heat demand will have to come from renewables, increasing from less than 2% currently. The RHI is central to delivering our strategic framework for low carbon heat.
The RHI supports technologies and fuel uses, including solid biomass, solar thermal, ground and water-source heat pumps, biogas combustion, deep geothermal, energy
There have been some delays in processing RHI applications, although only a handful of applications have been rejected through not being eligible. Delays are partly the result of the quality of the applications that are submitted, so we are working with stakeholders to ensure that applicants provide the right information, and Ofgem is working to identify ways in which it can help applicants to speed things up. We will also be consulting shortly on proposals that would simplify some of the RHI application requirements, including metering, so we are actively addressing delays.
We have learned lessons from the feed-in tariffs, which ran throughout last year and resulted in our having to act swiftly to bring down the cost of the tariffs. To ensure the sustainability of the RHI we must have a way of maintaining budgetary control, and we must provide assurance to stakeholders about how we will do so. With the right budget-management framework in place, the RHI can provide sustainability and certainty to promote investment in renewable heat. The regulations will ensure that a stand-by budget mechanism is in place this summer, which will allow us to keep within the budgetary limits set by the comprehensive spending review. The regulations are an interim measure until we develop a more sophisticated, longer-term cost control mechanism. We expect to consult widely on such a mechanism with our stakeholders this summer, for implementation at the beginning of the 2013-14 financial year.
The measure is very much a precautionary one. We do not believe, on current evidence—there is no reason to think that the situation will change—that the rapid cost reductions that we have seen elsewhere, particularly in solar PV, are likely to occur in renewable heat technologies in the coming months. We do not currently, therefore, anticipate that we will have to use the measures, but it is prudent to have them there as a stand-by. There is a high degree of uncertainty about how the market will respond to the RHI, and it is right to be cautious and prepared for unexpected changes in application rates. If RHI spending were to exceed budgets, it would be difficult in retrospect to justify a lack of action now. The measures are simple, prudent and cautious, and they will add to the long-term stability of the industry.
I firmly believe that the green economy is key to economic growth, and my Department is doing much to boost it. We have striven to make all the measures that we have introduced—the green deal, the ECO and the RHI—the best value for money possible. In these difficult economic times, we want to look after every pound and make it go further, whether it comes from consumers, the private sector or the public purse. I am confident that the regulations do that, and I commend them to the Committee.
The Minister has addressed some of the points I wanted to raise. As he said, RHI must be fair to the taxpayer, but I have some questions about the detail of the proposals that I hope he will be able to answer. To take the Government’s chaotic handling of the cuts to the FIT for solar power as an example, when he was justifying those cuts he claimed that the scheme would have a lifetime bill of £1.5 billion. Later, however, he was forced to admit that his calculations had been completely wrong, and that the actual cost was just half what he originally predicted. Given that these regulations give the Secretary of State sweeping powers to suspend the RHI in the event that forecast expenditure is more than expected, can the Minister reassure the Committee that he will not make the same mistake with the RHI, which would lead to the scheme being wrongly shut off to new applicants?
Secondly, in the event that the Secretary of State decides to close the scheme to new applicants, can the Minister be clear with the Committee about whether that suspension will include applications that have already been granted but for which accreditation has not yet been given? The regulations are not entirely clear on that point.
Thirdly, I am sure the Committee will be eager for the Government to come forward with a proper, predictable degression mechanism—I think the Minister called it a budget mechanism—that can provide certainty and confidence to potential investors. The Minister just said that he intends to have an interim measure for this summer. Can he tell us exactly which month it will be introduced in? He also mentioned a consultation that will announce a new time period from the financial year 2013-14. How long will that consultation period last? Given that the Government announced nearly two years ago that they were continuing this scheme, we have many concerns about why industry, households and businesses have to wait yet another year for Government action.
I turn now to the green deal framework orders. I should start by reiterating that Labour has always been strongly supportive of the principles behind the green deal. The pilots for a “pay as you save” scheme began under the last Labour Government and if it is done properly the green deal could create a significant number of jobs, lower our carbon emissions and reduce household energy bills. However, we still have many misgivings about the detail of the orders facing us today and unfortunately, due to the limited time that we have been afforded to debate them, I am not able to raise everything that I would like to raise. I heard what the Minister said a moment ago but the launch, according to this statutory instrument, has been delayed until January 2013. While assessments can take place during the control period
The Minister talked about his ambition for the green deal and the Government have always had very high ambitions for it. We have heard those ambitions expressed by the Minster so many times since the scheme was announced. Last June, at the green deal and big society event, he said:
Now that we have a final impact assessment, we can properly assess those claims in detail, and the actual figures are much less rosy. DECC’s final impact assessment shows that the number of loft insulations will fall from about 900,000 in 2012 to just 150,000 next year, which is a massive decrease of 83%. The number of cavity walls being insulated will also go down, from about 700,000 in 2012 to 400,000 in 2013, which is a fall of 43%. Those figures are only a slight improvement on the devastating predictions that we saw in the first draft impact assessment, which showed even greater decreases.
The Minister has argued that these huge declines would be offset by the uptake of solid wall insulation. However, the final impact assessment provided by his Department shows that next year the rate of solid wall insulations will stay roughly the same as the rate for this year. That failure will have huge consequences for the industry, for our ability to meet our climate change targets and, most importantly of all, for hard-pressed households that are struggling with big energy bills. As we all know, emissions from domestic properties account for around 25% of UK emissions and we have some of the most energy-inefficient properties in Europe, which will need to be improved if we are to achieve our legally binding targets under climate change legislation.
Current policies have made some progress. Since April 2008, when Labour’s carbon emissions reduction target programme began, 4.2 million lofts and 2.1 million cavity walls have been insulated, cutting our national carbon emissions and reducing bills for millions of people. If CERT and the community energy saving programme fully deliver on their targets by the end of this year, it is likely that there will still be between 6 million and 7 million cavity walls left to insulate, as well as around 7 million lofts with insufficient levels of insulation. However, it is looking increasingly likely that energy companies will not fully meet their CERT and CESP targets by the end of this year, so even more work is needed. What action will be taken if energy companies do not meet their commitments under CERT and CESP?
In addition, DECC figures show that 7 million to 7.5 million homes will need solid wall insulation, which is roughly the same as the number of cavities that still need to be insulated or to have improved insulation, despite the Minister’s frequent claims that not many cavities remain. In order to meet our carbon reduction commitments, in 2009 the Committee on Climate Change set a target for all lofts and cavity walls to be insulated by 2015. Although significant progress has been made towards that goal under CERT and CESP, improvements are still needed. At current rates, CERT and CESP will
The Government should have introduced policies to ensure that progress was faster, not slower; they did the opposite. Under expected green deal rates, it will take more than 40 years to insulate all cavities and 100 years to insulate all lofts. The CCC 2012 update report, which was published only last week, has concluded that that risks leaving “a potential carbon gap” of at least 3 metric tonnes of carbon dioxide equivalent from where we need to be to meet our climate change targets. That is a significant proportion of our national emissions, so will the Minister share with us how he plans to fill that gap?
The Minister should note that it is not only Labour that is raising concerns about the green deal. A coalition of 16 organisations—including Consumer Focus, SSE and WWF, among others—has recently issued a paper. It states:
In addition, low take-up will seriously impact on the British insulation industry, and I am sure that, like me, the Minister has received many representations from those in the industry. With the rate of installation going off a cliff, how does he expect insulation firms to be able to continue trading and how does he imagine that that will create more jobs?
At one time, the Minister and the right hon. Member for Eastleigh (Chris Huhne) claimed that the green deal would create 250,000 jobs, but not any more. The job creation estimates in the final impact assessment have been downgraded yet again, which is the third time that the Department has downgraded its estimates. Earlier, the Minister said that 34,000 will be created by 2015 but, in the worst-case scenario, his Department predicts that only 12,000 jobs will be created by the green deal by then. I welcome every new job that is created, especially at a time when the Government’s economic policies are throwing millions of people out of work, but it is hard to see how there will be new jobs if the number of installations decreases by between 43% and 83%. Will the Minister tell us how many net new jobs will be created by the green deal next year and up until 2015?
On finance and incentives, part of the reason why take-up will be so low is that the public do not believe that the green deal is a good deal. Whenever the Minister was challenged during the Committee stage of the Energy Act 2011, he said that all the fine detail would be forthcoming in secondary legislation; we looked through the transcripts, and he used that phrase 70 times in Committee. Yet we still do not know what the typical rate of interest on green deal finance will be. The Minister is fond of saying that the market will decide, but at the moment it looks as though the market has decided that it is just too risky. We already know from polling that the public will not be attracted to interest rates that are higher than 6%. Does the Minister have any idea what the typical interest rate will be for the green deal? Heriot-Watt urban energy research group has said that it attended a meeting at the City of Edinburgh council last week, where representatives from the Department said that the interest rates would be
If a typical green deal package is around £10,000 and is taken out over a 25-year period at an interest rate of 7.5%,what would be the total amount repaid at the end of that period? If the Minister does not have that figure, perhaps he will he write to me. It is a massive amount. I imagine that he will say that the rate will drop over time as the green deal is rolled out, but how will that happen if no one wants to take it up in the first place? As no green deal provider has stated that they are willing to take long-term debt on to their balance sheet, is not there a strong likelihood that no affordable green deal finance will be available at the launch of the scheme?
At the moment, the Green Deal Finance Company appears to be the only organisation proposing to warehouse debt and offer interest rates that would make the green deal a remotely attractive proposition. But even then, we could be looking at a rate of 7% to 8%. However, we know that the GDFC has halted activity because of a lack of Government support. A recent letter from members of the GDFC suggests that the organisation would need up to nine months from the time of receiving seed funding before they would be up and running. That translates potentially to a start date of April 2013, assuming the unlikely result that Government funding for the GDFC is forthcoming in the next few days. The Minister just said that the UK Green Investments is in discussion with the GDFC. With four months to launch, will the Minister update us on what progress is being made to provide that proper financial support for the GDFC now? What steps will he take if no affordable finance is available at launch?
The proposals set out in the statutory instruments still contain provisions that would allow green deal providers to hit consumers with extremely harsh penalty charges for repaying finance early. In some cases these repayment penalties could in theory cost more than the original cost of the measures that they are covering. I know that the Minister has said in the past that he is confident that that will not happen, but will he confirm that he will take action to stop huge repayment penalties being charged if that is what happens in practice?
A further real concern is the golden rule. That is the very essence of the green deal, or at least it was at the beginning. On a promotional video for the green deal, which can be found on You Tube and was uploaded on 21 October 2011, the Minister says:
Ministers promised that that would ensure that the green deal worked. The Government have indicated that any concerns about consumers being mis-sold are unfounded because the golden rule is there to protect them. Except that the golden rule that we got in the consultation and in the order is not like that any more. It is not really a rule any more. As the Minister, in an answer to a parliamentary question from my right hon. Friend the Member for Don Valley (Caroline Flint), said:
So it is more of a guideline, which in some cases will not even be met. Because the calculations are based on estimates, savings are not certain, which is why the green deal and the ECO consultation document says:
Yet overselling is exactly what Government Ministers have been doing for the past year. There is talk of 26 million homes taking up the green deal, a quarter of a million jobs being created and a game changer for fuel poverty, but not a single one of those claims is substantiated in the Government’s most recent impact assessment.
Will the Minister commit to making it explicit in promotional materials, Ministers’ speeches, and press releases that the golden rule is not a savings guarantee? Because right now it is the Government themselves who are fuelling much of the confusion. I welcome the new requirement that lower than average energy users must be given a more tailored assessment and receive written acknowledgement if the green deal charge will not be fully offset by any savings made. That is vital, as clearly in most cases they will see an increase in their bills, as the Minister just said. However, we are still worried about how explicit any written acknowledgement will be. Will the acknowledgement be just one line buried in a huge agreement document, which could easily be missed? Or will providers have to explain that important fact in detail to consumers before they sign for their green deal package? There is still a huge opportunity for mis-selling, even with the addition of the more tailored occupancy assessment element of the golden rule calculations. Will the Minister commit to look again, between now and the scheme’s launch, to see what further steps can be taken to limit mis-selling and introduce further measures if necessary?
I also want to briefly raise warranties with the Minister, as the current proposals leave scope for some products to have warranties that run out while the consumer is still paying for the cost of the measure. It is most likely to happen in the case of boilers, which would have around a five-year warranty, but would most likely be part of a much longer repayment period. Does the Minister accept that this could leave many households with broken boilers that they may not be able to afford to replace, but that they would still be paying for through green deal payments? What is he going to do about that?
I now turn to the draft Electricity and Gas (Energy Company Obligation) Order 2012, which sets out the final design of the new energy company obligation. Before I get into the detail, I should first inform the Committee that in advance of today I received, as I am sure many other members of the Committee did, briefings and advice—some of them completely unsolicited—from industry, NGOs and other organisations raising concerns about the Government’s proposals. I want to draw the Minister’s attention to just one such communication, which has been extremely useful in preparing for today.
Once I had checked that it was not a joke—if anyone wants to see it, I have it here—I was delighted to find a neat little document setting out exactly what is lacking in the Minister’s current proposals and how they could be made much better. I must ask the Minster, is it now Conservative policy to brief the Opposition on the weaknesses of their policies?
I want to make some serious points about the proposals in the order. I welcome the fact that, as the Minister mentioned, the Government have listened to the consultation response and decided to adopt Labour’s proposal to include “hard to treat” cavity and wall insulation in the ECO and the addition of the carbon saving communities target. However, there are still significant areas of concern in the order.
Will the Minister confirm that under the order the amount of guaranteed support being provided to fuel-poor and low income households will be cut by 50% from around £1.1 billion under schemes in place this year to just £540 million under the ECO in 2013 and each of the subsequent years? Will he also confirm that the final impact assessment predicts that this will only result in a net reduction in fuel-poor households of between 125,000 and 250,000 by the time the costs of the ECO are no longer passed through to bills in 2023? That is just a quarter of what Labour achieved over the same amount of time. Will he explain how it is consistent with his claim to me in the House on 16 December 2010 that the green deal and the ECO will be the game-changer for fuel poverty?
Worryingly, there are warnings, such as those from Transform UK, that the number of households in fuel poverty could rise to 9 million by 2016. In addition, because the green deal and the ECO are designed to work together, there is a significant risk that if green deal take-up is low, as the Government are predicting, the costs of meeting the carbon reduction element of the ECO will increase dramatically. What estimate has the Minister made of the extra cost that energy companies would bear if they had to cover the cost of improvements to meet the carbon reduction target, because households are unwilling to use green deal finance to pay for them? In this scenario, extra costs would be passed on to the consumer in the form of higher bills. What calculation has he made of the increase in bills that could arise from such a scenario?
I want to make a final point about the brokerage system before I draw my remarks to a close. The Minister has said he will leave it up to the big six how much work they provide to other suppliers through brokerage. I believe that will lead to many small and medium-sized enterprises missing out. Will he confirm that he will take action if the big six do not provide a substantial amount of ECO through the brokerage mechanism? How will he make a judgment about when to intervene?
As I said earlier, there are many other things I could say about the orders, but given the fact that other hon. Members wanted to contribute, and the limited time afforded to us, there was not the chance to do so. I want to give the Minister time to answer my questions. I am grateful that he has noted them, and look forward to his responses.
The Opposition have tried hard, in scrutinising the proposals, to see how they will meet the predictions that the Government have set for them, and achieve the
It is clear that the Minster will have to make adjustments and improvements to the orders in the near future, if he is to achieve anywhere near what needs to be done. As I said, we have always supported the green deal in spirit, and so we will not seek a Division on the orders. The pilots for a pay-as-you-save scheme began under the last Labour Government. However, I am worried that in rolling the scheme out nationwide the Minster has not listened to the concerns of industry and green groups, and has missed a huge opportunity to get it right.
Gregory Barker: I will begin, if I may, by trying to answer the few questions that the hon. Member for Liverpool, Wavertree had about the renewable heat incentive. She is right to say that the initial work for the RHI was framed under the stewardship of the Leader of the Opposition. He left it with us with no hint of any form of budgetary control and no sense of how it was going to deliver value for money. The work stream that we inherited within the Department was very rudimentary.
Since then we have worked hard to pull together what I think will be a robust policy; but I understand why the Leader of the Opposition had such difficulty with it, when he had his chance as Secretary of State for Energy. Dealing with heat is difficult. Creating a tariff or financial incentive for heat is tricky. No other country in Europe has yet come forward with something that is comparable, so I do not want to be too harsh on his failure to come forward with a robust framework; but we must all agree that a proper budgetary framework is now a prerequisite.
I point out to the hon. Lady that the reforms that we have made to the system for feed-in tariffs, which we also inherited from the former Secretary of State for Energy, now the Leader of the Opposition, will create a better and much fairer system, more deployment, and much better value for money.
The hon. Lady asked what assurances there are that the schemes will not be wrongly shut off to new applicants. We are not of course setting out a proposal to close the scheme in the unlikely event of its being overwhelmed by applications. The proposal is that it would be suspended. It is important to be clear that there is a difference between simply suspending the scheme for a period of time and closing it, which is what the hon. Lady—unintentionally, I am sure—said.
Gregory Barker: If I think hard enough, it will come to me. I am glad to tell the hon. Gentleman that it was not one—it was not in single digits. It was, as I said, dozens—57, in fact, which as the hon. Gentleman will know is divisible by 12.
In terms of the standby mechanism, we would suspend the scheme at 97% of the budget limit with one week’s notice. We came to that view after talking to stakeholders. If our forecast shows that we expect to spend £67.9 million in 2012-13, we would give notice of suspension and the scheme would be suspended one week later. The circumstances under which the scheme would be suspended are set out in the regulations, including some two pages of draft regulations, explaining how the forecasts must be done.
The hon. Member for Liverpool, Wavertree asked when the longer-term cost control will apply. It will apply from the start of the 2013-14 financial year. We will review the whole scheme in 2014-15, and decide then how well it is operating. As I said in my opening remarks, this is an absolute first. Unlike feed-in tariffs for electricity where there are lots of examples in other markets, successful and otherwise, there is nothing comparable for heat, so I think it is fair that we keep the situation under review, but be absolutely clear in our determination to do something really pioneering on renewable heat.
Luciana Berger: Can the Minister categorically confirm that we will see a rate for this summer—he said that there will be consultation to set a rate for the year 2013-14, and that he will then review it for the subsequent year—and that between now and 2014-15 there will be only two changes in the rate?
Gregory Barker: What we are talking about today is not the rate, but a cost control mechanism. We will be putting in place a cost control mechanism for the next few months effectively, and then introducing a more durable and sophisticated scheme on which we will consult during the summer and then introduce, as I said. I think I can put the hon. Lady’s mind at rest on that.
The hon. Lady also asked about the position when applications might have been made, but accreditation had not been given in the event of the scheme being suspended. If all the information had been provided to Ofgem before the notice period leading to the suspension,
On the more substantive points that the hon. Lady raised about the green deal, she asked some questions, many of which she has raised in the past, and referred to matters that she has flagged up well before today, but what was interesting was not the questions she asked, but the fact that she answered questions in respect of the Labour party. It was implicit from she said that Labour would guarantee the golden rule and would guarantee consumers’ savings. We have always been clear that we think it is not sensible for anyone to provide such a guarantee, because clearly consumers may change their behaviour. The golden rule is predicated on reasonable assessments of sensible usage, but if someone chose, subsequent to having these interventions made, to increase their living temperature to above normal, or if there were abnormal usage of hot water and so on, bills would be expected to rise. But under the Labour Government’s nirvana, that would be absolutely locked in and there would be no penalty for frivolous use of heat, and there would be no need to worry about having to watch the thermometer. That is an interesting policy.
It is also clear that Labour proposes to subsidise the finance beyond the £3 million that we have announced from the Green investment bank. Perhaps the hon. Lady will tell us just how much her proposal would cost, and who will pay for it? Is she proposing to increase electricity bills to pay for the subsidy? It would clearly run to many hundreds, if not billions, of pounds over the lifetime of the scheme. It would be a large hike. If she is announcing that Labour would push up energy prices to pay for subsidised interest rates on the green deal, that will be interesting indeed to millions of families up and down the country who are worried about the cost of living and rising energy bills.
Luciana Berger: The purpose of today’s meeting is to discuss the Government’s proposals and hold them to account for what they have said. I am merely holding the Minister to account for his previous assumptions and assertions about what his scheme will do. I did not say anything about Labour’s proposals; I was merely posing questions to him. On his point about interest rates, it was the Deputy Prime Minister who said in a speech last year that his Government would ensure the initial capitalisation of green deal finance. That is what I am holding the Government to. With four months until the scheme is supposed to be up and running, I am keen to know whether the proposals will be forthcoming in practice.
Gregory Barker: Of course. I will deal with that in detail, and the hon. Lady is absolutely right to hold us to account, but nevertheless, she is making speeches in this Committee and outside it that clearly nail Labour’s colours to the mast. Labour wants increased subsidy for the interest rate, which will push up everybody’s cost of living.
The hon. Lady is right to press me on the interest rate. Ultimately, outside the £300 million in assistance from the Green investment bank to support the green deal, it will be set by the market, albeit on competitive
We are still some way from the first offer, and we simply do not know how the market will ultimately offer the products. A lot of providers may well offer deeply discounted interest rates. One need not be a financial genius to work out that retailers of leather sofas frequently offer 0% finance on their products, without subsidy from the Green investment bank. Motor manufacturers frequently offer 0% finance on new cars, and they do not use subsidy from the taxpayer. It is a commercial proposition.
It is important to grasp that the interest rate will be just one element of the total cost to the consumer. I will illustrate as follows. A green deal plan or set of measures costing £7,000 and supported with an interest rate of 3.5% over 20 years would cost the consumer £9,850 in total. However, if the same consumer secured a better deal—if they went to another tender and secured the same measures for £5,000—but were charged 7.5%, which is considerably more than the 3.5% offered by the other party, the net cost to the consumer would still be slightly less, at £9,809 over the lifetime repayment.
It is important to understand that although the interest rate is significant, it is ultimately only one of a series of indicators whether the consumer is getting value for money and the best possible deal. Obviously, I urge all potential green deal customers to shop around for the best interest rate, but not to have the hon. Lady’s mono-focus in thinking that will have the only impact on whether they get good value for money.
Ultimately, it is the cost of the interventions themselves that will deliver best value for the consumer. We will get best value for the consumer and drive down the cost of interventions, and the new interventions that we hope will come to the market, by creating a market for them at scale and breaking with the one-size-fits-all Government programmes of the past, in which the market has been dominated by the big six energy companies, all offering something similar with questionable competition between them. We will see a whole range of new providers coming in and offering a much more sophisticated energy efficiency and home improvement proposition compared with what we had before.
Luciana Berger: On the Minister’s point about new providers considering entering the market, does he not believe that that is all the more challenging when we hear different ministerial statements? I have mentioned the one made last year by the Deputy Prime Minister, and he made another on 11 April 2012, saying:
Does the Minister believe that that is in contradiction to what we are discussing today? That makes it all the more challenging for anyone in the marketplace to have confidence in the Government’s policies.
Barry Gardiner: I fear we are in danger of deliberately misinterpreting each other, and we should have a little bit more transparency. The golden rule guarantee was originally supposed to be predicated on the usage of a household. Obviously, if the usage changes, it would not be guaranteed. However, if the usage is broadly maintained along the parameters that were originally assessed, the guarantee should hold good. It is not giving a carte blanche to a household, but that arrangement should be the case, under the original form of the guarantee. What the Minister has subsequently announced is that the original understanding does not hold good, and what holds good is a broad average for what could be expected from a household of that sort. Those are two very different things, and the Minister ought to own up to it.
Gregory Barker: There are two elements to the golden rule. First is the consumption of a typical household or typical home. That is cross-referenced with the individual use of the people currently living there. We have never changed the basis of the golden rule. We have always been clear that there should be an average consumption cost. That is absolutely clear.
We anticipate this to be a mass market, and we cannot have a mass market without problems or glitches at some point. If there are individual consumers among the many millions whom we anticipate will benefit from the green deal who do not achieve the savings, it may not be because they are recklessly having five baths a day, but because individual components of the green deal do not work or deliver. They will have full redress to the green deal ombudsman. One of the things we have done in the secondary legislation is to make it as easy as possible and we have streamlined the whole process to provide strong consumer safeguards. If individual interventions and products do not do what they say on the tin, there will be clear consumer redress. It could be a boiler or double-glazing; obviously where something is actively generating heat, it is easier to quantify than a measure designed to save energy, which is passive.
If an elderly couple gets a green deal assessor to come to their house, and they are signed up to a set of green deal proposals, if they are being rated for the normal usage of their house, which may be a four-bedroom house with children who have flown the coop, they need to know that they will make savings. If the assessor comes back and says, “The average is this, and so under the green deal, over time, this household will save on average this amount of money,” that elderly couple will be sold a pup under that system. The guarantee needs to refer specifically to individuals.
Gregory Barker: I reiterate, there are two elements to the golden rule: average use; and the individual use of that household, which the assessment will also look at. In addition, we are providing for those who under-heat to be able, if they so wish, to take advantage of greater green deal savings—that is part of the consultation. The hon. Gentleman, however, has not read basic structure of the green deal properly—he is normally assiduous, but he must have skipped a page in this case—because it has two basic elements, the more generic average use of such a property and the assessment of the individual household’s energy consumption. The two elements are cross-referenced so, unless something has gone seriously awry, there is no possibility for a couple in such circumstances to be mis-sold. It could be pointed out to the couple that they are under-heating or under-using relative to a typical house or flat of that standard and size and that, if they wish to improve the whole home, they have the right to do so and to take advantage of green deal finance by going above that usage. That, however, is different from saying that, in the first instance, they will not be given a green deal assessment that shows up typical and specific, tailored or personalised usage.
I need to move on, because the hon. Lady asked a number of questions and she deserves answers. She asked about the CERT and CESP programmes, how we will deliver them and what action we are taking. First, it is important to say that since we came into power, we have significantly changed the CERT programme, because we were not happy with how it was delivering. For example, under the scheme that we inherited, 300 million light bulbs were sent out through the post, most of them to people who never even asked for them. We have no idea whether they were installed, went to landfill or sat and are still sitting in cupboards and drawers. That was poor value for money and not a sensible way to ensure carbon saving using consumers’ money. We have had much more effective delivery of basic insulation measures because we made changes, although it is important not to confuse the relatively low level of measures delivered under CERT compared with the high level of measures that we anticipate being delivered under the green deal and the ECO. Typically, we expect the average green deal and the ECO measures to be worth several thousand pounds and to involve a whole range of interventions whereas, in particular under CERTS, we were talking about perhaps a couple of hundred pounds and something installed in a couple of hours in a morning’s visit—that could certainly not be described as a whole-house home improvement.
As a result of recalibrating the CERT programme, however, I am pleased that we have taken a major step towards almost declaring victory—I hesitate to do so in full, lest we tempt fate. We are certainly on the verge of declaring victory in filling treatable lofts. We now anticipate, when we finish at the end of this year, that only around 1% of treatable lofts in the UK will remain to be filled. We will have made huge progress, and that is why we are moving the agenda on. We have filled the finite number of treatable lofts, so we are now looking to go further and to look at much greater measures around a whole-house retrofit.
The actual enforcement of the CERT and CESP programmes, which must be delivered by the end of December 2012, is a matter for Ofgem, but we have
The hon. Lady also asked about manufacturers. We are switching from relatively simple interventions on lofts to a much more sophisticated package of measures that are much more jobs rich. To give an example, easy cavity wall insulation is the equivalent of two-and-a-half loft top-ups. One solid wall insulation job is the equivalent of 26.7 loft top-ups. When we talk about solid walls and “hard to treat” cavity walls, these are much more job intensive and are where we will see much more research and development.
The hon. Lady asked about fuel poverty, and she is absolutely right to press that very important issue. The Government inherited a position in which fuel poverty has risen exponentially over the past eight years. We take that extremely seriously, and I say that in your presence, Mr Amess—you are one of the outstanding parliamentarians of your generation, and you have taken a Bill through Parliament to address that very specific issue.
I am glad to say that the ECO will support 230,000 fuel- poor households a year. That is a massive increase compared with Warm Front, which will continue into next year. The CERT programme will overlap with the ECO programme, which begins in October; the CERT and CESP programmes do not finish until the end of the year. We have been careful to avoid any hiatus or gap between the start of one programme and the end of another because we know how important that is.
The real question is how far the changes to the ECO go in responding to the recommendations of the Hills review of fuel poverty, which was totally independent of Government. The hon. Lady has had an opportunity to talk to Professor Hills, who found that targeted energy efficiency schemes are one of the most effective means of tackling fuel poverty. He suggested that some 50% of the ECO should be set aside for an affordable warmth obligation to reduce fuel poverty. Our proposed changes mean that more than 40% of the ECO will be targeted specifically at low-income houses, with the expectation that more than 50% of the ECO as a whole will benefit low-income houses. I believe that the figure could be significantly more than that.
The amounts that we have ring-fenced for affordable warmth are not a cap or a separate amount for the fuel poor, but the de minimis that we expect to be spent,
Luciana Berger: The Minister uses the phrase “de minimis,” but does he accept that the ring fence is a cut of 50% on what is being spent this year? He gives the percentage but, in absolute terms, support for fuel-poor and low-income households will be cut from some £1.1 billion under schemes in place this year to just £540 million under the ECO in 2013 and in each subsequent year.
I do not recognise the hon. Lady’s figures. If she looks at the whole package of measures that my Department is undertaking, not just through the ECO but through next year, and the funding for Warm Front, she will see that spending on fuel poverty will be higher at the end of the spending review period than at the beginning, up by 3% from £824 million to £850 million. That is at a time when we are dealing with major cuts to our departmental budget, and the Government as a whole are seeing massive cuts to public expenditure, to deal with the worst deficit in modern times, which was inherited from the previous Government. One can see from that real-terms increase in spending that fuel poverty is an absolute priority, even in these financially straitened times, for the coalition Government.
The hon. Lady asked about brokerage, and about access to the green deal for small and medium-sized enterprises. I share her enthusiasm, and also her concern that the green deal should be open to SME providers and assessors. SMEs should get a fair lick of the stick regarding delivery on behalf of the big six. That is why we are going for a much more open and transparent brokerage model, and we will seek to ensure that the model is sufficiently ambitious. If it is not, and does not deliver the goods, we will, as the hon. Lady suggests, return with further proposals to open it up even wider.
That leads me in conclusion to a more general point. The hon. Lady is right in many ways. We do not pretend that this is perfect. We do not suggest that what we have today is the last word in the green deal. We are trying something unprecedented—creating a new market. I have no doubt at all that over time—hopefully not in the coming months, but certainly in the coming years—we will need, in light of practical market experience, to reconsider the green deal framework and work out what further incentives are required to drive forward demand in areas where it is perhaps disappointing. We might be
I have no doubt that in future years we might need to review the penalties, and the necessary regulation to drive the market forward. This is a 20-year market and, as with the launch of any new product—let alone the creation of a whole new asset class—only in the light of experience can we be certain, and we will want, of course, to calibrate. Nevertheless, am I certain that we have the framework right, that we are building on solid foundations, that the broad thrust of the proposal, which has been created with almost unprecedented partnership with the industry, is sound, and that we have a robust and ambitious proposition? Absolutely. Do I think that the impact assessments are cautious and conservative, and necessarily understate that which we are likely to achieve? I certainly do, and that is why we are absolutely committed to driving this forward with as much ambition and professionalism as we can muster.
draft Green Deal (Energy Efficiency Improvements) Order 2012
draft Green Deal Framework (Disclosure, Acknowledgment, Redress Etc.) Regulations 2012
draft Green Deal (Qualifying Energy Improvements) Order 2012
draft Electricity And Gas (Energy Company Obligation) Order 2012