Energy and Climate Change CommitteeWritten evidence submitted by Carillion

Carillion welcomes the opportunity to respond to the Inquiry into Prices, Profits and Poverty. In order to put our comments into context, it may be helpful to outline briefly our role in the provision of energy services across the UK.

Carillion is one of the UK’s leading support services companies with a substantial portfolio of Public Private Partnership projects and extensive construction capabilities. The Group has annual revenue of over £5 billion, employs around 46,000 people and operates across the UK, in the Middle East, Canada and the Caribbean.

Our energy services business is a leading provider and installer of renewable technologies and domestic heating services in the UK. We currently operate within the private domestic, social and commercial market sectors offering a wide range of energy efficient renewable technologies and domestic heating services to our customers.

We manage the Warm Front scheme on behalf of the Department of Energy and Climate Change in addition to having delivering a number of carbon-saving energy efficiency programmes under CERT and CESP. We were one of the UK’s first registered Green Deal Providers and are partnering with Birmingham City Council to deliver Birmingham Energy Savers, the flagship Green Deal programme, which aims to lift up to 40,000 homes out of fuel poverty by 2015.

Responses to Individual Questions

Prices

1. What factors determine energy prices (wholesale prices, company operating costs, green levies, company profits etc)? What contribution do these factors currently make towards a typical household energy bill and how might this change over time?

Carillion accepts that a high proportion of domestic total energy prices consist of wholesale costs as reported by Energy UK,1 though we are aware that there is growing concern surrounding the impact of levies on consumers’ bills. We note research from ACE and CSE, however, indicating that though bills are projected to rise overall by 2020, the impact of policies levied on bills is expected to have a mitigating impact on the bills of average consumers with gas central heating compared to a “do nothing” scenario.2

2. To what extent (if at all) should the Government or the regulator intervene in the market to affect the prices consumers (or certain groups of consumers) pay for their energy? Should any changes be made to the Government’s current approach?

Carillion recognises that it would be difficult for Government or Ofgem to intervene on domestic energy prices, which are affected by global market forces; however, we would support more progressive tariff structures, such as a rising block tariff, which would provide an incentive for consumers to use less energy.

3. How effective is Ofgem in ensuring consumers get a fair deal? Are there any areas for improvement?

We are supportive of the work that Ofgem is doing to simplify tariffs to help consumers more easily navigate the market, provided this does not stifle innovation and to develop a new consumer vulnerability strategy. However, we recognise that Ofgem’s remit is limited by licence condition provisions and we would welcome additional support for households off the gas grid, who make up 17% of households in Britain but are over-represented among fuel poor households with 28%, 37% and 34% of off-grid households living in fuel poverty in England, Scotland and Wales respectively in 2011.3

4. Could it be possible to benchmark energy prices to provide greater certainty about whether consumers are getting a fair deal? If so, how might this be achieved in practice?

Carillion supports benchmarking consumers’ energy bills both as a tool to encourage demand reduction and to help consumers identify whether they are getting a good deal, as outlined in consumer research from DECC.4 Benchmarking could be adopted for similar households with average consumption and exemplar low energy households. A localised element could also be developed, provided this did not identify individual households’ consumption without their consent.

It is also important to recognise that price is not the only differentiator, customer service must also be considered.

5. Could any other measures be put in place to ensure consumers are paying fair prices for energy and to provide consumers with greater confidence in this?

We broadly support the proposals in the recent DECC discussion document “Ensuring a Better Deal” to develop better communication with energy customers, for example, through a tariff comparison tool, however, it is important to only provide consumers with information that is highly salient and can be easily interpreted—preferably implementing standardised terminology across companies.

Carillion is also a signatory to the Energy Bill Revolution campaign, which supports reinvesting revenue generated from carbon taxes to fund energy efficiency and renewable measures for households to tackle fuel poverty—as the Fuel Poverty Advisory Group 10th Annual Report highlights, industry receives compensation for the impact of the EU ETS, carbon floor price and CfD policies, therefore it would also be reasonable for domestic consumers to be supported to reduce the impact of rising prices.5

Prices

We are supportive of the proposals within the Retail Market Review and look forward to implementation of the proposals.

Fuel Poverty

12. Is the Government on track to meet its target of eliminating fuel poverty by 2016 and will reduced Government spending in this area affect their ability to achieve this target?

Though we welcome the implementation of the ECO, which will contribute towards the elimination of fuel poverty, we would support a more ambitious range of policies if fuel poverty is to be eliminated by 2016, particularly since DECC expect ECO to assist only between 125,000—150,000 by 2023.6 Under the existing definition, levels of fuel poverty are continuing to rise and it therefore appears unlikely that the statutory target will be achieved by 2016.

We welcomed the Hills’ recommendation that the government should set out a “renewed and ambitious strategy for tackling fuel poverty” and believe there is a pressing need for this to be published as soon as possible.

13. Has the Hills Review resulted in any changes to fuel poverty policy? How could its findings be used to improve the efficacy of fuel poverty policy?

Carillion welcomed Professor John Hills’ Review of Fuel Poverty; however we have concerns regarding the proposed new definition of fuel poverty, though we acknowledge the existing definition has weaknesses. Theoretically, we supported the closer linkage of fuel poverty with the definition in the WHECA as affecting low-income high energy cost households, since the existing definition can capture a range of low-income households, who are perhaps mainly suffering from more general income poverty. However, we are concerned that a relative threshold for defining fuel poverty in effect means that the overall numbers in fuel poverty are likely to remain relatively static, and the impact of rising fuel costs on fuel poverty is underestimated. The proposed definition also masks the fact that many low-income households continue to find heating their home unaffordable, even though they may live in relatively efficient properties.

We support the concept of measuring the depth of fuel poverty via the “fuel poverty gap,” which may enable better targeting of policy towards households most severely affected, rather than encouraging policies that focus on those at the margins of fuel poverty—who can be statistically be removed from fuel poverty through minor income measures that do not tackle the structural causes of the problem.

14. To what extent are current fuel poverty policies reaching the right people? Are there any particular groups that are currently not getting the necessary support? And will this change under the move to ECO?

We appreciate that the majority of fuel poverty policy is targeted at those most likely to be vulnerable, such as those meeting the Affordable Warmth criteria under ECO and those eligible for the Warm Home Discount. However, there are undoubtedly some policies, such as the universal Winter Fuel Payment, which is not targeted.

We welcome the inclusion of a specific rural sub-obligation within the ECO, as well as the CSC element, however, there are difficulties with trying to achieve multiple policy objectives (carbon saving and combating fuel poverty) within a single initiative—for example, difficulties energy suppliers had identifying sufficient super-priority group householders under CERT, or strict geographical boundaries under CESP. We appreciate that some of these issues have been resolved under ECO, for example flexible boundaries, though, complex policy attempting to achieve multiple objectives, must be carefully designed and reviewed.

15. What support is available for fuel poor households living in solid-wall and hard-to-treat properties? Could this be improved?

We are concerned that the support available under the main carbon-saving element of the ECO may remain inaccessible to some individual fuel poor households as this funding is reliant on Green Deal finance being granted, though take-up in the private rented sector utilising ECO subsidy may have a positive impact on fuel poverty in this sector.

We welcome the opportunity that area-based programmes have to deliver whole building retrofitting, particularly on behalf of local authorities, such as our work with the London Borough of Redbridge to install Ecopod renewable communal heating systems, glazing and solid-wall insulation to a number of hard to treat tower blocks.7

We would welcome further support for hard to treat housing such as this for fuel poor households in private housing and mixed tenure estates, since we note that DECC anticipate that households qualifying under the AW element of ECO are likely to receive heating and basic insulation measures only and this is likely to be delivered in a more pepper-potted manner. Additionally, whilst we are in the early stages of ECO and in a transition phase from CERT/CESP, if the industry and government recognise barriers to delivery Government should consider amending the legislation to try and remedy these initial issues.

16. Will the Government’s proposals to ensure that consumers are on the cheapest tariff have any impact on fuel poverty?

We welcome DECC’s proposals to simplify tariffs, provided this has the intended effect of engaging participation in the market rather than stifling innovation or causing price levelisation. However, prices are only one contributor to fuel poverty and in the long-term price is perhaps the element least within customers’ control. Though we hope simplifying energy tariffs will hopefully encourage more consumers to engage in the market and switch suppliers, the value of switching is ultimately limited as the savings that can be achieved between the best deals are minimal. We would advocate a continuing focus on improving energy efficiency to best tackle the root causes of fuel poverty.

17. To what extent do fuel-poor households engage in switching? What are the barriers to greater levels of switching from these groups?

There is limited evidence available that fuel-poor households are specifically benefiting from switching energy suppliers. We are supportive of local authority and campaigning organisation collective switching initiatives. However, it is important that these schemes specifically reach out to fuel poor households rather than only benefiting households that are already engaged, energy literate, and who may have already switched supplier as an individual. Furthermore, it is important that cheaper deals negotiated through collective switching are not at the expense of other consumers, in the same way that loss-leading tariffs have arguably been subsidised by “sticky” customers on standard tariffs in the past.

18. To what extent do fuel-poor households current take advantage of energy efficiency schemes? Could anything be done to increase uptake?

Carillion believes it is difficult to accurately assess the uptake of energy efficiency measures from fuel poor households since polices designed to tackle fuel poverty tend to identify households using proxies such as age, income, receipt of benefits or geographical location, therefore targeting of measures towards these groups is imperfect. Our experience delivering a number of schemes for groups likely to be fuel poor both at national and local level, suggests that take-up is greatest when this is supported by sustained community level intervention.

We also support a multi-agency approach to helping fuel poor households take advantage of help available—for example maximising opportunities for fuel poverty initiatives to link with health campaigns, benefit checks and financial advocacy services. This could be combined with an overarching Government advertising campaign for fuel poverty issues to raise awareness and help bring together information on the full range of policies.

Better sharing of data, potentially including data-sharing with DWP would also be beneficial for identifying eligible householders, who may otherwise be unaware of the help that may be available.

February 2013

1 http://www.energy-uk.org.uk/customers/about-your-energy-bill/the-breakdown-of-an-energy-bill.html

2 Impact of future energy policy on consumer bills, ACE, Centre for Sustainable Energy, 2012.

3 Consumer Focus, Off-gas consumers: information on households without mains gas heating. Baker, W, 2011.

4 Empowering Households, research on presenting energy consumption benchmarks on bills, DECC 2011.

5 FPAG 10th Annual Report, 2011/2012, 2012.

6 DECC – Green Deal and ECO final impact assessment, 2012.

7 http://www2.redbridge.gov.uk/cms/news_and_events/latest_news/2012/september_2012/residents_set_to_benefit_from.aspx

Prepared 26th July 2013