Energy and Climate Change CommitteeWritten evidence submitted by SSE

1. SSE is a UK-owned and based energy company, and the UK’s second largest energy supplier. It is a pioneer Green Deal provider.

2. SSE strongly supports the UK’s ambitions to reduce carbon dioxide emissions from its building stock and views energy efficiency as the best approach for households to reduce their energy costs. SSE therefore fully supports the principles behind the Green Deal and Energy Company Obligation (ECO), which it believes could—over time—have a transformative effect on the existing UK building stock if designed and implemented correctly.

Summary

3. SSE is fully committed to the Green Deal’s objectives and continues to work hard to deliver a programme which works in the best interests of consumers. This evidence considers the potential barriers which the Committee should consider when seeking to design indicators to assess the programme’s effectiveness.

4. The Green Deal represents a significant change in how consumers can finance energy efficiency measures for their properties. As such SSE believes that any assessments of its impacts, and the designing of indicators that measure the Green Deal’s success, must be considered over the medium to long-term.

5. SSE has identified a number of barriers to Green Deal take-up that should be accounted for when assessing the programme, particularly at the early stages. Such barriers include the difficulties of encouraging active consumer engagement at all stages of the Green Deal process, which must be fully considered given the difficulties suppliers faced when promoting previous energy efficiency programmes, which at times had minimal—if any—costs to customers.

6. SSE is fully committed to making a success of the Green Deal and the accompanying ECO; however, the Committee must be aware of the implications which low Green Deal take-up will have on the costs of delivering ECO and how this may impact on all households’ energy bills.

The Importance of a Long-Term View on the Green Deal’s Success

7. Both the Green Deal and ECO are ambitious initiatives which will determine the future of energy efficiency in the UK for the foreseeable future. It is therefore essential that sufficient time is taken to design and deliver them so that the customer experience is a positive one. SSE is conscious that any negative reaction at the outset could foster perceptions that have adverse impacts on uptake, which will place the entire scheme, and all the good work done to get to this stage, into jeopardy.

8. The Green Deal is at a very early stage and is intended to be a contributing factor to the Government’s long-term carbon emission reduction targets. Therefore, any assessments about its progress must be based on a long-term view. Without setting the scope of analysis over the long-term there is a danger that the programme may be unduly perceived as being either successful or as a failure at too early a juncture in its roll-out to customers.

Consumer Engagement and Overcoming the “Hassle-Factor”

9. The “hassle-factor” that consumers face when improving the energy efficiency of their properties is not a new challenge for suppliers; it has been evident since such programmes were introduced. However, it remains a challenge to the uptake of the Green Deal.

10. At times under the previous energy efficiency programme, Carbon Emissions Reduction Target (CERT), suppliers including SSE, gave insulation away to customers at no financial cost and despite this the challenges of finding customers and encouraging them to make improvements to their properties were significant. It is worth noting that with many customers making energy efficiency improvements to their homes as part of previous Government-mandated programmes, the pool of properties left to target with cost-effective measures under the Green Deal is much reduced.

11. SSE is concerned that the level of active consumer engagement required at all stages of the Green Deal process, in addition to the disruption caused by the installations, is likely to be a challenge for uptake. Early testing has resulted in quite substantial consumer “drop off” at each stage of the process, from initial engagement through to enquiring, assessment, financing and installation.

12. An example of this consumer “drop–off” at an early stage in the process is evident once Green Deal assessment calculations are introduced. Green Deal providers are expected to charge in the region of £95–150 per assessment. SSE is concerned that even if consumers are sufficiently engaged with the Green Deal to arrange a home assessment, this financial commitment could potentially be a barrier, particularly as much of the initial promotion of Green Deal has focused on the fact that it is delivered at “no upfront cost”. SSE is concerned that the overall reputation of the Green Deal programme may be damaged by this and similar negative customer experiences. To address this barrier, SSE believes that this cost could reasonably be borne by DECC alongside the cash back scheme, to encourage uptake.

13. A more publicised barrier to uptake for is the perceived high cost of Green Deal finance from the Green Deal finance company—now purported to be 8%—adding a significant cost of the lifetime of any Green Deal. As has been noted by a number of media commentators, this does not compare favourably to similar markets such as Germany, which offers a similar scheme at near 1%. SSE would welcome any additional support to reduce interest rates to encourage Green Deal uptake.

14. Whilst SSE recognises that undertaking works to domestic properties requires a certain level of engagement on the part of the consumer in order to deliver the best service, it would suggest that streamlining the Green Deal process is likely to increase consumer take-up, provided it does not lead to a compromise in quality and diligence.

15. At the same time, it is critical to note that consumer trust in both Government and in energy suppliers, two of the principal proponents of the Green Deal, is low. SSE shares many of the concerns outlined in the Committee’s recent report into consumer engagement with energy markets; that low consumer trust of, and subsequent engagement with, energy suppliers may represent a barrier to the success of the Green Deal.

16. SSE has embarked on a fundamental programme to “build trust” in it as an energy supplier, but also believes that it is important at such an early stage in the life cycle of Green Deal that favourable coverage builds momentum. A high-level national campaign aimed at engaging consumers, possibly incorporating a trusted spokesperson, would be a positive step. What is more, a co-ordinated central communications programme linked to other initiatives, such as the smart meter roll-out, could offer trusted, impartial advice to consumers and value for money.

The Impacts of Green Deal Uptake on the Costs of ECO

17. SSE is concerned that lower than projected consumer take-up of the Green Deal will impact upon the costs of delivering its share of ECO. SSE believes that Green Deal contribution to ECO packages is overestimated by DECC’s current projections of 50%. With a lower level of such support, the price of delivering ECO will be driven by the market, which is likely to push prices up as a result of supply and demand.

18. Given these potential huge variations, SSE believes that Government should place a cap on the total cost of ECO, so consumers, who will ultimately pay for these schemes through their gas and electricity bills, do not pay too much if costs escalate. At present SSE has a concern that ECO could cost all electricity and gas customers over £90 annually, which is a considerable cost within household energy bills.1

19. Lower Green Deal take-up will in turn impact upon the degree to which delivery can be optimised in accordance with DECC’s current projections. These assume that projects will be coupled with measures such as loft insulation, and that installations will occur in homes which deliver high carbon savings. Energy suppliers are likely to fund most solid wall and “hard-to-treat” cavity wall projects, whether or not they are combined with other measures, and regardless of their location, due to the challenging target level and likely levels of consumer demand. This will mean that the overall cost per tCO₂ saved will be considerably higher than current DECC estimates.

The Preparedness of the Supply Chain

20. SSE is also concerned that the supply chain “step change” required from industry represents a potential barrier to the delivery of Green Deal, and that even if consumer demand was high the supply chain would not be able to cope with the increase, particularly for solid wall insulation. SSE understands that many large industry bodies are holding back on becoming Green Deal accredited until they have more assurance in this regard.

21. SSE therefore suggests an extension of Phase 1 of ECO in order to provide a greater degree of certainty to the supply chain. SSE believes that in order to provide a smoother transition some loft and cavity wall insulation measures should be allowed to be counted under ECO without being coupled with solid wall insulation, at least in the first year of ECO. This will help the supply chain adjust to the change in measures and processes as wells as encouraging Green Deal uptake.

Green Deal Advice Reports

22. SSE has identified early barriers to delivery of the scheme at an operational level. There is currently confusion concerning the signing off of Green Deal Advice Reports, with conflicting information circulating in relation to the applicability of the current Building Research Establishment (BRE) occupancy assessment tool. Initial assessments have also encountered difficulty when attempting to use the online tool for retrieving assessment details. SSE is concerned that such procedural delays may cause the scheme to become jammed. SSE therefore believes that Phase 1 of the Green deal should be extended to enable approval of Green Deal Provider tools.

Conclusion

23. SSE fully supports the principles of the Green Deal and ECO, and believes that the schemes have the potential to have a significant impact on reducing the UK’s carbon dioxide emissions whilst simultaneously lowering households’ energy costs. As the Green Deal represents a major change in domestic energy efficiency, SSE believes that any measurements of its impacts must be assessed in the medium to long-term.

24. The Committee should also be aware of the potential barriers to delivery outlined by SSE in this submission, which relate to the assessment process, the potential implications that these barriers may have for the costs of delivering ECO, as well as the overall reputation of the Green Deal.

January 2013