Energy and Climate Change CommitteeWritten evidence submitted by Energy UK

1. Introduction

1.1 Energy UK is the trade association for the energy industry. Energy UK has over 70 companies as members that together cover the broad range of energy providers and supplies and include companies of all sizes working in all forms of gas and electricity supply and energy networks. Energy UK members generate more than 90% of UK electricity, provide light and heat to some 26 million homes and last year invested £10 billion in the British economy.

1.2 Energy UK strongly believes in promoting competitive energy markets that produce good outcomes for consumers. We are committed to working with Government, regulators, consumer groups and our members to develop reforms which enhance consumer trust and effective engagement. At the same time, Energy UK believes in a stable and independent regulatory regime that fosters innovation, market entry and growth, bringing benefits to consumers and helping provide the certainty that is needed to encourage investment and enhance the competitiveness of the UK economy.

1.3 These high-level principles underpin Energy UK’s response to the Energy and Climate Change Committee’s inquiry into its Green Deal watching brief. This is a high-level industry view. We would be happy to discuss any of the points made in further detail with the Committee or any other interested party if this is considered to be beneficial.

2. Energy UK Response

2.1 Energy UK welcomes the committee’s decision to track the progress of the Green Deal. In doing so, it is, however, important that the Committee is conscious of the relationship between the roll out of the Green Deal and the ability of obligated suppliers to effectively and efficiently deliver against the Energy Company Obligation (ECO). Energy UK has a number of concerns about the effects that policy uncertainty, complexity, and the interdependencies with other energy efficiency schemes, could have on the cost of delivering the ECO.

2.2 As you will be aware, to ensure the Green Deal is able to help households access the more expensive energy efficiency measures (eg hard to treat cavity and solid wall insulation) the Carbon Emission Reduction Obligation (CERO) element of the ECO has been designed to help to financially underpin the Green Deal by subsidising measures that would not otherwise meet the Golden Rule.

2.3 It should, however, be stressed that regardless of Green Deal take up, obligated energy suppliers will still have to deliver the ECO. Delivering the latter without the former will be a lot more challenging and expensive. The energy suppliers’ ability to affordably meet their ECO targets is highly dependent on the success of the Green Deal and this in turn requires a vibrant Green Deal market. If uptake of the Green Deal is low, suppliers will be required to fund a larger than expected percentage of energy efficiency improvements (to cover the costs expected to be paid for by homeowners through the Green Deal) to meet their CERO targets under the ECO. This additional cost will then be passed to all customers through increases to their energy bills.

2.4 NERA was recently commissioned by Energy UK to carry out an independent analysis of the Government’s estimates of ECO’s costs. NERA’s final report, published in November 2012, found that the annual costs of delivering ECO had the potential to exceed £2.35 billion,1 as opposed to the £1.3 billion projected by DECC in its impact assessment. In particular, the NERA report highlighted current uncertainty around the ECO and the level of demand associated with the Green Deal roll out. It is important that all stakeholders closely monitor the delivery and costs of both schemes so that if necessary any adjustments can be made at the earliest possible opportunity.

2.5 Whilst NERA and DECC have some un-reconciled views on the assumptions that each organisation have used to come to their respective conclusions on the likely cost of the ECO, importantly both organisations’ cost calculations are based on a successful Green Deal. Energy UK and our members, therefore, strongly support actions to ensure the Green Deal is a success and that it realises the Government’s impact assessment and keeps ECO costs down.

2.6 Furthermore, given the direct link between the Green Deal and delivery of the ECO, Energy UK considers it important that on-going measurement and assessment of the Green Deal is carried out in a transparent fashion, clearly showing the level of impact (identifying areas of both success and failure) on the ECO and, therefore, potential consumer contributions. Energy UK has accordingly proposed an open dialogue with DECC, such that should any adjustments to the programme be required they can be made and in good time.

2.7 Trusted agencies such as Local Authorities can help with engagement if they understand their housing stock.

2.8 Energy efficiency messages should be tailored to each community and then further transformed depending on the needs of the individual.

2.9 The privately rented housing sector should be engaged and “carrot and stick” approaches could be considered.

2.10 A country wide information programme is required to inform households of the Green Deal and this should be undertaken by a range of organisations led by Government.

January 2013