Energy and Climate Change CommitteeWritten evidence submitted by RWE npower

1. RWE npower is pleased to submit evidence to the Energy and Climate Change Committee’s inquiry into the Green Deal. We fully support the aims of the Select Committee to determine some key indicators to track the progress of Green Deal, given its status as the Government’s flagship policy to deliver improved energy efficiency to the UK’s building stock (both domestic and non-domestic), and also given that it is a new, untested and radical programme compared with anything that has been undertaken in the UK to date.

2. We support the aim of the Select Committee to track the progress of the Green Deal and we would urge the Committee to consider robust indicators for the Energy Companies Obligation (ECO) given the explicitly co-dependent nature of the two schemes. The value and benefits of the Green Deal must include ECO; given the function that ECO provides in cross-subsidising certain Green Deal measures.

3. The Green Deal’s success can be measured in the main by the level of customer uptake. However, ECO is different, as it is partly reliant on Green Deal uptake for success, but only those Green Deals that are eligible for ECO support. ECO’s status as a supplier obligation is an important factor; the implication being that the ECO targets will be delivered, therefore its success can only be measured in part by uptake. The likely costs of ECO and how consumers can be protected from an uncapped liability should feature highly in the assessment of Green Deal, as any future success of Green Deal may simply be as a result of higher than anticipated levels of subsidy from ECO.

What should be the key indicators for tracking the progress of Green Deal?

4. We see it as a high priority for Government to track the cost-effectiveness of Green Deal and ECO as well as the assumed carbon, energy and cost savings associated with the schemes.

5. Cost data should be kept at a high level (ie the total cost to deliver Green Deal and ECO) to ensure that the cost of demand creation is captured. Demand creation is our primary area of concern regarding the total cost to deliver the ECO. We therefore encourage the Committee to look at the cost of demand creation as a specific area for review.

6. Wherever possible the indicators that track progress should be sourced from data that is available from a central point, such as Ofgem, the Central Charge database (CCdb) or the EPC registers (Landmark Information Group for properties in England and Wales and the EPC Register Scotland for Scottish properties). In addition the data should be provided from sources that are available from the launch of Green Deal and ECO. These principles will ensure data consistency and also reduce the administrative burden of reporting and collating data.

7. We believe the exemplar questions contained within the Call for Evidence provide an appropriate basis to determine the best indicators for tracking progress for the Green Deal. Our concern is simply, how will DECC (or other relevant departments) ensure that this Management Information (MI) is captured by the appropriate parties and is available for verification, given that participation within Green Deal can be delivered via a diverse range of Green Deal Providers and suppliers. Also, other key stakeholders such as the Oversight and Regulatory Body (ORB), Landmark Information Group and the EPC Register Scotland will have a significant role to play in providing this information but they may not have factored in the need to provide this MI into their existing business plans or information systems. The Select Committee could play a significant role in ensuring this potential oversight is rectified as soon as possible.

8. It is imperative that cost data for ECO (and Green Deal) is available and collected from the start of the scheme, thereby enabling a comprehensive picture of overall costs from the launch of the schemes to the end of the first ECO period (31 March 2015). This is because there may be different cost drivers at different periods of the obligation. For example; following the launch of the scheme, additional costs may be incurred in marketing and familiarizing stakeholders and customers with regards to the new obligation, as well as other costs to stimulate demand (eg the Government cash back incentive scheme for Green Deal). Neither suppliers nor Government know whether the demand creation and installation costs will rise or fall as a result of the increased the volume of work required to deliver the very challenging ECO targets by 2015. There may also be increased costs as the obligation scheme deadline approaches; (such as were incurred by suppliers in meeting their Carbon Emissions Reduction Target (CERT) Super Priority Group costs and Community Energy Saving Programme (CESP) costs during the final months of these schemes).

9. The regular collection and tracking of ECO costs by Ofgem throughout the duration of the scheme will result in a transparent body of evidence of actual ECO costs. This will enable Government and other key stakeholders to assess the actual cost impacts upon the wider customer base as well as its overall cost effectiveness. These outputs should be used as the basis for the setting of any future ECO targets post March 2015, to ensure that any new targets are cost effective, offer value for money and do not disproportionately impact upon customers’ bills.

What is the best way of assessing the uptake of the Green Deal?

10. We believe the best means of assessing the uptake of Green Deal will be the number of Green Deal plans signed by consumers. The most cost effective way to quantify the uptake and value of Green Deal plans is via the Central Charge Database (CCdb), where the Green Deal plans are lodged and managed. This will provide information as to the final number of successful plans where costs are being billed via the customers’ electricity bills.

11. However, the CCdb will only contain details of those plans which have completed. Our expectation is that there will be quite a considerable drop out rate from the initial volume of Green Deal assessments undertaken compared to the total volume of Green Deal plans that actually result in measures being installed within the property. It is critical that these metrics are also captured, so as to be able to collect and analyse the key stages on the customer journey that result in customers’ failing to complete their Green Deal plan and the likely reasons for the drop-out. This additional information can be provided through the number of Green Deal Advice Reports (GDARs) produced and lodged on the Landmark (for properties within England & Wales) and the EPC Register Scotland (for Scottish properties).

12. Using these EPC databases will enable Government to track how many properties started the Green Deal journey and how many completed, as following the installation of any measures a revised EPC must be lodged at the appropriate register as part of the Green Deal journey.

13. Unfortunately, for work undertaken which was part subsidised by ECO monies and/or supplemented by non-Green Deal finance, or for work fully subsidised by ECO monies then there would be no record on the CCdb. For some installed measures, an EPC will be produced, but not for all. However, in every case, suppliers will report to Ofgem on the type of measure, associated carbon and or cost savings delivered. This data is reported within one month of the measures being installed.

14. By utilising the MI from these agencies, Government will be able to track the number of households that start the Green Deal journey (by getting a GDAR from an approved assessor) as well as the number of households that complete a Green Deal and also the assumed carbon and energy savings.

What is the best way of assessing the level of carbon and/or energy savings being delivered by the Green Deal?

15. This will be captured through the information provided on the revised EPC which is a required step in the Green Deal process. For those properties which have fully funded measures installed via ECO, Ofgem will be able to provide an up to date assessment of the carbon and or energy savings delivered, and indeed it is a requirement under the ECO Order to provide this information to the Secretary of State on a regular basis.1

What is the best way of assessing whether the Green Deal is delivering value for money to consumers?

16. We do not believe that this question can be considered separately from the costs of ECO. Therefore, we believe that the Select Committee should urge DECC to take further action to assess the costs borne by the six larger energy suppliers who are obliged to deliver the billing and collections functionality for Green Deal for both domestic and non-domestic customers. The cost of delivering significant changes to IT infrastructure and business processes, as well as associated personnel costs should be captured and assessed in the round. This would include an average cost per administered Green Deal plan. These costs have been significantly increased by the consistently poor project management and governance provided by DECC, which has resulted in multiple last minute changes to the technical design specification, both increasing the costs and diverting staff and resources from other regulatory requirements.

17. Given the ongoing, unresolved issues with domestic Green Deal, we believe that it would be sensible if the non domestic Green Deal launch was postponed, particularly if current industry prognosis for a low non-domestic Green Deal take up are realised. Delaying the launch until after the domestic Green Deal is working effectively would allow suppliers and other stakeholders (including DECC) to benefit from the lessons learned and enable stakeholders to allocate their resources more effectively, as well as to minimise development and delivery costs.

18. In light of our assessment of the likely costs to deliver ECO, we have key concerns as to whether the Green Deal will offer for value for money when it is subsidised to a greater or lesser extent by ECO monies. We would urge the Select Committee to consider the average carbon delivery costs for basic insulation measures (such as loft and cavity wall) against those for Solid Wall insulation and also the economic impacts of the programme, such as the number of people directly employed through Green Deal. We are also concerned that due to the very tight eligibility criteria for Affordable Warmth customers, there will be significant costs associated with targeting and engaging with these customers, which represents a very inefficient use of resources and is expected to account for a large proportion of the total costs associated with the Affordable Warmth and Carbon Saving Communities rural safeguard targets.

What is the best way to assess whether the Green Deal is being delivered effectively?

19. We believe the best metric to assess whether the Green Deal is being delivered effectively will be whether the costs of ECO are being controlled effectively (and remain in line with the £1.3 billion central cost estimate assumed by DECC). We believe that the main pressure on ECO costs will be associated with demand creation. The obligated energy suppliers cannot rely solely on latent market demand for Green Deal as this will not be adequate to fulfil their ECO targets. We note the recent publication of a survey undertaken by YouGov on behalf of the Electrical Contractors’ Association at the end of December 2012, which found that 98% of the British public says it does not fully understand the Green Deal and how it will work, and that 62% have never even heard of the scheme, despite it being the government’s flagship energy saving initiative.2

20. Our expectation is that the cost to generate demand for qualifying ECO measures will flow into the ECO regardless of who delivers the eligible measures. This will also include any trades on the ECO brokerage mechanism. If properly functioning, the brokerage mechanism should help determine the market price for ECO points associated with both carbon emissions and cost saving measures.

21. An ongoing comparison between the numbers of households starting a Green Deal journey versus the number of households that take up measures under Green Deal will provide a means of assessing the effectiveness of the overall policy and the means by which it is delivered. There may be merit in benchmarking the delivery costs of Affordable Warmth measures against the costs of delivering similar measures under the tax payer funded schemes such as Warm Front scheme in England, the NEST scheme in Wales or the Scottish Energy Assistance Package in Scotland.

What is the best way of assessing customer satisfaction with the Green Deal?

22. The Oversight and Registration Body (ORB) will be responsible for overseeing the activities of all accredited Green Deal providers and Green Deal Assessors. Part of ORB’s role will be to track and assess the level of complaints made against the Green Deal supply chain, (presumably on the basis of benchmarking complaints to total numbers of Green Deal plans or Assessments undertaken). Therefore in the absence of any pre-agreed MI to be provided, we believe that the proportion of customer complaints against the total number of customer interactions could provide insight into levels of customer satisfaction.

23. However, whilst we believe knowledge of the proportion of customers complaining (at specific stages of the Green Deal journey) has the potential to provide important quantitative data and insight into levels of customer satisfaction, we believe it would also be valuable if DECC commissioned regular independent research into customer satisfaction levels, for both those who complete the Green Deal process and for those that start a Green Deal journey but do not complete it.

24. There will also be customers who inherit a Green Deal plan who do not want one (ie a bill payer who is not the Improver). This could include tenants in private or social housing (where the landlord has initiated the installation of measures), as well as new occupants of a property with an existing Green Deal plan. Their level of satisfaction with the Green Deal may be significantly different to those who actively choose to proceed with a Green Deal and this would need to be assessed via rigorous and independent research.

What is the best way of assessing whether everyone who wants to is able to access the Green Deal?

25. We are not convinced that this should be considered as a key metric on its own, as there may be multiple reasons behind a householder’s inability to access the Green Deal. It may be that there are no Green Deal Providers operating within their area, or that it is simply not cost effective to deliver appropriate measures for that house. It is important to ensure that there is no false expectation made to the general public about the availability of finance to deliver measures. Whilst ECO funding may be appropriate to help certain technologies meet the Golden Rule (such as solid wall insulation or hard to treat cavity wall insulation), this can not be guaranteed, as suppliers are required to discharge their ECO obligations as cost effectively as possible. This could mean that some householders with hard to treat properties do not qualify for sufficient ECO funding and may not or can not provide their own funding to ensure that any measures installed meet the “Golden Rule” in order to qualify for Green Deal finance.

January 2013