Energy and Climate Change CommitteeWritten evidence submitted by ScottishPower

Introduction

(i) We are committed to playing our part in promoting and facilitating the Green Deal approach enabling consumers to fund energy efficiency measures for their homes through energy savings. However, customer enthusiasm for Green Deal offers, which will clearly be of critical importance to the success of the programme, is as yet unknown. For the Green Deal to succeed, high levels of consumer awareness about how the scheme operates and appreciation of its benefits will be vital. Positive word-of-mouth communication from early adopters could be particularly helpful, so it will be important that the programme runs smoothly from the start. While Green Deal Providers will independently promote Green Deal Plans, DECC has a key role to play in promoting the Green Deal on a national scale and encouraging up-take. The importance of this is underlined by a recent YouGov poll commissioned by the Electrical Contractors’ Association (ECA)1 revealing that 98% of the British public say they do not fully understand the Green Deal and how it works; whilst 62% have never heard of the scheme.

(ii) Energy efficiency programmes have been in existence in the UK since 1994 and whilst progress has been made, the energy efficiency market has required high levels of subsidy to stimulate demand. The demand from consumers alone has not created a self-sufficient market. In the last 12 months of the existing CERT programme, it has proved particularly challenging to encourage customer take-up and we have had to fully subsidise cavity wall insulation to help us to meet our obligations. Indeed, even when the measures are offered for free, many consumers are still not taking up the offers. The unwillingness to invest in energy efficiency improvements appears mainly due to:

A lack of understanding of why the measures are needed and the benefits that they could bring;

A perception of too much hassle or disruption;

A desire for quick, significant bill savings and antipathy to lengthy payback periods, especially if combined with high upfront costs before savings can be realised;

Doubts about whether energy efficiency improvements will add any value to the home.

(iii) Recent consumer research has indicated that one of the particularly significant barriers to uptake of energy efficiency improvements is the upfront cost issue. The Green Deal finance mechanism offers a potential solution to this challenge: provided the Golden Rule principle is robust, householders should be in a position to benefit from up-front finance and repay the costs through savings made on their energy bills. However, it is difficult to predict how the market will evolve, particularly in the current economic climate where householders have a general reluctance about taking on additional loans. In this context, monitoring will be useful in tracking the direction of the Green Deal scheme and assessing where support is needed to deliver success.

(iv) Issues around the level of take-up of the Green Deal will also have important implications for the ability of energy companies to deliver their carbon saving targets under the new Energy Companies Obligation (ECO) within the Government’s projected cost total of £1.3 billion a year. This is because the Government appears to have used ambitious assumptions in its Impact Assessment modelling on the contribution of Green Deal packages towards the overall cost of delivering ECO. It will, therefore, be necessary to monitor Green Deal uptake closely with a view to reviewing ECO obligations over time if the overall costs of the ECO scheme are not to be driven higher than projected.

(v) We set out below our responses to the Committee’s questions, recognising that some of these questions may be directed more at the Government or other delivery agents.

Responses To Questions

What should be the key indicators for tracking the progress of the Green Deal?
 — What is the best way of assessing the level of uptake of the Green Deal?
 — What is the best way of assessing the level of energy savings being delivered by the Green Deal?
 — What is the best way of assessing the carbon savings being delivered by the Green Deal?
 — What is the best way of assessing whether the Green Deal is delivering value for money to consumers?
 — What is the best way of assessing whether the Green Deal is being effectively delivered?
 — What is the best way of assessing customer satisfaction with the Green Deal?
 — What is the best way of assessing whether everyone who wants to is able to access the Green Deal?

1. The Green Deal scheme is still very much in its infancy and this should be taken into account when considering ways of assessing the success of the scheme. It should also be noted that delivery under the Green Deal and the Government’s new Energy Companies Obligation (ECO) are closely linked, at least in cost terms. Thus, DECC’s cost projections for ECO appear to assume a significant contribution from consumers taking out Green Deal packages so as to limit the subsidy needed from obligated suppliers under ECO. However, we consider that there is a risk that Green Deal payments will only account for 15% or less of the cost of the carbon savings targets under ECO.

2. This is especially so given the highly ambitious emphasis on delivery of solid wall insulation (“SWI”) under ECO. We think that SWI may be less attractive to customers than cavity wall insulation because it has the possibility of causing significant disruption and/or changing the appearance of the home. We consider that take-up of internal SWI with current technology will be low because of the loss of floor space and the disruption involved in installation. External SWI may prove unattractive to many owners of traditional properties because of the visual change involved though we see a stronger potential in the social housing sector and with some owner-occupied properties of non-traditional construction. Given the uncertainty around uptake and on future cost projections, we consider that there is merit in planning for a review towards the end of the first year of ECO to assess the overall position going forward. In any event, getting the monitoring and administration of both schemes right is essential, including allowing for sufficient flexibility for this to develop over time as appropriate.

3. As regards the Green Deal, it would seem sensible to monitor the number of customers having measures installed in their properties under a Green Deal plan and the overall numbers and types of measures being installed. This will require a robust data collection and assessment process. For example, we can reasonably assume that if 100 people register their interest in the Green Deal scheme, only a portion of these will actually realise the installation of energy efficiency measures and an associated Green Deal plan. A number will fail to agree a finance arrangement and a further group is likely to be deterred by the scale of the home assessment or disruption perceived by the installation of the measures. This is why it will be important to use the Green Deal Central Charge Database to understand the actual number of Green Deal plans that have been taken out and the related savings that have been identified as achievable under these plans. It will also be valuable to monitor whether the savings identified as part of the Green Deal report are actually realised by consumers.

4. Thus, a number of key indicators will be needed to help to monitor delivery including: the number of enquiries about Green Deal plans; the number of assessments being carried out by Green Deal Providers; the number of those assessments that proceed to installation (and whether funded with a Green Deal plan or otherwise); and the number and type of measures being installed in properties. It would also be helpful to monitor the types of properties in which measures are being installed and the post code areas where installations are taking place. This should help to build a picture of uptake and access to the Green Deal across the range of property types and localities.

5. In all of this, consideration has to be given not only to how many customers have taken up the Green Deal, but also how many customers are aware of the scheme and how many found the scheme appealing. Regular assessment is also needed of how many customers started to investigate the scheme but did not complete a Green Deal plan—including why customers did not complete the take up of a plan and whether the measures were abandoned or funded by some other means. However, high level monitoring of numbers alone will not help to provide a true picture of the success of the scheme. Further complications in monitoring the number of customers taking out Green Deal finance packages will be calibrating those customers who choose to finance energy efficiency measures through means other than The Green Deal Finance Company. As many Green Deal Providers may choose to access other sources of finance it will become more difficult to monitor take up levels as there will be no one central database or testing of the “Golden Rule” principles.

6. Thus, to fully understand the position, it is not enough to simply monitor numbers of Green Deal plans and measures installed. In addition, the Government needs to assess consumer reaction and opinions through quantitative and qualitative methods such as polling, surveys and focus groups. It would also be valuable for such research to consider consumer experiences of the assessment and installation process as a factor affecting the take-up of the Green Deal scheme. In this context, it will also be helpful to understand consumer attitudes and perceptions amongst those who move into properties that already have a Green Deal plan. Specifically, it will be interesting to understand whether the presence of a Green Deal plan had any positive or negative impact on their decision to acquire the property and whether they felt they continued to make savings—particularly in a situation where the occupancy characteristics of the property have changed.

7. As regards, the process for assessing the energy savings and carbon savings being delivered by the Green Deal, we consider that this needs to mirror the approach being taken by ECO, most specifically linked to the rating of properties through the SAP/RdSAP methodology and the use of Energy Performance Certificates. In monitoring heating cost and carbon savings, reporting should be conducted on a regular and proportionate basis.

What sources of data are available for measuring your suggested indicators?

8. We consider that a ready source of complete data does not appear to currently exist that would provide easy and manageable reporting on the indicators for success discussed above. Given this, and in order for the Green Deal and ECO to be monitored effectively avoiding unnecessary duplication, we suggest that consideration is given to having one comprehensive and specifically designed database which might be used to monitor, evaluate and report performance. Such a database could in principle allow for more accurate monitoring of live performance. However, it would be important to ensure that the database is robustly designed and managed to suit the purposes of the programme and to deliver effective data security. This would need to include a clear set of permissions and rules, including on data sharing procedures.

Should there be annual take-up targets for the Green Deal and if so what should they be?

9. The success of the Green Deal programme ultimately relies on customers wanting to take out a finance agreement to cover the costs of energy efficiency measures and being willing to undertake potentially intrusive changes to their homes in order to install those measures. Clearly, customers cannot be required to take-up Green Deal packages.

10. Moreover, in the current economic climate, where householders are reluctant to take on additional loans, it could be difficult to generate enthusiasm for the Green Deal, especially given the existing evidence from the previous CERT and CESP schemes showing that even where we can identify customers who may benefit from energy efficiency measures, customer take-up of these measures is low, including where the measures are free and relatively easy to install.

11. We therefore consider that there is not enough information at present for the Government to set itself annual take-up targets. Any such targets should only be considered once there is sufficient experience of the scheme to set them on a meaningful basis.

12. The Government should however seek to play a leadership role in encouraging consumer “pull” for Green Deal via a clear engagement strategy, aimed at communicating the benefits of the Green Deal scheme and building trust among consumers. In this context, we welcome DECC’s commitment to spend £1.9 million to assist in the promotion of the Green Deal. However, we would suggest that further consideration should be given to providing additional commitment to marketing and promotional activity, as the scheme develops, where needed. In particular, demand could be greatly enhanced by this engagement process if energy efficiency could be increasingly seen as a “home improvement choice” that can add value to the home. It is as yet unclear whether consumers and property owners will be prepared to subscribe to this view.

January 2013