To be published as HC 1075-i




Energy and Climate Change Committee

Renewable Heat Incentive

TUesday 26 march 2013

Dave Sowden, Simon Lomax and Tim Minett



Evidence heard in Public Questions 1 - 95



This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.


The transcript is an approved formal record of these proceedings. It will be printed in due course.

Oral Evidence

Taken before the Energy and Climate Change Committee

on Tuesday 26 March 2013

Members present:

Sir Robert Smith (Chair)

Dan Byles

Barry Gardiner

Mr Peter Lilley

Christopher Pincher

John Robertson

Dr Alan Whitehead


Examination of Witnesses

Witnesses: Dave Sowden, Chief Executive, the Micropower Council, Simon Lomax, Managing Director, Kensa Engineering, and Tim Minett, Managing Director, CPL Industries, gave evidence.

Q1 Chair: Thank you very much for coming to give us evidence on our renewable heat incentive inquiry. For the record, could you introduce yourselves and the organisations you represent, starting with Mr Lomax?

Simon Lomax: Simon Lomax, Kensa Engineering, which is a Cornish-based manufacturer of ground source heat pumps.

Dave Sowden: Dave Sowden from the Micropower Council. We are an industry-funded body that represents the interests of manufacturers, installers and other interests in the renewable heat industry, among others.

Tim Minett: Tim Minett. I am from CPL Industries, a long-running 50-year-old coal business. We moved into pellets and distribution, and systems.

Q2 Chair: Thanks again for coming to give evidence. Could we start with your perception of why the RHI is so significantly delayed?

Dave Sowden: Okay, I will go first. First of all, thank you, Chairman and Committee, for allowing us to come and speak to you today.

I think there are a number of reasons why we are where we are on the timing of the RHI. Probably at the heart of this is that midway through this policy being developed there has been a change of Government, and there has also, quite notably, been a complete change in the civil service team that has been dealing with this policy. I do not think there is one policy officer-level civil servant in the current team within DECC who was there at the outset. That has meant that we, in industry, have had to go through the same set of climbing and learning curves with those civil servants a second time round. I think they do understand the issues quite well.

The other reason it is important is that I think the policy has been quite significantly derailed by, first of all, what happened with feed-in tariffs and the changes that the Government had to bring in at quite short notice on them. I think a final reason is the publication during the development of the policy of the Energy Saving Trust’s report on the field trials. I think those two things caused a significant confidence knock within the Department, particularly at senior levels, and that is why we are where we are.

Q3 Chair: Would you agree with that?

Tim Minett: Yes. I haven’t been in the field quite as long as Dave, but I totally agree with that synopsis.

Simon Lomax: In mitigation, it is a very difficult policy. There are no exemplars elsewhere, and trying to conjure up one solution that fits quite a diverse range of renewable heat technologies is challenging. I think progress-somewhat belatedly-is being made because there is more focus now on the contributions from engineers, whereas initially, perhaps, the policy advisers were too heavily influenced by economists who perhaps did not understand the technologies or the markets as well as they might, and did not perhaps have the confidence to deliver policy. There was always a reason to seek more evidence.

Q4 Chair: In your submission, you suggested that there should perhaps have been more secondees from industry into the Department.

Simon Lomax: My understanding-Dave will correct me if I am wrong-is that there is one technical adviser who has been seconded, and there are now three or four engineers who are working on the team, but the secondee joined in late 2011 and the engineers have joined during 2012.

Dave Sowden: If I may just make an additional point on that, I think it is worth mentioning that we have raised the issue of industry secondees on a number of occasions, both at ministerial and at senior civil servant level. We have offered secondees into DECC on no fewer than three occasions to help to develop its policy. We have not had a response to that suggestion.

Q5 Chair: You do not think there would be any conflicts with secondees.

Dave Sowden: There may be inherent conflicts with secondees, but all secondees into Government Departments who operate on this basis are required to operate under a published code that I believe originates in the Cabinet Office. They undertake that they will work effectively as a civil servant for the best interests of the country and put any commercial interests aside. An organisation like ours is technology-agnostic. We do not serve the requirements of any particular group of technologies over and above others. So I feel a secondee from an organisation such as ours would give quite a balanced input into policy making.

Tim Minett: I think that industry input, whether through a secondee or through consultation, is really required when we get to tariffs. One of the major problems is that the capital base that has been assumed in a lot of the calculations has moved on-it is not correct-and I think therefore that industry input into the real cost of this equipment would be very valuable.

Q6 Chair: Just being pessimistic, are you aware of any factors that could be causing delay coming down the track?

Dave Sowden: I would echo a point that I think Simon alluded to, which is that it is a genuinely difficult policy. It is a world first. I think the issues for the civil servants, and particularly the economic modelling that needs to take place to underpin the setting of the tariff levels, are genuinely hard. The evidence base is not significant because we do not currently have a big renewable heating market in the UK, and therefore calibrating the tariff so that you don’t get perverse consequences, or you don’t inadvertently kill the market before it has started, is genuinely difficult. I think the civil servants are doing their best to wrestle with some of those issues.

Tim Minett: I would echo that. It is a complicated policy. I think it is fundamentally the right policy not to put capital upfront but to reward over a period of use, but, as Dave says, it requires proper calibration and I think that is where we are today in terms of calibrating the policy. I don’t think we need to fundamentally change it; it just needs recalibrating.

Simon Lomax: However, any householder who is considering a renewable heat technology looks at two factors. They look at whatever income might be available through subsidy and they look at the running cost savings that the new technology might offer over their existing heating system. So it is very difficult to set a tariff that is fixed if the price of the counter-factual fuel is floating. We have had some very significant differences in the price of heating oil over the last three years. It has gone from 43p a litre to 73p a litre just prior to Christmas in 2010, and it is now back down at 63p a litre. The inquiry levels goes up and down with the price of oil, but if the tariff stays fixed, the RHI is going to give an inconsistent rate of return, depending upon the prevailing price of the counter-factual fuel. So you could argue that there are some fundamental flaws in the whole underlying logic of the tariffs.

Q7 Chair: Do you two agree with some of that analysis?

Dave Sowden: I think Simon’s analysis is correct. I am not sure I would agree that it needs to change the fundamental design principles behind the policy. The reason I say that is because I think what industry craves more than anything, and what the customer craves in their decision-making process more than anything, is some forward certainty. If you can lock in a tariff at the time you install the heating system, you have that certainty-you know where you are. People are used to being exposed to future fluctuations in energy prices. They have that today with their fossil fuel heating system. So I think Simon’s analysis is correct; I am not sure we would agree with his conclusion.

Simon Lomax: I think there is a potential issue here in terms of offering value for money to the taxpayer because if the price of oil were to increase substantially, and the rate of return therefore received by the householder becomes more generous, there will be significant deployment. That could potentially then trigger some degression to the tariff. If that coincided with a falling oil price, the rates of return would now fall quite dramatically and the market would stall. As a supplier, I don’t want to see any possibility that a perverse outcome from this policy leads to a stalling of the market.

Chair: We are going to come on to degression.

Tim Minett: I believe fundamentally that the structure is okay. To the last point, I think just the intelligent application of the degression is very important; not to jump on the handle the moment there is a take-off but to be more considered. DECC’s later announcements on a greater flexibility in degression are certainly a step in that direction.

Dave Sowden: I would agree that that is how you deal with it. You build sufficient flexibility into the policy upfront so that, for future installations, you can adjust tariffs up as well as down, if deployment is moving in an unexpected direction.

Q8 Chair: What is delay doing for the actual industry? Is the industry managing to wait and see or-

Simon Lomax: I think the ground source industry has been affected more than any other sector, possibly with the exception of solar thermal. Phase 1 of the RHI covering commercial and industrial buildings has been launched. The overall deployment there is below DECC’s expectations. Tim put a good bar chart in his evidence, which showed that the overall deployment was low but also revealed that the deployment of ground source heat pumps is pretty non-existent because the existing tariff doesn’t incentivise anyone. The reality is that you are paying for only 31 installations so far, and some of those are astonishingly modest. We did one where it simply provided domestic hot water at a holiday cottage. They made their decision to invest in a renewable heat technology before the RHI was even really conceived. By happy coincidence, they installed after the deadline, 15 July 2009, so they were rewarded by the RHI, but not incentivised by it, and there is no one being incentivised at the current tariff levels. So our industry is in desperate straits, including my own company.

Tim Minett: From a biomass point of view, I think investment has ranged from a plumber/heating engineer who has spent £5,000 or £7,000 getting themselves accredited, and I should think a lot of those have not had any kind of payback on that money. There has probably been about £150 million to £250 million of inward investment in pellet mills and distribution setups in the country. I don’t think any of that is making a significant return on investment at the moment, so everybody is waiting, but it is quite a painful wait.

Dave Sowden: If I may, Mr Chairman, on that question, I think the delay to the RHI has certainly not helped, but it is not the only factor. It needs to be considered very much in the context of what has been happening in new build policy, particularly the path to zero-carbon homes. The market for residential renewable heating technologies, before the RHI was even thought of, was primarily being driven by the new build sector and the previous Government’s path to zero-carbon homes. What we have seen in that market since CLG published its consultation this time last year-which was something of a shock, a significant watering down of the next step towards zero-carbon homes being stated as CLG’s preferred option-is confidence draining away from some sectors. Solar thermal installations, for example, in the residential sector are half the run rate now that they were two and a half years ago. We were seeing an acceleration in the uptake of technologies such as air source heat pumps. That acceleration has stopped. Whether you can pin that entirely on the new build policy or whether it is delays to the RHI, who knows? What we do know is that both are a significant factor, and what is hurting the market in the very short term is those that had a healthy new build market and were building supply chain capability on the back of a fairly firm policy on new build have now had their confidence dented quite seriously as to whether the Government is serious about residential renewable heat at all, taking those two things together.

Q9 Barry Gardiner: Chair, you have covered some of the ground I wanted to go over, but looking at the January 2013 Ofgem report, it is showing that 95% of the deployed phase 1 capacity comes from biomass, and ground source heat pumps is less than 1%. Do you attribute that solely to a distortion of the market through discriminatory tariff, or are there other things, such as that people do not like to have their gardens dug up?

Simon Lomax: Bear in mind that those figures relate to the commercial market where most ground source installations feature boreholes and don’t really impact on a residential area. We have another problem besides what we believe are unfair tariffs that have distorted the market. The best application for a ground source heat pump is one where it also provides some cooling, so it has the ability to heat in the winter and cool in the summer, or potentially heat and cool simultaneously. There appears to have been an error during the policy development that effectively excluded heat pumps that offer heating and cooling. All the evidence that we provided prior to the launch of the RHI was based on heating and cooling systems because that is what the market was buying, and since the launch of the commercial RHI, we were told that those systems weren’t eligible. There has been a short-term fix implemented, inspired by the industry, which was desperate. DECC has promised us a more long-term solution, but of course market confidence has been shaken because for a year there was no way we could present the best application of our technology to any customer.

Q10 Barry Gardiner: Is that the section of the Ofgem report that talks about an announcement on ground source heat pumps: "In December we announced the adoption of an industry-proposed approach to provide an additional method for ground source heating and cooling systems to be supported under the scheme"?

Simon Lomax: That is the interim measure. We have been told that there is a more sophisticated solution in progress.

Q11 Barry Gardiner: So you are saying this is a spot fix, in response to the industry, and Ofgem has now implemented that?

Simon Lomax: It has.

Q12 Barry Gardiner: You are hoping that there will be a better, more long-term solution?

Simon Lomax: We do expect that. The difficulty the industry faces is the long gestation period, because most of these projects start with an energy strategy and if a decision is to go with a certain technology at that point, that decision is made. Even if we can get back to a point where we are competitive with biomass, we will still wait for a long period for those projects to mature to the point that they give us orders, invoices and cash. So the industry is facing a very difficult future year.

Dave Sowden: Could I just add to that point?

Barry Gardiner: Please, yes.

Dave Sowden: Here is a report that has been published by the Department this month-March 2013. I don’t have the Ofgem statistics that you have to hand there, Mr Gardiner, but there is a table in here that has a number of applications and accreditations.

Q13 Barry Gardiner: Sorry, which is the report?

Dave Sowden: It is the Renewable Heat Incentive and Renewable Heat Premium Payments Quarterly Statistics, published by DECC in March.

Tim Minett: Thursday or Friday last week.

Dave Sowden: It was late last week.

Barry Gardiner: I don’t think I have that.

Dave Sowden: I am happy to send the Committee a copy afterwards.

Just to pull one relevant statistic out of here, accredited installations by number: small solid biomass boiler 76%; small water or ground source heat pump 4%; large solid biomass boiler-that is greater than 1,000 kW-1%. Given that the impact assessment that underpins the commercial RHI flags up that, in terms of pounds per unit of renewable energy delivered, large-scale biomass is the most cost-effective way of meeting the renewable heat target, clearly we have something not quite right there in terms of the actual levels of deployment, and of course the same is true for ground source heat pumps. Fundamentally, that is about the tariff levels not being calibrated correctly to the underlying cost basis, and so in that sense we very much welcome that DECC-

Q14 Barry Gardiner: Which page did you say it was?

Dave Sowden: It is table 1.1 on page 3 of that publication. From that point of view, we very much welcome DECC’s recent announcement to bring forward by one year the comprehensive review of the non-residential tariffs. I think some people-particularly the gentleman to my right-would like that to happen quicker, and the Government have certainly hinted at an increase in the ground source heat pumps tariff, which would be welcome. However, this is an example of where we need flexibility within the scheme to calibrate tariffs upwards when we are not getting deployment at the right levels, as well as keeping costs under control with downward degression.

Q15 Barry Gardiner: DECC came forward in February with its proposals for cost control, didn’t it? To what extent are those new plans going to ensure that the market will be competitive for all renewable technologies that are eligible under the RHI?

Tim Minett: The overall point here is that although small biomass is the fastest growing or the fastest of the deployments, current deployment under the scheme as a whole is extremely low. The Government’s target for 2020 is 72 million megawatt hours. We have installed 300,000. After 18 months we are half a per cent deployed. All the tariffs need to go up for everybody to be straightforward about it. We have particularly put forward cases actually to increase the tariffs-in line with what Dave has just said-on large and medium biomass, because the one part of the policy that shows some signs of working is small biomass. There is some interest and there are reasonable returns around small biomass. Dave is exactly right, if large biomass were to be incentivised at sort of 2.5p, as opposed to the 1p it is now, the Government would be getting excellent value for money, compared with the 8.3p for small biomass. Surely this makes sense. With the current 1p rate above a megawatt, you have eight installations to date in 18 months-eight installations above a megawatt. That is eight hospitals or something. These major installations can be very significant. They can be hospitals coming off oil going on to pellet. This is the way really to drive the RHI forward and get installations of size and real substantial renewables into the market, but it just isn’t happening at the current tariff level.

Q16 Barry Gardiner: Is that the perverse incentive that you spoke of in your submission?

Tim Minett: I have put two in the submission. One is to increase the tariff for the large biomass and one is to put an extra band in between 200 and 500 kilowatt hours, which is, say, a small office block, because in that area of the market at the current 5p, you don’t get suitable returns. There are no real installations occurring in that range. Those are the two tariff proposals that we have made.

Dave Sowden: If I could just come back to your original question and then come on to the subsequent one you asked about the perverse incentive. I think your question was whether the degression mechanism would provide for a more balanced-

Q17 Barry Gardiner: I think we are going to come on to the degression mechanism. I don’t want to cut you off but, equally, I don’t want to cut across one of my colleagues who I know wants to probe you on that a bit further.

Dave Sowden: Okay. It is the tariff levels rather than the degression mechanism that is the problem in today’s non-residential market. It is only working for small-scale biomass. It is not working for pretty much anything else, and that is why we think there is an urgency about this tariff review that has been brought forward.

Simon Lomax: Just to provide a little background, if I may, these tariffs were based on data prepared for DECC back in 2009, so you could argue that it is not fully up to date. You could argue that it wasn’t peer reviewed especially well by DECC at the time, and it did therefore request some additional evidence to be gathered last autumn. It has had that information now since around Christmas time. I recognise that markets will always move faster than the Government, but we do need them to try to catch up a little here because we are now being told that they have that information and have worked with it for several months, but they are still perhaps not in a position to release any announcements to a market that is screaming for some certainty.

Q18 Barry Gardiner: If you don’t get the level of tariff rise that you are calling for, what is going to happen in terms of Government targets? Where are we going to be by 2020?

Dave Sowden: I think the Government seriously risks jeopardising its ability to meet the heating component of the renewables target. At the moment, the overall renewable energy target of 15% within the context of the EU directive is delivered through, in this context, 12% renewable heat. If we don’t get some greater levels of deployment in a more balanced way across the technology-I am not knocking the success of small-scale biomass; I think that is doing well and it should carry on doing well-what we need to do is to look at the generosity of the tariffs and the incentive property of those tariffs for the other technologies, and if we don’t do that soon, we do believe that the Government risk jeopardising their ability to meet the renewable heat target.

Q19 Barry Gardiner: You said that 12% of that 15% by 2020 is supposed to be coming from renewable heat.

Dave Sowden: Not quite.

Tim Minett: It is 12% of the entire heating market that is supposed to go renewable. The 72 million megawatts is almost a third of our entire renewables target.

Q20 Barry Gardiner: Yes, it is 5% of the 15%-a third of 15%.

Tim Minett: Yes, you are correct.

Dave Sowden: It is a bit higher in electricity actually, but electricity is I think-

Q21 Barry Gardiner: What I am trying to get from you is the percentage that you think will be achieved versus the percentage that the Government want to be achieved by 2020, if you don’t get the rise in tariffs that you are asking for.

Tim Minett: You are deploying at 0.5% at the moment. I don’t think you will get much above 20% of where you want to get to, in all honesty. That is an estimate and no more than that, but you are going to be a long way away.

Dave Sowden: I can’t answer the question in volume terms, but we would be happy to take that question away and respond to you in writing. What I can let you have, which is part of the way there, is a spending analysis we have done up until 2020. The data sources for this are a combination of industry intelligence, published data from Ofgem, consultants reports and so on. This is our own modelling and judgment, but our estimate is that if we carry on at the current rate, using the deployment levels that DECC included in its impact assessment, the total spend-and this is discounted at Treasury discount rates-between now and 2020 would be just over £660 million. That would be the spend between now and 2020.

Just to put that in context for the Committee, the RHI budget for this spending review period, which is due to finish in April 2015, is £860 million. So, on the basis of DECC’s own uptake forecasts and our analysis of the tariff levels and the cost that that incurs for the taxpayer, across this and the next spending review period, we will spend less than the budget that is allocated up until the first half of the decade, so we are undershooting by a very long margin.

Simon Lomax: There is another interesting table in the impact assessment that was released with the commercial RHI in late 2011 and it shows the projected split by technology. That has heat pumps taking 36% deployment. Obviously we are not close to that. If we can’t improve our situation very quickly, the ground source heat pump market in this country will cease to exist. Three of the four largest installers have gone out of business in the last two years. The largest survives only via the generosity of its shareholders. Its trading losses have been over £6.5 million in the last two years. So we are at a real risk here of losing a sector that before the RHI was considered was vibrant. It is a horrid outcome. Kensa has been going for 13 years. We have not been a late opportunist arriving to take advantage of subsidy. We have made money for 12 of those 13 years. We are very, very vulnerable. I say that in a public audience here. We are astonishingly vulnerable, because there is no deployment in our market.

Dave Sowden: A further statistic, if I may. The Committee on Climate Change, in the analysis that it used to underpin its recommendations to Government and to Parliament for the fourth carbon budget, said that if we are to meet the fourth carbon budget, which covers the period to 2027, we need to have installed in this context-I am just picking one technology here-around 600,000 heat pumps by 2020. In DECC’s impact assessment, published in September alongside the RHI consultation, the total number of renewable heating installations it projected as being installed by 2020 was 350,000. That is way out of kilter with what the Climate Change Committee says we need to be doing to be meeting what are-you need no reminding-legally binding carbon targets under the Climate Change Act. The RHI is, of course, positioned on renewable heat delivery rather than carbon, but none the less it is deploying technologies that help meet the carbon budget.

Q22 Barry Gardiner: Can I ask you one final, brief question? Mr Sowden, in the submission you gave to the Committee, you argued that the proposal from DECC in September 2012 "Created a perverse incentive for consumers to install less efficient heat pumps". Can you clarify for the Committee how that has actually happened?

Dave Sowden: At the risk of getting too technical, the way you drive up the performance of a heat pump system is performance in situ. It is not the heat pump engine itself. They are all accredited and perform under fixed operating conditions through their factory testing. It is the way you apply a heat pump. It is the rest of the heating system. In particular, with air source heat pumps it is important that you have a low temperature heat delivery system, so gas boilers, for example, work at 80°C. You touch a radiator from a gas boiler and it is quite hot. With a heat pump, the radiators are cooler, but they have a greater surface area so they can still impart the same amount of heat, even though they are running at a lower temperature. So in order to make a heat pump work efficiently, you need to make changes to the rest of the heating system.

When we put this evidence submission together, the data that we had available suggested that the higher you drive the performance of a retrofit heating system, the more costly the changes are that you make, particularly if you have to get into under-floor heating or fan-assisted radiators, and that the RHI payments and the increase in energy savings that you get from that higher performing system are not sufficient to cover the extra costs of driving the performance up, so you would get a perverse incentive to drive performance down. We were sufficiently concerned at that conclusion, because it would fundamentally affect the design construct of the residential tariffs, that we took a much closer look at the data. We went back to industry and challenged some of the assumptions that were being made. We still draw that conclusion for very high performing systems, where you need these smart radiators, which are quite expensive at the moment, to get decent improvements in performance-to go, say, from the minimum seasonal performance factor of 2.5 up to 33.5-that perverse incentive does not exist in that reasonable range. So we have better data now than we had when we put this submission in, and I am happy to put a supplementary in. It is only that last sort of performance where that perverse incentive exists. We should get decent performing systems, not quite that good but pretty good, with an increasing incentive to increase performance.

Q23 Barry Gardiner: Is there a way in which the regulatory framework could overcome that problem?

Dave Sowden: The reason we did that was because we were concerned that if you applied a flat tariff, you would encourage a race to the bottom. We are no longer of that view.

Simon Lomax: There is a much more fundamental point here. As I mentioned earlier, the tariff currently effectively rewards the least efficient technologies, the argument being that if they are less efficient, the running cost savings will be more modest. If the running cost savings are more modest, the tariff has to go up to deliver the rate of return necessary to trigger deployment. So right now, the logic of the tariff calculator is to reward the least efficient technologies. We have been making this point to DECC for many, many years, because the tariff calculator has been in existence since 2009 and, for whatever reason, it seems unwilling to agree that its logic is a little odd, although right now the least efficient technologies get the higher tariff because the running cost savings are modest.

Q24 Barry Gardiner: Which are those technologies?

Simon Lomax: Air source heat pumps.

Q25 Dr Whitehead: Mr Lomax, can I come back to a point you raised a little earlier? You mentioned that the ground source heat pump market was fairly vibrant prior to RHI being introduced. That was not on the basis of no incentives though, was it? It was based on-

Simon Lomax: There are some interesting statistics that I can share with the Committee. Prior to the RHI there was the low-carbon buildings programme, and if you look at the technology split there, although the building subset within the LCBP was quite small, biomass and ground source had a similar share of the market. We were also supported by the carbon emission reduction target obligation, and 6,000 ground source heat pumps were delivered via that programme. Of course, because the RHI was promised to us back in March 2011, we were eased out of CERT before that programme closed and we haven’t found any way of using the ECO to support ourselves in the absence of the RHI. So we are in a fairly desperate situation now where we don’t have any support from anywhere to sustain an industry that was delivering 4,500 heat pump installations in 2009 and fewer than 3,000 last year.

Q26 Dr Whitehead: The low-carbon buildings programme was a straightforward grant for installation, wasn’t it?

Simon Lomax: It was a straightforward grant as long as you met a couple of fairly straightforward qualifying conditions.

Q27 Dr Whitehead: Yes. That was then discontinued on the promise of the RHI, effectively.

Simon Lomax: It was discontinued almost immediately after the coalition came to power. That was in 2010, on the basis that the RHI was scheduled for launch in March 2011.

Q28 Dr Whitehead: Particularly as far as domestic RHI, for example, is concerned-we will perhaps talk about that in more detail later on-you certainly could say, I guess, that there were a number of supporting incentives, not necessarily the best incentives but those were discontinued on the basis of the promise of an RHI and, certainly as far as domestic is concerned, they remain completely unsupported.

Simon Lomax: That is not strictly true because there is this interim RHPP policy that is provided-

Q29 Dr Whitehead: Which is a bit like the low-carbon buildings programme, isn’t it?

Simon Lomax: That has not therefore greatly affected the single dwelling market, but it is the inability really to get much volume through social housing, because the RHPP social housing competitions have been skewed very heavily towards single technology as well, and sadly that isn’t ours either. So we feel a little hard done by because there has been intent, but the outcomes have not met the intentions.

Q30 Dr Whitehead: What I wanted to find out was whether your view-or indeed the view of anybody on the panel-is that some sort of continuity of incentive, whether or not that might have been the best incentive, might have created rather different outcomes than the one we have at the moment.

Tim Minett: Certainly from where we are now, continuity and stability are exactly what we need, yes. We need to act quickly on the tariffs, move them to a position and then settle all these industries and give them a settled run, because confidence has been knocked. I know confidence has been knocked inside DECC by-

Q31 Barry Gardiner: That goes against what you have just told the Committee now about having a tariff rate that can go up as well as down. In fairness, I think it was Mr Lomax who said that. Although you said that, given that you are competing against a fossil fuel market where prices fluctuate, what you wanted was for the tariff rate in the future to be able to go up and down to reflect a differential between them. So you can’t have certainty on the one hand and be calling for variability on the other. I think you nodded at the time.

Tim Minett: What I am asking for, I think, is certainty on a broader basis. We have had a change from upfront grants to the RHI. To be straightforward about it, RHI has had quite a mixed start. It is not deploying quickly, and then we introduce the whole degression argument when we don’t need degression at all at the moment. We need action; we need tariffs. Yes, I agree degression will come in. I think degression is the right topic, and I know you are going to come back to that, but when I am saying "clarity", I am talking on a broader base than just the tariff level, I think.

Chair: We had better bring Christopher in because he does want to speak about degression, since that is-

Q32 Christopher Pincher: It sounds very painful, doesn’t it, Chair? You all seem to agree that the tariff calculator is a problem. Is that correct?

Tim Minett: Yes.

Dave Sowden: No, I don’t agree that the tariff calculator is a problem. The principles on which it is founded, which is that you reward the extra costs of a renewable heating system over and above that of its fossil fuel counter-factual, is absolutely the right incentive to drive uptake of renewable heat in both the commercial and the residential sector. I think where Simon and I perhaps have a difference of view is where you set these tariffs ex-ante, because you are considering a range of technologies, Simon’s observation is that you then run the risk of providing the least cost-effective means of producing renewable heat to the most expensive technologies. That observation is correct, so I agree with it. I do not agree that it shouldn’t be done because I think it is important that you use schemes like the RHI to help these technologies down their cost curve quicker than otherwise would be the case and accelerate the point at which you can start to regulate them into existence. For example, in 2005, there was a change to the building regulations that required any replacement gas boiler to be a high efficiency boiler, and in one fell swoop the Government completely transformed the market for high-efficiency gas boilers. In one year the market share for high efficiency boilers went from 17% to 87%.

We think that that in the longer term is the right solution for renewable heating systems, but not today. Renewable heating systems are that much more expensive today than their fossil fuel counter-factuals and the shock that would introduce to the economy would be politically unacceptable. So we should be using schemes like the RHI to bring forward a range of technologies, to get them started on their early mass market deployment curves, to get them some way down the cost curve, and then to regulate them into the mass market, which is exactly what we did very successfully with gas boilers.

Tim Minett: Just to come in, that is my point exactly. The structure they have I am absolutely with. It is usually the numbers that are being fed in, in terms of capital costs and so on, where the tariff issues are coming from. I don’t disagree with the structure. It needs tweaking and some more up-to-date data.

Simon Lomax: I think there is another fundamental flaw with the tariff calculator. If the income stream from the RHI and the running cost savings are not received by the same entity, you can have real issues. In many cases, such as landlord-tenant scenarios, those two benefits accrue to different entities. Therefore, one of the reasons I believe that biomass is outperforming ground source heat pumps right now is that it is an appealing choice for landlords, because it has a relatively low capital cost, and it has a less appealing outcome for tenants because the cost per kilowatt hour is higher. However, the person making the decision is the landlord and he is the person receiving the RHI benefit. That RHI benefit reflects the higher cost of running that technology. It is a fundamental flaw with the way they have set this up. They have set far too much on principles that they use for the feed-in tariffs, which just produce a simple output. There are also issues around landlord and tenants with feed-in tariffs, but for the renewable heat incentive, if the two benefits do not go to the same entity, you have all sorts of odd outcomes, and that is what we are seeing right now.

Q33 Christopher Pincher: Right, so there is disagreement about whether the tax calculator works.

Tim Minett: There is, yes. From our point of view, I am not seeing many installations where the occupier and the user are separate, and I am seeing an awful lot of installations where that is one and the same person. So I don’t-

Simon Lomax: However, Tim, presumably if it isn’t one and the same person, it is a problem.

Tim Minett: It is not a sector I have dealt with massively. If you look, at the moment pellets are circa 20% cheaper on an energy-for-energy basis than oil, so the user still has some benefit if that is all passed on. So I think I will have to sit on that.

Dave Sowden: There is a more general observation that I think your question prompts, which is that we need to get this started. We need to give it a go. This is not feed-in tariffs; this is not solar PV. A renewable heating system in somebody’s house is a fundamentally intrusive thing to do. People don’t rip out perfectly well functioning heating systems and replace them because of a marginal incentive on the difference between a fossil fuel system and a renewable heating system.

The other thing that is worth pulling out as a key fact is that the tariffs are calibrated in the off-gas grid market, so the tariffs are not trying to be competitive with gas-fired fossil fuel heating systems, at least not initially. That market today sells just under 100,000 oil and LPG boilers combined. So let’s just say this scheme is a roaring success in the next two to four years. A roaring success, I would view, as taking a 25% market share as a new entrant perhaps in that period. Just to put that in context, that is 22,000 to 25,000 installations a year, and when you compute the budgetary draw that that takes from the RHI budget, it really is peanuts. That is in a context of-just some figures from last year-£25 million total RHI expenditure for 2012-13, with a £60 million trigger point for degression, against a £70 million budget cap. The original budget was over £130 million. We are predicting a £55 million underspend. So this is a scheme that is not running away. It is a fundamentally different market to the one that caused all the concerns about cost control, which is what happened with solar PV, and the dynamics are very different indeed. We can afford to get this a little bit wrong to start with, provided we have the control mechanisms in place to pull it back if it is not performing as expected, and that is where we come on to the degression mechanism.

Tim Minett: I fundamentally totally agree we have to be careful that we are not fiddling about in the detail when we are a mile away from all the deployment, and I think with the degression mechanism in place it is extremely robust. We can afford to be slightly optimistic-aggressive with the tariffs and get this scheme going and get deployment moving, and then degression, which I know you want to talk about, will bring it back into line.

Q34 Christopher Pincher: You say there is a problem with the calculator. Perhaps you take different views as to what the problem is. You clearly take the view that the tariffs are not sufficient to encourage the deployment that is required even to meet the triggers to start degression. On the trigger point, do you think that they are set at the right level, such that the industry has confidence that it can grow to the point it needs to grow to before degression kicks in and the tariffs start to be reduced?

Tim Minett: I did not agree at all with the original degression proposal. I felt that you were in danger of having one or two technologies that take off and get degressed, when in fact the rest of the scheme is under-utilised. That would seem to me to be a wrong outcome in terms of overall achieving the objectives. The recent announcement from DECC, whereby it is going to allow technologies to get to 150% of their trigger point and the scheme to be up to 50% used before degression is automatically brought in, goes a long way to fixing a lot of my concerns, I think. Ultimately I would prefer to see that degression only really kicking in when the whole fund, or a large part of the fund, is really being utilised, because otherwise you are in danger of trying to pick winners when the market is already driving forwards in one area and not in others.

Q35 Christopher Pincher: That is what effectively happens, isn’t it, because you have that overarching trigger point as well as the individual technology trigger points within it?

Tim Minett: Yes. Now with the late arrangement that is what they have gone to.

Dave Sowden: I very much support what Tim has just said. We are quite welcoming of the degression proposals. We think they have learned the lessons from feed-in tariffs. It is a much more intelligent system. We would perhaps like to see a little more flexibility in upward adjustment of tariffs, as we have already talked about, rather than just pre-programmed downward degressions. Any upward adjustment of tariffs has to be a much deeper sort of root and branch review of the cost base, rather than being something automatic that is linked to deployment.

It is important to bear in mind that those degression proposals-well, they are not proposals; they are a policy now-that were published about two weeks ago apply only to the non-residential sector, so we don’t know what the domestic RHI looks like yet, let alone what its degression mechanism is going to be. These are only for those that have a tariff now, which is non-domestic.

Q36 Christopher Pincher: The trigger points for reduction are set across the board, and then the reductions of the tariff are also set across the board. Do you think that is the right approach, or should you have different sets of reduction figures for different types of technologies?

Dave Sowden: Well, they have. There is a table published that looks like this. It is an annexe to the Government’s publication on the non-domestic degression mechanism, and it is based on committed cost. So it is the tariff triggers in millions of pounds that is used to determine whether tariff reductions are required. Combined with Ofgem’s near to real-time publication of the liabilities that are being incurred, that does allow industry to track things quite closely, with one quite important caveat, and we touch on this in our submission. There is something that was under consideration called enhanced preliminary accreditation, which sounds awfully technical, but is actually quite simple. If you are building a large renewable heat project, you have a long lead time on that, especially if it is a large scale biomass installation. You have to get your contracts in place, you need to obtain planning permission and there may be local community issues that need resolving. If you have a lead time of two years hence and your financials stack up on the basis of one tariff, but you have sufficient uncertainty in the period between you closing the financials on that project and the project coming to fruition, you run the risk that you may have gone through one or more degression points that then undermine your original financial case.

We think the solution to that is some sort of enhanced preliminary accreditation where you comply with certain compliance criteria-we don’t know precisely what those are at the moment-and that allows you to lock in the tariff that you are entitled to, even if the project takes two years to commission. The inability to do that creates investor uncertainty in these large projects, which DECC’s own assessment says are actually the most cost-effective way to deliver renewable heat. DECC has said that that is on the "too difficult" pile for now and it is going to review in the summer what it might do.

Tim Minett: I am totally in agreement. Obviously it is going to be an administration issue to get that to work, but if you are going to put in a major biomass project or a major project of any description for heating a hospital, you have to be able to lock into a tariff and be certain that the economics that you worked up very carefully are going to be there for you.

Q37 Christopher Pincher: Presumably an EPA isn’t just going to encourage investor confidence; it is going to encourage consumer confidence that what they have seen advertised, and the cost of what they have seen advertised, is what they end up having to buy.

Tim Minett: Yes, I think that-

Simon Lomax: However, Mr Pincher, please remember that the consumer is always looking at the prevailing price of his existing system. If the overall premise of the RHI is to give a certain rate of return and if we potentially degress tariffs at a time when oil prices are falling, the rate of return drops to the point where there will be no deployment. So I still maintain that degression is not an effective way to control a market, because you are ignoring one key variable that drives consumer interests: the price of their existing heating system.

Q38 Christopher Pincher: The mechanism is there to do a number of things, isn’t it? It is to encourage the investor community to deploy. It is to encourage the consumer to buy, but also to ensure that the taxpayer gets value for money. You have to balance that particular-

Simon Lomax: You won’t get taxpayer value if the price of oil increases, which DECC’s own projections suggest it will, and you don’t take that opportunity to reduce tariff.

Dave Sowden: I think the priority order in which you have listed those objectives is probably reversed. If you are an accounting officer in DECC or you sit in the Treasury, it is primarily about cost control and not risking an overspend in the first instance.

Chair: Time is running short, so could we have slightly quicker answers?

Q39 John Robertson: We will ask shorter questions. RHI is not designed to tackle fuel poverty, but there may be opportunities to utilise it in tackling fuel poverty. In what ways could domestic RHI be utilised to help to tackle fuel poverty?

Dave Sowden: We see the RHI fuel-poverty opportunity as something that is a little longer term, in that you still have to overcome a capital cost issue if you are fuel-poor. If you are fuel-poor and your heating system breaks, you are in trouble because you are struggling to pay the revenue costs of your bills, let alone fund the capital of a new heating system. In the longer term, the reason I say it will help is because, as we close the gap between the price of a renewable heating system and its fossil fuel alternative, clearly the whole of society will benefit from that price fall, and that includes the fuel-poor. Fundamentally, the RHI-supported technologies operate in the market for boiler replacements, and we need to bear that in mind. It is not the market for renewable heating replacements; it is the market for residential heating. The introduction of the green deal into the boiler market, in particular, means that customers are now able to offset part of that upfront cost against their bills. The reason that does not really help you if you are in fuel poverty is because if you are using part of or all of the energy efficiency saving to pay for your new boiler, your bill doesn’t actually go down, so it doesn’t help you to get out of fuel poverty.

Q40 John Robertson: Who is RHI going to work with-green deal and ECO? How is it going to work?

Dave Sowden: Primarily in the able-to-pay sector, or through third-party finance models.

Q41 John Robertson: So basically it won’t help fuel poverty, then.

Dave Sowden: Not in the first instance. I think we see the fuel poverty opportunity coming down the line because the RHI will have helped put downward pressure on the cost of renewable heating systems.

Q42 John Robertson: Do you think DECC should introduce a designated tariff for social housing landlords?

Dave Sowden: We do think that is the case, but for a different reason. I think it is important just to remind everybody that the majority of the fuel-poor own their own homes. Fuel poverty is not as prevalent in social housing as it is in the owner-occupied sector. In the social housing sector-and I know Simon disagrees with our position on this-our experience is that the delivery cost is lower because your sales and marketing overheads are lower-you are selling 1,000 systems to one decision maker, not 1,000 systems to 1,000 decision makers. You can build scale economy in installation. Our view is that in social housing a tariff should indeed apply, but it should be set at 90% of the tariff that applies in the private sector. That is consistent with the policy that exists already for feed-in tariffs.

Simon Lomax: Can I just make a technology-specific point, and this is one of the challenges with a policy that is looking to cover quite a diverse range of technologies? For a ground source heat pump system, we can either have our pipework laid in some horizontal trenches, if your garden is large enough-and that is a low-cost way of extracting the energy from the ground-or in a social property our only option is to drill down. For our technology, a social house is a more expensive installation than a large rural property with its own grounds, and therefore a 90% payment of the tariff would not work for us. It is an example of where DECC has to be a little imaginative and have different rules for different technologies, if that makes sense and is fair enough.

Q43 John Robertson: The Government are making a statement at 12.30pm today. We think it is going to announce the delay of the RHI domestically. How do you feel about that?

Simon Lomax: I think that it is going to put the Government in an awkward position. It is going to put the 2020 targets under threat but, closer to home, if there is to be a delay, it threatens jobs and businesses that have been very patiently awaiting the RHI.

Dave Sowden: I would like to echo that. I think the announcement of a delay is unhelpful. It is a further knock in confidence about whether the Government are really serious about renewable heat deployment. The counter-balance to that is that this is a very hard policy to get right, so if it is going to be delayed, I think we would understand the reasons why. I think it is very important that the Government accompany any announcement on delay with what they are going to do in the interim. Simon has already mentioned the renewable heat premium payment scheme, which looks very similar to the low-carbon buildings programme that we talked about earlier. It is a grant scheme. The money for that runs out on 31 March-this coming weekend-so if we do not get an announcement before 31 March that gives certainty over what the tariff levels are going to be for the domestic RHI, any customer who was thinking of installing a renewable heating system will not do so until they get such an announcement, or until some sort of bridging arrangement is announced, and that would be a disaster for our supply chain and for our industry. Cash flow just dries up overnight when that happens.

Tim Minett: I agree with the two statements. If they are going to delay the domestic, I think they need to come forward very quickly with this review of tariffs in the non-domestic, because the industry needs something and you need to cheer up the non-domestic, if you are not going to go forward with the domestic.

Q44 John Robertson: If we are right, and my reliable informant usually is, do you think the Government are serious?

Dave Sowden: I think the Minister responsible for this is very serious and very enthusiastic about it. I think he has a very dedicated team of civil servants who are also working as hard as they can to get this policy in place. I think it is beset by difficulties interdepartmentally, particularly with CLG. We have already talked about the zero-carbon homes policy. House builders, in particular, would like to see their deployment of renewable heating technologies subsidised rather than regulated. That has been a significant force. The Treasury always has a good eye on value for money, so I think there are-

John Robertson: It is funny how the Treasury always keeps a good eye.

Dave Sowden: There are interdepartmental reasons and pressures that I think are slowing things down, but I do think the DECC team is pretty committed to making it happen.

Tim Minett: In all my contacts with DECC, I have seen no evidence that it is not serious but, as we have said throughout the meeting, it needs to be delivered.

Q45 Dr Whitehead: What lessons do you think can be learned from the experience of RHPP? Let us say hypothetically that there is an announcement today. Would you think that some sort of continuation of RHPP or refunding of RHPP, bearing in mind the enormous underspend there is on the programme at the moment, might be an interim way forward?

Dave Sowden: I think it is the only thing that, frankly, could be implemented at such short notice. We have less than a week before the industry’s order books start to dry up because there is no policy support at all. Worse still, there is an expectation of a policy that you do not know the details of. In some senses, it is better not to have a policy that you are expecting than to have one that you are expecting but is not bankable. Then people will judge that they can install on the basis of the economics as they stand without a subsidy, whereas if you know a subsidy is coming, you will always tend to wait until you know the details of that before you take the decision. That is really bad for industry.

Tim Minett: I think the RHPP is absolutely no substitute at all for a properly constructed and launched RHI.

Dave Sowden: However, it is all we have at the moment.

Tim Minett: I agree.

Dave Sowden: Therefore, not to have something in the interregnum between now and the announcement of the full details of a proper RHI would be disastrous for the industry.

Simon Lomax: We do not have full-year figures for the current year, but it would appear that the uptake of RHPP vouchers is falling year on year. I think that is because there is less confidence among the public that the RHI will be delivered. Those who can hesitate are choosing to do so because they do not want to fall outside any eligibility conditions that might be introduced. The only people moving forward are the people building a new home who would have put in a renewable heating system anyway. It is incentivising no one and it is making a modest reward to a few.

Q46 Dr Whitehead: You could make RHPP compatible with a move into tariffs, couldn’t you?

Dave Sowden: I think the signals that have been coming from the Department are consistent with that, in that it has been saying that having an RHPP does not preclude you from having an RHI, albeit you will probably have your RHPP deducted from your RHI payments and not receive a double subsidy. I think it probably has to do that to get the state aids clearance, frankly.

Chair: Thank you very much for your evidence. It has been most helpful. There are some things you have said you are going to send us. If there is anything else you think would have helped and you have forgotten to get across, we are happy to receive that information. Thanks again for your evidence.

Examination of Witness

Witness: Pippa Read, Policy Leader, Sustainable Environments, National Housing Federation, gave evidence.

Q47 Chair: Thank you very much for agreeing to give evidence to us on this inquiry into the renewable heat incentive. Maybe I could start on the fact that social landlords are eligible for the renewable heat premium payment scheme through the social landlords competition. What were your members’ experiences of that?

Pippa Read: I think we have reached a point with RHPP where we have a fair number of our members involved. I should say that I am here from the National Housing Federation, which is the trade body for housing associations. We have about 1,200 members and they have about 2.5 million homes that house around 5 million people. Currently just over 100 social landlords are involved in RHPP and we have worked with DECC to improve RHPP. We have got to the position where the scheme is better publicised, the criteria are a bit more open and the time scales are a little bit better. I think there was a fairly slow start on involvement with the sector, because initially schemes had to be quite oven-ready to get going, but we have worked quite closely with DECC in order better to publicise the scheme to our members and get, as I say, more than 100 social landlords involved. I think it is too early to say much in terms of the experience of things like the technologies, but our members and DECC are closely monitoring that. I think RHPP and the involvement of social landlords shows the appetite for renewable heat in the sector.

Q48 Chair: Part of the idea was to get a perspective of how people actually lived with these technologies. Is it too early to get any feedback on how that experience has come about?

Pippa Read: I think housing associations are closely monitoring that and obviously the scheme involves quite a lot of engagement with residents in terms of getting consent to new technologies such as this and then how to use them appropriately. Resident engagement is something that housing associations do as a matter of course, but it is quite resource intensive. I think we will start to see some of the proper lessons around renewable heat from the social sector only as we move forward with RHPP, and hopefully with the RHI as well.

Q49 John Robertson: The questions I want to ask are on DECC’s case for not including social landlords. Do you agree with DECC’s analysis of why it does not want to include them?

Pippa Read: We would challenge the basis that the costs would automatically be less for social landlords. I realise that that was picked up towards the end of the last evidence session. DECC’s argument is that giving an incentive at the level of ordinary home owners would over-compensate social landlords because of things like economies of scale, which again was mentioned by previous witnesses. A lot of the schemes that have already taken place and are likely to take place, even if there is a designated tariff for social landlords, are quite small and quite dispersed, in rural areas for example, and economies of scale cannot always be achieved. Also, there are additional costs that social landlord schemes incur, for example things like EU procurements that social landlords are subject to, which adds a huge amount of cost to many schemes, and the resident engagement, which I have already talked about. Obviously if a home owner is coming forward, they are self-selecting, but getting renewable heat into housing associations and local authority properties has cost implications both in terms of acquiring consent, quite rightly, and then going forward in terms of how to use the technology and things like that. There are additional costs associated with social landlord schemes and not always the cost savings that might be assumed. We would contend that there should be a designated social housing tariff broadly equivalent to that being offered to home owners.

Q50 John Robertson: What we have seen in our inquiry is basically we do not have a concerted view on this. It would appear that to make the case that you are trying to make would be more than a little difficult for us. Why do you think that is?

Pippa Read: I think it is because renewable heat is fairly new. We have been working with DECC since the consultation came out to try to make it aware of some of the issues around this, such as the additional costs around things like EU procurement and resident engagement. However, because the schemes vary so much, it is very hard for us to be precise about what those additional costs are. I know DECC is worried about over-compensation, but we would contend that there is not enough evidence that there will be over-compensation and enough basis to offer a tariff that is substantially reduced. Because of that, we would argue that the evidence needs to be there before you can substantially reduce the tariff to social landlords.

Q51 John Robertson: Basically, what you are saying is it is cost, and Governments do not like money having to be parted with.

Pippa Read: I think DECC is quite rightly wary of over-compensation, but our argument would be that that is not the case because of those factors that I have mentioned. If you look at how it is proposing to roll out RHI to private landlords, it is a very similar relationship in terms of who bears the costs and who reaps the rewards.

Q52 John Robertson: I have a question on that in a minute, but just to concentrate on the bit we are at, do you think there is an appetite for social landlords to take part in renewable heat technologies?

Pippa Read: Oh, absolutely; definitely.

Q53 John Robertson: What evidence do you have of that?

Pippa Read: Housing associations have dramatically improved the energy efficiency of their properties, particularly over the last 10 years, building on things like the decent homes programme, through other programmes like CERT and CESP and through their own resources. They have done that primarily to reduce residents’ bills. Reducing residents’ fuel bills and tackling fuel poverty for low-income and vulnerable residents is the primary driver for housing associations in this area, even more so than carbon, although that is a factor. They have shown an appetite for renewable heat through RHPP and through other programmes that they are running, so there is definitely an appetite to continue work on the sustainability agenda that they have already done very successfully to reduce residents’ bills, and in particular to use renewable energy as well through renewable heat and also through things like solar PV. They have experience of those programmes as well. Absolutely, definitely reducing residents’ bills, which renewable heat can make a huge contribution to, particularly in off-gas grid areas-

Q54 John Robertson: Yes, we saw a very good project in Maryhill in Glasgow, in Cube Housing, and what they had done, but they had a lot of help from one of the energy companies to foot the bill. Financially, how are they going to get the money in these other areas where they are maybe not quite as big as this one and costs would be even greater? How are they going to manage to get involved?

Pippa Read: I think housing associations have a great history of contributing their own resources to schemes. I mentioned the decent homes programme, which was a multi-multi-million programme in terms of improving stock that came primarily from their own resources. Through RHPP, a lot of schemes have had housing association contribution in them as well. We just feel that RHI domestic for social landlords needs to be set at a level that does incentivise social landlords to do schemes, even if it requires some contribution from themselves, because there is so much call for their resources even in this area. As I say, they are doing things like energy efficiency. They are working with residents to better engage them about their energy use. There are resources there; it is just there is a huge call on them.

Q55 John Robertson: How does the RHI tariff for social landlords differ from the Government’s current proposals for domestic RHI?

Pippa Read: What the Government have proposed for social landlords is that they are minded to include them in some kind of domestic tariff, but they have not given specific proposals about what that would be. We feel that it should be broadly at the same level as homeowners at the moment, because there is not the evidence to discount it substantially at this stage. However, if you set it up as a separate designated tariff, there would be the opportunity to monitor it and to monitor uptake, and potentially to degress the tariff quicker if uptake was more dramatic than was initially envisaged. You could offer other features as well, such as pre-accreditation, which would be really important for the sector to get some kind of certainty of the tariffs that programmes were going to achieve. At the moment, the proposals for social landlords, to answer your questions, are very hazy-just that DECC is minded to include social landlords in a tariff.

Q56 John Robertson: If this announcement or this written statement comes about today and says it is going to be further delayed, how do you react to that?

Pippa Read: As I mentioned before, it has taken a little while to get the sector fully engaged in RHPP, and that is not for lack of appetite. That is a lot to do with how the scheme was initially envisaged and how it was put in place. We have just got to the stage where we have 100 social landlords actually involved in that. As I say, there is a huge appetite for renewable heat in the sector, particularly in those off-gas grid areas where residents would hugely benefit from a reduction in bills. I think it would be a great problem in building on the momentum that we are starting to see around renewable heat in the sector.

Q57 Chair: If they kept the RHPP going at least while they-

Pippa Read: Yes, I think that that would potentially offer a better transitional route if there was another RHPP social landlord competition that was properly devised and properly promoted with time scales and eligibility criteria. I would have to echo some of the comments from this morning. I do not think that that would in any way replace a properly designed and rolled-out RHI domestic scheme that includes social landlords, because such a scheme would have certainty into the long term. It would not be so intermittent and ad hoc, but an RHPP competition that could stimulate more schemes in the sector, that could again get that learning, that could get residents interacted, that could build momentum and that could give DECC some more basis on which to judge costs for social landlords, which it is concerned about, would be helpful.

Q58 Barry Gardiner: How would an RHI tariff for social landlords actually reduce fuel poverty?

Pippa Read: I think that there is a great deal of potential for RHI to reduce fuel poverty if social landlords are included because it would allow them to do schemes, as I mentioned, in these off-gas grid areas, in particular in rural communities, potentially in combination with other schemes that are out there, particularly, say, in combination with ECO. ECO solid wall could be used on rural off-gas grid properties to improve thermal efficiency and then RHI in terms of reducing bills for the actual heat source. Together that kind of holistic approach could have real opportunities. As was talked about before, if you are a fuel-poor household, you want to make savings now and need to make savings now. Therefore, if social landlords are included, it does offer the scope for that, because social landlords would be taking out the finance. They would be initially funding the scheme, which would be recouped through the RHI. Therefore a fuel-poor household that might not necessarily have access to that finance, or might not want to take on that burden, could do so. I think it would be really important to include social landlords to maximise the way that RHI can alleviate fuel poverty.

Q59 Barry Gardiner: You would see it working in tandem with ECO. What about green deal? Is that not going to be potentially imposing a burden of cost on the fuel-poor?

Pippa Read: I think that, speaking purely from a social landlord perspective, green deal does have opportunities. There are quite a number of housing associations who are looking at being green deal providers and looking at rolling out schemes on a neighbourhood basis in particular, but green deal in this sector does have its limitations. A lot of the cost-effective works to properties have been done through these programmes that I mentioned-decent homes, CERT, CESP and various others-with housing associations contributing from their own resources. As you mentioned, fuel-poor households want to make the savings now and housing associations are completely alive to that. Based on DECC’s own figures from 2010, there are 600,000 households who are fuel-poor in the sector, so it is certainly alive to the issues of fuel poverty. Although there are possibilities in the sector for using it in combination with green deal, in the short term, I see it as more likely and having more impact if it were used in combination with ECO.

Q60 Dr Whitehead: Could I be clear? You mentioned in your written evidence that there was no certainty, in your view, that a future RHI scheme, whether a domestic RHI scheme, and whether delayed or not, would include social landlords.

Pippa Read: DECC has said in its consultation that it is considering social landlords’ inclusion, but its proposals are very hazy in terms of how and at what level of tariff it is considering including social landlords. In the consultation, it clearly states that it is concerned about over-compensation if social landlords are given a tariff equivalent to home owners. We have been working with DECC since that came out to make it more familiar with some of the issues that we have mentioned, such as EU procurement and resident engagement, the fact that there might not necessarily be economies of scale, and the matter that was mentioned in the previous evidence session around how in some circumstances there can actually be additional costs because schemes are social landlord schemes. We understand that DECC is minded to include social landlords in the scheme in some form. We just feel strongly that the tariff needs to be broadly equivalent to that for home owners in order properly to incentivise housing associations and local authorities to include it in planned improvement programmes.

Q61 Dr Whitehead: When you say DECC is minded to include social landlords, is that because, as a result of you working with the Department on these various issues, it has pretty much given you an understanding that that is going to be the case, or do you hope it might?

Pippa Read: Well, we certainly hope it might. I think the consultation indicated that it believes that because of the comparable costs to alternative fossil fuels. If social landlords are going to create the kind of step change around renewable heating that we feel we can, and that DECC hopes we can as well, some incentive is needed, but it is just unclear at what level that is going to be. We have been given the same indications from conversations that we have had subsequently. There has not been any certainty of inclusion, or of inclusion at any level, but there have been positive conversations.

Q62 Dr Whitehead: If the implementation of domestic RHI is delayed, and presumably there might be some call for the continuation of RHPP as a result, would you envisage that including further competition?

Pippa Read: For social landlords?

Dr Whitehead: Yes.

Pippa Read: I would hope that it would, because we really think that social landlords can create a step change around renewable heat and that there is appetite out there. That has been shown by their response to particularly the latter stages of the competition thus far. It would be disappointing if there was another RHPP competition and social landlords were not included.

Q63 Dr Whitehead: If you did not have a competition and you did not have a dedicated RHI tariff for social landlords, what effect do you think that would have on deployment in the social housing sector?

Pippa Read: As I said, there is great appetite for renewable heat in the sector, and that has already been shown by involvement in RHPP and involvement in other schemes. However, consider the other draw on resources: not just draw on resources more broadly for housing associations, but particularly in the field of reducing residents’ bills and tackling fuel poverty, so tackling thermal efficiency and going further with that, and particularly engaging residents to help them better understand their energy use-the National Housing Federation is currently engaged in a project with five housing associations looking at how they can help to reduce residents’ bills by about 10% over a two-year period. That kind of engagement costs a lot. With that kind of draw on resources, you will not see the uptake in RHI that you would have seen in the sector without appropriate incentives because of the comparable costs of renewable heat in relation to other fossil fuels.

Q64 Dr Whitehead: In terms of your discussions with DECC and your observations, do you agree with a view put to us in one of our submissions that DECC simply lacks commercial experience of the renewable heating industry?

Pippa Read: I speak only from my experience with DECC in terms of its understanding of and relationship with social landlords, so I don’t feel I have enough experience of that kind of relationship to comment on that.

Q65 Dr Whitehead: You would not cast a view on whether, as we have heard from previous witnesses, the question of commercial understanding of the industry could be perhaps enhanced or improved. You have no view on that.

Pippa Read: It is a new industry and an understanding of lots of aspects of it could be furthered. As I say, we have been working with it so that it understands the financial aspects of social landlord schemes. You could assume that if social landlords are doing a scheme that involves multiple properties, equipment costs, because of economies of scale, will be cheaper-they may be in some instances-but that does not account for the fact that because those schemes are dispersed, labour costs might be very expensive. You might have to go through EU procurement. You will have to engage with those residents. I think the understanding of a scheme and products that are quite new could be enhanced across the board, not necessarily just in a commercial aspect, but in relation to social landlords, housing associations and the economics of their schemes as well.

Q66 Dr Whitehead: Can you give us a breakdown of the kind of technologies that social landlords have tended to deploy in terms of renewable heat?

Pippa Read: A variety. Air source heat pumps have been a particularly notable one, I think. Ground source heat pumps have also been used in some instances, and solar thermal and biomass as well. The schemes that have come online thus far have showed quite a variety and no particular preference. It very much depends on a scheme-by-scheme basis.

Q67 Dr Whitehead: I suppose it is early days, but how is feedback on the occupant’s lifestyle changes necessary to make best use of the technology, particularly with air source heat pumps, where you tend to not want to suddenly think, "Oh, I will turn the heating on just when I need it," but have it as a background?

Pippa Read: You are right, it is early days, and both DECC and housing associations are monitoring what is going on through RHPP, but I think broadly the experiences thus far have been positive. There have been some notable examples of poor performance of technologies, which I am sure everyone is aware of, but you are bound to have teething problems with really new technologies. I think broadly the benefits thus far have outweighed those problems, and in some instances where you are replacing oil boilers with renewable heat, the benefit in terms of bills has been significant.

Q68 Chair: Thank you very much for your evidence. That is most helpful and, again, if there is anything you think you wanted to get across that you did not, you can-

Pippa Read: Renewable heat has been called the sleeping giant and I think it does have huge potential. We think that the housing association sector in particular is really ready and able to help with that potential. Having what is essentially a boiler scrappage scheme focused on home owners will not deliver that kind of potential, and incentivising housing associations and local authorities to do renewable heat could really deliver. It could both reduce residents’ bills and significantly contribute towards carbon targets as well.

Chair: Thanks very much.

Examination of Witnesses

Witnesses: Jeremy Hawksley, Director General, OFTEC, Barry Gregory, Chairman, OFTEC, and Martyn Bridges, Vice Chairman, OFTEC, gave evidence.

Q69 Chair: Thanks very much for agreeing to come and give us evidence. For the record, could you give your names and relevant details?

Jeremy Hawksley: Thank you. My name is Jeremy Hawksley. I am Director General of OFTEC, Oil-Firing Technical Association.

Barry Gregory: I am Barry Gregory. I am the Chairman of OFTEC and Managing Director of Riello Burners.

Martyn Bridges: Good morning. I am Martyn Bridges. I am the Director of Marketing and Technical Support at Worcester Bosch Group and on 26 April I will become the Chairman of OFTEC as well.

Q70 Chair: We are taking evidence on the renewable heat incentive. I think the Government have decided that bioliquids should not be included, with their concern being that while that might make an improvement in the performance of that household, it would hold back the deployment of renewables. What impact do you think the use of bioliquids would have on the rest of the renewable heat market?

Jeremy Hawksley: If bioliquids were deployed, I think we could see a large number of the million households in Great Britain and the half a million in Northern Ireland that currently use oil gradually shift over to using bioliquids. We doubt that for these households, which are generally speaking rural households off the gas main, the preferred technologies-heat pumps and biomass-will be a viable option for them. We are not against the renewable heat incentive and we fully support the Government’s objectives of reducing carbon from heating buildings, but we think profoundly that the policies being adopted in the RHI in relation to these 1.5 million households is misguided. For these households, they need to have a bioliquid alternative.

Q71 Chair: What would the improvement in their emissions be?

Jeremy Hawksley: Approximately 25% lower emissions of CO2, but what I would like to stress to this Committee is we would see moving to a 30% biofuel-which is what we are putting in our submission to you today-as the first step. We would hope by the mid to late 2020s that we would be moving to 100% biofuel, but that is not technically possible at the moment.

Q72 Chair: Is that because of the burner technology or because of the qualities of the fuel?

Barry Gregory: Partly because of the burner technology and partly because of oil storage, at lower temperatures particularly. We need to understand what would be necessary in terms of oil tankage and the delivery to the burner, as well as the burner and the boiler.

Q73 Chair: What, in freezing conditions?

Barry Gregory: Exactly. We use kerosene as a heating oil and we have done extensive tests at 30% blend at low temperatures, and we have seen no adverse effect on oil storage at those percentage blends.

Q74 Chair: Do bioliquids have any other interaction with renewable heat technologies? I suppose you could incorporate solar thermal into the system.

Martyn Bridges: Yes, you could incorporate solar thermal. There is a small but growing trend of incorporating an air to water heat pump alongside a fossil fuel boiler. In the warmer periods when you still require central heating, however, such as the spring and the autumn-believe it or not, this is the spring-the air to water heat pump would do the role and only in the colder periods in the depths of winter would the boiler then kick in.

Q75 Chair: In terms of certification, bioliquids are not covered by the microgeneration certificate scheme. What would be needed to ensure that the bioliquids are actually sustainably sourced?

Jeremy Hawksley: What we have done at OFTEC is produced a specification for this B30K fuel, so a technical description of it. We have also produced a management procedure for the blending of the kerosene with the biofuel. In our discussions with DECC, we envisage that we would have a sustainability reporting scheme, such as is being used in the road transport industry at the moment, incorporated within this blending procedure. This would all have to be approved by DECC to ensure that we had biofuel from a sustainable source. We would not wish to do anything outwith current procedures.

Q76 Chair: What are the additional costs? How does it compare with 100% kerosene?

Jeremy Hawksley: We estimate that the extra cost is of the order of about 3p to 4p per litre. That is to cover the cost of the blending and the verification of the fuel. The actual cost of the biofuel, which you can buy at the moment on the spot market, is roughly similar to that of kerosene, so the crude oil price, which is the main determinant of the kerosene price, will still be the main indicator of the cost of the B30K fuel.

Q77 Chair: What about the fact that obviously the Government have a desire to get biofuels into transport? Would you be undermining that strategy by taking some of the resource?

Jeremy Hawksley: We profoundly disagree with what DECC has said in its consultation paper. We think that there is plenty of biofuel available and, indeed, the way the whole road transport industry has geared up to accommodate biofuel over the last few years-of which half of this is what is called used cooking oil, methyl ester, which is the same source that we have probably used for heating oil-shows that the industry can react, with the right signals, to produce quantities of sustainable fuel at the right price.

Q78 Barry Gardiner: You have argued that it would be more carbon efficient to use your own bioliquids rather than to adopt the ground source heat pumps and the like. In your submission, you said that was for off-gas areas. Does that mean that you agree that you do not generate the same carbon savings in non off-gas areas?

Jeremy Hawksley: In the submission we have taken a notional 116,000 households that, according to the Government’s impact assessment and also our own estimates, would be moved from oil heating at the moment to either air source heat pumps, ground source heat pumps or wood pellet boilers in 2020. Our modelling is based around that notional 116,000 households. The current situation is that where the gas main is at present, people are on gas.

Q79 Barry Gardiner: It is not a matter of the carbon savings in that area, it is just a matter of market penetration not being realistic because the storage facilities are not in place and it would be difficult for you to move into.

Jeremy Hawksley: Yes.

Q80 Barry Gardiner: So let’s take it on that basis. You have also said that biomass and in particular ground source heat pumps have to run efficiently-well, obviously-and the electricity they use must be sourced from renewable sources. If that is the case, do you accept that ground source heat pumps would have a lower carbon footprint than operating on bioliquid?

Jeremy Hawksley: Certainly, yes. Perhaps, Martyn, you would just explain where the heat pumps are suitable and where they are not.

Martyn Bridges: Yes, certainly. I think we are all agreed that a ground source heat pump running on low-carbon electricity in the right property would be the panacea-would be what we all want. The realistic behaviour of the purchasing pattern, though, for boilers is that it is not always a planned purchase. Generally speaking, the thing has sprung a leak or it has broken down irreparably, so you haven’t had the time to prepare your house for the suitability of a low-temperature heating source such as a heat pump. Quite frequently, rural properties are where oil boilers are installed. Quite often as well, more often than not in fact, they are of pretty poor insulation, and are generally older properties where double glazing is perhaps not there. For sure, a heat pump could be fitted where the oil-fired boiler was, but the customers I have personally encountered have been generally dissatisfied with the new heating system, or rather the new heat generator, and their fuel bills have gone upwards rather than downwards.

Q81 Barry Gardiner: Is that the reason why our last witness talked about putting together the work of the RHI and ECO so that you manage to get that insulation in the property at the same time as putting in your new ground source heat pump, or indeed your biomass boiler?

Martyn Bridges: I must admit I didn’t hear the question. We were probably out of the room.

Barry Gardiner: No, I think you had come in by then.

Martyn Bridges: Oh, had we? I agree with the sentiments of the previous witness then that if you can insulate the property to the levels necessary more or less at the same time as the new heat pump goes in, and it is run from a low-carbon source, that would be probably the ideal solution.

Q82 Barry Gardiner: Sorry, I am at a loss then. OFTEC’s response to the Government’s proposals for RHI did say, "Our response demonstrates that bioliquids would be more effective at reducing carbon emissions in off-gas area". However, what we have just heard is that, given that certain parameters are satisfied, namely that you do this with low-carbon electricity and you make perhaps the ECO improvements in terms of insulation, I think you said, Mr Bridges, the ideal would be that you had something like a ground source heat pump, and that is from a low-carbon point of view.

Martyn Bridges: Yes, I think we all agree. The issue is that so rarely does that happen. Almost always the boiler is just exchanged for a new one with perhaps some upgrades made to the controls to bring them to the latest building regulation standard, but not much more than that.

Q83 Barry Gardiner: So your submission from OFTEC was not a counsel of perfection. It was saying that given the way most people tend to operate, they might as well just use bioliquids, because that would show a saving. Is that right?

Martyn Bridges: Yes.

Jeremy Hawksley: Yes.

Q84 Barry Gardiner: Now I understand. Thank you.

What about the potential downside of biofuels-the life cycle emissions, the questions that have been raised in the EU about other land usage and so on? It comes with those downsides as well and they have not been factored into the OFTEC consideration, have they?

Jeremy Hawksley: Our position on this is that DECC has taken a very severe view about the scope for biofuels for heating. I think in this submission we have demonstrated the amount of biofuel that will be used, even with quite a positive take-up, up until the year 2020 is relatively small. The problem that DECC has is that it has used various very complicated models to say how much biofuel will be available at a decent price in 2020, but I do know that all these models are open to enormous debate among the scientists concerned and many of them have not been peer reviewed, so it is putting its finger in the air really. Our contention would be that with the right signals from the UK and other Governments, there will be sufficient sustainable biofuel available in the UK.

Q85 Barry Gardiner: Sorry, Mr Hawksley, I think we are at cross purposes. My question was not so much about price and availability; it was about the corresponding emissions effect from the use of land for biofuels and the loss of other agricultural uses. Those potential downsides, as I understand it, are not factored into your OFTEC report that was seeking to establish that bioliquids would be more effective in reducing carbon emissions. What I am saying to you is that if you factored in those other land use lost opportunities-the opportunities for sequestration and, by the erosion of land, sometimes forested land, for biofuels-actually the carbon emissions are invariably higher. That was one of the things that the EU came to a conclusion about in what I think were very well peer reviewed reports.

Jeremy Hawksley: We would dispute that in as much as we believe the main feedstock for this heating oil will either be used cooking oil-either produced in the UK or imported, and a big market for that is already developed-or it would be oilseed rape. Barry, you might talk about the discussion we had with the NFU on this.

Barry Gregory: Yes. We wanted to understand what the view of the farming community might be to our proposal in terms of growing more energy crop and whether that would have a major impact on land for food or land for energy. We were pleasantly surprised by their reaction. In fact, they were very supportive of growing more energy crop. Financially, the incentive is there for them.

Barry Gardiner: A farmer will always grow what you want to pay him for.

Barry Gregory: Of course, but interestingly part of their enthusiasm was that this would allow them to invest back into their farm and actually make them more efficient in producing crop. From an NFU point of view it was not one or the other; it was both.

Q86 Barry Gardiner: How would you like to see biofuel supported under the RHI?

Jeremy Hawksley: We have asked DECC for a tariff of 9p per kilowatt hour, which we think would compensate households for the extra cost of the fuel I earlier referred to. We would like a bit of time to develop the bioliquids for RHI. We would ideally like to see us to be put back on to the playing field-we have been kicked off it, as it were, since the consultation paper came out-so that we can develop it so that it can be rolled out geographically, perhaps from 2015 onwards. It is a sea change, but the advantage we have is that we have the manufacturers’ part of OFTEC, we have the nearly 10,000 technicians who service and install boilers part of OFTEC, and we have links with the fuel distributors. We believe that for this million households we could, as an industry, incentivise bioliquids. We would not ask very much from DECC other than this financial support.

Q87 Barry Gardiner: Some of the objections that perhaps I would have to doing that would be that you say a lot of this at the moment is used cooking oil, and in that sense I would probably say, "Great, good on you and let’s go for it". However, if it is bioliquids in general, you are into other things-not just rapeseed oil but jatropha, and potentially bioethanol from sugar cane-and opening this up to a whole host of potential fuels, some of which are not as benign as used cooking oil. What would the impact be if the Government were to say, "Look, we are happy to countenance the RHI for used cooking oil, but not to extend it to crops primarily grown for bioliquids"?

Jeremy Hawksley: I think we would welcome that in as much as this is a very small market. We could probably satisfy it entirely with used cooking oil. Perhaps I should restate that in this standard for the fuel we will make sure that there is a proper sustainability reporting mechanism. We will ensure that the palm oils and so on will not be used.

Q88 Dr Whitehead: Setting aside, for a moment, the question of the wider issues on real sustainability of biofuels, as far as I understand it, one of your major propositions is 30% renewable-effectively the R30 fuel. At first sight, that would seem to provide a substantial case for DECC saying, "Well, that is not very renewable, is it, and therefore maybe we will not include it for that particular reason." DECC is then given a possible alternative reason, which is the interface and impact on road transport. Which do you think is the key thought in DECC’s head?

Jeremy Hawksley: I would put to you that the 30% argument is a nonsense because air source heat pumps are running off electricity that last November was 97% fossil fuel. Air source heat pumps and ground source heat pumps are going to gradually decarbonise only as the grid decarbonises. Our case is that liquid fuels could become 30% quite quickly, and that is another advantage of our proposal: it is a relatively quick deployment and, by the late 2020s, we could be talking about 100% biofuel.

Q89 Dr Whitehead: How would that come about? Would you add ethanol or-

Jeremy Hawksley: No, we would assume by the mid-2020s the issues relating to indirect land use change would have been resolved. We will assume that there is a big supply of sustainable biofuel available into Europe and we would then deal with the issues that we may have referred to to do with storage in cold weather. We will have cracked that by then and developed tanks that could store, so we will be able to deploy a 100% biofuel for home heating.

Q90 Dr Whitehead: Do you have any dealings or thoughts on parallel arguments and discussions related to biogas as a renewable heating fuel? Do you have any dealings with biogas? There is a particular argument, I understand, which is a similar argument to that which has been advanced on road transport fuels, and you pointed out the relative low demand of one against the other. Part of the argument as far as biogas is concerned is that the incentivisation of biogas for heating makes it a non-competitive product to purchase for road transport fuel. Is that a parallel argument as far as liquid biofuels are concerned, or is that a different area in your view?

Martyn Bridges: I am afraid I have no knowledge on biogas.

Jeremy Hawksley: I think the difficulty about biogas is to do with biomethane injection into the grid, isn’t it? I believe the technology to do that and particularly the-

Q91 Dr Whitehead: It can be burned on site as well. It can be used as a fuel for onsite incineration.

Jeremy Hawksley: Just with liquid petroleum gas, do you mean?

Dr Whitehead: Biogas can be used, say, for a CHP plant, or it can be injected, and in both instances it will receive some underwriting, which would be probably greater than it might get under the renewable transport fuel obligation, for example.

Jeremy Hawksley: Yes. I don’t know that I can answer your question regarding whether the same thing would happen to bioliquids. We have a pretty clear idea, if we can get the RHI, how bioliquids would be deployed in the domestic sector, and it would be via the current distribution methods-the fuel distributors-but they would have to put in extra procedures when they actually blend the oil together to verify the quality of the fuel. Technically, there is no issue to doing that. It is obviously a matter of making sure there is a market for the fuel.

Q92 Chair: Does it work in existing boilers?

Jeremy Hawksley: Yes.

Barry Gregory: There are some material compatibility issues that have to be addressed, but apart from that, combustion boiler efficiency has been shown to improve with a 30% blend, so we do not have any technical issues with regards to using the fuel.

Q93 John Robertson: You made a statement about DECC taking a severe view of your industry and that it had "finger in the air" testing and you have been kicked into touch in relation to the playing field. Can you quantify that a bit more? Do you feel you have been unfairly treated?

Jeremy Hawksley: I must be clear that up until the middle of last year, DECC officials and the Minister had been very courteous towards us and gave us a fair hearing. What I believe has happened with DECC is that it has tried to design a policy that is really based on a theoretical best solution, as opposed to what I would call a good solution. It has obviously made the decision to go for electricity-based air source heat pumps for the domestic sector as its prime technology.

Q94 John Robertson: You obviously disagree with that, but why do you think it has done that?

Jeremy Hawksley: I think bioliquids have proven a difficulty for them because they wanted to find a renewable technology they could take off the shelf and say, "This is going to be the solution." The people you have heard earlier today are all promoting what is a genuinely new and revolutionary technology, to a certain extent. The trouble with bioliquids is that we are really a conversion technology. We are trying to move people gradually away from a heavy fossil fuel usage to a very low fossil fuel usage, and that has not fitted into the DECC model.

Q95 John Robertson: How are you going to persuade it to bring you back on to the playing field?

Jeremy Hawksley: Well, I hope through this Committee, partly. We are definitely off the playing field at the moment, but we think that we are missing this enormous opportunity to move these million households over the next 10 years and to decarbonise them gradually. We think that most of these million households will still be on this oil in 10 years’ time because the alternatives are too expensive and too complicated, or just too much for the consumer to get their head around.

Chair: Thanks very much for giving your evidence. If there is anything that occurs to you after you have left that you wanted to get across, if you could put it in writing, we would be happy to receive it. Similarly, if there is anything we have forgotten to ask, we will write. Thanks again for your evidence. It is most helpful.

Prepared 27th June 2013