Draft Electricity and Gas (Energy Company Obligation) Order 2014
Draft Electricity and Gas (Energy Companies Obligation) (Amendment) (No. 2) Order 2014
The Committee consisted of the following Members:
† Barclay, Stephen (North East Cambridgeshire) (Con)
† Bradshaw, Mr Ben (Exeter) (Lab)
Donaldson, Mr Jeffrey M. (Lagan Valley) (DUP)
† Hain, Mr Peter (Neath) (Lab)
Hamilton, Fabian (Leeds North East) (Lab)
Healey, John (Wentworth and Dearne) (Lab)
† Hemming, John (Birmingham, Yardley) (LD)
† Jenrick, Robert (Newark) (Con)
† Murray, Sheryll (South East Cornwall) (Con)
† Phillipson, Bridget (Houghton and Sunderland South) (Lab)
† Reynolds, Jonathan (Stalybridge and Hyde) (Lab/Co-op)
Rotheram, Steve (Liverpool, Walton) (Lab)
† Rudd, Amber (Parliamentary Under-Secretary of State for Energy and Climate Change)
† Sandys, Laura (South Thanet) (Con)
† Shepherd, Sir Richard (Aldridge-Brownhills) (Con)
† Wallace, Mr Ben (Wyre and Preston North) (Con)
† Willott, Jenny (Cardiff Central) (LD)
Oliver Coddington, Committee Clerk
† attended the Committee
First Delegated Legislation Committee
Monday 24 November 2014
[Mr George Howarth in the Chair]
Draft Electricity and Gas (Energy Company Obligation) Order 2014
4.30 pm
The Parliamentary Under-Secretary of State for Energy and Climate Change (Amber Rudd): I beg to move,
That the Committee has considered the draft Electricity and Gas (Energy Company Obligation) Order 2014.
The Chair: With this it will be convenient to consider the draft Electricity and Gas (Energy Companies Obligation) (Amendment) (No. 2) Order 2014.
Amber Rudd: I look forward to serving under you in the Chair, Mr Howarth, and to the debate, which I am pleased to open. Today, the Government are proposing amendments to the existing energy companies obligation order, which covers the period to March 2015, and a new ECO order that introduces a new period for the ECO scheme, by extending the obligation to March 2017.
This Government have faced up to the enormous energy challenges that our country faces over the coming years. With the overhaul of the electricity market and record investment in renewable technologies, we are well on the way to ensuring that the UK’s energy is secure, low carbon and affordable. Improving the energy efficiency of the UK’s homes is central to that challenge. Through the energy companies obligation scheme and the green deal, we are making homes warmer, and cheaper to heat, permanently.
Since the introduction of ECO and the green deal framework, we have made tremendous progress towards our target of 1 million homes making one or more permanent energy efficiency improvements by March 2015. Altogether, about 995,000 energy efficiency measures had been installed in more than 819,000 homes by the end of September. The vast majority of households benefiting have received support from ECO, with more than 585,000 measures going towards about 482,000 low- income and vulnerable households and households in deprived areas. Under the affordable warmth scheme, we had delivered just under 380,000 measures to about 304,000 households by the end of September. That has delivered £4.2 billion of notional lifetime bill savings. It is a significant investment in addressing fuel poverty.
Thanks to the new ECO order that we are introducing, more than 400,000 more insulation measures and about 250,000 more heating measures are due to be delivered through ECO by 2017. That provides long-term certainty for industry and enables it to deliver as effectively as possible.
I recognise that the changes that we are making to the existing ECO order are significant. Nevertheless, the policy will continue to drive large-scale investment in energy efficiency across the country. Going forward, it
will be targeted more at those who need it most—those who are, or are at risk of becoming, fuel-poor. These changes were proposed in December 2013, as part of a package of measures introduced by the Government to reduce energy bills by an average of £50. The changes to ECO alone will reduce energy bills by about £35, which energy companies have confirmed they are on track to deliver.The vast majority of customers pay for ECO as part of their energy bills, and we all know that energy bills have been rising in recent years. That is why it is right and fair to review the impact that this policy has on household costs. We continually monitor the scheme to ensure that we strike the right balance between the long-term benefits of energy efficiency and the more immediate impacts on consumer bills, so that we can continue to offer help to those in need, while ensuring a sustainable scheme that delivers value for money for everyone else.
I am proud to say that, thanks to the impact of Government energy policies, household energy bills are this year on average £90 lower than they would otherwise be, as the costs of supporting home-grown, low-carbon sources of energy are on average more than offset by the bill savings from Government energy efficiency policies. An average household dual-fuel bill in 2014 costs £1,369, compared with £1,459 if Government policies, including ECO, did not exist to support cleaner energy, ensure security of supply this winter, help vulnerable households and promote energy efficiency. To reduce the cost of delivering ECO, the amending order will reduce the 2015 target for the carbon emissions reduction obligation by 33%. The orders will extend the eligible primary measures for the carbon emissions reduction obligation to include loft insulation, cavity wall insulation and district heating systems where those measures are installed from 1 April 2014 onwards.
We recognise that some energy companies will have delivered more than others, by investing in more expensive measures. We therefore intend to provide a carbon uplift for those energy companies, to ensure that they are not penalised for acting early. However, alongside some scaling back to lower overall costs, we are introducing a minimum target for solid wall insulation, which will guarantee for the first time that a substantial number of solid wall properties—about 100,000—will be treated under ECO to March 2017, thus ensuring that we continue to support people who live in cold, hard-to-treat homes, as well as delivering carbon savings.
In addition, we have allocated an additional £450 million in support of household energy efficiency over three years. As part of that, we have provided further support for energy efficiency measures, including solid wall insulation, through the green deal home improvement fund. The success of that fund demonstrates that consumers will take up energy-saving technologies where costs and disruption have previously resulted in low take-up rates if the incentives are sufficiently attractive. I am pleased that the Government have been able to announce a second release of the green deal home improvement fund as part of making a further £100 million available for household energy efficiency.
Furthermore, our changes to ECO do not involve any reduction in support for low-income and vulnerable households. As right hon. and hon. Members will know, the Government are putting in place a new energy
efficiency-based fuel poverty target for England. Parliament is considering the proposal. Extending support under the ECO affordable warmth scheme will ensure continued long-term investment in energy efficiency in fuel-poor homes and is considered the most sustainable way to tackle fuel poverty and reduce the cost of keeping warm.As reducing fuel poverty is a priority, the orders retain dedicated affordable warmth activity under ECO at the original level of investment. Thanks to our new ECO order, we will give certainty to the industry by extending activity on the same scale to March 2017.
Stephen Barclay (North East Cambridgeshire) (Con): Has the Minister, in working on the package of measures, examined the planning loophole that allows new buildings to be built to the energy standard of the time when planning permission was granted—perhaps five years before—rather than to today’s energy standard? The package is welcome, but it seems odd that a house could be built next month to an energy efficiency level pertaining to a planning permission granted five years before. Is that issue part of the package of measures?
Amber Rudd: My hon. Friend asks an interesting question, but I must defer on that to the Department for Communities and Local Government, because I am not covering planning matters today. If he would like me to, I will make inquiries and get back to him on that point.
We have sought to make ECO easier and cheaper to deliver in low-income communities and rural areas. We are therefore extending the carbon-saving community part of ECO to cover the bottom 25% of areas on the index of multiple deprivation, so that more households in low-income areas will have access to ECO funding, and simplifying the eligibility requirements for installations in rural areas. The changes will apply for installations made since April 1 2014, and they have already resulted in a significant increase in the number of installations in hard-to-reach rural homes.
The new ECO order will extend the ECO scheme to 2017, with new carbon and affordable warmth targets to be met over the period April 2015 to March 2017. That will ensure that ECO continues to bring about energy efficiency measures in households for another two years. It will give industry certainty, and together with the amending order, we expect it to result in interventions covering an additional 620,000 households.
Stephen Barclay: As part of the package, has the Minister considered whether she should prioritise homes that receive the winter fuel allowance? It seems illogical for one arm of government to target funding directly at homes that receive winter fuel allowance, rather than prioritising those homes for this package of ECO measures.
Amber Rudd: I am happy to say that I can reassure my hon. Friend on this matter. The winter fuel allowance targets the most vulnerable in exactly the same way as ECO, to ensure that those in most need are helped by the delivery of efficiency savings.
The order will make some adjustments to the ECO affordable warmth scheme. We are rebalancing delivery towards non-gas-fuelled households, which are more
likely to be in fuel poverty, by introducing an uplift to be applied to insulation and qualifying boilers in non-gas-fuelled households, and a new eligible measure, a qualifying electric storage heater, which will incentivise delivery to electrically heated homes by giving the measures a different score than they would have received previously. The score will now be calculated in a similar way to that for a qualifying boiler.ECO has delivered nearly 267,000 new boilers in low-income and vulnerable households—a significant achievement. For the future, we are incentivising a more balanced delivery profile by setting the score for measures in such a way that insulation measures are more likely to be promoted than they have been previously. We have not stopped there; we are also introducing additional customer protections by requiring that a warranty covering the installation of new boilers is provided to the customer free of charge.
In conclusion, the amendments to the current ECO order will bring much-needed reductions to energy bills at a time of rising energy costs, while protecting energy efficiency funding for the vulnerable and for low-income households. I commend the orders to the Committee.
4.41 pm
Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op): It is a pleasure to serve under your chairmanship, Mr Howarth. As I read the details of the statutory instruments before coming to this Committee, I thought to myself that if we were to compile a shortlist of the worst moments of the Department of Energy and Climate Change under the coalition Government, energy efficiency would feature rather heavily.
We could pick, for instance, the green deal home improvement fund, which was designed to stimulate the energy efficiency industry after the problems inflicted on it by the Government. It was designed to last at least a year, but closed overnight after just six weeks, without the most basic procurement checks in place. We could pick the green deal itself, of course, for ever sold as a scheme that would have 10,000 plans in place by the end of the year; two and a half years later, the number is not a quarter of that.
But for sheer incompetence and poor government, in my view, the energy companies obligation, which we are further amending today, wins the prize. It is an extremely badly designed policy, introduced in January 2013 to do mainly one thing: prioritise more expensive measures for hard-to-treat properties. It was fundamentally changed in December 2013, not even a full year into the scheme. Not only was the policy’s ambition lowered, but what could be provided was fundamentally redesigned, leaving in place a completely incoherent policy landscape.
Listening to the Minister introduce the measures, I was struck by two things. The first is the fundamental reduction in ambition since the previous Government’s carbon emission reduction target and community energy saving programme schemes, although they were not perfect by any measure. The second is an unwillingness to listen to and resolve the genuine problems in implementing this policy. I recognise that those things are not her fault—she inherited the policy—and to be fair, I do not think that it is entirely the responsibility of her predecessor, the right hon. Member for Bexhill and Battle (Gregory Barker), either, but someone in the Government must accept responsibility for a lack of
seriousness in energy efficiency policy and a lack of willingness to listen to industry and to correct the wrongs for everyone’s benefit.Given the scope of the changes in the orders, I want to raise a number of issues. I recognise that the Minister will probably not be able to respond to them all right here and now; I simply ask her to write to me in full on them, perhaps copying in all the other members of the Committee. That would be mostly to my satisfaction.
First, let us consider maintaining the scheme at its current level between 2015 and 2017. It is worth saying that in the original impact assessment, the idea was that ECO would run for 10 years, to 2023. How many fewer homes will receive energy efficiency improvements as a result of the changes being introduced today? Secondly, will the Minister explain why, between 2015 and 2017, out of a total budget of £1.8 billion, just 10,000 households are forecast to be lifted out of fuel poverty? Thirdly, over the lifetime of ECO, which will now run from 2013 to 2017, how many households are expected to be lifted out of fuel poverty?
Fourthly, earlier in the year, the Minister’s predecessor said that it would not be acceptable for energy suppliers to fail to pass on the full savings from the changes to the so-called green levies. Will the Minister tell us what assessment she has made of whether that has happened? Fifthly, will the Minister explain why four of the big six energy suppliers have failed to pass on the full savings to their customers who were on fixed-price tariffs? What discussions has she had with those suppliers? Do the Government plan to take any further action to deal with that?
Sixthly, does the Minister fundamentally agree that the best way to keep people’s energy bills down is for them to improve their energy efficiency? If so, what action is she taking to help those households who miss out on energy efficiency improvements following the changes, particularly as we are now going into winter?
Seventhly, in addition to the consultation, what discussions has the Minister had with the insulation industry about the effect of these changes? Is she aware of its concerns and of the damage done to the supply chain? What reassurance can she give? It was a pleasure to visit Knauf’s headquarters in St Helens this morning—it has exactly what we need more of in the north-west of England: good, skilled, private sector jobs. It was clear that a huge amount of investment had gone into that factory, as happened in much of the sector following the introduction of ECO. What message do the Minister and the Government have for those companies who took that leap of faith in doing what the Government wanted and have now been left high and dry by such changes?
Eighthly—I stress that this is important—as the Minister is extending the obligation out to 2017, most people would think that work will continue until that date. What detailed projections have the Government done on ensuring that work will continue until the scheme’s deadline? I put it to her that when we factor in the amount of carry-over from previous schemes and changes—it is a hugely complex area in terms of awarding delivery—that have already taken place, many people are concerned that the obligations under the order will be met in full
long before 2017 and lead to a huge hiatus in work and huge problems for the supply chain and jobs and businesses. Will she address that in her remarks?Ninthly, what is the Minister’s experience of ECO so far? In particular, does she believe that energy companies are best placed to deliver these measures? I put it to her that the best schemes have been delivered on an area basis, often using funding from sources such as the green deal for communities budget. That would be a better way to proceed than the measures before us today.
Tenthly—I am nearly finished, but there is a lot to cover—how does the Minister quantify the reduction in ambition from CERT and CESP to these measures? The carbon savings look like a reduction in ambition to about a sixth of what was delivered by the previous Government in those—I am prepared to say—imperfect schemes. How can she reconcile that with our carbon budgets and the fuel poverty target that we debated last week?
Eleventhly—and finally—will the Minister update us on how many jobs will be lost in the sector owing to the reduction in the targets? What steps is she taking to help those who may lose their jobs as a result? In our last exchange—I think that it was during Energy questions—on the problems that these changes have caused, she said that the UK was a world leader and going from strength to strength. On that same day, Mark Group, which is one of our biggest providers of energy efficiency products in the UK, announced that up to a third of its work force may be made redundant owing to changes in Government policy. As we are on the record, it might be time for her to record her feelings about those changes.
I appreciate that the Minister will not be able to answer all those questions in detail, but if she could try to answer the principal points and respond in writing to me and the Committee on the others, I would be pleased.
4.49 pm
Amber Rudd: I thank the hon. Gentleman for those comments. I will endeavour to answer some of his questions, and I will write to him where I do not have the figures to hand now.
As always, the hon. Gentleman attacks the good work that my Department is doing, whereby we have helped so many households, and we have an ambitious target to help with permanently warmer houses. “Warmer for less” is what we are targeting and that is what we are achieving.
I appreciate that he has concerns about some elements, and I will try to address them. May I just point out, however, that he made no comment at all about the bill payer? The bill payer is an important part of trying to look after the consumer, and it was to address the bill payer’s concerns at the end of last year that we amended ECO, to ensure that our ambitious target for energy efficiency could continue, without continuing to impact the bill payer so much. That is why the Prime Minister announced a £50 reduction in energy bills at the end of last year, and that is what we have been delivering.
Jonathan Reynolds: I put it to the Minister that her own explanatory notes to this statutory instrument make it clear that the Government are not reducing energy bills as a result of these changes. The notes say that energy bills will go up, but by not as much as they
would have done under the original version of ECO. Surely, the only long-term way to reduce energy bills is through energy efficiencies and reducing the amount of units that domestic consumers use. If we look at what we are getting out of quite an expensive package, because of the bureaucracy of ECO, where it is targeted and how it is delivered, and if we focus on the consumer and bill payer, we see that we have to prioritise energy efficiency, but we surely have to do it better than this?Amber Rudd: The hon. Gentleman continues to ignore the fact that this is something that bill payers have to deal with. We cannot continue to put up bills so that we can deliver these energy efficiencies. We have to tread a careful line between delivering energy efficiencies and ensuring that the bill payers can cope with their bills. He is entirely wrong—this is a £50 reduction. Earlier, he asked what assurances could be given regarding the £50 reduction, and I can say that all the energy companies made a public commitment to deliver it. As he is aware, the energy companies have been referred to the Competition and Markets Authority. They are private sector companies; they have made that commitment. We are absolutely confident they will deliver it, but we will keep a careful eye on them. Ofgem will report by the end of next year, which will be an important moment for the energy companies.
The hon. Gentleman raises issues about the fuel-poor—
Jonathan Reynolds: Will the Minister give way?
Amber Rudd: I will make some progress.
The hon. Gentleman refers to the fuel-poor, and one point I wish to make is that in our changes to the ECO we expressly protected the most vulnerable. We ensured that the changes would not affect the most vulnerable houses, which is absolutely critical for us; it has been part of this Government’s policy all along. We are absolutely committed to delivering long-term energy efficiencies, because ultimately that is the way to reduce bills.
The hon. Gentleman refers to huge job losses in the sector. We recognise that there will be changes to the industry, and that is part of the constantly evolving environmental programmes that we are dealing with at my Department. However, he should not underestimate the good work the Department does. He refers to complications in ECO; I would rather describe them as attempts to ensure that we focus all the time on the right elements of our residents, to ensure that the most vulnerable are always in receipt of the greatest opportunity.
Once more, the hon. Gentleman attacks the green deal and specifically the green deal home improvement fund, which I describe as a great success; he has a different way to describe it. In fact, it was incredibly successful and we believe that it will help the 20,000 homes that we plan to help. We will announce the terms of the new fund at the end of this month. It was because of the fund’s success that it was not able to continue over the summer, but this time we hope to deliver it in such a way that it can last for a longer period. However, at the end of the day it will still help the same number of people, only over a longer period.
Although the hon. Gentleman has made a lot of negative points about the Department and the areas we were focusing on, I feel very strongly that we are doing the right thing and approaching the matter in the right way. I understand that, under the last Government, part of the home energy efficiency programme was to deliver 224 million energy-saving light bulbs. We are certainly taking a better approach than that, delivering more certain and energy-efficient programmes to ensure that homes are kept warmer for less.
It is particularly important at a time of rising energy bills to be able to look after the bill payer and to deliver for the householder. That is what we are doing. We have lost none of our ambition, and we always focus the funds that we have on the most vulnerable, where possible. At a time of rising energy bills, that is even more essential. With the new order, ECO will deliver more energy-saving measures to more than 620,000 households. With the amendment order, we will provide certainty and continuity to consumers and the energy efficiency industry, to which the hon. Gentleman referred. For the next two years, it will be certain that ECO will continue. I therefore commend the orders to the Committee.
draft electricity and gas (energy companies obligation) (amendment) (No. 2) Order 2014
That the Committee has considered the draft Electricity and Gas (Energy Companies Obligation) (Amendment) (No. 2) Order 2014.—(Amber Rudd.)