Home energy efficiency and demand reduction Contents

2Energy efficiency to date: a mixed record

An introduction to recent policies

6.In recent years there have been multiple energy efficiency policies in the UK. These have included a series of Government-imposed energy saving targets for large energy suppliers (ECO and its predecessor supplier obligations); a ‘pay-as-you-save’ market-based mechanism, the Green Deal, which was aimed at improving energy efficiency in ‘able-to-pay’ households; taxpayer funded grant programmes such as the Warm Front and the Green Deal Home Improvement Fund (GDHIF); and regulatory requirements, such as zero carbon homes. In addition to this, the minimum energy efficiency standards (MEES) were passed into law in March 2015, but are not due to come into effect until April 2018. These policies are described in more detail below. We were told by various stakeholders that a strategy that combines several of these mechanisms would provide the most potential to drive widespread energy efficiency in homes.13 There is also an opportunity for vulnerable households to receive an annual discount on their energy bill called the Warm Home Discount, though this is not explicitly an energy efficiency scheme.

The Green Deal

7.The Green Deal was introduced in 2013 as a market-led approach to energy efficiency. It was declared by the then Coalition Government a “flagship piece of legislation, which [would] deliver energy efficiency to homes and buildings across the land”.14 Through the issuing of loans to fund measures, the scheme introduced a new financing mechanism to allow ‘able-to-pay’ households to carry out energy efficiency improvements at little or no upfront cost. This was to be achieved by ensuring that the expected monthly financial savings of any energy efficiency measures taken under a Green Deal were equal to or greater than the costs of the loan provided to fund the measures. This was known as the ‘Golden-Rule’ and was central to the Green Deal ‘pay-as-you-save’ principle. The installation costs of the measures were attached to the property’s electricity meter and repaid in instalments through the electricity bill.

8.The Green Deal process began with an assessment carried out by a registered Green Deal Assessor, who recommended (in a Green Deal advice report) the appropriate energy efficiency measures to be installed. If a Green Deal was to be taken up, a Green Deal Provider set up a Green Deal finance plan outlining the work to be done and the length and amount of the repayments. Once a plan was agreed upon, the Provider arranged for a Green Deal Installer to carry out the improvements, and Green Deal repayments were then added to the electricity bill. The GDFC was responsible for administering and financing the loans, which were included in Green Deal Plans. These set out the financial terms of agreement between the Provider and the household responsible for paying for improvements.

The Energy Company Obligation

9.The Energy Company Obligation (ECO) was introduced as the successor to previous supplier obligations: the Carbon Emissions Reduction Target (CERT) and the Community Energy Savings Programme (CESP). It requires large energy suppliers with more than 250,000 customers to deliver energy efficiency measures in order to help the Government achieve desired outcomes (see below). The cost of delivering ECO measures is passed by energy suppliers onto households through their energy bills. The first phase of ECO lasted from 2013 to 2015 and the current period is expected to end in March 2017. Under ECO, the Government set out in 2013 three obligations that large energy suppliers had to meet:

Green Deal Home Improvement Fund

10.In addition to ECO and the Green Deal, the Government launched the Green Deal Home Improvement Fund (GDHIF) in June 2014, which gave households in England and Wales the chance to claim cashback for installing energy-efficiency measures. Three discreet tranches of funding were released as part of the GDHIF in June 2014, December 2014 and March 2015. GDHIF was separate to the Green Deal scheme and cashback was available for a certain number of specific measures, including solid wall insulation, cavity wall insulation and glazing.18

Zero carbon homes

11.Following a commitment by the previous Coalition Government to implement zero carbon homes “from 2016”,19 it was announced in the 2014 Queen’s Speech that legislation would be introduced to “allow for the creation of an allowable solutions scheme to enable all new homes to be built to a new zero carbon standard”.20 This legislation was designed to help the housebuilding industry reduce all carbon emissions from homes through measures such as energy efficiency services and insulation, as well as renewable energy generation and off-site carbon reduction measures.21 However, the Government announced in July 2015 that it would scrap the zero carbon homes policy.22

Minimum energy efficiency standards

12.In March 2015, a regulation known as the minimum energy efficiency standards (MEES) passed into law. It requires all those in the private rented sector (PRS) to have a minimum energy efficiency rating of ‘E’ on their Energy Performance Certificate (EPC) by April 2018. An EPC is required when a property is rented, built or sold, and contains information about a property’s energy use and typical energy costs, as well as recommendations about how to reduce energy and save money. It gives a property an energy efficiency rating from A (most efficient) to G (least efficient). The MEES regulation will be enforced upon the granting of a new lease in the PRS from April 2018, including where a lease is already in place and a property is occupied by a tenant.23

How effective have recent policies been?

13.Since 2000, domestic energy demand has decreased by 19%, despite a 12% increase in the number of households and a 9.7% increase in population.24 Energy consumption, per household, is now at its lowest point since pre-1970 levels.25 In addition to this, the majority of UK homes now have double-glazing and half of households with gas central heating systems use high efficiency condensing boilers.26 The proportion of households that have the lowest energy efficiency ratings (F to G) has fallen from 20% to 6% from 2004 to 2014.27 Moreover, the proportion of domestic properties that fall within the highest energy efficiency ratings bands (A to C) increased from 4% to 26% over the same period of time.28 By November 2015, under the Green Deal, a total of 14,799 unique properties had Green Deal Plans in place.29 This figure includes both ‘live’ Green Deal Plans, where households are paying for installed measures through their energy bills, as well as ‘new’ and ‘pending’ Green Deal Plans, where households have not yet completed installation and payments have not begun.30 By December 2015, under ECO, over 600,000 cavity walls had been insulated, more than 400,000 homes had received loft insulation and over 350,000 households had a new boiler installed.31 This meant that around five per cent of all households in Great Britain have had a measure installed under the scheme.32 The Association for the Conservation of Energy told us that Government policies over the past decade had driven progress in energy efficiency:

Previous programmes [ … ] have delivered significant numbers of energy efficiency measures to households, and these have undoubtedly contributed to falling energy use for heating homes [ … ] there is good reason to believe that well-established types of energy efficiency programmes (such as building regulations and energy company obligations) can save significant amounts of energy.33

14.Despite this progress, estimates by the Committee on Climate Change in 2014 suggested that 4.5 million cavity walls remained un-insulated, 10 million easy-to-treat lofts could benefit from additional insulation and 7 million solid walls were still without any insulation.34 In their central scenario for meeting the fifth carbon budget, the CCC also said in 2015 that insulation rates must increase in the UK and that 1.5 million solid walls and 2 million cavity walls must be insulated throughout the 2020s.35 We were warned that while policies over the last two decades had successfully driven energy efficiency improvements, policies since 2013 had failed to deliver this action at an adequate scale, leading to a slow-down in the rate of installation of home insulation measures.36 The Mineral Wool Insulation Manufacturers Association stated that the building insulation market contracted by 22% in 201337 and a report by ResPublica, an independent think tank, said that since 2012, the average delivery rate for loft insulation dropped by 90%, cavity wall insulation by 62% and solid wall insulation by 57%.38 This illustrated the “huge drop in the market for traditional insulation measures at the end of CERT and CESP and start of ECO”.39 The CCC said the slow-down in the rate of installation of insulation was having a “detrimental impact” on the ability to meet fuel poverty targets and that cost-effective emissions savings were being missed as a result.40 The Centre on Innovation and Energy Demand at the University of Sussex added that the Green Deal and ECO had been “a major setback for UK energy efficiency policy”.41 The Energy and Utilities Alliance stated that ECO and the Green Deal contrasted “with the more stable schemes that preceded them. [ … ] Whilst these were not perfect, they allowed for a more consistent and understandable delivery of energy efficiency”.42

Issues with the Energy Company Obligation

15.All suppliers that deliver ECO had met their obligations as of March 2015,43 but we heard that ECO was much less ambitious than its predecessor schemes. The Association for the Conservation of Energy told us that:

ECO has continued to deliver measures, but at a much lower level than its predecessor obligations, and it has failed to fill the gap left by the closure of the publicly funded Warm Front programme44 or to contribute to carbon emissions reductions in as significant a way as the previous obligations, CERT and CESP.45

16.ECO was revised in 2014 as a result of “concerns around the cost to energy companies of delivering the scheme”.46 Changes to the obligations included a 33% reduction to the CERO target, the inclusion of “low-cost” measures (loft insulation and cavity-wall insulation) as eligible within the CERO obligation, and new targets for CSCO, which widened the scope of its delivery (thereby making it easier, and cheaper, for suppliers to find qualifying households and meet their obligation).47

Issues with the Green Deal

17.Uptake of the Green Deal has been low48 and issues with the scheme have been well documented since its launch.49 In contrast to the hundreds of thousands of measures installed under ECO, as we noted earlier, only 14,799 total Green Deal Plans were in place in unique properties across the UK as of November 2015.50 Isaac Occiphinti, Head of External Affairs at Energy and Utilities Alliance, stated that the scheme had stood “no chance” from the start.51 Our predecessors launched two inquiries into the Green Deal to follow the scheme “from its inception and monitor its progress and success against the aims and objectives of DECC’s policies”.52 The first of these inquiries raised concerns that the Green Deal policy had no means to “verify its own success or otherwise”53 and that there was a lack of clarity from the then Government around the projected outcomes of the policy.54 Sixteen months later, our predecessors’ second inquiry concluded that the Green Deal had “failed to live up to expectations”55 due to the complexity of the scheme and a combination of financial, communication and behavioural barriers that were all preventing large scale take-up.56 We heard that these same barriers remained throughout the life of the Green Deal,57 ultimately leading to its “failure”.58

18.The GDFC recognised that the appetite for Green Deal finance had not matched original expectations:

Demand for Green Deal finance did not build as quickly as had been forecast by founder members of the company together with other stakeholders in the Green Deal.  Low take-up was one of the reasons why Government decided not to continue with the programme.59

Andrea Leadsom MP, Minister of State for Energy, also acknowledged that the performance of the Green Deal had been poor:

On the Green Deal, the issue there [ … ] is well documented. By August 2015, there were 15,000 green deal plans that had been written. That was a tiny percentage of the expected number of plans that would have been written by now—a tiny percentage; less than 10% versus 1 million individual measures through ECO since 2013.60

19.Throughout this inquiry we have heard many criticisms of the Green Deal scheme. As the Minister acknowledged, these are well documented,61 not least by our predecessors.62 The persistent problems with the Green Deal are summarised as:

Interactions between ECO and the Green Deal

20.The relationship between ECO and the Green Deal has evolved over time. It was originally anticipated that ECO would work alongside the Green Deal by “providing additional support to deliver measures [ … ] which will not be fully financeable through the Green Deal”.68 ECO was therefore designed to drive the installation of more costly measures, such as hard-to-treat cavity wall insulation and solid wall insulation, whilst the Green Deal helped consumers to install low-cost measures. However, in reality, ECO and the Green Deal ran “in tandem”,69 often competing rather than complimenting each other. EDF Energy told us that this created a “complex, uncertain and expensive framework”,70 with Certinergy adding that there was “no clear delineation of who the finance [was] targeted at”.71 Simon Roberts, Chief Executive of the charity Centre for Sustainable Energy, said that ECO got “terribly wound up with the Green Deal”72 and Certinergy, a registered Green Deal Provider, explained to us that both schemes running side by side had a detrimental impact on the supply chain. Certinergy said: “Launching the Green Deal at the same time as ECO created competing schemes that cannibalised the supply of participating service providers and installers.”73

21.In addition to this, changes to ECO midway through the scheme further undermined the originally envisaged relationship between the two schemes, making the supplier obligation “unduly complicated and costly to manage”.74 Citizens Advice said the changes to the ECO obligations, which came into effect in 2014, “undermined the rationale of the Green Deal and ECO policy framework” because it allowed more ‘able-to-pay’ households to access measures meant for those who most needed it.75

Stop-start nature of energy efficiency policy

22.Many contributors to our inquiry emphasised that energy efficiency policy had been particularly prone to change over the past few years. They explained that sudden changes, such as those to ECO only a year into the scheme, were problematic. Our recent report into Investor confidence in the UK energy sector highlighted “sudden and numerous policy announcements” as one of the six factors having a damaging effect on investor confidence.76 Contributions to this inquiry echoed this. The UK Green Building Council said that “constantly changing energy efficiency policies [had] interrupted the growth of the home retrofit market, [ … ] undermined investor confidence and have had a negative impact on the supply chain”.77 The Residential Landlords Association told us that:

Inconsistency with government policy and frequent ‘chopping and changing’ has proved a huge barrier to the take-up of energy efficiency improvement measures. These changes have decimated the supply chain, and have discouraged market-led solutions.78

The Association for the Conservation of Energy warned that policies had proven “susceptible to decisions driven by short-term political priorities”, leading to very low level of business confidence in UK markets.79 Philip Sellwood, Chief Executive at the Energy Saving Trust, added that “this [had] led to some poor measures [being] installed and also poor value for money over time”.80

23.This lack of stability and longevity led to an energy efficiency supply chain which has been “constantly beset with issues of uncertainty”.81 It was reported in the specialist news outlet Business Green in 2015 that before entering administration, Mark Group (a UK energy advice and installation company) had been badly affected by the “market slow-down” caused by the uncertainty over the future of ECO and the failure of the Green Deal.82 Lawrence Slade, Chief Executive of Energy UK, said:

It always seems that there is a hard stop at the end of every scheme. That causes tremendous issues for the supply chain. You are trying to invest in new kit, you are trying to keep staff on, you are trying to keep installation teams working, pay salaries, and so on. But if the policy just comes to a dead end around an election or around the end of a scheme, you end up with redundancies.83

Dr Nick Eyre, Director of the UK Energy Research Centre, said that the development of the energy efficiency supply chain had been “forgotten” within recent Government energy efficiency policy, but remained the key to delivering home energy efficiency.84 Mears, a major housing and social care provider, said that it requires “stability to invest resource and time into [energy efficiency] programmes to help transform and improve the communities [they] serve.”85

24.We recognise that, through the Energy Company Obligation, large energy suppliers have delivered well over one and a half million energy efficiency measures over the past years, as well as significant bill savings for consumers. However, we have heard that targets are much lower and less ambitious than under the previous supplier obligations: the Carbon Emissions Reduction Target and the Community Energy Saving Programme. There has been a disappointing decline in energy efficiency installation rates. This is seriously concerning, especially given that there are a huge number of homes left to benefit from insulation and other measures.

25.The Green Deal is widely regarded to have been a failure. It fell unacceptably short of original ambitions and it is clear that the scheme has not driven any significant demand for energy efficiency measures in the ‘able-to-pay’ sector. The problems preventing Green Deal from large scale take-up were well documented by our predecessors. Disappointingly, they were not addressed. The failure of the Green Deal has been further exacerbated by the unhelpful and competitive interplay between the scheme and the Energy Company Obligation.

26.Policy changes, under both the previous and current Government, have led to a degree of uncertainty within the energy efficiency market. This has led to a complex and confusing landscape for consumers to navigate. This lack of stability has also been detrimental to the supply chain, which has suffered job losses.

27.The rest of this report sets out our recommendations for the future. It begins by addressing our priorities for the introduction of the new supplier obligation, before exploring issues around targeting the hard-to-reach and the fuel poor. It then moves onto our recommendations to help the Government achieve a clear, long-term framework for energy efficiency.

13 Q128 [Dr Eyre & Dr Rosenow], Centre on Innovation and Energy Demand, SPRU, University of Sussex (HEE0012), British Gas (HEE0041)

14 House of Commons Library Research Briefing, The Green Deal, (February 2014), p 1

15 Million tonnes of carbon dioxide

16 For the purposes of CSCO, DECC defines a rural household as a household of private or social tenure within a settlement under 10,000 homes. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/65608/6968-energy-company-obligation-carbon-saving-community.pdf

17 Ofgem, ‘Energy Company Obligation,’ accessed 1 March 2016

18 Which? ‘The Green Deal Explained,’ accessed 1 March 2016

19 HM Treasury, Budget 2013 (March 2013) p 40

20 Cabinet Office, ‘Queens Speech 2014’, accessed 22 January 2016

24 DECC, Energy Consumption in the UK, (July 2015), p 5

25 DECC, Energy Consumption in the UK, (July 2015), p 5

26 Energy Saving Trust (HEE0085)

27 Department for Communities and Local Government, English Housing Survey Headline Report 2014–15, (February 2016), p 35

28 Department for Communities and Local Government, English Housing Survey Headline Report 2014–15, (February 2016), p 35

29 Department of Energy and Climate Change, Household Energy Efficiency National Statistics, headline release February, accessed 23 February 2016

30 Department of Energy and Climate Change, Household Energy Efficiency National Statistics, headline release February 2016, accessed 23 January 2016

31 Department of Energy and Climate Change, Household Energy Efficiency National Statistics, headline release February 2016, accessed 23 February 2016

32 Department of Energy and Climate Change, Household Energy Efficiency National Statistics, headline release February 2016, accessed 23 February 2016

33 Association for the Conservation of Energy (HEE0042)

34 The Committee on Climate Change, Meeting Carbon Budgets - 2014 Progress Report to Parliament (July 2014), p 163

35 The Committee on Climate Change, The Fifth Carbon Budget, (November 2015), p 16

36 Citizens Advice (HEE0080), Energy and Utilities Alliance (HEE0028), Centre on Innovation and Energy Demand, SPRU, University of Sussex (HEE0012),

37 Mineral Wool Insulation Manufacturers Association (HEE0055)

39 Saint-Gobain (HEE0076)

41 Centre on Innovation and Energy Demand, SPRU, University of Sussex (HEE0012)

42 Energy and Utilities Alliance (HEE0028)

43 Ofgem, Energy Companies Obligation Final Report, (September 2015)

44 Warm Front Scheme was a taxpayer funded scheme designed to help vulnerable households fund energy efficiency improvements. The scheme ended in January 2013 and was replaced by Affordable Warmth under ECO.

45 Association for the Conservation of Energy (HEE0042)

46 Ofgem, Energy Companies Obligation Final Report, (September 2015), p 3

47 Department of Energy and Climate Change, The Future of the Energy Company Obligation (July 2014), p 6

48 Centre on Innovation and Energy Demand, SPRU, University of Sussex (HEE0012), Energy and Utilities Alliance (HEE0028), Hampshire Country Council (HEE0004), UKERC (HEE0050), EDF Energy (HEE0069), Energy Saving Trust (HEE0085)

49 Energy and Climate Change Committee, First Report of Session 2014–15, The Green Deal: watching brief (part 1), HC 142 & Energy and Climate Change Committee, Third Report of Session 2014–15, The Green Deal: watching brief (part 2), HC 348

50 Department of Energy and Climate Change, Household Energy Efficiency National Statistics, headline release February, accessed 23 February 2016

51 [Q65] Isaac Occhipinti

52 Energy and Climate Change Committee, First Report of Session 2014–15, The Green Deal: watching brief (part 1), HC 142

53 Energy and Climate Change Committee, First Report of Session 2014–15, The Green Deal: watching brief (part 1), HC 142, p 23

54 Energy and Climate Change Committee, First Report of Session 2014–15, The Green Deal: watching brief (part 1), HC 142, p 23

55 Energy and Climate Change Committee, Third Report of Session 2014–15, The Green Deal: watching brief (part 2), HC 348, p 35

56 Energy and Climate Change Committee, Third Report of Session 2014–15, The Green Deal: watching brief (part 2), HC 348, p 35

57 Centre on Innovation and Energy Demand, SPRU, University of Sussex (HEE0012), Saint-Gobain (HEE0076), Sustainable Energy Association (HEE0015), Which? (HEE0027), Citizens Advice (HEE0080), Q30 [Peter Broad], NAPIT (HEE0010), Calor Gas (HEE0014), UCL (HEE0020), Residential Landlords Association (HEE0025)

58 Centre on Innovation and Energy Demand, SPRU, University of Sussex (HEE0012), Sustainable Energy Association (HEE0015), UCL (HEE0020), Energy and Utilities Alliance (HEE0028), Mears (HEE0068), Saint-Gobain (HEE0076)

59 The Green Deal Finance Company (HEE0093)

60 Oral evidence taken on 29 October 2015, HC (2015–16) 542, Q57 [Andrea Leadsom]

61 Oral evidence taken on 29 October 2015, HC (2015–16) 542, Q57 [Andrea Leadsom]

62 Energy and Climate Change Committee, First Report of Session 2014–15, The Green Deal: watching brief (part 1), HC 142 & Energy and Climate Change Committee, Third Report of Session 2014–15, The Green Deal: watching brief (part 2), HC 348

63 Hampshire County Council (HEE0004), NAPIT (HEE0010), Q38 [Councillor Fleming], Q143 [Simon Roberts], RWE npower (HEE0063) British Gas (HEE0041), Citizens Advice (HEE0080), Q39 [Joanne Wade], Q81 [Isaac Occhipinti], Q81 [Holly Jago], Q30 [Peter Broad], Beama (HEE0049), Which? (HEE0027), [Q7] Grant Bourhill, [Q7] Peter Broad

64 Energy and Utilities Alliance (HEE0011), Which? (HEE0027), Sustainable Energy Association (HEE0015), Q67 [Isaac Occhipinti]

65 Confederation of British Industry (HEE0035), NAPIT (HEE0010), Energy Technologies Institute (HEE0011), Centre on Innovation and Energy Demand, SPRU, University of Sussex (HEE0012), Sustainable Energy Association (HEE0015), UCL (HEE0020), Residential Landlords Association (HEE0025), Energy and Utilities Alliance (HEE0028), National Housing Federation (HEE0032), UKGBC (HEE0087), Q42 [Richard Twinn], The Green Deal Finance Company (HEE0093)

66 AgeUK (HEE0019), British Gas (HEE0041), E.ON (HEE0078), Scottish Power Suppliers (HEE0091), UKERC (HEE0050), Knauf Insulation (HEE0095), Association for the Conservation of Energy (HEE0042), Centre on Innovation and Energy Demand, SPRU, University of Sussex (HEE0012), Q141 [Dr Eyre]

67 AgeUK (HEE0019), Energy Saving Trust (HEE0085), Citizens Advice (HEE0080), Which? (HEE0027), ETI 3 November, Energy and Utilities Alliance (HEE0011), Q49 [Richard Twinn], Centre on Innovation and Energy Demand, SPRU, University of Sussex (HEE0012), RWE npower (HEE0063)

69 EDF Energy (HEE0069)

70 EDF Energy (HEE0069)

71 Certinergy Uk Ltd (HEE0006)

72 Q152 [Simon Roberts]

73 Certinergy UK Ltd (HEE0006)

74 British Gas (HEE0041)

75 Citizens Advice (HEE0080)

76 Energy and Climate Change Committee, Third Report of Session 2015–16, Investor Confidence in the UK energy sector, HC 542

77 UKGBC (HEE0087)

78 Residential Landlords Association (HEE0025)

79 Association for the Conservation of Energy (HEE0042)

80 Q2 [Philip Sellwood]

81 E.ON (HEE0078)

83 Q64 [Lawrence Slade]

84 [Q128] Dr Eyre

85 Mears (HEE0068)




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Prepared 10 March 2016