Energy Efficiency and Fuel Poverty Inquiry Response by Centrica plc October 2008

Transcription

1 Energy Efficiency and Fuel Poverty Inquiry Response by October 2008

2 Introduction Centrica is pleased to submit written evidence to the EFRA Select Committee s Inquiry into Energy Efficiency and Fuel Poverty. (Centrica) was formed in February 1997 when the former British Gas plc was demerged to form BG Group plc and Centrica. In Great Britain, Centrica trades under its brand names, British Gas and Scottish Gas. It is the UK s largest energy supplier, supplying around 10 million gas and 6 million electricity customers in the domestic sector and around 950,000 supply points in the non-domestic sector. It also owns upstream gas production and power generation assets to support its supply businesses. Defra s Departmental Report 2008 shows slippage against PSA 7 on eliminating fuel poverty in vulnerable households by 2010, with a rise in the number of households in fuel poverty. Does Defra need to redefine its approaches to ensure it meets the statutory 2010 target? Although much progress had been made in reducing levels of fuel poverty, with energy prices now rising and lower levels of disposable income, the number of households in fuel poverty has increased. It is estimated that there are currently 4.5 million households in the UK in fuel poverty and the Government has acknowledged that 1.2 million households are likely to still be in fuel poverty in England in The Government s existing fuel poverty strategy was published in 2001 during an era of low energy prices. With the era of cheap energy widely regarded to be over, a more sophisticated approach now needs to be taken to tackling fuel poverty which looks at how higher prices might drive the right signals in behaviour. Such an approach would encourage those who could afford to change the way they live their lives to do so while protecting those who are least able to respond to the challenges that this presents. A fundamental review of the Government s fuel poverty strategy is therefore now necessary to ensure that the Government s fuel poverty targets are reached. How effectively can policies aimed at addressing the energy efficiency of dwellings tackle fuel poverty, given recent rapid increases in fuel prices, and how can strategies be developed to join up energy efficiency approaches with those on fuel prices and income maximisation? We welcome the package of measures announced by the Government at the beginning of September to help tackle fuel poverty as focusing on energy efficiency provides a sustainable and long-term solution to both help people manage their bills and tackle fuel poverty. However with fuel poverty levels rising, it is clear that there is a lot more to do. Fuel poverty is a complex interaction of a number of factors, including quality of housing stock, household income and energy prices and therefore energy efficiency can only go so far in tackling fuel poverty. We believe that a fundamental root and branch review of the UK s current approach to tackling fuel poverty is now necessary to ensure that there are specific and coherent programmes to tackle these three main drivers of fuel poverty. Energy efficiency has a key role to play in both carbon abatement and in delivering reductions in household bills. Research shows that by improving energy efficiency, householders could save around 250 per year. 1 The UK Fuel Poverty Strategy, 5 th Annual Progress Report 2007, published December

3 British Gas have considerable experience of working with customers to install energy efficiency measures and is leading the industry on energy saving. In addition we will spend a total of 1.3 billion over the next three years on programmes to help our vulnerable customers. This is more than any other supplier. In particular, a community and localised approach can have a significant impact on improving take up of energy efficiency. British Gas has launched a unique national experiment, Green Streets, which links 64 households in 8 cities across the UK and aims to highlight the positive impact simple energy efficiency products and behaviours can have. The street achieving the largest collective reduction in household CO2 emissions will win a 50,000 for a local community project and early evidence shows reduction in energy consumption of around 30% compared with the previous year. Projects such as these will provide an important foundation as we work with the Government to take forward the Carbon Emission Reduction Target and Community Energy Saving Programme aspects of their September fuel poverty initiative. We also encourage all our customers to complete our online Energy Savers Report, which provides a free of charge personalised report which could help them cut the amount of energy they use and save money of their bills. The average recommendation from an Energy Savers Report is up to 175 of potential energy savings. However, in order to improve take up of energy efficiency further still, we need to create consumer pull for energy efficiency products. The majority of energy efficiency products subsidised under CERT continue to be provided free of charge. However we strongly believe the introduction of fiscal incentives, such as Council Tax and Stamp Duty rebates, will create a strong incentive for consumers to invest in energy efficiency. British Gas own Council Tax rebate scheme has been hugely successful and is now running in 67 Local Authorities with a significant number of households choosing to insulate their homes through this route. The scheme rewards participating households with a rebate of up to 100 after having insulation installed in the home. We expect to complete 20,000 installations by the end of In particular, maximising household income and ensuring sufficient take up of Government benefits can also play an important role in tackling fuel poverty. A recent study undertaken by the London School of Economics on behalf of the British Gas Help the Aged Partnership shows that individual pensioners could be losing up to 50,000 on benefits over a lifetime, or 1,500, per annum by not claiming their entitlement. These benefits currently sit in the Government s pot of 4.5 billion unclaimed benefits for older people, but 1 in 3 pensioners are not aware of whom to turn to for help and advice on how to access these entitlements which could amount to between 5,000 and 50,000 per individual over a lifetime. Does the UK Energy Efficiency Action Plan 2007** give sufficient weight to the need to address fuel poverty as well as tackle greenhouse gas emissions through increased use of energy efficiency measures? We do not believe that the UK Energy Efficiency Action Plan 2007 is the appropriate vehicle for tackling fuel poverty. Energy efficiency policies should not be confused with fuel poverty and it should be remembered that the primary aim of the Carbon Emission Reduction Target (CERT) is carbon abatement and therefore it is not designed to effectively tackle fuel poverty. Those households qualifying under the Priority Group of CERT for example will not necessarily be fuel poor and energy suppliers actual spend on fuel poor households specifically under the CERT is unknown. Going forward, consideration should be given to the separation of the carbon abatement and fuel poverty objectives of CERT and the development of separate, coordinated strategies to tackle fuel poverty; not as a bolt-on to energy efficiency strategies. 3

4 What should be the comparative contribution of government and energy supply industry programmes to achieving fuel poverty objectives, and what levels of investment are required (for example for Warm Front, the Carbon Emissions Reduction Target (CERT) and the Supplier Obligation post 2011)? How can these programmes be better integrated? British Gas is fully committed to playing its part in helping the Government meet its increasingly challenging fuel poverty and climate change targets. However fuel poverty is part of a wider problem of poverty and social exclusion, which has been exacerbated by other recent pressures on household budgets. Poverty is an issue for government and requires a focus on increasing the incomes of those most critically affected and improving quality of housing stock. We therefore welcome the reinstatement of the increase in funding for Warm Front, the Government s main grant funded scheme for tackling fuel poverty, announced as part of the Government s fuel poverty package at the beginning of September which now gives certainty for funding for the scheme to In addition, we also welcome the constructive approach to tackling fuel poverty leading up to the Government s September fuel poverty package established between HM Government and the industry. With the energy industry facing an unprecedented number of challenges, it is essential that this collaborative approach continues going forward. We recognise that energy suppliers have an important part to play in tackling fuel poverty through Government schemes such as the Carbon Emission Reduction Commitment (CERT), and suppliers own corporate social responsibility (CSR) activity. CERT Under the Carbon Emission Reduction Target (CERT), energy suppliers will spend 2.8 billion over the next three years helping customers save energy. Vulnerable households are eligible for free insulation and energy efficiency advice from their energy suppliers under the scheme. British Gas alone has committed around 900m worth of energy efficiency measures for our customers' homes over the next three years under CERT, and a further 160m to help our most vulnerable customers. The Government s September fuel poverty package outlined an increase in energy supplier s contribution to the CERT scheme of 560 million. When combined with the Community Energy Saving Programme (CESP) at a cost of 350 million, it is estimated that this fuel poverty package could help up to two million households save up to 300 on their energy bill each year. British Gas has been putting into place plans to deliver a 20% increase in energy efficiency measures as a result of the increased CERT obligation. For this winter specifically we intend to install free insulation into 50% more vulnerable households than for the same period last year. Although details of the Community Energy Saving Programme have yet to be confirmed and the Government will be consulting in due course, CESP provides a good opportunity to target these fuel poor households, particularly those in hard to treat homes, previously overlooked under CERT. CESP should be sufficiently different to CERT to allow for a more holistic approach to tackling fuel poverty (including for example installation of energy efficiency measures, heating, income maximisation and third sector referrals) delivered through a single policy mechanism rather than being split between existing schemes such as CERT/Warm Front as is currently the case. This 4

5 would allow for better integration and a more positive customer experience which has not necessarily been the case as a result of the current overlap between CERT and Warmfront. British Gas voluntary initiatives British Gas is proud of the lead we have shown over the rest of the industry to date in our work in the area of fuel poverty and we take our responsibility to protect our more vulnerable customers extremely seriously. Since 2002 we have helped over 1.3 million fuel poor customers, going far beyond our statutory obligations. Historically we have contributed the most of all the energy suppliers towards fuel poverty measures. In fact, in 2007 around 7 in every 10 spent by energy suppliers on social tariffs was spent by British Gas. A report from energywatch reviewing the six main energy suppliers voluntary initiatives for vulnerable customers found that British Gas has and will have made the most significant voluntary commitment to measures to reduce the impact of fuel bills on its vulnerable customers. In addition, the report found that at 0.49%, British Gas already contributes the largest proportion of turnover of all suppliers with the next highest, EdF at 0.16% and npower and SSE at 0.07%. Energywatch calculated that if all other energy suppliers matched British Gas spend as a percentage of turnover, another 72.3million would be spent on fuel poverty 2. Over 500,000 customer accounts are registered onto British Gas Essentials tariff. These customers will continue to benefit from lower rates and have been protected from our most recent price announcement over the worst of the winter months, representing an average saving of around 214 per customer. In addition, Essentials Extra customers have also been offered a home energy audit to identify measures that can be taken to cut their energy consumption and bring down the cost of energy when prices rise after the winter and where possible, access to free energy efficiency measures such as insulation. This package will help our Essentials customers take control of their bills in a sustainable way. Essentials is the largest tariff on the market and British Gas will spend 90 million this year on the tariff, almost three times the amount agreed with the Government as part of its May announcement. This is a particularly significant spend given British Gas residential operating profit was only 166million in the first half of Existing customers will remain on the Essentials tariff, however new customers will be offered Essentials Advance, launched on 3 rd October Under Essentials Advance, eligible customers will be offered free home insulation with a 50 rebate on the bill once the work is completed. While we focus on our Essentials Advance tariff, we will not be signing up any more accounts to the Essentials tariff until spring We have recently extended our financial commitment to the British Gas Energy Trust for a further four years, bringing our total investment in the Trust to 21.3 million. The Trust provides grants and advice on energy efficiency to help customers in debt pay their utility bills and on average, eligible customers can receive 500 in grants. This commitment is in addition to our here to HELP programme, which offers eligible British Gas customers free energy efficient products and a quality of life assessment with practical help from major UK charities, our benefit entitlement team and other services from British Gas. The scheme has operated in some of the most deprived areas of Britain and to date has helped nearly 650,000 homes across the UK and completed nearly 200,000 energy efficiency measures. The average increase in benefits take up as a result of the benefits health check 2 Proportionality of social tariffs and rebates paper for energwatch, Cornwall Energy Associates (Jan 2008) 5

6 carried out as part of the programme is around 1,600 and unclaimed benefits have been identified in around 10,500 homes. British Gas also has an extensive programme of activity with our charity partners which include Help the Aged and Save the Children. For example, British Gas and Help the Aged are now in their eighth year of their strategic partnership to support the elderly and address winter deaths. More than 7 million has been invested in improving the lives of 1.9 million people. Voluntary Supplier Agreement We welcome the agreement announced by the Government in May 2008 that the energy supply industry will increase spend on fuel poverty to 150 million a year by This voluntary agreement now sees other energy suppliers offering a comparable spend to British Gas on their fuel poverty initiatives. What should the longer term strategies be, in particular for those in the social housing sector after Decent Homes***, and what role should the energy supply industry have post CERT (post 2011)? We are currently working with the Government on the shape of a supplier obligation post Going forward, we believe that CERT should remain the predominant vehicle for delivering domestic energy efficiency measures using an input based mechanism, complemented by a framework that creates commercial incentives for suppliers to go beyond their regulated target. It is likely that most of the low cost measures such as traditional insulation will be completed in the Social Housing sector by end Moving forward post 2011, we believe that the focus will need to be on hard to treat homes by utilising high cost measures such as solid wall and microgeneration. Moving forward, we believe that it will be critical that Local Authorities and Housing Authorities have access to funding for projects such as these in order to compliment funding provided through CERT. How can we make greater progress on hard to treat homes (for example solid wall properties or those not connected to mains gas supplies)? Renewable heat and microgeneration technologies, as well as energy efficiency measures, could potentially have a major role in assisting the fuel poor, particularly those living in off gas grid homes. As proved under the Energy Efficiency Commitment and also CERT, energy suppliers can play an active role in delivering innovative solutions. Suppliers also have the necessary technical capability required for more complex microgeneration solutions which may be used in hard to treat homes. However, it is likely that these solutions will be more expensive than traditional energy efficiency measures so we believe that it is necessary to find solutions within the existing CERT framework to incentivise energy suppliers. We believe this should be considered as part of a fundamental review of the government s fuel poverty strategy which not only takes into account changes in housing conditions, incomes and energy prices, but also how new technologies can support the fuel poor cost effectively. How should smart metering, new technologies and microgeneration be deployed and incentivised in fuel poverty approaches? Is there sufficient scope in current approaches to apply the most appropriate solutions? We believe that smart meters will play a key role in driving energy efficiency in a number of ways. Firstly, they will provide timely and relevant information to customers about the cost of their energy consumption, enabling them to better manage both their budgets and consumption. We anticipate that smart meters will be remotely switchable between credit and prepay modes, 6

7 and significantly improve today s prepay model and customer experience. Future pay-as-yougo energy consumption models will provide customer benefits in terms of both convenience and cost e.g. real time electronic payments to top up meters (e.g. via mobiles) will eliminate the cost and inconvenience of issuing, charging, using (and losing) prepay vending keys and cards. Smart metering is likely to drive some reductions in consumption (and so customer savings) through behavioural changes driven by better cost information, but also from more direct impacts from time of use (TOU) pricing, and load management at the meter and later at the appliance level. Time of use pricing can reduce bills for those customers able to change their behaviour to consume less energy at peak and more off-peak. Load management will allow customers and suppliers to agree to physically restrict consumption at peak times in return for energy discounts, and provides the basis for future smart grid applications where load can be managed to deal with excess peak demand or generation problems. These features will reduce peak demand and the need for peak generation capacity, and in tandem with other measures also offers the opportunity to lower overall demand. Finally, smart meters will enable the measurement and presentation of value to the customer of microgeneration exports. The greatest challenge in the national deployment of smart meter roll out is the lack of a Government mandate. We believe smart meters are a key component of an effective energy efficiency strategy and we would urge government to facilitate their national roll-out in the shortest possible timescale. Is there a problem identifying those who are already, or are at risk of becoming, fuel poor, and how can data sharing across the public and private sector be improved so that assistance can be targeted? Identifying vulnerable and fuel poor customers has always been a challenge for the industry and for some time we have been calling for more data-sharing with the Government to help improve targeting of the help available to those that need it most. Currently there is huge wasted effort and cost associated with searching for these customers and without access to benefits data to more accurately target eligible households these costs will escalate substantially. We welcome the steps the Government have taken to improve data sharing with energy suppliers and are currently working with the Department for Work and Pensions to achieve a greater level of access to its benefits data to enable us to better target the fuel poor. If successful, this will help to ensure that a greater proportion of the money invested in addressing fuel poverty goes to providing financial assistance rather than to funding targeting and marketing initiatives by suppliers which are currently inefficient. What are the specific issues for new homes and how can strategies ensure that all new homes minimise the potential for occupiers to experience fuel poverty? We believe that going forward, stringent building regulations which are rigorously enforced should ensure that new build homes adhere to high standards with high levels of energy efficiency. Consideration should also be given to incentives for house builders to invest in microgeneration technologies to ensure that both future household energy bills are kept low and carbon emissions are reduced. How does the Winter Fuel Payment system impact on fuel poverty and could this funding be better utilised to tackle the underlying issues leading to households becoming fuel poor? The Winter Fuel Payment provides valuable support to some vulnerable and fuel poor customers. However consideration should be given as to whether the Winter Fuel Payment 7

8 could be better targeted to ensure that it has the maximum impact on those that need help the most. Currently everyone over the age of 65 receives an annual payment of 200 increasing to 300 for the over 80s, irrespective of income. This contribution goes some way to cover the annual cost of energy bills but often is not used to pay the energy bill. We believe that Winter Fuel Payment should be paid directly to suppliers so that we can offset this against their energy bills. In addition, we also believe that consideration should be given to the timing of year the winter fuel payment is made and better targeting, possibly considering whether recipients receive higher payments on the basis of need rather than age. 8