Energy efficiency: fighting to keep bills down permanently

Transcription

1 Westgate House 2a Prebend Street London N1 8PT Energy efficiency: fighting to keep bills down permanently 1 Executive summary Recent weeks have seen a political furore around the future of so-called green levies on energy bills, including the ECO. The current debate is largely ill-informed and driven by energy suppliers with a vested interest in removing obligations that compel them to help their customers save energy. This briefing pack provides a series of arguments, backed up by evidence, that show why it is necessary to retain and improve the ECO. First, energy efficiency is the best way to prevent bills spiralling out of control. Comparing a range of policy options shows that installing energy efficiency measures could save a typical household over 500 each year, compared to the temporary 72 a year promised by Ed Miliband through a price freeze, and the meagre 2.44 offered by the government s tariff reform. Scrapping the ECO, meanwhile, would only save 47 on a typical annual duel fuel bill. Furthermore, the UK is currently one of the worst countries in Europe for energy efficiency. We can learn from cases of best practice such as Sweden, which show that improving the UK s housing stock would bring major benefits to householders, making energy bills more affordable and creating warmer, healthier homes. In the UK, there are still very significant opportunities for the installation of measures. Our review of remaining potential shows that opportunities for measures are certainly not a barrier to wide-scale and cost-effective energy efficiency schemes contrary to some DECC statements. While past ECO-type schemes have been running successfully for 20 years, and have helped around half of UK homes, it is now essential to finish the job, and ensure that all homes are protected from rising gas and electricity prices. Cutting the ECO now would be deeply unfair to these people who have not yet received help. Some might argue that while promoting energy efficiency is important, the ECO is not the best way to achieve this. However, the ECO is currently the only realistic policy option for promoting energy efficiency across Great Britain. DECC s latest figures show that to the end of September 2013, 98% of Association for the Conservation of Energy Briefing Pack 1

2 all measures delivered through energy efficiency policies were delivered by the ECO 1. While publicly funded schemes are also valuable (alongside supplier obligations like the ECO), these schemes often experience fluctuations in funding year-by-year, creating a climate of uncertainty for the industry. A publicly-funded grant scheme, Warm Front, was recently scrapped and a new scheme of this kind is highly improbable in the near future. Therefore, the idea of funding the ECO through general taxation is a red herring, and may be being used by energy companies as a cover for lobbying against the ECO. We also show that the ECO is essential in tackling fuel poverty. Making homes highly energy efficient is by far the best solution to end fuel poverty. Policies promoting energy efficiency will mean that, in 2015, the average annual bill for a low income household will be 73 lower than it would be without the policies. These savings become greater in succeeding years. However, current spending to tackle fuel poverty through energy efficiency, even before cutbacks to the ECO are contemplated, is only one eighth of what it needs to be to effectively deal with the problem. Given that the Prime Minister wrote personally to the chairman of the government s Fuel Poverty Advisory Group in January 2 to reaffirm his commitment to ending fuel poverty in England by 2016, it is incumbent on him to strengthen, not weaken the ECO. In addition, we show that cutting or scrapping the ECO would have disastrous consequences for employment. Scrapping the ECO would result in the loss of 32,000 jobs in 2014 and would have a disastrous effect on investor confidence. A range of business and industry representatives have written to the government to express grave concerns over the current climate of uncertainty, and to call for the ECO to be retained and improved. We show that the ECO can be improved through a combination of simple cost-cutting changes and a refocusing on lower cost insulation measures. Specifically, the ECO should be improved through these simple cost-cutting measures: Take carry-over from CERT into account in total cost expectations Deemed savings to reduce risk and simplify customer proposition Price cap on Hard to Treat Cavities in ECO CERO (to stop windfalls) Price cap on ECO CERO (to make up for market failure) Introduce a solid wall insulation minimum target into ECO and increase Government cashback for solid wall insulations to avoid ECO paying for supply chain development Crucially, this should be combined with a change in parameters to refocus the ECO onto lower cost insulation improvements. This will ensure we can meet the ECO s goals and support insulation industry jobs whilst reducing uncertainty in the cost of delivery. Taken in combination, these improvements offer a realistic way to maintain and develop the ECO, while minimising costs. These evidence-based arguments combine to present a clear conclusion: the ECO has a vital role to play in reducing energy bills, tackling fuel poverty and building a strong and sustainable energy efficiency sector. Now more than ever, the government must maintain a consistent and ambitious energy efficiency obligation on suppliers, in order to protect consumers from price rises and ensure the UK s future prosperity and wellbeing. While this Briefing Pack may appear dauntingly long, it is our intention that, using the table of contents on the next page, readers will be able quickly to find the information that is of particular interest to them. 1 _Green_Deal_and_Energy_Company_Obligation_in_Great_Britain_-_19_Nov_2013.pdf 2 Association for the Conservation of Energy Briefing Pack 2

3 Table of contents 1 Executive summary... 1 Table of contents Preamble Context Claims by energy companies Responses defending the ECO Energy efficiency is the best way to stop bills spiralling out of control Policy options for cutting domestic energy bills Comparison of policy options for cutting energy bills Focus on savings from energy efficiency Energy efficiency in European perspective European league tables for energy efficiency Focus on Sweden Review of remaining potential of low cost insulation Remaining potential lofts Remaining potential cavities From comprehensive review to vital statistics How hard is it to fill them? Additional smaller wall areas Summary Energy efficiency: fighting to keep bills down for the poorest Budgets to tackle fuel poverty are inadequate Reduction in Government expenditure on the fuel poor How does expenditure measure up to what is needed to end fuel poverty? Notes on tables Sources used What energy efficiency can achieve in tackling fuel poverty At-a-glance headline results Change to Energy Performance Certificates Impact on fuel poverty Costs of measures Changing ECO Employment implications of cutting ECO back Halving CERO Association for the Conservation of Energy Briefing Pack 3

4 7.1.2 Extending the ECO by two years to March Scrapping CERO Scrapping the ECO Suggestions for reducing the short term cost of delivery Improving the ECO: Refocusing its parameters Refocusing the ECO s parameters The benefits of refocusing the ECO Summary Conclusion Bibliography Appendix 1: What energy company press releases say about green levies Appendix 2: Letter from Andrew Warren to Ed Davey Appendix 3: Industry letters in support of the ECO Association for the Conservation of Energy Briefing Pack 4

5 2 Preamble Energy policy in the UK is at a critical moment. We face an unprecedented challenge in the complex and inter-related problems of fuel poverty, climate change, energy security and rising household bills. Concerns over consumer energy bills dominate the political agenda, and prices are likely to rise still further in future, with DECC predicting residential gas prices will rise by 23% by At the same time, fuel poverty remains a serious and growing problem. At the root of the problems lies the UK s inefficient housing stock. On February 4 of this year, David Cameron gave a speech at the launch of DECC s Energy Efficiency Mission at the Royal Society. In it, he pledged to make Britain the most energy efficient country in Europe 3. However, at present, the UK s housing stock is amongst the worst in Europe for energy efficiency 4. In 2011 the housing stock was the cause of 30 per cent of the UK s CO 2 emissions 5, and 26 per cent of final energy consumption 6. The energy intensity of the UK s domestic sector is improving relatively slowly, especially compared to the industrial and service sectors. Against this backdrop, it would be grossly irresponsible of the Government to seek to cut fuel bills by cutting a scheme (ECO) that cuts fuel bills. ECO-type schemes, placing obligations on energy companies to help their customers save money through efficiency measures, have been used since 1994, when the Energy Efficiency Standards of Performance (EESoP) scheme was first launched in England and Wales. This scheme was followed by similar programmes known as the Energy Efficiency Commitment (EEC) ( ), Carbon Emissions Reduction Target (CERT) ( ) and Community Energy Saving Programme (CESP) ( ). As a direct result of EEC and CERT alone, over 10 million households received efficiency measures 7 ; that is nearly half of all UK homes. As a result, these households are now less vulnerable to rising gas and electricity prices. However, half of homes have not yet benefited. These are the homes that the current assistance scheme, the ECO, is intended to help. Cutting the ECO now (though it would provide a small bill reduction to everyone around 47 if the policy was entirely scrapped) would be deeply unfair to these people who have not yet received help and remain exposed to price rises due to their inefficient homes. Continued investment in the quality and efficiency of UK homes offers multiple benefits and opportunities: Political opportunity: The UK s housing stock has a huge amount of ground to make up relative to the energy efficiency of other sectors of the economy let alone if, as David Cameron promised, the UK is to become the most energy efficient country in Europe. Raising the energy efficiency of the housing stock offers the best way to bring down energy bills for households. This all too obvious point, somewhat lost in the irrational debate over the last few weeks, is reiterated clearly, concisely and thoroughly in the mini-briefings that comprise section 4. At present, the ECO is the only policy that delivers energy efficiency measures to homes across Great Britain (alongside the Green Deal, which is currently not making a significant contribution DECC s latest figures show that to the end of September 2013, 98% of all measures delivered 3 (Cameron 2013) 4 For example: (Boardman et al. 2005); (Parliamentary Office of Science and Technology 2005); (Cities Action for Sustainable Housing 2010); (DECC 2011); (UKGBC 2012) 5 (DECC 2013a) 6 (DECC 2012) 7 Association for the Conservation of Energy Briefing Pack 5

6 through energy efficiency policies were delivered by the ECO 8 ). While publicly funded schemes are also valuable (alongside supplier obligations like the ECO), these schemes often experience fluctuations in funding year-by-year, creating a climate of uncertainty for the industry. A publicly-funded grant scheme, Warm Front, was recently scrapped and a future scheme of this kind is highly improbable in the near future. Therefore, the idea of funding the ECO through general taxation is a red herring, and may be being used by energy companies as a cover for lobbying against the ECO. Economic opportunity: Recent research by Cambridge Econometrics shows that government investment in improving the energy efficiency of housing for fuel poor households brings the greatest benefit to the economy when compared to other options for fiscal stimulus including: general capital spending; increased current spending; a reduction in VAT; and a reduction in fuel duty 9. The catastrophic employment consequences of cutting or reducing the ECO, some of which are already taking hold, are presented in section 7. Social opportunity: Making homes highly energy efficient is by far the best solution to end fuel poverty. Current spending to tackle fuel poverty through energy efficiency, even before cutbacks to the ECO are contemplated, is only one eighth of what it needs to be to effectively deal with the problem. Policies promoting energy efficiency will mean that, in 2015, the average annual bill for a low income household will be 73 lower than it would be without the policies. These savings become greater in succeeding years. Without energy efficiency policies, by 2030, a low income household will face an average bill of 1,706. With energy efficiency policies, this could be kept down to 1,323. Given that the Prime Minister wrote personally to the chairman of the government s Fuel Poverty Advisory Group in January 10 to reaffirm his commitment to ending fuel poverty in England by 2016, this also presents a real political opportunity for him to strengthen, not weaken the ECO. More on the social opportunity is presented in section 6. Environmental opportunity: Reducing CO 2 emissions from housing is imperative to meet the UK s Carbon Budgets; using aggressive and ambitious energy efficiency improvement as the core means of achieving this brings additional benefits in terms of energy security and reduced energy imports. Now more than ever, it is essential that the Government capitalises on the opportunities provided by energy efficiency. This Briefing Pack presents a range of data to inform the current debate on energy policy, and specifically on the future of the ECO. In Section 3, we provide context to the current situation, with an overview of the debate - much of it illinformed that has been taking place surrounding the Energy Company Obligation. We begin by summarising the claims made by some of the big energy suppliers (as they raise energy prices and place some blame on the ECO), and highlighting the inconsistencies that exist within the arguments of those calling for the ECO to be scrapped or reduced. We then summarise some responses from those defending the ECO, including business and industry representatives, and ACE Director Andrew Warren. These argue that scrapping or reducing the ECO would have a devastating effect on employment, and that the current climate of uncertainty is already damaging the energy efficiency industry. In Section 4 we show that energy efficiency is the best way to prevent bills spiralling out of control. We do this, first, by comparing the impacts on bills of a range of policy options available to the UK government. We then show how other European countries are currently performing much better than 8 _Green_Deal_and_Energy_Company_Obligation_in_Great_Britain_-_19_Nov_2013.pdf 9 (Cambridge Econometrics and Verco 2012) 10 Association for the Conservation of Energy Briefing Pack 6

7 the UK in terms of energy efficiency, focusing in particular on the case of Sweden. This analysis shows how improving the UK s housing stock would bring major benefits to householders, by making energy bills more affordable and creating warmer, healthier homes. Section 5 provides a review of remaining cavity wall insulation potential, showing that there are still very significant opportunities for the installation of measures. This shows that remaining potential for measures is certainly not a barrier to wide-scale and cost-effective energy efficiency schemes. As noted above, ECO is currently the only realistic policy option for installing these measures (given that publicly funded schemes have been scrapped). Section 6 considers the important issue of fuel poverty, and shows that budgets currently allocated to tackling fuel poverty are inadequate. However, energy efficiency has huge potential to reduce fuel poverty. Section 7 addresses the crucial question of what should happen to the ECO in future. It first considers scenarios in which the ECO is reduced or scrapped, and presents data that show the disastrous impact of these options on employment. It then presents a range of options for improving the ECO in order to ensure it is cost-effective, and achieves its full potential in adressing fuel poverty, promoting employment and reducing energy bills for customers. Taken together, these pieces of analysis present a clear conclusion: a consistent and ambitious framework for investment in energy efficiency is vital to the UK s future prosperity and wellbeing. The ECO has a vital role to play in this strategy. 3 Context In this section, we provide an overview of the furore in recent weeks surrounding the Energy Company Obligation and the impact of so-called green levies on customer bills. First (section 3.1), we describe how most of the big energy companies announced price rises in Autumn 2013, often blaming these on rising green levies. Using their press releases, we show that the claims made by certain companies are inconsistent, and in some cases, are tantamount to an attempt to blackmail the government into scrapping the ECO. We then (in section 3.2) review how the ECO has been defended by a wide range of business and industry representatives, as well as by the Association for the Conservation of Energy. Many stakeholders argue that scrapping or reducing the ECO would result in massive job losses in the insulation industry, and that a clear and consistent supplier obligation is essential in sustaining and promoting this important sector. 3.1 Claims by energy companies In October and November 2013 most of the big energy companies announced price rises. Anticipating the negative publicity this would generate, most attempted to justify these increases by asserting they were caused by external factors not subject to their control. Alongside the common justification that wholesale energy prices had increased, several companies also chose to blame green levies imposed on bills by government policy including the ECO. Table 1 summarises the price rises and the justifications offered, as of mid-november Association for the Conservation of Energy Briefing Pack 7

8 Date announced Date of effect Average dual fuel bill increase Increase in Bill now is Reasons given (in order published) Additional comments ENERGY EFFICIENCY: FIGHTING TO KEEP BILLS DOWN PERMANENTLY November 2013 Table 1: Energy price rises announced by suppliers, with their justifications British Gas 11 October 17 EDF 13 November 12 November % 107 ( 123) 1,297 ( 1, ) January 3 3.9% 49 1, Network charges ( 20): 2% ECO ( 40), ROCs, FITs ( 10): 4% Wholesale prices ( 37): 3% Network charges ( 24): 1.9% Smart metering ( 10): 0.8% ROCs ( 6): 0.5% Wholesale prices ( 1): 0.1% VAT, WHD, FIT ( 8): 0.6% E.On npower 15 October 21 SSE 17 October 10 Scottish Power October 24 December 1 November 15 December % 137 1, % 106 1, % 98 ( 113) 1,275 ( 1, ) Network charges (up 10%) Government schemes (up 31%) Wholesale prices (up 3%) Wholesale prices (up 4%) Network costs (up 10%) Government schemes (up 13%) Wholesale prices (up 7%, adds 34) Network costs (up 11%, adds 26) Government schemes (up 16%, adds 20) 20 Say ECO will cost them 1.4bn over the period. Say they increase prices by less than others on account of expectation of reductions in ECO. Think ECO will cost 1.9bn a year as opposed to 1.3bn. Would reduce increase to 6% if green levies are reduced. Say moving green levies to general taxation would take 110 off bills immediately. 11 Multiplying percentage additions to bill gives 9.2%. Bill increase is not based on Ofgem standard, but on average British Gas customers consumption 12 Bracketed number is based on Ofgem typical consumption 2013; average across all payment methods. 13 Adding up percentages gives 3.9%. 14 Based on Ofgem typical consumption 2013; based on direct debit payment. 15 npower do not explain how the different costs contribute to 10% / 137 increase. 16 Based on Ofgem typical consumption 2013; average across all payment methods. 17 SSE do not explain how the different costs contribute to 8.2% / 106 increase. 18 Based on Ofgem typical consumption 2013; based on direct debit payment. 19 Based on Ofgem typical consumption 2013; average across all payment methods. 20 Say they are comparing 2013 delivery costs with 2012 delivery costs. Association for the Conservation of Energy Briefing Pack 8

9 Further details are provided in Appendix 1: What energy company press releases say about green levies, which comprises extracts from the relevant press releases. Based on these statements, and on Table 1, it is interesting to note the wide discrepancies between the claims of different suppliers, for example, with increases in wholesale costs claimed to be less than 1% by EDF, but 7% by SSE, and suppliers estimates of the increase in costs of government schemes varying greatly, with Npower claiming they are increasing by a massive 31%. Despite the widespread scapegoating of the ECO in the press, the cost of the ECO on a typical dual fuel bill is in fact estimated to be only It is also important to note the manipulative behaviour of certain companies, such as EDF and Npower, who stated that their prices were conditional on the government s decision to retain or scrap the ECO. While Npower promised to reduce bills if green levies were reduced, EDF went one step further. EDF claimed that they were increasing prices by less than other suppliers on account of an expectation of reductions in the ECO, and threatened: if changes to social and environmental programmes are less than anticipated, the company may have to review its standard variable prices again. This provides an illustration of the tactics used by those with a vested interest in removing any obligations on energy companies to help their customers save energy. A final point to note is that many of the press releases stress the help that energy companies are providing to their customers in keeping their bills down. Ironically, this is the assistance they are providing through ECO so they are claiming credit for delivering the scheme they are simultaneously trying to abolish. 3.2 Responses defending the ECO In response to these attacks, and with David Cameron announcing a review of green levies (on the 23rd October), the ECO has been defended wide range of business and industry representatives. In Appendix 2: Letter from Andrew Warren to Ed Davey we provide a letter from ACE Director Andrew Warren, which summarises the situation. Andrew Warren highlights the damaging effects of the climate of uncertainty around ECO: already the PM s announcement is having a completely devastating impact upon this marketplace. Not only are no new ECO-related contracts being signed, committed programmes are being withdrawn, and the power companies are now refusing to honour payment for many that have been completed in good faith even those involved with the brokerage system. The consequence is that we are in danger of the Big Six effectively deciding the result of the PM s investigation, by unilaterally terminating their activities under the ECO. The consequences of this for those in our industry operating in this marketplace are deeply alarming, with devastating losses of business confidence. (It should be noted that since the time of this letter, E.ON have expressed their support for the ECO 22. Since this statement we therefore avoid classing the Big Six as a single homogenous group, since it is clear that certain companies adopt a more responsible attitude to energy efficiency than others) Association for the Conservation of Energy Briefing Pack 9

10 The letter goes on to explain that the insulation industry has already suffered major job losses (due to the poor transition from previous schemes) and that cutting the ECO would lead to even worse employment impacts. These impacts for various scenarios are explained in detail in section 7. A series of letters from business and industry representatives, providing additional arguments in support of ECO, are provided in Appendix 3: Industry letters in support of the ECO. These letters corroborate the vital role played by the ECO in maintaining and developing a strong and sustainable energy efficiency industry in the UK, and the huge damage that would be caused by reducing or scrapping it. For example, Rob Barclay, UK managing director of SIG PLC said; the industry is already hugely damaged by the withdrawal of CERT/CESP and the very slow uptake of ECO/Green Deal and any watering down of ECO by virtue of Big Six lobbying would have a truly catastrophic impact. This will manifest itself in a number of key areas but most specifically investor confidence and job losses. By this I refer to not just SIG UK but also the multitudes of SME s and start up organisations that we supply daily and whose on-going existence is dependent on robust obligated programmes via the Big Six. John Sinfield, Managing Director of Knauf Insulation Northern Europe. also said, Should the decision be taken to pull the scheme entirely, then this Government s promise of a renovation revolution will be well and truly broken - as will the back of an industry that has geared up to deliver it. Tony Rose, Business Development Manager at Ecologic Energy, noted the benefits of the ECO for consumers; the much publicised 50 cost on our energy bills for environmental and fuel poverty programmes actually reduces the bills of poorer households by over 25 each year for each inefficient boiler replaced and by 10 for each loft or wall insulated. These savings will continue for the lifetime of the measure installed, unlike assistance with fuel bills which is repeated each year. Even this naïve cost/benefit calculation which takes no account of social, health or employment benefits, gives a minimum 6:1 ratio of lifetime benefits to costs. The ECO programme not only has an unbeatable cost/benefit, but it also directs help to where it is needed. Thomas Heldgaard, the UK Managing Director of the Danish firm Rockwool, one of the world s biggest insulation manufacturers, has also highlighted longer term economic consequences for the UK, stating that: We cannot manage another transition period due to stop/start policy. I would find it highly unlikely that ROCKWOOL Group would want to invest anything in UK if that were to be the case as we have much easier and better opportunities in [specific countries deleted at author s request]. I am sure that other international companies would see this in the same light 23 The letters in Appendix 3 provide many additional powerful arguments for retaining the ECO, which are supported by the analysis in this briefing pack. Having reviewed the debate in broad terms, the next sections focus in more detail on different aspects on the role, impacts, design and future of the ECO. 23 Correspondence with ACE, quoted with permission Association for the Conservation of Energy Briefing Pack 10

11 4 Energy efficiency is the best way to stop bills spiralling out of control This section shows that energy efficiency is essential if we are to protect customers from increasing energy prices. This is urgent, since DECC predicts residential gas prices will rise by 23% by This provides vital context to the current debate on the ECO. Alongside the Green Deal, which is not making a significant contribution, the ECO is the only policy that exists to provide energy efficiency measures to homes across Great Britain. By showing the importance of energy efficiency, and its benefits for UK customers, this section also shows the importance of the ECO. Section 4.1 compares policy options for cutting household energy bills, and then explores the savings from energy efficiency in more detail. The clear conclusion from these pieces of analysis is that installing energy efficiency measures is the most effective way to cut bills, saving customers much more than the proposed freeze on energy prices (a Labour policy), or the government s planned tariff reform. Installing energy efficiency measures could save a typical household 500 a year around 38% of the bill. Section 4.2 investigates UK energy efficiency from a European perspective. It first presents a series of European league tables on key measures relating to energy efficiency, highlighting the UK s poor performance across these measures. It then focuses in detail on the case of Sweden, and shows the positive effects of high standards of building efficiency, in terms of reduced energy poverty and reduced excess winter death rates. Maintaining and developing the ECO would help the UK make progress in all these areas. Meanwhile, reducing or cutting the ECO could mean the UK s performance becomes even worse, bringing even more severe impacts for householders, as they struggle to afford to keep warm. 4.1 Policy options for cutting domestic energy bills This section investigates policy options for cutting household energy bills. It first compares three different policy options: a price freeze; tariff reform; and installing energy efficiency measures. It then explores the savings from energy efficiency in more detail, showing how much different kinds of household could benefit from installing a simple package of measures. These two analyses show that installing energy efficiency measures is by far the most effective way to cut bills. Installing energy efficiency measures could save a typical household 500 a year around 38% of the bill mostly by reducing their heating costs. This is much more than would be saved by the energy price policies proposed by Labour or the government. It is also much more than the 47 that would be saved by scrapping the ECO. This shows the potential of efficiency policies such as the ECO in slashing customer energy costs, and highlights the perversity of attempting to reduce bills by cutting a policy which is, in itself, very effective in reducing those bills Comparison of policy options for cutting energy bills Introduction In the context of a growing political debate regarding the best way to cut energy bills, this section compares three policy options that aim to reduce energy bills for domestic customers. The data shows that energy efficiency is the most effective policy option, saving customers significantly more than an Association for the Conservation of Energy Briefing Pack 11

12 energy price freeze or simplification of energy tariffs. An average family household could cut their energy bill by around 500 a year through energy efficiency measures saving around 38% of their bill. In contrast, the Coalition Government s policy of tariff reform is estimated by Ofgem to save an average customer less than 2.50 a year, while Labour s price freeze would save them 72 a year, but would only last for 20 months. (Also, scrapping the ECO would only save 47 a year). This comparison shows that energy efficiency is the most effective way to cut bills, and offers major savings that continue long into the future. Policy options A wide range of policies have been suggested as ways to cut energy bills. Three of these policy options are set out below with an explanation for why they have been chosen for consideration here: Energy Price Freeze: The Labour leader Ed Miliband said in September 2013 that one of his first acts in office, should he win the 2015 election, would be to freeze energy prices for 20 months. This applies to all households. It has been chosen for consideration here because it has been presented as a flagship policy to tackle the cost of living. Labour have also said that they would reform the energy market to make it more competitive and reform the energy regulator. These last two policies may provide further savings for consumers but at this stage it is not possible to assess with any accuracy what the savings would be. Tariff reform: The Government has asked Ofgem to conduct a Retail Market Review which proposes to limit each supplier to four core tariffs (in each of several categories), and ensure that all tariffs are expressed as a standing charge and single unit price. There will also be an Easy-to-use Tariff Comparison Rate to help customers switch to cheaper tariffs. The Coalition Government plans to back up these proposals with legislation. Tariff reform applies to all households; however, it will benefit some customers more than others, and some may even see an increase in bills 24. Installing energy efficiency measures: A wide range of energy efficiency measures and options are available. Almost all households could benefit from energy efficiency measures, but the saving will vary greatly depending on the home in question. Here, we consider the savings that can be achieved for an average family household through insulation, draught-proofing and new heating systems and controls. Data sources The following data sources are used in this comparative analysis: Energy Price Freeze Tariff reform Labour press release, November It should be noted that the analysis behind this proposal is not available, and the claims cannot be independently verified. Ofgem s Retail Market Review Updated Domestic Proposals Impact Assessment, This document uses low, medium and high scenarios, and we have used the medium scenarios here. 24 Ofgem s medium scenario predicts a saving for customers described as disengaged or permanently disengaged (i.e. those who rarely or never switch supplier) these are assumed to be 52% of customers. The remaining 48% (more engaged customers) are predicted to see an increase in bills Association for the Conservation of Energy Briefing Pack 12

13 Installing energy efficiency measures ACE Research Housing Stock Optimisation Tool, 2013 (based on English Housing Survey data). Results Figure 1 shows the annual energy bill savings that would be provided by the three policy options to a typical household. For the energy efficiency saving, we have taken a typical three-bedroom semidetached home that receives a package of relatively simple energy efficiency measures: top-up loft insulation, cavity wall insulation, draught proofing and a new boiler and heating controls. Figure 1: Annual energy bill savings that could be provided to a typical household by the four options This typical household could see its bill reduced from around 1,410 to 880 a year just by energy efficiency measures a saving of 38%. Savings for some other types of house are considered in the next section. In addition, we must take into account the fact that energy prices are likely to rise in future (DECC predicts residential gas prices will rise by 23% by 2022). This means that the energy efficiency savings could in fact be much higher. Conclusion In the context of growing concerns around the cost of energy, the data shows that energy efficiency is the most effective policy option, saving customers significantly more than a Price Freeze or simplification of energy tariffs. An average family household could cut their bill by around 500 a year through simple energy efficiency measures funded by carbon tax saving around 38% of their bill. In contrast, the Coalition Government s policy of tariff reform is estimated to save an average customer less than 2.50 a year, while Labour s price freeze would save them 72 a year (but would only last for 20 months). Energy efficiency is therefore the most effective way to cut bills, and offers savings that continue to benefit consumers far into the future. Association for the Conservation of Energy Briefing Pack 13

14 4.1.2 Focus on savings from energy efficiency The previous section showed that a typical household (a three-bedroom semi-detached house) could see its bill reduced from around 1,410 to 880 a year just by energy efficiency measures a saving of 38%. However, the savings that can be achieved through energy efficiency vary depending on the type and condition of the building, and can be much higher than this. The following examples illustrate the potential savings for a range of homes: A three-bedroom semi-detached house that is relatively inefficient (with solid walls and single glazing) could halve its bills by installing loft and wall insulation, draught-proofing, a new boiler and controls and double glazing. This would take the annual bill from 1,660 to 800. A three-bedroom semi-detached house that has electric storage heaters could nearly halve its bills by installing extra loft insulation, solid wall insulation and new storage heaters. This would take the annual bill from 1,790, to 910. A large, leaky house (detached, 5-bedrooms, with no insulation) could cut its bills by two thirds, by installing loft and wall insulation, draught-proofing, double glazing and a new boiler and controls). This would take the annual bill from 3,240 to 1,080. At the other extreme, a small bungalow (2 bedrooms) that has no insulation could more than halve its bills by installing loft and wall insulation and a new boiler and controls. This would take the annual bill from 1,200 to 580. Most of these savings are due to reduced heating costs. A typical family is paying an unnecessary 520 for heating every year, which could be avoided if efficiency measures were installed. At present, a typical family (in three-bedroom semi-detached house) wastes the equivalent of 100 days of heating costs. A typical family heats their home from October until May, and could save 40% of their heating costs by installing energy efficiency measures. To help to visualise what this means, we can say that the saving is the equivalent of all their heating costs from early February until the summer (see Figure 2). Figure 2: Savings from energy efficiency represented as an "equivalent period" of heating costs for a typical household Conclusion While a typical household could save 38% of their total energy bill through efficiency measures, some other types of household could see even greater savings. This reinforces the point made in the previous section, that energy efficiency is an extremely effective way to reduce household energy bills. We can Association for the Conservation of Energy Briefing Pack 14

15 even say that a typical household could save the equivalent of over three months of heating costs, just by installing a simple package of efficiency measures. Investment in energy efficiency therefore represents a major opportunity not just to address fuel poverty, but also to reduce household bills across the general population. 4.2 Energy efficiency in European perspective Some might believe that the high energy bills faced by UK consumers are inevitable, and that the same problems are faced by people across the developed world. This is not in fact the case. Looking at other European countries shows that there is an alternative, and that countries that invest in energy efficiency gain multiple benefits, including more affordable bills. This is despite the fact that most European countries face much higher energy costs. Unlike the UK, which charges Value Added Tax (VAT) at just one quarter of standard rate (5%, not 20%), most other European governments impose VAT at full rate upon residential fuel bills. DECC s most recent Quarterly Energy Prices update 27 states that in 2012, average UK domestic electricity prices, including taxes, were the fifth lowest in the EU Average UK domestic gas prices, including taxes where not refunded, were the second lowest in the EU15. This section shows that, across Europe, energy efficiency helps householders afford to keep their homes warm, and reduces the number of people that die through excess winter mortality. It shows that the UK performs very poorly on energy efficiency compared to other European countries, but that cases such as Sweden offer an exemplar from which we can learn valuable lessons. If we are to follow the Swedish example and enjoy the benefits of more efficient homes, we need a consistent and ambitious energy efficiency policy, including a strong ECO European league tables for energy efficiency Introduction On February 4 of this year, David Cameron gave a speech at the launch of DECC s Energy Efficiency Mission at the Royal Society. In it, he pledged to make Britain the most energy efficient country in Europe 29. Using this pledge as a locus, this section focuses on the position of the UK s housing stock in comparison to other European countries. This section compares fuel poverty and energy efficiency in the UK to 15 other European countries with comparable levels of prosperity and heating need. It ranks these countries against six key indicators for which consistent and recent European data are available to assess the energy efficiency of the UK s homes. The UK is ranked lowest for energy (or fuel) poverty out of 13 western European countries and near the bottom of the other league tables on affordability of space heating (14 out of 15), share of household expenditure spent on energy (11 out of 13), homes in poor state of repair (11 out of 15), thermal performance (6 out of 8), and the gap between current thermal performance and what the optimal level of insulation should be in each country (7 out of 8). Overall, no other country of the 16 assessed performs as poorly as the UK across the range of indicators. The UK ranks so low despite the fact that it has amongst the lowest gas and electricity prices in Europe and relatively high household incomes compared to the other countries. And yet it has the highest rate 27 (DECC 2013b) 28 Including the UK, 11 out of the 16 countries compared in this briefing are also part of the EU15 group. 29 (Cameron 2013) Association for the Conservation of Energy Briefing Pack 15

16 of fuel poverty and amongst the highest rate of excess winter deaths 30. In this context, the poor energy efficiency of our housing stock emerges as the main cause of these problems. Methodology We compare the UK with countries in Europe that are both fairly prosperous, and have full heating seasons (in other words, that usually need to heat their homes throughout the winter). The purpose of this is to avoid including countries that are either significantly less prosperous than the UK, or have warm climates, or both 31. For more details, please see The Cold Man of Europe report 32. Data sources are: Eurostat, the European Commission s statistics agency: o The annually conducted Statistics on Income and Living Conditions (SILC) survey o Eurostat data on incomes and domestic retail gas and electricity prices. o Data from Eurostat s Housing Budget Survey, used by the Commission to estimate and compare energy poverty across the EU. The Buildings Performance Institute Europe s Data Hub for the Energy Performance of Buildings: o This provides data about the housing stock, including total floor area, number of dwellings and wall U values. The ODYSSEE database, funded by the European Commission s Intelligent Energy programme to monitor energy efficiency trends in Europe: o In particular, data on energy consumption for space heating in the residential sector. In the next section, data from the above sources are presented and compared for each country. Results Affordability of heating and energy poverty A vitally important issue is whether people can afford to heat their homes adequately. The aforementioned SILC survey asked households whether they could afford to adequately heat their home. For the countries compared, only Belgium has a higher proportion than the UK of households who say they are unable to afford adequate heating. Table 2 shows that 6.5% of UK households say they cannot afford to keep their home warm. 30 (Healy, 2003) 31 The basis for the selection of prosperous European countries is the 2012 Legatum Prosperity Index (Legatum Institute 2012), selecting European countries that rank as having high prosperity according to the index. The basis for choosing countries with full heating seasons is to use the average annual heating degree days for each country as collated by Eurostat. 32 (Guertler and Royston, 2013) Association for the Conservation of Energy Briefing Pack 16

17 Table 2: Proportion of population who say they are unable to afford to adequately heat their home, Country Proportion who say they cannot afford adequate heat (%) Rank Luxembourg Norway Sweden Netherlands Finland Iceland Austria Denmark Germany Switzerland Slovenia France Czech Republic UK Belgium It is important to note that adequately warm is a subjective measure of an expectation of comfort which undoubtedly varies from country to country. People may also have different understandings of what it means to afford their heating 34. On fuel poverty (or energy poverty as it is referred to in European policy circles) the European Commission developed an estimate of its incidence in the European Union, in a working paper on An Energy Policy for Consumers in late The results are presented in Table 3. Table 3: European Commission estimate of Energy Poverty Country Estimated share of households spending considerable proportion of Rank their expenditure on energy (%) Netherlands Belgium Sweden Austria Slovenia Denmark Germany Finland Ireland Luxembourg Czech Republic France UK (Eurostat 2013); no data on Ireland for This self-reported measure of affordability of warmth should not be confused with fuel poverty, which is defined based on calculated income and energy costs. 35 (EC 2010) Association for the Conservation of Energy Briefing Pack 17

18 To provide an estimate of the number of households in energy poverty, the Commission assessed how many households in each country were spending more than twice the national average share of their expenditure on energy. On this basis the UK has the highest incidence of energy poverty amongst the countries compared here 19.2%. In fact, out of all 27 Member States, the UK ranks 26 th according to this measure. Only Estonia had a higher incidence of energy poverty at 19.7%. The countries in Figure 3 are ranked, from left to right, according to the share households energy expenditure constitutes of their total expenditure (the blue line). Figure 3: European Commission estimate of Energy Poverty On this basis, only Danish and Czech households spend proportionately more of their income on energy than UK households do. Energy prices and incomes It might be assumed that UK residents are struggling to keep warm because of high energy prices. Whilst it is true that retail gas and electricity prices have seen significant increases in the last few years, the UK has relatively low energy prices compared to other European countries. DECC s most recent Quarterly Energy Prices update 36 states that in 2012, average UK domestic electricity prices, including taxes, were the fifth lowest in the EU Average UK domestic gas prices, including taxes where not refunded, were the second lowest in the EU15. According to Eurostat data for for the countries included in this comparison, the UK had the fourth lowest electricity price and the lowest gas price. 36 (DECC 2013b) 37 Including the UK, 11 out of the 16 countries compared in this briefing are also part of the EU15 group. 38 Eurostat data reports domestic prices across three consumption bands for gas, and five bands for electricity. The first consumption band usually has the lowest price per kwh, with unit prices falling the more is consumed. We have chosen the middle consumption band for gas and for electricity UK mean and median consumption for different property sizes fall within these bands (DECC 2012). Furthermore, Eurostat reports prices twice annually; we have taken the average of the two prices reported for each country in Association for the Conservation of Energy Briefing Pack 18

19 For incomes, we examined 2011 real adjusted gross disposable income of households per capita from Eurostat. At 21,900, the UK ranks 7 th out of the 13 countries for which data are available, and is within 1,000 in each direction of the Finland and the Netherlands (which have marginally less income), and Sweden and Belgium (which have marginally more). This makes the data presented here so far all the more significant UK residents struggle more than all the other countries (apart from Belgium) in this comparison to afford their heating bills, and have the highest incidence of energy poverty, despite facing amongst the lowest energy prices and having middling incomes. This is not to say that income is not a factor here calculating disposable income after housing costs could mean the UK s position on income is lower, but data on income after housing costs were not available. It is nonetheless worth noting that Sweden with household disposable income that is the closest to the UK s but gas prices that are the highest (amongst the countries for which Eurostat data were available) scores a lot better than the UK on heating affordability, average share of expenditure spent on energy, and the incidence of energy poverty all the while in a country that is colder for longer (see Section for more details). State of the housing stock To find out why the UK performs poorly in terms of heating affordability and energy poverty, we need to consider the state of the buildings people live in. With the available data, there are two main ways this can be measured. First, we can examine the number of households living in a dwelling with a leaking roof, damp walls, floors or foundation, or rot in the window frames or floor from the answers provided by households to the SILC survey. These sub-standard homes may be hard to keep warm, and can present a health risk to occupants 39. Table 4 shows the UK s ranking with regard to these problems. Scandinavian countries have around half the UK s proportion of leaky dwellings, or less. Table 4: Proportion of population living in a dwelling with a leaking roof, damp walls, floors or foundation, or rot in window frames or floor, Country Proportion in leaky home (%) Rank Finland Norway Sweden Switzerland France Czech Republic Austria Germany Netherlands Luxembourg UK Denmark Iceland Belgium Slovenia A second indicator of housing quality is the U value of walls. A U value is a measure of how much heat is lost through a building s fabric. Table 5 shows countries average wall U values 41 in single family For gas prices, data were not available for Finland, Iceland, Norway and Switzerland. For electricity prices, data were unavailable for Iceland and Switzerland. 39 It is common practice in the UK to consider issues such as mould, condensation and damp as indicators of possible fuel poverty. 40 (Eurostat 2013); no data on Ireland. Association for the Conservation of Energy Briefing Pack 19