Energy Company Obligation
Written evidence submitted by Calor Gas Ltd
to the Energy and Climate Change Committee’s Call for Evidence:
GREEN DEAL: WATCHING BRIEF (PART 2)
This submission by Calor Gas Ltd will focus specifically on the below questions:
Access to ECO
• Is access to ECO satisfactory?
• Are any particular groups of people benefiting disproportionately or failing to benefit from ECO?
• Could DECC take further action to improve ECO?
• Calor has serious concerns regarding access to, and the delivery of, ECO in rural off gas grid areas, and in particular the delivery of the Affordable Warmth and Carbon Saving Communities elements of ECO.
• The latest fuel poverty statistics identified 2.6 million fuel poor households in England, with 500,000 of these households located in rural areas. Factors that increase the likelihood of fuel poverty are more prevalent in off gas grid rural areas (including lower SAP ratings, non-cavity wall types, households without duel fuel access, and dwellings built before 1964). Furthermore, households without access to mains gas tend to have fuel poverty gaps of double the average, typically over £1,000.
• There has been significant under-delivery of ECO assistance into rural off gas grid areas. ECO-obligated suppliers have full discretion regarding the extent of support and the measures delivered. Evidence suggests that suppliers are providing a limited number of energy efficiency measures to eligible rural households, if at all.
• Whilst all fuel types are eligible under Affordable Warmth criteria, ECO obligated suppliers are not funding heating oil or LPG boiler repairs or replacement due to the higher costs and additional complexities of them delivering these boilers.
• The current rural safeguard is failing to deliver assistance into rural off gas grid areas. Of the 379,297 measures installed to end October 2013 only 51 have been delivered via the CSCo 'rural' sub-obligation. The 10,000 population criteria does not accurately reflect the reality of rural off gas grid communities - meaning measures are likely to be delivered into urban fringe or on-gas areas.
• As ECO is funded via a levy on consumer bills, the cost burden of ECO is being disproportionately carried by poor and vulnerable off gas grid consumers who are failing to benefit from the scheme.
• The Government should:
o Dedicate additional Treasury-funded resources to support the increased costs associated with delivering measures in rural off gas grid areas.
o Mandate ECO suppliers to deliver measures into rural off gas grid areas.
o Review the current 10,000 definition of ‘rural’ to better reflect the realities of rural off gas grid community population size.
o Consider other solutions which would complement ECO assistance, such as increased or earlier payment of Winter Fuel Payments.
Access to ECO
• Is access to ECO satisfactory?
• Are any particular groups of people benefiting disproportionately or failing to benefit from ECO?
Following termination of the Warm Front scheme in January 2013, England is the only GB nation without a Government-funded energy efficiency programme. In contrast, Scotland and Wales have maintained and even expanded funding for their own national programmes. The Energy Company Obligation (ECO) is now the primary policy to enable low income and vulnerable households in England to benefit from energy efficiency measures.
However, based on the statistics from the first year of the scheme, Calor has serious concerns regarding access to, and the delivery of ECO in rural off gas grid areas, and in particular the delivery of the Affordable Warmth and Carbon Saving Communities elements of ECO.
ECO-obligated energy suppliers have full discretion to determine the extent of support they (or their contractors/agents) provide to households and the measures they choose to install. This is of great concern for rural off gas grid households as there is already evidence that suppliers are only providing a limited number of energy efficiency measures to eligible rural households, if at all.
Whilst all fuel types are eligible to receive boiler repairs or replacement under Affordable Warmth criteria, ECO obligated suppliers have confirmed that they are not currently funding heating oil or LPG boiler repairs or replacement due to the higher costs and additional complexities of them delivering these boilers or heating systems. Indeed Ofgem, in an email to Calor dated 20th March 2013, confirmed that they “have not specified that particular fuel types are not eligible under ECO. However, it is important to note that because ECO is an obligation on energy suppliers, it is up to them how they meet their obligation and which measures they fund, therefore there is no guarantee that your customers will benefit from ECO even if they are eligible.” This means that eligible households are missing out on support to which they are entitled, simply because they use a heating fuel other than natural gas.
The need to intervene to provide distributional equity to rural households was partially recognised by DECC when they mandated that 15% of the Carbon Saving Communities obligation should be targeted to install insulation measures on behalf of low-income or vulnerable households in rural communities with a population of less than 10,000. This delivery is estimated to cost £25 million per year. However, from the outset Calor, and other organisations, raised concerns about the validity of the 10,000 inhabitant threshold. This number of inhabitants suggests a large ‘rural’ settlement, and potentially may include urban fringe. The support, therefore, is unlikely to be delivered to communities located in rural off gas grid areas, where even large village populations are more likely to number in the hundreds of inhabitants, rather than the thousands.
Evidence is mounting that the rural safeguard is, indeed, failing. The most recent statistical report from DECC states that to end October 2013, out of the 379,297 total measures installed under ECO, only 51 of these measures have been installed within the 'rural' sub-obligation:
• May - 1 measure installed under the ‘rural’ sub-obligation of CSCO
• June - 8 measures installed
• July - 1 measure installed
• August - no measures installed
• September - 14 measures installed
• October - 27 measures installed
It is worth noting that the 51 measures installed under the 'rural' sub-obligation of CSCO comprised 11 standard cavity wall insulation, 2 hard-to-treat cavity wall insulation, 14 virgin loft insulation, 22 top-up loft insulation installations and 2 draught proofing installations. As such, it is clear that the rural safeguard is currently not only under-delivering in terms of volume, but is also currently picking up ‘low hanging fruit’ in simple and inexpensive to install measures, such as loft and cavity wall insulation - arguably measures which should have already been installed under the previous Government-funded CERT scheme. The rural safeguard is entirely failing to deliver solid wall insulation. Whilst no location data is available regarding where these measures have been installed, it is entirely likely that these measures have not been delivered into deeply rural communities where properties are more likely to be stone built, and require solid wall insulation.
Of all ECO measures installed to end October 2013, 33% were for cavity wall insulation, 29% were for boiler upgrades and 29% were for loft insulation. All solid wall insulation types accounted for just 4%. Indeed in the first 6 months of the scheme, 96% of all ECO measures had been installed in gas-fuelled properties, with 3% installed in those fuelled by electricity and 1% installed in those heated by other fuels.
Clearly ECO delivery to date to households in rural areas or without access to the mains gas grid has been both disproportionate and exceptionally disappointing. This is a scandal for several reasons.
In the most recent fuel poverty statistics (released August 2013) under the Low Income High Cost (LIHC) measure there were 2.6 million fuel poor households in England; an estimated 500,000 of these households are located in rural areas. The DECC statistics identified a number of characteristics leading to a greater prevalence of fuel poverty, and significantly higher fuel poverty gaps including; dwellings with a SAP rating of E or below, households with other non-cavity wall types (usually solid), households without duel fuel access or those paying for their electricity by pre-payment meter, and households in dwellings built before 1964. All of these characteristics are common in rural areas. Furthermore, fuel poor households without access to mains gas (i.e. that heat their properties with oil, solid fuel, LPG or electricity) tend to have individual fuel poverty gaps double the average, typically over £1,000. As such, it is evident that households in rural off gas grid areas require greater assistance given that they are both more likely to be fuel poor, and experience a larger fuel poverty gap. However experience to date has shown significant under-delivery of ECO assistance into the very areas most in need.
Furthermore, as ECO is not funded by general taxation but rather is paid for via a levy on energy bills, poor and vulnerable people living in rural communities are contributing towards these schemes via their electricity bills. If householders fail to benefit from the programme directly (which for rural households is very likely given the above) these households will simply see an increase in their energy bills as a result of the policy (estimated to be circa £57 a year per household). Therefore, a regressive funding mechanism is being compounded by a lack of equal benefits for rural and off gas households.
Consumer Futures recently issued a report which showed that the cost burden of ECO was being disproportionately carried by poor and vulnerable off gas grid consumers. It shows that certain consumers lose out, especially those that use electricity to heat their homes and could end up spending far more on their energy bills than the savings currently projected by the UK Government.
Whilst welcoming the intervention to create a rural safeguard, as a result of the method of funding mechanism and despite having the deepest fuel poverty problem, householders in rural and off gas areas are currently contributing to the ECO programme but are failing to benefit from it. It is an unintended but unfortunate irony that those in greatest need are forced to pay for schemes that will, in fact, exacerbate their poverty.
• Could DECC take further action to improve ECO
The Government is all too aware of the issues surrounding ECO delivery into rural off gas grid areas, and yet to date, nothing has been done to improve the scheme. The issue was raised in Scotland Oral Questions on 18th December 2013 by Mike Weir MP who stated “Rural consumers who are off the grid are often forgotten in arguments over energy prices. The energy company obligation is supposed to be technologically neutral, but the major energy companies will not include LPG or oil boilers in their schemes, which is surely discriminatory. Will [The Minister] press his colleagues in the Department of Energy and Climate Change to ensure that such boilers are included in ECO schemes? The Parliamentary Under-Secretary of State for Scotland, David Mundell replied: “I am happy to do that. The hon. Gentleman has championed the issue of off-grid supplies, and I suggest that we hold a round table, as we did on rural fuel, with DECC and interested Scottish MPs to discuss that and other issues.” This would certainly be a useful starting point, however the issues with ECO are GB wide, and as such concerted action across all Governments, and all parties is required.
Getting the rural element of ECO right is vital to reverse current fuel poverty trends when it comes to applying these kinds of ‘universal’ schemes. Rural off gas grid areas present different and difficult challenges, in terms of building fabric and technology suitability, and in terms of physically and economically installing measures. Calor argues that a focused energy efficiency strategy for rural off gas grid communities is needed and we will continue to work constructively with politicians and policy makers to ensure that this is achieved. So what needs to happen?
1. Getting the Funding Right - Dedicating Appropriate Resources to Rural Fuel Poverty:
Under Warm Front a grant of up to £6,000 was provided to those households located off the gas grid. The grant was used to pay for measures such as insulation (loft, hot water tank lagging, draught-proofing) or other more extensive measures such as electric or oil heating systems and LPG boiler repairs. This additional funding was vital in ensuring that measures could be delivered into rural off gas grid areas. However, under ECO no such additional funding has been made available to facilitate the delivery of rural off gas grid measures.
Calor suggests that the UK Government consider introducing additional fuel poverty funding in England, paid for from general taxation, to support both the additional costs associated with delivering measures into rural off gas grid areas and the more expensive nature of the required measures – such as solid wall insulation.
It is evident that ECO suppliers are currently failing to deliver boiler repair or replacement to any fuel type other than natural gas, because of the higher cost of them doing so. Furthermore, more expensive measures (such as solid wall insulation) which are typically required in rural homes are failing to be delivered as ECO suppliers focus on installing cheaper measures such as cavity wall and loft insulation. This combination inevitably means that rural homes are being neglected.
The current ECO funding approach in England was recently criticised by the Climate Change Committee (CCC) in its 5th progress report to Government on meeting the Carbon Budgets. The CCC highlighted the advantages of the new Scottish fuel poverty scheme which is tax funded and led by local authorities (HEAPs). The report notes that one of the particular advantages of the scheme is that additional tax funded support for local authorities in Scotland will help reduce costs on delivery of their interventions; suppliers would be able to fund the least cost measures but the ‘heavy lifting’ could be supported by a tax funded policy.
This argument was reinforced by the Energy and Climate Change Committee’s report into Energy Prices, Profits and Poverty. The report, rightfully noted that energy efficiency programmes should be the focus of Government’s fuel poverty policy in order to tackle the long-term root causes of the problem cost-effectively, however they noted that resources under the ECO are insufficient considering the scale and depth of fuel poverty. The Committee recommend that more specialised resources are needed to tackle fuel poverty in rural areas, in particular to address the difficulties experienced by off gas grid customers. It is clear from the Committee’s remarks that there is a necessary balance between tax funded support and future supplier obligations.
2. ECO Suppliers Must Be Mandated To Deliver Into Rural Off Gas Grid Areas:
Current Ofgem guidance must be rewritten to ensure that heating oil and LPG boiler repairs and replacements are delivered under the Affordable Warmth element of ECO where a householder is eligible. Current guidance states that whilst no fuel type is excluded, ECO suppliers are free to choose which systems they deliver. To date this has meant that no heating oil or LPG boilers have been installed or repaired due to the additional costs associated with the companies delivering these measures. Calor suggests that this supplier ‘choice’ must be removed in order to ensure that all householders who meet the eligibility criteria will be guaranteed to receive a repair or replacement boiler, regardless of their fuel type. This would end the perverse situation whereby a householder who meets the eligibility criteria and lives on grid receives assistance, but a householder in exactly the same situation off gas grid is denied support. Under the Warm Front scheme, eligible applicants were guaranteed to receive assistance, and also received additional funding, if they were located off the mains gas grid. Calor believes that a similar guarantee should be introduced under ECO.
3. The Definition of ‘Rural’ Must Be Reviewed:
The current definition of rural as a settlement with less than 10,000 inhabitants must be reviewed to better reflect the actual size of off gas grid rural communities. The current performance of the rural safeguard (delivering just 0.013% of all ECO measures) is a clear indication that it is failing in its intention to ensure rural areas receive their share of support.
From our 79 years experience of providing energy to some of the most remote communities in GB, we know that populations of 10,000 will be urban/semi-urban and on mains gas. In order to deliver ECO into genuine rural off gas grid areas we would suggest that the population size limit is decreased to communities with less than 1,000 inhabitants. This would ensure that the rural safeguard actually reaches those communities who would most benefit from the assistance.
4. Further Innovative Solutions Must be Explored:
The Winter Fuel Payment (WFP) is made to everyone provided they have reached the official retirement age for women (currently 61 but this will increase over time); it is not means-tested. Up to the age of 79 the payment is £200 per household rising to £300 for eligible households over 80. In 2012, Calor supported Mike Weir MP’s Private Members’ Bill in the House of Commons that explored the possibility of paying elderly people who live off the gas grid their WFP in July rather than September so that they could buy their winter heating fuel earlier and stock-up during the summer months when prices are typically lower. Unfortunately this Bill was not supported by the UK Government, but was just one example where a difference could have been made for thousands of vulnerable people in rural off gas grid areas. Furthermore, the WFP currently makes no allowance for the more expensive nature of off gas heating solutions such as heating oil, LPG, solid fuel and electricity. The Sutherland Tables (updated October 2013) indicate that rural fuels such as LPG and heating oil can be up to twice as expensive as natural gas, however the WFP is paid at the same level regardless of fuel type. Calor would suggest that the WFP should be increased for householders located off the mains gas grid and therefore reliant on more expensive forms of heating.
Rural off gas grid areas should not be written off as too difficult to treat or too complicated to administer under ECO. The Government, Ofgem and ECO obligated suppliers simply need to work harder to ensure that ECO is designed and delivered in such a way that ensures that rural householders benefit in the same way as their urban counterparts from supposedly universal assistance schemes.
Click here to view ‘Energy Equity: Access to Government Programmes for Rural and Off Gas Households in England.’ A Joint Policy Briefing by Calor and National Energy Action (NEA) - September 2013
Paul Blacklock is Head of Strategy and Corporate Affairs for Calor Gas Ltd
Since 1935 Calor has supplied LPG to homes and businesses to some of the most remote parts of the country.
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