Fuel Poverty and Emerging Policy Issues

1. Fuel Poverty and Emerging Policy Issues Piya Malik National Energy Action

2. Overview of what we will cover • NEA & FPEEG overview • Fuel Poverty Context • Fuel Poverty Review • Budget 2011 • Warm Front Eligibility • The Warm Home Discount scheme • Energy Bill : Green Deal and ECO • Building a Roadmap

3. NEA overview • UK’s Leading Fuel Poverty Charity • Research & Analysis • Lobbying • Practical Projects • Training • Partnerships

4. Fuel Poverty Context • 5.5 million households in the UK in FP and rising. • WHECA and UK Fuel Poverty strategy • A question of political will?

5. The Government response • The Government has introduced a number of policies to address the main factors in fuel poverty: • Inadequate heating and insulation standards • Low household income • High energy prices

6. Heating and insulation standards The Government’s Warm Front Scheme and the Priority Group requirements of the Carbon Emissions Reduction Target (CERT) deliver energy efficiency improvements to households in receipt of means-tested or disability-related benefits. Both schemes will be replaced in the run-up to the introduction of the Energy Company Obligation (ECO) element of the Green Deal. It is intended that the ECO should be the new source of funding for fuel-poor and other economically disadvantaged households from the end of 2012.

7. Low household income The Government has two separate schemes to help vulnerable households with fuel bills. The non-means-tested Winter Fuel Payment made to all households aged 60 or over and the Cold Weather Payment, made during periods of particularly severe cold and restricted to households on a low income and who are vulnerable as a result of age (pensioners and children under 5) or disability.

8. High energy prices • The Warm Home Discount Scheme. • First rebates are expected this winter. • In the first phase, the scheme will offer a discount of £130 on electricity bills for households aged over 60 and in receipt of the Guarantee element of Pension Credit.

9. Fuel Poverty Review • The independent review of fuel poverty definitions and targets announced in October’s Comprehensive Spending Review is now underway • Professor John Hills, a social policy expert from the London School of Economics, has been appointed to head the review • should report interim findings in autumn of this year with a final report to Government no later than January 2012. • However the announcement of the review was accompanied by an initial Call for Evidence which has a closing date of June 6 2011.

10. Fuel Poverty Review • The Call for Evidence invites stakeholders to submit views that can inform the Fuel Poverty Review Team’s consideration of the elements that comprise the Terms of Reference. • In particular the review would welcome submissions with a strong evidential base (with emphasis on new and emerging evidence) relating to a number of specific areas

11. Fuel Poverty Review ToR • To consider fuel poverty from first principles: to determine the nature of the issues at its core, including the extent to which fuel poverty is distinct from poverty, and the detriment it causes. • As appropriate, and subject to the findings of the previous determination, to develop possible formulations for a future definition and any associated form of target that would best contribute to: - addressing the underlying causes identified - helping Government focus its resources (which are set out in the Spending Review for the period 2014-2015) and policies on those who need most support - measuring the cost effectiveness of different interventions in contributing to progress towards any target - developing practical solutions, particularly around identification and targeting of households and measuring progress resulting from Government action

12. Budget 2011 • From next winter the Winter Fuel Payment will revert to the base value of £200 in the case of recipients aged 60-79 and to £300 in the case of recipients aged 80 or over. • This should result in a saving to the Exchequer of some £600 million as overall expenditure falls from around £2.7 billion to £2.1 billion. • Floor price for carbon Announced • The Impact Assessment for the Carbon Price Support predicted increased fuel poverty levels of between 100,000 and 200,000.

13. Warm Front Eligibility • Major reductions in The Warm Front scheme annoucned with the intention that the programme will be phased out completely by 2012/13. • Previous criticism of the poor match between fuel poverty and eligibility for Warm Front, allied to the fact that the budget is to be reduced by some 70% • What will the revised scheme look like?

14. Warm Front Eligibility • The new eligibility criteria will combine extreme financial disadvantage, vulnerability and poor or modest standards of energy efficiency. Eligible households must: • receive one of a range of means-tested benefits and • be vulnerable on grounds of age (over 60 or with a child under 5) or with some form of disability and • occupy a private sector dwelling with an energy efficiency rating of SAP 55 or below

15. Warm Front Eligibility • The new eligibility criteria will reduce the number of qualifying households from 4.3 million households to 1.5 million households but, since the scheme will only assist 57,000 households in 2011-2012 and 50,000 the year after (compared with 213,000 in 2009-2010), this is perhaps less significant than it might have been. • Certainly demand will continue to outstrip supply and, unless there is a major change in Government thinking, Warm Front will terminate in 2013. The intention here is that, post-2012, the new Energy Company Obligation will be the main source of funding for heating and insulation measures for fuel-poor households.

16. Warm Front Eligibility • A further disappointing decision will see the end of Benefit Entitlement Checks under Warm Front. • The recently published Warm Front Annual Report noted that, in those cases where benefit entitlement was identified, average annual income was increased by £1,850. • The Government justifies this decision on the grounds that priority must be given to practical measures that result in the greatest improvement to thermal efficiency. • In addition, the next phase of the scheme will not offer the £300 Heating Rebate Voucher or compact fluorescent bulbs.

17. Warm Home Discount scheme • The Government has finalised proposals for the Warm Home Discount scheme. • The scheme will make the current voluntary discounts that energy suppliers offer pensioners and some low-income families on gas and electricity mandatory. • In the first phase, the scheme will offer a mandatory discount of £120 on electricity bills for households aged over 60 and in receipt of the Guarantee element of Pension Credit (the Core Group) • It also allow energy companies to offer it to other vulnerable groups that they are able to identify themselves following some guidelines (the Broader Group). • The total that utilities are expected to spend on the Warm Home Discount will be £250m in 2012, rising to £300 million in 2014/15.

18. Core Group (Mandatory element)

19. The Broader Group • Eligibility for the Broader Group is intended to focus on other vulnerable low-income households. • The Secretary of State will publish regulations indicating what sort of groups would fall into this category and suppliers will be provided with what the Government believes to represent appropriate eligibility criteria. • Energy suppliers will be allowed to target sub-sets of these groups although this will not be compulsory.

20. Legacy Spending • Legacy spending comprises the range of discounted tariffs and rebates currently offered by energy suppliers on a voluntary basis. • Over the life of the Warm Home Discount, the balance of expenditure will shift further towards the Core and Broader Groups with legacy spending phased out by 2014-2015. • To ensure effective transition from voluntary arrangements, suppliers can only provide assistance based on the same eligibility criteria applying in the final year of the Voluntary Agreement and to no more than the number of customer accounts benefiting in that year.

21. Industry Initiatives • Industry Initiatives are those supplementary programmes funded by energy suppliers on behalf of vulnerable consumers e.g. energy advice services, benefit entitlement checks and enhanced energy efficiency programmes. • Suppliers will be allowed a degree of flexibility on the distribution of expenditure across Industry Initiatives and Legacy Spending but with a cap on the individual elements of that spend.

22. Final breakdown • Anticipated expenditure across the four elements of the scheme is set out in the table below.

23. Energy Bill Update • The Green Deal is intended to bring about a ‘step change’ in domestic energy efficiency in Great Britain. The key elements of the Green Deal are thought to be: • Householders will have access to finance, up to £6,500, without any upfront payment being required. The finance will be provided by a range of private sector funders and will be paid through a charge on household bill over a period of time up to 25 years. • The charge will remain with any subsequent occupant of the dwelling who will be responsible for ongoing payments. • The Green Deal is underpinned by a ‘golden rule’ specifying that financial savings resulting from energy efficiency improvements should exceed the amount of any repayments made to service the finance arrangements

24. The Green Deal and fuel poverty • The Government has recognised that the Pay-as-You-Save element of the Green Deal is not appropriate for fuel-poor and financially disadvantaged households. This is because: • Vulnerable fuel-poor households will be debt averse • They may represent a credit risk to lenders • Thermal comfort element means wont re-pay savings.

25. The Energy Company Obligation and fuel poverty The primary mechanism to assist disadvantaged households improve heating and insulation standards in their homes will be the Energy Company Obligation (ECO). During the debate on the Statutory Instrument relating to the CERT extension, Energy Minister Greg Barker MP, indicated that: ‘The pay-as-you-save model will serve the majority, if not the lion’s share, of people. Nevertheless, a significant element, particularly among the fuel poor and people with hard-to-treat homes, will need additional support, which we will primarily tackle through an enhanced supplier obligation. We are talking about more than £1 billion a year in the supplier obligation— considerably more than the Warm Front budget this year, which is a little in excess of £300 million. The sums and scale of money are very large. We are designing a new architecture, which will be far more sustainable than the hand-to-mouth, annual Treasury-capped grants.’

26. Consumer equity and the ECO • Future FP policy dependent on ECO • Funding raised through levies. • Potential for leakage to prop up Green Deal? The Impact Assessment for the Energy Bill states: As of 2007, 33% of fuel poor households lived in homes built before 1919 and 43% of the fuel poor households lived in homes without cavity wall insulation (defined as cavity walls in less than half the dwelling). It is likely that a large proportion of fuel poor households will fall into the ‘hard to treat’ category. The primary powers for ECO will allow some form of coordination between the GDF and ECO, which will allow these ‘hard to treat’ homes to still receive measures.

27. The ECO has potential to work providing… • It is sufficiently well funded • The program allows for whole-house energy efficiency improvements and funds 100% of the work • The Energy Company Obligation funding is used in a structured and strategic manner that encourages community-wide improvements in the most efficient and cost-effective form • Local authorities, as the trusted local intermediary, are given the lead role in coordinating energy efficiency programmes in partnership with a range of agencies including energy suppliers, voluntary sector organisations and other relevant commercial enterprises such as heating and insulation installers • Practical work under the Energy Company Obligation is supplemented by guidance and advice on the most appropriate energy tariffs, energy advice aimed at behavior change and support and advice in relation to fuel debt and consumer protection

28. Delivery of ECO • The Bill as drafted does not provide any detail on how the obligation would be delivered or by whom but it is expected that energy companies will be predominantly the delivery agents and the role of local authorities is as yet unknown. • This and a number of other relevant points relating to delivery were highlighted by Peers. • NEA continues to argue that a comprehensive, efficient and optimal framework would comprise a systematic bottom up “area-based” roll-out of energy efficiency measures led by local authorities and their private commercial and/or voluntary partners.

29. Questions remainingGreen Deal • How exactly will households be incentivised to take part in the Green Deal? Will it be through a carrot or a stick method or a combination of both? • What level will interest repayment on the Green Deal be set at and how? • What will happen if the “golden rule” is not met and customers do not save as much on their energy bills as first anticipated? Who will be responsible for making up any shortfall? • Will finance providers be able to turn down requests for the Green Deal? If so, for what reasons? • How many people will actually take-out a Green Deal plan? In February 2011 the Government said it has not yet made any estimates of expected take-up.

30. Questions remaining on ECO • What is the anticipated level of resources in the Energy Company Obligation?  • Will these resources be devoted in their entirety to fuel-poor households in conventional properties and to fuel-poor households occupying hard to treat dwellings? • Will the resultant fuel poverty programmes be structured in such a way as to maximise benefit and minimise cost through delivery on a community basis with local authorities as key intermediaries?

31. Building a Roadmap The government Greater clarity is needed on: • the range of actions necessary for tackling fuel poverty; • how they interact together; • who owns each action; • Cross departmental working? Which departments? • the milestones towards 2016; • what is going to happen if those milestones are not reached? • funding.

32. Thank you Piya Malik Policy Campaigns and Parliamentary Officer Piya.malik@nea.org.uk 07912 994 714 Fuel poverty and Energy Efficiency Group Co-ordinator malikp@parliament.uk