Oral evidence: Heating our homes, HC 115
Oral evidence, 13 March 2024.
Witnesses
Neil Kenward, Neil Lawrence and Laura Nell.
Chair
Welcome to the Energy Security and Net Zero Committee and our session on heating our homes. This first panel is with Ofgem and the next panel is with the Minister, Lord Callanan. We have a panel of three from Ofgem. It is good to see you here, lady and gentlemen. I will ask you to introduce yourselves, job titles and what have you—name, rank and serial number, basically—starting from my left.
Neil Kenward
My name is Neil Kenward. I am the director for strategy, economics, research and the net zero transition in Ofgem.
Chair
Indeed. I recently saw you in Glasgow at the Ofgem meeting in Albion Street.
Neil Kenward
Indeed.
Neil Lawrence
Hello. I am Neil Lawrence. I am the director of delivery and schemes at Ofgem.
Laura Nell
Hi. I am Laura Nell. I am the deputy director for policy and schemes development in Ofgem.
Chair
Excellent. Thank you all for coming this afternoon. To kick off, can you update us on when Ofgem’s heat networks regulation will come into effect and how it is protecting consumers in the meantime?
Laura Nell
We are working really closely with Government at the moment on developing the regulatory framework for heat networks. We put out a joint consultation last year and we are working through the results of that. There is a lot to do. I think people will recognise the minimum level of protection that currently exists for heat network customers, and we completely recognise the urgency of needing to get these protections in place as soon as possible. My understanding is that the Government is planning to transition in protections from April 2025, and this will include things like access to an ombudsman for complaint handling, some minimum standards of compensation related to the reliability of the service, and, in time, more protections related to proportional pricing. We are expecting that that will take longer to bring in.
Chair
There has been some evidence to say that consumers saw their energy bills almost double in January due to the sudden rises in Economy 7 night rates. What is Ofgem’s take on that?
Neil Kenward
The Economy 7 tariffs, as you will appreciate, incentivise people to use their energy off peak and reward customers with lower bills as a result. Those tariffs do have to operate within the price cap formula. We require suppliers to make sure that the weighted average of the two components of the Economy 7 or other tariffs like that are within the price cap level, so we ensure that value is delivered to consumers, but I would say that that balance can be achieved in different ways and different suppliers choose different balances.
Chair
You say they have to work within the formula. Who sets the formula?
Neil Kenward
We set the price cap level overall. We give a weighting between the two time periods, which reflects normal consumption rates. We then require them essentially to be within that average in setting their Economy 7 tariffs.
Chair
So it’s Ofgem’s fault because of the weighting you give.
Neil Kenward
Consumers should be able to benefit in any scenario if they have time patterns of consumption that are benefiting from those time-of-use tariffs. What I would say is that different suppliers have different balances of prices between them, and we would strongly encourage consumers to shop around to get the best possible deal.
Chair
Your written evidence says that “evidence of poor installer behaviour and consumer experience remains across…technologies,” including when issues arise after installation. What would you want to see happening to address this and to change that experience?
Laura Nell
We recognise the importance of customers having confidence in products for green heating and insulation. It is really important that customers are treated fairly and that there are protections against harmful practices. Currently Ofgem, on the schemes that it administers for fuel poverty and energy efficiency, works really closely with the standards bodies, MCS and TrustMark, who I know you have heard from previously. Those codes offer some protection in terms of the quality of the installation, and they offer some protection around complaint handling as well, but this is an area that the CMA has looked at closely and has concluded that there is room for improvement among the standards offered by the standards bodies. Our view is that it is really important that the standards bodies are able to use their sanction powers impartially and rigorously, and it is important that the businesses joining the schemes are vetted thoroughly when they join. I think it is difficult at the moment for customers to understand how much weight they can place on the value of any given certification scheme, given the proliferation of them in the sector.
Chair
Do you want to come in, Mark Garnier?
Mark Garnier
No, it is just that I have a pet hate of dodgy builders. I have tried on a couple of occasions to get the Government to introduce a compulsory licensing scheme. You can look at things like TrustMark, which are fantastic, but they are voluntary. We continue to see problems across the whole of the small residential sector where you have dodgy builders, and it has not been resolved. I thought I would just get my whinge in at that point.
Chair
I presume you are not alone in despising dodgy builders; I do not think there would be many who love them.
Mark Garnier
Well, there are a lot of very good builders, so we mustn’t malign the whole of the sector. Amazingly, you will be surprised to hear, there are one or two dodgy MPs, but—
Chair
Certainly not on this panel. I will turn to Lloyd Russell-Moyle to show that there is not.
Lloyd Russell-Moyle
I will come back to how we stop fraud in a second, but you have 11 schemes that you administer: the boiler upgrade scheme, the domestic renewable heat incentive, the energy company obligation, the feed-in tariffs, the Great British insulation scheme, the green gas support scheme, the green gas levy, the renewables obligation, the warm home discount. I have already forgotten what I started with on that list. Many of those schemes have got huge underspends. The boiler upgrade scheme failed to spend two thirds of its annual budget in the first year. ECO fell by 59% in 2022. Is it not clear that the consumers have not a clue of all these different schemes, that you have totally bamboozled them, that you are not really helping at all with any of them, and that they should be scrapped and replaced with one clear scheme that people actually understand, rather than the myriad of mess that you have presided over?
Neil Lawrence
Our role is administrator of the schemes. Our role is to work with Government. They have decided the policy and, as administrator, we make sure that we develop operations that are easy for customers with regard to those schemes, so they have access to them as scheme participants. We have to do a lot of work around fraud and compliance.
Lloyd Russell-Moyle
You administer the scheme. How easy is it for a customer to come along and say, “I have a house. I have no idea what scheme is available to me. I just want a reputable builder to come along and to be able to do the work and for me to have peace of mind”? Is that possible in any of the schemes that you have designed?
Neil Lawrence
With regard to the individual schemes, there is help available from Ofgem. I think we all recognise that it could be confusing. We administer the schemes you mentioned but in addition to that there are other scheme administrators for other areas of Government as well. It is not just about Ofgem.
Lloyd Russell-Moyle
Okay, but of the schemes you administer, could someone come along and say, “I have this house. Can you just provide me a reputable person that I know will not defraud me and will just do the work rather than me being an expert”? Do you offer that?
Neil Lawrence
No.
Lloyd Russell-Moyle
Why not?
Laura Nell
On the boiler upgrade scheme, for example, it is an installer-led scheme—it is largely demand-led—and MCS, as the standards body, does keep a list of registered installers.
Lloyd Russell-Moyle
It is demand-led but the demand is from the customers, and they haven’t got a dicky-bird clue about any of this stuff and you are not helping them.
Laura Nell
Well, we publish guidance on the administration of our schemes and—
Lloyd Russell-Moyle
Publish guidance to who?
Laura Nell
For property owners and for installers on the boiler upgrade scheme.
Lloyd Russell-Moyle
If I am a property owner, where can I type in my details and get given a person that I can speak to that will guide me through that process? Is that possible?
Laura Nell
The Government have been doing work on putting a number of the schemes behind the digital front door and those schemes go beyond the schemes Ofgem administers.
Lloyd Russell-Moyle
What have you been doing? You administer your schemes. You acknowledge that your schemes are impenetrable for the consumer, apart from guidance that you provide. How can they speak to someone and be connected directly with someone that will actually help them?
Neil Lawrence
Sorry, I just want to be clear. We don’t just publish guidance. We have an operations centre. We speak to customers. We help them and guide them through—
Lloyd Russell-Moyle
So there is an ability for a customer to speak directly to someone.
Neil Lawrence
There is.
Lloyd Russell-Moyle
What happens in that process?
Neil Lawrence
You can speak directly to somebody at Ofgem, and you can ask about eligibility for the scheme. You can get help and advice with regard to the individual scheme. On the matters that we are talking about, though, I think there is more work to be done if you are a consumer looking at the plethora of things that you could do to get on the energy efficiency journey, to improve your home, and that is something that we are working with Government on around this front door.
Lloyd Russell-Moyle
Why did ECO fall by 59% in 2022 and why did the boiler upgrade scheme only have a third of its budget spent?
Neil Lawrence
Let’s start with the boiler upgrade scheme and talk generally around it. When a new scheme is introduced, it is very common to see what we call an S curve. That is a slow start to the scheme and then, as people become more knowledgeable about the scheme and understand that it is there, you see an increased uptake through the scheme lifetime, and then at the end of the scheme its working at a faster rate. We appreciate where we are with the boiler upgrade scheme at present in terms of the numbers. We are working with the Government, suppliers and consumer groups to understand how we can offer and speed up any of those processes in our role as administrator, but the policy is for the Government.
Lloyd Russell-Moyle
I want to upgrade my boiler. I have my usual plumber that does my work. I ring him up and I say, “I want you to install the boiler.” Is that possible?
Laura Nell
Under the boiler upgrade scheme, the grants are for air source and ground source heat pumps and biomass boilers.
Lloyd Russell-Moyle
Yes, sorry: “I want you to upgrade my heating.” Is that possible? Can I say that to my usual plumber, who lives down the road from me and who I trust—because I don’t know about these other people?
Laura Nell
If they are registered with MCS and certified—
Lloyd Russell-Moyle
What percentage are registered?
Laura Nell
We have over 1,000 installers that are registered on the BUS.
Lloyd Russell-Moyle
What is that as a percentage of plumbers across the country?
Laura Nell
I couldn’t tell you.
Lloyd Russell-Moyle
It is a tiny fraction of plumbers across the country, isn’t it? The likelihood is that I would not be able to use my trusted plumber and you are forcing me to use someone that I don’t have a dicky-bird clue who they are. I don’t know who they are from Adam, apart from that they might have advertised on the internet, and have I no trust. The second part of my question is: what measures are you doing to stop fraud happening, because you are asking consumers to engage with people that they don’t know?
Neil Lawrence
Let me start off with the fraud piece. Fraud is something we take really seriously. If you take those schemes that we manage, we are managing circa £9.6 billion-worth of Government money every year, so it is something we take really, really seriously. For each of the schemes that we perform we have defined a fraud risk assessment to understand where the risks are with each of those schemes—where they could be penetrated. It is absolutely right that we spend time thinking about fraud. It is a big risk for Government. We are on that journey. We speak to the Public Sector Fraud Authority regularly. In fact, we have Mark Cheeseman attending one of our all-staff calls on delivering schemes in the next month or so to discuss the topic. It is one of my strategic priorities this year. We invest a lot of money in both the detection and the prevention of fraud, and we will continue to do so. With fraud there is always a risk—there absolutely is. You cannot insure against all of it. We would create schemes that were impenetrable and we would spend a disproportionate amount of money. So there will always be a risk with regard to it, but we are doing everything we can, recognising that it is a growing problem and something that we are really focused on.
Lloyd Russell-Moyle
That is useful. Thank you very much for recognising that. Do you think there is a problem that a relationship with people that a consumer might not know increases the risk of fraud?
Neil Lawrence
There are a number of different fraud risks in each of the schemes. The fraudsters are very clever. They are working on this when Government money is available. We have seen it through other Government initiatives. We have to be on top of it. For obvious reasons, I do not want to get into specific examples in a public forum, but there is a significant risk around fraud.
Mark Garnier
Laura, I want to ask some questions about innovation in pricing models and how that can bump into regulations or find itself being unregulated. We have heard from a number of people who are coming up with slightly more complicated things, such as heat as a service-type models. We heard from Fuel Poverty Action that part of the problem with this is that what you are seeing is innovation coming into this area that is specifically being targeted at the richer—you would imagine that would be the case because you have a bigger market to go to—and that fuel poverty is not being addressed through innovation. I am interested to hear how you aim to encourage innovation in energy tariffs and business models while making sure that the right people are being targeted and, also, that the regulations are adapting quickly enough for these new business models.
Neil Kenward
I will start and Laura may add to my answer. First off, it is important to say we are really delighted to see the level of innovation coming into the market at the moment. There is a surge of innovation. You are right to observe that a lot of that is focused at, for example, owners of electric vehicles, where there are huge opportunities to benefit the system and, indeed, the EV owner with new types of tariff. We support innovation in a number of ways. We run a regulatory sandbox that enables companies to test ideas before they are put out to the whole market. We have our Innovation Link service, which is a sort of advisory service that new innovators can contact to find out exactly how rules apply to different things. We oversee a major pot of innovation money, which we can target on to some of the most important challenges the sector faces. But your point is a valid one that a lot of that tariff innovation at the moment is at the higher end—the better-off end—of the market. We do encourage the industry to promote and develop more innovative solutions that are going to be beneficial to the whole consumer base and, indeed, in particular the vulnerable. We are seeing benefits of technology there. For example, smart prepayment metres are dramatically better and more user-friendly for consumers than the traditional ones. We see there is opportunity to do a lot more in that space, which we are encouraging the sector to do.
Mark Garnier
On that tech point, a lot of this innovation is coming through with technology—smartphones and all the rest of it. Not everybody is tech savvy. Looking around this table, I am just wondering—anyway, without being too rude about my colleagues. I certainly struggle a little bit with tech as it gets more things. How do you make sure that innovation is not entirely reliant on everybody having a smartphone and a fairly good working knowledge of technology?
Neil Kenward
That is a fair challenge, but the coming generation of technologies are smart enough that they can sort of work for people. They do the hard work. They do the complicated bit and you might, for example, just put a particular setting on a device when you get it and then it operates smartly and does the work for you. Technology offers opportunities across the whole spectrum.
Laura Nell
I would add that there is a lot of work that we do with suppliers under the warm home discount that enables them to test more innovative approaches to getting support to fuel-poor customers. One of those innovations has been making sure customers in park homes get the rebate. It enables different approaches to support to be trialled.
Mark Garnier
For these innovators coming up with these ideas, do you set down minimum standards that you require from them in terms of what they are providing, or is it a bit of a free-for-all?
Neil Lawrence
The sector is an unregulated sector in a sense, but obviously we have a broad role to try to protect consumers. We are bringing the industry together. I see the benefits of technology and the benefits for all in technology. Clearly, there has to be a journey and some of the prosumer stuff that goes on first of all gets that kick-started before others can catch up. With our role in the industry, bringing people together—the innovation funds that Neil has mentioned—we are trying to kick-start that and accelerate it so that the benefits can be reached by all.
Mark Garnier
But specifically on the standards, people can come up with a solution that can tie people in terrible knots or get them committed—we have seen this, on the most basic level—to long-term contracts, which doesn’t necessarily benefit them over a two or three-year cycle or whatever. When you are looking at these new things, can you set a standard or certain levels of delivery, or is that just too complicated to do or even not in your remit?
Neil Lawrence
If you look broadly at that market area, there are improvements in consumer standards that are needed. That is not solely our job. The CMA recently reported on a broad range of further standards that are needed to protect consumers that are in this journey. We are able to help, and we are able to contribute towards that conversation, but it is not solely our role.
Neil Kenward
If you are talking about the specific oversight of tariffs, there are obviously obligations on all suppliers to be fair and treat consumers well. We constantly monitor that market and if we were getting signs of abuse we would intervene at speed. We recognise the market is getting more complicated and we are going to have to move and upgrade our own capabilities as that happens.
Mark Garnier
One of the problems with any financial instrument—which ultimately these models are—is that they are always pushing the boundaries. They are always pushing the edge of the envelope. It is not always that easy to know what is going on. We witnessed the 2008 financial crash, where very clever people were coming up with very clever systems that were fundamentally deeply flawed but nobody picked up where it was going wrong, and nobody really predicted it was going to be a problem. Yet in retrospect you think it was blindingly obvious it was going to go wrong.
Neil Kenward
You are right to flag the issue. It is something we already look at, but I agree that over time we may need to do more.
Chair
We have heard some evidence about the role of regional energy strategic planners in relation to heat transition. Neil Kenward, what are your expectations of that? I will come back to what some of the evidence says, but I would like to hear from you first.
Neil Kenward
In pioneering the development of the RESPs, we think that they will be a really important component in helping to plan and ensure that the net zero transition—partly in heat but actually across other vectors of the energy transition—is done in a co-ordinated and hopefully, therefore, smoother, lower-cost fashion. It recognises that there will be some national policies, but it will matter how those are delivered locally and there will be some differentiation in different areas.
Chair
I am detecting a bit of a departure of philosophy in the energy space, at least in the UK. In the session this morning we had people looking for some idea of a system brain, not just leaving things to market forces. What you are saying here is that just signals and certain stimuli is not what we are looking for; we are looking for people to take charge, take ownership, plan and work on a project to make sure it is delivered, almost.
Neil Kenward
I think that is right. You are right to notice that there has been a shift, and we welcome and have indeed been pushing for that shift. We do not think it is turning backs on the role of the market, which is still hugely important to deliver competition and best value, but the scale, pace and complexity of the net zero challenge, of that transition, does require more co-ordination and more planning. That is both at the national level, which is one reason that the National Energy System Operator has been set up and will have a strategic planning function, but we believe that there needs to be a counterpart to the national planning at the regional and local levels.
Chair
So what you are saying is the market will work okay when the structure is set up, but when you are moving from one model to the other you have to have a compass and you have to have somebody steering that.
Neil Kenward
I think that is right. That is why there has been this move back towards more central planning to deliver that change.
Chair
In the third session of the inquiry, the metro Mayor for the West of England, Dan Norris—who used to be an MP—told us that mayors and regional authorities could play a greater role in joining the links between the local area energy plans to share best practice and encourage economies of scale. He highlighted that the local expertise of regional authorities and their ability to disseminate knowledge in the region would be useful, and that it would be helpful to see how these regional energy strategic planners could work alongside existing stakeholders and functions. Do you envisage that as Mr Norris did?
Neil Kenward
That is absolutely the intent. In fact, our chief executive, Jonathan Brearley, has convened a meeting of metro mayors to discuss exactly these sorts of issues. The regional energy system plans—
Chair
He must have been paying attention to Dan Norris’s plea.
Neil Kenward
Indeed. These plans will only work if they have local buy-in. They will be an important vehicle for bringing those local stakeholders together and starting to shape the sorts of solutions that work best in each locality and region.
Barry Gardiner
I want to get an understanding from you of how these regional energy strategic planners are going to relate to NESO, because NESO is going to be up and running by the summer. It is going to take some time for it to produce its strategic plan. These guys are presumably going to be working on their local strategic plan and then somebody has to begin seamlessly stitching the two together, which is going to add considerable time to this process. As Ofgem, what is your estimate of what that timescale is and how it produces a bottleneck in the system to getting the delivery that we need?
Neil Kenward
You are absolutely right: knitting this together is going to be a vital part of it. What we envisage is that these regional system planners will actually sit as part of the National Energy System Operator. That ensures they are plugged into the national plan. They will obviously have to work very closely with the regional authorities and local authorities to develop the local components of the plan. That hopefully helps ensure a degree of join-up between these plans.
Barry Gardiner
This gets me so worried because—
Chair
You might be the Energy Minister in the future Labour Government doing this.
Barry Gardiner
In my dreams and yours, Chair. Yesterday we heard from Ofgem at the Environmental Audit Committee, and I expressed concerns about governance and buy-in. I don’t know whether you have seen that.
Neil Kenward
Apologies—no.
Barry Gardiner
Ofgem and the NESO were told they are going to be working hand in glove, very closely together in agreeing everything as it goes along so there is full transparency and there are no surprises at the end of the day. You are now telling me that the RESPs—the regional people—are going to be stitched into that as they go and working very closely. Everybody is bought into the process: you are bought into it as Ofgem; the regional people are bought into it. Where is the independent governance here? How does anybody hold anybody else to account if and when things go wrong? Because you have all agreed the thing every step of the way.
Neil Kenward
What we are trying to do is ensure there is consensus behind the proposals. The actual specific plans will be done in a very consultative, open and transparent way that will enable stakeholders across the board to contribute their views working hand in glove, I would suggest, with local and regional authorities.
Barry Gardiner
So your answer to my question—if I can translate it—is that things can’t go wrong. I am afraid that’s not history.
Neil Kenward
The reality will be that there will be learning experiences. In fact, a number of local areas have already done local area energy plans—
Barry Gardiner
My question is: who holds whom to account if and when things do go wrong? As Ofgem, at the moment you have a governance function. That is your job: to hold people to account and tell them, “No, I’m sorry, you’re not doing that right.” In this new system, there ain’t none.
Neil Kenward
We are the regulator, including in its new state, for the National Energy System Operator. We will continue to play that regulatory function. Obviously, we are working with them to create—
Barry Gardiner
But you can’t criticise them, because if things go wrong, they will turn around to you and say, “Don’t blame us! You had sight of this every step of the way, and you agreed each step, so you can’t come back on us now.” That is what they are going to say to you, and you know it.
Neil Kenward
I think we can certainly hold them to account for delivering on those plans and for making sure that those plans are developed in a sensible and effective way, in line with the approach that we have been developing and discussing with a wide range of stakeholders. I should say that this is at a relatively early stage, so the details are still to be nailed down.
Barry Gardiner
But we have very limited time.
Chair
Your questions may indeed change these details, Mr Gardiner.
Neil Kenward
This is something that I think we should return to you on as this issue develops, to give you that assurance, because I agree that there are risks in developing new structures. We would be very happy to return as the process develops.
Barry Gardiner
That would be very helpful, and maybe with some suggestions about how that governance can be constructed into the system. At the moment it is a real concern.
Chair
That was a constructive engagement indeed for looking to the future. On the work that has to happen, the Committee has heard at times that there is no way to net zero without going through the homes of the poor. The Committee has heard evidence that supply chains are reluctant to engage with many retrofit support schemes due to rising costs and unrealistic cost assumptions. Increased supply costs mean that cost assumptions for many support schemes no longer reflect market conditions. How do you intend to make the schemes more economic for delivery partners?
Laura Nell
We are certainly aware of the challenges around costs. This has become a particular issue on the Great British insulation scheme. Suppliers do have—
Chair
When you are aware of the challenges around cost, what can you do?
Laura Nell
Suppliers have targets under that scheme. We have requested to see their delivery plans. We are examining those plans in quite a bit of detail at the moment to understand if they are feasible and achievable.
Chair
How long is that time period? If things have changed and it is unrealistic, and you are doing something to change that, in the meantime I am waiting with my installers for you to come and tell me.
Laura Nell
This is an ongoing piece of compliance work that we will be doing over the duration of the scheme. We requested the plans last November; suppliers have an interim deliverable at the end of March, and we expect to be working really closely with them to understand the weaknesses in the plans and the areas for improvement. We certainly haven’t taken anything off the table around compliance and enforcement tools but, ultimately, the costs of the scheme and the impact assessment costs of the ECO scheme are a matter for the Government to decide on.
Chair
Neil Kenward, in 2021, you told a predecessor Committee that Ofgem needed greater clarity around key technologies to support the roll-out of low carbon heat, such as hydrogen and heat pumps and what have you. Do you have that clarity now?
Neil Kenward
We do not yet have that clarity.
Chair
It was three years ago.
Neil Kenward
As you are probably aware, Chair, the Government have said they will decide on the role of hydrogen in home heating in 2026. If there is the possibility for the Government to make an earlier decision that would be helpful for us because we have to plan the networks—both the electricity network and the gas network—and how they are going to develop over time. The decision on the preferred technologies for decarbonising heating in homes is quite an important input into how we help develop and regulate those networks.
Chair
The UK knows it has to make a decision. In 2021 you did not have the clarity and by 2026 a decision might be made—maybe by Mr Gardiner if he is Energy Minister, who knows? It does not really look like somewhere that is taking this seriously and going to move at pace on net zero targets and whatever.
Neil Kenward
It is important when making such a huge decision to ensure it is informed by evidence. I know the Government have been running trials. In fact, our innovation funding has paid for a lot of those trials of hydrogen and other sorts of technologies. It is important that evidence is gathered and considered before what could be a very large and one-way decision is made. It is wise to be taking that approach but, as I say, it might be now the trials have closed that the Government can come to a view sooner than 2026.
Chair
You can see there is a difficulty here. Obviously you guys are the regulators and I often see the Government blame things in your direction. In the past I have dealt with interconnector issues to the Hebrides. Ofgem will say, “It’s the Government that dictate our structure,” and the two can play off against each other. You have 2021 and 2026. In the meantime, what are those in the supply chain meant to do? It will be 2026 before they can meaningfully start to do anything seriously as they wait for this decision, which will mean it may be 2028. It will then be seven years since the former Committee asked.
Neil Kenward
It is worth noting that the heat pump transition is being rolled out, the BUS is up and running and progress is being made on that. In terms of our decisions as regulator, there are some decisions that we can proceed with on a sort of low-regrets basis. For example, in December last year we put out a consultation on the methodology for future gas network regulation. We talked about what might happen in a world of a decline in gas use and how we might need to accelerate depreciation in that world. We have put out some ideas that we are getting views on and able to make progress on, but as I have said, and will continue to say, the greater clarity we have earlier from the Government, the easier it is for us to provide the regulatory—
Chair
What do you think the bottleneck is in Government to reach something before 2026?
Neil Kenward
I couldn’t speculate. I can imagine they have—as I say, they are in that process of gathering evidence.
Mick Whitley
Could I just come in on hydrogen?
Chair
Yes, indeed.
Mick Whitley
It is a rather confusing when we are talking about the conversion. When you are talking about heat pumps, how many have been rolled out?
Laura Nell
Under the boiler upgrade scheme we have issued £76 million-worth of vouchers up until the end of February, which accounted for 35,000-odd applications.
Mick Whitley
For heat pumps.
Laura Nell
Yes.
Mick Whitley
So 35,000 heat pumps will be installed up to now.
Laura Nell
That is how many vouchers we have received this year.
Neil Kenward
We are in the low tens of thousands as a country in terms of heat pump installations.
Mick Whitley
We seem to be behind the curve then, don’t we?
Neil Lawrence
As I said earlier on, when the scheme is set up you will see an S curve in terms of the outrun. You have the early adopters in slow numbers; we expect those numbers to accelerate as the supply chains come in. That is the point of the policy. Our role as the scheme administrator is to set up the processes so that people can apply for those vouchers. We make that as easy as possible. We liaise with various trade bodies to ensure that process is as easy as possible for everybody to go through. We have digitised the process to make it easy and helpful for people to go through. Ultimately, the decision on the amount of money does rest with the Government. That is a Government decision; it is not for us. Our role is the administration of the scheme.
Mick Whitley
Let me let me ask another question, then. There are 35,000 that have applied. How much discount is it? Is it a sliding scale of what they get off the Government, or is it one fixed price?
Laura Nell
It is fixed currently. It is £7,500 for a ground source or air source heat pump and £5,000 for a biomass boiler.
Mick Whitley
And a heat pump costs, say, £12,000, so the user has to find £5,000. There are going to be a lot of people who cannot afford that.
Laura Nell
We are starting to see the supply chain respond. The production is going up and costs are coming down.
Chair
And finance schemes.
Laura Nell
We are seeing installations for as little as £500 at the moment.
Chair
I am imagining somebody who was an early adopter of a heat pump. Say that person got their heat pump 14 or 15 years ago. Are they eligible for that scheme or are they out in the cold?
Mark Pawsey
Declare your interest!
Chair
Yes, I should declare my interest! I thought I made it obvious enough.
Laura Nell
No, you wouldn’t be eligible under the—
Chair
I need to give myself a gas boiler in the intervening period and then come back and get the scheme.
Mark Garnier
Very quickly on this heat pump thing, four of us were in Copenhagen looking at this heat distribution network and, on an incredibly basic back-of-the-envelope calculation, I reckoned that if the Government redeployed the £7,500 per heat pump for every house into a heat distribution network you could save huge amounts of money or get more houses covered. Why on earth are we mucking around with this? If we are prepared to spend £7,500 per house, wouldn’t it be better to do heat distribution networks where it works out cheaper per house to do it and have centrally produced heat on a much more efficient basis, salvaging heat from cement works or from power stations?
Neil Kenward
I believe there is a central Government fund to support heat network development and roll-out. As I am sure you will appreciate, the reality is that some districts will be very suitable for heat networks, but some really will not.
Mark Garnier
Sure. If you are an isolated house then clearly a heat pump is a much better idea, but you have thousands of Victorian terraces all around south London and east London, absolutely perfect for this.
Chair
Will heat networks be the solution for them or will heat pumps be the solution for them? If you have some going off on heat pumps presumably you are losing the network possibilities.
Neil Kenward
That is the importance of the local area plans to actually start to define the areas for the optimal different sources of heat.
Chair
Will they do that? Because some consumers might say, “I want a heat pump,” or, “I want this.” If you give too much autonomy we will have nothing at all.
Neil Kenward
That is where the whole public participation and consumer engagement is going to be so vital to this transition, because we have a collective action challenge. A lot of people care enormously about how their homes are heated and it is going to be a challenge that this Committee and indeed ourselves will keep coming back to over the coming years.
Chair
We might come back to some of these themes. I promised to bring in Mark Pawsey quite a while ago, so I want to make good on my promise.
Mark Pawsey
I want to come back to the issue of hydrogen and Ofgem’s role in dealing with the future of the gas network. Consumers in the UK have paid for all of these pipes—the big pipes running up and down the country and the pipes to everybody’s house. They have paid for that through their gas bills. It would seem to me sensible to consider whether we can use that infrastructure, which we have already paid for, for hydrogen. I accept we need a decision on that promptly. In the event that we were not to pursue hydrogen as a method of home heating, what role would Ofgem play in ensuring the safe decommissioning of the system? Once people have detached from that grid and are no longer paying for gas, you do not have a customer to pick up the costs of decommissioning. What thought have you given to that and what will be your role?
Neil Kenward
That is an extremely important and timely question, because if the Government decide that hydrogen is not going to play a major role in home heating and so the gas network—at least at the local distribution level—is going to become unnecessary, there will need to be a national conversation about decommissioning.
Mark Pawsey
Who should pay for it?
Neil Kenward
That is going to have to be part of the conversation. There will be costs. One of Ofgem’s objectives is to have that conversation, begin that conversation, prepare for it and indeed look at ways in which we can minimise the costs of decommissioning, if that is the route the Government chooses to take.
Mark Pawsey
Are the Government aware of the costs of decommissioning, do you think?
Neil Kenward
I suspect the relevant officials will have at least clocked the issue and started to consider those points, yes.
Mark Pawsey
Will there be a role for Ofgem in that?
Neil Kenward
We are likely to have a role working with the Government and the sector on thinking about what is the best way to manage declining use of the gas grid, if that is the scenario we end up in.
Chair
On Mark Pawsey’s point about hydrogen, if the gas network did not exist on mainland UK and parts of rural UK, would there be any consideration given to using hydrogen in pipes to homes or not?
Neil Kenward
As in laying down a new pipe?
Chair
Is it possible that we will say, “We’re going to have this pipe—we’ve got these assets here. Let’s put something in it,” and the thought is hydrogen? The alternative is a costly decommissioning and a stranded asset.
Neil Kenward
Part of the calculation that the Government will have to make—this is one of the reasons that it is complicated—is that there is this opportunity to repurpose the gas grid. It is not as simple as simply putting hydrogen down the existing pipes. It is a different molecule. The pipes, and indeed the devices, would need to be checked and possibly upgraded for compliance with the hydrogen grid.
Chair
Many in the hydrogen area and the gas area will say that is not insurmountable. That is what they have told us and will tell us.
Neil Kenward
That is the choice the Government need to make. There is an existing gas grid that could be repurposed, and there is a case for heat pumps.
Chair
There is a tension between the camps, because one of the camps will tell you the best thing you can do with hydrogen is take it to a power station, burn it, make electricity with it and send it down the wires to provide heat out of heat pumps and make it a three to one gain rather than about 90%.
Neil Kenward
Absolutely. You have put your finger on one of the key balances to identify.
Chair
We are well aware of the highwire that we ourselves have with this.
Barry Gardiner
I want to take us back to a very simple question on heat pumps. You said 35,000 vouchers have been given out. How many heat pumps have actually been installed?
Laura Nell
It is 20,000-odd heat pumps that have been installed but there are 35,000 current applications in train.
Neil Kenward
Is that 20,000 last year or in the scheme?
Laura Nell
Since the beginning of the scheme in May 2022.
Chair
That is really very few. What has France had—600,000?
Barry Gardiner
It may be very few, Chair, but I think it is probably still an overestimate, but there we are.
Laura Nell
There are also heat pumps being installed under other schemes. The boiler upgrade scheme is one of several sources of support. For example, through the energy company obligation heat pumps are feasible.
Chair
There is no one-stop shop like France has. This goes back to Lloyd Russell-Moyle’s question at the beginning, when he read out a list of schemes and he got to the end and pointed out that he had forgotten what he had read out at the beginning, a few seconds before. That seems to be an issue with the UK: there is a plethora of stuff, whereas in France there is a purpose—
Laura Nell
The boiler upgrade scheme is a retrofit scheme, as is the energy company obligation. Through the future homes standard, the Government is trying to drive up the uptake of heat pumps in new builds as well.
Barry Gardiner
For the future homes standard we have got EPC C. That is not the future. That is what we should have been doing in the past.
Chair
This is not to put you on the spot as Ofgem, but could things be done better in the UK than they are currently being done as regards the heat pump roll-out? I know from speaking to some people in your organisation that you guys do come up across walls of frustration. You are given certain parameters by the Government. Government will use you as a sort of shield at times, and at other times will leave you hanging out to dry. You must come across areas where you think this could be done an awful lot better, because you work on this day to day. The heat pump roll-out is not impressive in the UK. It is in bits. The word “mess” was used by one of my colleagues just a second ago, fairly or unfairly. What are your thoughts?
Laura Nell
It is absolutely for Government Ministers to decide where they put the sources of support. One of the really positive things about the boiler upgrade scheme is its simplicity of offering, and that is easily understandable by consumers. It is perhaps easier for the supply chain to engage in that respect as well.
Barry Gardiner
Look, the only way that you got traction on that scheme was by hugely increasing the grant, but not increasing the overall amount of money. It is not your problem. You are administering the scheme. If you have doubled the amount of money available to the individual but you have not doubled the amount of money available from the Government, you are halving the number of boilers that you project are going to be delivered—and even then, I would say, not delivering on those.
Chair
That is a nice statement from Mr Gardiner. Lloyd Russell-Moyle.
Lloyd Russell-Moyle
Did you say there were 1,000 installers?
Laura Nell
A thousand installers registered on the boiler upgrade—
Lloyd Russell-Moyle
There are 150,000 plumbers in the UK, so 1,000 is a tiny fraction. You have said you have made the scheme easy to access, but you can only access it by getting through the eye of the needle and getting one of these suppliers. Have you made representations to Government that these schemes are confusing and difficult for people? Have you asked Government for the ability to merge these schemes into one pot? If not, why have you not asked for that?
Neil Lawrence
No, we have not asked the Government to merge these schemes into one pot.
Lloyd Russell-Moyle
So I assume that you support these multiple pots of schemes. Do you think that is a good idea?
Neil Lawrence
There is a difficult journey to net zero. As I have said before, our objective is to try to make that as easy as possible with the schemes that we operate on. There is work going on with the Government to try to ensure that a consumer wishing to get on that journey gets to a front door, and we are happy to work with them, but it is not our role simply to do that.
Lloyd Russell-Moyle
But the taxpayer pays for all of these things: ECO4, paid for by the taxpayer through their bills; all the other things, paid for by an addition on their bill. They are all paid for by the same person, in the end. Why do you think there is an advantage to having confusing and separate schemes, rather than having one scheme? You are not advocating for one scheme.
Laura Nell
The schemes themselves are targeted at very different groups of customers.
Lloyd Russell-Moyle
They are all failing.
Laura Nell
ECO4 is well within target, and we have seen a significant increase in uptake on the boiler upgrade scheme since the grant was increased and the Government have committed to a further three years of funding, taking it up to 2028.
Lloyd Russell-Moyle
ECO met 3% of its overall delivery target in the first eight months of its latest iteration. That is not a success. Just 3% in its latest iteration.
Laura Nell
There are two versions of the scheme, one of which is ECO4—
Lloyd Russell-Moyle
One that is a failure and one that is a success.
Laura Nell
The ECO schemes have generally had a really good track record of meeting their overall targets. We have only seen suppliers narrowly miss the obligation on a very limited number of occasions and we have stepped in to ensure that is corrected. Over the 10 years that we have administered those schemes they have had a really good track record of achieving the policy goals.
Lloyd Russell-Moyle
So it is just the latest iteration that is the problem.
Mark Garnier
I want to get into something slightly different, but before we do that—I feel terribly sorry for you, because you have an entire Select Committee barrelling in with difficult questions—are you loyally defending mistakes by the Government, or things made too complicated by the Government, or are you responsible yourselves for these 11 or 15 or whatever different things that come up? Are they your ideas or are they somebody else’s ideas that you are delivering?
Neil Lawrence
Let’s be clear: our role in this is as the scheme administrator. The policy decision and the funding for each of these things is for Government. At the point that they make that choice—
Mark Garnier
So if the administration is rubbish we can give you a hard time, but if the schemes that you are trying to administer are rubbish then you are doing your best and you are being loyal civil servants.
Neil Lawrence
At the point when the policy is being decided, we will respond to consultations and we will use our knowledge and experience of administering these schemes. We talk to consumers, to users of schemes, to administrators and to trade bodies, so we have a lot of inherent knowledge. We will try to help, and we will try to influence, but ultimately it is a Government decision. When they decide the administration, the administration may come to us, or it may come to other bodies in the administration world. It is our job to try to do as good a job as possible to make it as easy as possible for people to access the funding and the support that is available to them. We have to take on the responsibility of managing that Government money.
Mark Garnier
That is very useful. We have the Minister coming in next—in about half an hour, I think. My friends over there will give him a really hard time; we will just give him a slightly hard time from this side. Can I turn to some of these renewables and social programmes you are delivering on behalf of the Government? I think there are 11. The Electrical Contractors’ Association told us that of the seven Ofgem-administered schemes that directly charge electricity and gas suppliers, four of them exclusively burden electricity suppliers, while just one of them, the green gas levy, singularly affects gas suppliers. I appreciate that you are the administrators rather than the people who decide, but is there not a possibility that you will get a distortion of the market where one side is being overly supported or regulated or whatever, while the other is not? Do you worry that you can disadvantage or advantage electricity over gas with this?
Neil Kenward
This is partly a question about the relative prices between the two and where the burden of policy costs lies. As you would imagine, those are decisions made by the Government. I suspect in each case there will be a logical reason why they are given it, and most of them are probably to do with electricity, and that is why the costs sit on the electricity bill more than the gas bill. I know the Government have been looking at whether they can rebalance the burden of—
Chair
It is a legacy issue as much as anything, isn’t it?
Neil Kenward
I think it has accumulated over many years. That rebalancing question is one I know that the Government are very live to. They want heat pumps, for example, to be cost competitive, or more cost competitive—cheaper to run—than gas boilers. I think in some cases they already are. I think it is quite level at the moment.
Mark Garnier
But they are not cheaper to deliver than—
Neil Kenward
There is the capital cost as well, of course.
Mark Garnier
That’s right. In your written evidence you noted that reforming EPCs could help consumers make more informed decisions and better determine eligibility for support schemes. Could you enlarge on that?
Laura Nell
We recognise the challenges with EPCs, and you have heard a lot about that in these hearings. They are not a perfect metric but at the moment they probably are the best proxy that we have for the energy efficiency of a home. We do use them on our schemes as a—
Mark Garnier
But you say they could be improved. How would you improve them?
Laura Nell
Better alignment with the net zero goals, which I think Government have recognised and are acting on through their consultation of the home energy model, which is refreshing the physics model that supports decisions around EPCs. I would say that, although we do use them under the schemes as one determinant of eligibility, it is never the sole criterion. For example, on the ECO scheme the PAS 2035 assessment that an installer is required to do ahead of an installation and afterwards offers assurance to customers that those heat reduction targets are being met and the solutions are the right solutions for the home.
Mark Garnier
So they are an okay fudge at the moment, but something better is coming along in due course and in the meantime you can get around it.
Laura Nell
Yes.
Mark Garnier
That is useful. Do you guys have a view on how best to rebalance the relative cost of gas and electricity? What steps do you think can be taken to do this?
Neil Kenward
We do not have an Ofgem view in the sense that it is not our policy area.
Chair
Would you advise Government?
Neil Kenward
The key thing I would say is that we think there is scope for innovation to bring down the costs of the low-carbon alternatives to gas heating, and we are already seeing that in heat pump—
Chair
What about domestic standing charges, then?
Neil Kenward
There is a question around standing charges. I am very happy to talk about that as well. That is something we have opened up a consultation on because we recognise the strength of feeling around it, and there are important considerations in terms of both distributional implications and climate change implications. You are right that that is an important issue.
Mark Garnier
You said a bit earlier that you advise Government and report back and talk to them about it. What are the Government doing that is making you tear your hair out? What would you like them to listen to you about that they are not listening to you about?
Neil Kenward
As I mentioned before, the decision on the role of hydrogen in heating is something we would like them to bring forward from 2026. That is a key one for us. I don’t know if there is anything particularly on—
Mark Garnier
Does each of you have a pet “why didn’t they listen to me” point?
Laura Nell
We talk to the Government a lot about the issues that we see on the schemes around consumer protection and particularly the limitations of relying just on the standards bodies. I know the Government are thinking very carefully about the recommendations of the CMA in this space, so hearing their thoughts on that would be valuable.
Neil Lawrence
I would say exactly the same thing as Laura. That is the one for us that is really important from a delivering schemes perspective.
Neil Kenward
I can add a second if that is helpful. As we are seeing more and more heat pumps, and if that is the route the country goes down, the importance of heat storage and smart controls on heat pumps is going to be vital. If everybody switches on the heat pump at the same time—five to six in the morning or whatever—to warm up the house and have hot water for a shower that will have huge pressure on the national system.
Mark Garnier
Have you been to Copenhagen to have a look at—
Neil Kenward
Unfortunately not.
Mark Garnier
Get yourself over there. In the first instance google “State of Green” and have a look at what they are doing, but this is where they are talking about all this. As soon as you have a distribution network of heat, heat becomes a very viable energy storage mechanism.
Chair
Yes, we talked about bodies of water holding heat for a year and releasing 5% of the energy, which was quite surprising.
Lloyd Russell-Moyle
With the smart controls on heat pumps, what does that look like when someone does want to turn their shower on at the time that they want to turn it on, and not the time that you want to turn it on?
Neil Kenward
I can imagine it would be like the smart controls on charging electric vehicles, where the customer—
Lloyd Russell-Moyle
The shower example is a good one because the customer wants the shower only when they want the shower. There is not much flexibility when people want a shower.
Neil Kenward
The key thing would be pairing it with heat storage, so you would build up your hot water reservoir—
Lloyd Russell-Moyle
So back to hot water tanks.
Neil Kenward
I think that could be an important part of it, but there are new ways of heat storage that could also help.
Lloyd Russell-Moyle
Which is less about smart controls and more about—
Neil Kenward
It is the two together: heat storage and smart—
Lloyd Russell-Moyle
Does the boiler upgrade scheme allow spending on hot water tanks within that?
Neil Kenward
That’s a very good question.
Laura Nell
I would—
Lloyd Russell-Moyle
I don’t know. It is a genuine question.
Chair
Some heat pumps come as a big unit with a tank inside.
Lloyd Russell-Moyle
If that is future-proofed, that would be important to know. I see nods from behind, so I am hoping it is.
Chair
Heat pumps from 14 years ago had big water tanks inside them. Just before we end, I did not do proper justice to the Economy 7 night rates, so let me return to that. In its last evidence session, the Committee heard from Fuel Poverty Action—you might remember that, in our report “Preparing for the winter”, because of fuel poverty and energy poverty, we unanimously said that we should not have standing charges in electricity—that EDF customers on Economy 7 night rates saw their energy bills almost double in January. This has been reported more widely in the media. Jonathan Bean told the Committee that Ofgem did nothing in response, even though it had powers to intervene. He said that “vulnerable groups are not being protected and that Ofgem is really just not tracking these things in the way it should be.” It would be helpful to hear from Ofgem if they have taken any action in this instance and if they are empowered to do so. This is particularly EDF customers on the Economy 7 nights.
Neil Kenward
All suppliers have an obligation to treat their customers fairly, so that gives us quite a broad remit—
Chair
He says they haven’t.
Neil Kenward
—to hold suppliers to account. What I suspect EDF would say, and I believe they are right in this case, is that they are within the price cap regulations in terms of the balance of charges. It might be that certain customers with certain consumption patterns have now seen a big increase in their bills due to the way they use their electricity.
Chair
Should you not maybe have had another line in to say that you can only increase this from a certain point by 10% maximum, rather than an overnight 100% doubling?
Neil Kenward
I would have to look into the details of the 100% doubling. It may be, as I say, due to specific consumption patterns of certain individual consumers.
Chair
So that we can future-proof this so that people do not get these shocks, because that is a shock.
Neil Kenward
It surely is, yes. Look, it is really helpful when cases like this are raised to our attention. We can then investigate with the supplier concerned and just check that they are fulfilling their duties and obligations in line with the supplier—
Chair
Even if they have been within the current rules it might be advisable to change the rules for the future so that this cannot happen to people.
Neil Kenward
This is an area, as I mentioned before, where, as a proliferation of more complicated tariffs come on to the market, we will need to ensure that we are taking a close look at market developments to make sure that consumers are not suffering.
Chair
From the Committee’s point of view, and from the point of view of Fuel Poverty Action, we want an Ofgem that is responsive and iterative so that, when things are happening, you can see the issue and you are prepared to react. Obviously, what has happened has happened, but we are looking for steps for the future so that it cannot happen again. They may well have been within the parameters. They may well have been a victim of their own success for keeping the energy price down for so long. I don’t have the details myself either. We can do “on one hand and on the other hand” and play devil’s advocate or whatever, but we are looking for a responsive Ofgem and an awake Ofgem: an Ofgem that sees something happen and is prepared to take some steps. For that we would be grateful.
Neil Kenward
We should absolutely be looking into cases like this just to check that they are within the rules. If you would like, we can come back to you on this specific case.
Chair
Yes, I think it would be worth going back to them on that specific point, because they raised it very specifically. Ofgem, can we thank you for the last hour? It was useful and hopefully we have given you food for thought about things that should be happening in the energy space. Please feel free to have a dialogue with us if you think there are things we are not aware of or covering. You can always make us aware of them. Likewise, I am sure Members here will not shy away from making you aware of things as well. We are going to suspend the sitting for half an hour, because the Minister is busy in the Lords. Examination of witnesses
Witnesses
Lord Callanan and David Capper.
Chair
Welcome to the second panel: Lord Callanan and David Capper. Would you introduce yourselves, please? What level are you in the Department, and what you do in the Department?
Lord Callanan
Certainly, Chairman. I am the Minister for Energy Efficiency and Green Finance with responsibility for clean heat, domestic decarbonisation and so on, which I think is what you want to talk about. Accompanying me is David Capper, who is our director in charge of clean heat in the Department.
Chair
Excellent. Thank you for coming along. I believe you have had a busy afternoon in the House of Lords.
Lord Callanan
I apologise. I realise I was supposed to be here at 2 o’clock, but I had to answer an oral question. I hope the Committee will forgive me for being late.
Chair
That’s fine. I have a couple of points to raise with you quickly from concerned bodies. Currently the Government’s flagship programme ECO4 is set to expire in 2025 and there has been no commitment from the Government to extend it. This only further imperils efforts to upgrade the most inefficient UK homes and is causing uncertainty in the retrofitting industry about what guarantees of work they will have in the future. It is a pipeline question, really. It would be very useful to understand whether the scheme will be extended and what you can say about ECO4 and its progress.
Lord Callanan
ECO4 is one of our most successful schemes. As you know—and the clue is in the name—it is the energy company obligation, so it is an obligation placed on the energy suppliers to deliver energy efficiency improvements across the piece. It is currently worth about £1 billion per year. It has been going in different incarnations since the early part of the previous decade and has delivered millions of measures across the country.
Chair
Will it continue after 2026?
Lord Callanan
We have made no final decisions yet. We have to have discussions with our Treasury colleagues and so on, but it is a very good scheme; it has been delivering. It has been around for over a decade now.
Chair
There is a supply chain out there that needs certainty.
Lord Callanan
It is one of many different schemes that we have—I am sure we will explore this during the question session—and we will endeavour to provide certainty as quickly as possible.
Chair
All morning we heard from people such as Siemens and British Ports and Rolls-Royce about certainty from Government. This is a comparatively small area.
Lord Callanan
It is not a comparatively small area, Chairman. It is one of our biggest schemes. As I said, it is £1 billion a year.
Chair
Well, it is a comparatively small and non-complex decision, because you have had this in the past. It is not new.
Lord Callanan
But it has to be taken in the context that it is an obligation on a supplier, so it is effectively bill-funded, and we need to look at it across the piece in terms of other obligations that we might want to place on billpayers. I agree with your point about the importance of providing long-term signals. It is one of the things that I have been trying to concentrate on. Getting agreement with the Treasury for £6 billion-worth of taxpayer funding from 2025 to 2028—we have set out the details of how that will be applied across all the different schemes—I think goes some way to providing the certainty that suppliers want. I agree with you on that.
Chair
Yes, because 2026 is not far away as far as they are concerned. National Energy Action’s report found that to meet the UK’s poverty targets a further £18 billion was needed, yet on the current trajectory the Government will fall short of this legally binding target by a staggering 3 million households in 2030. By introducing increased minimum energy efficiency standards in the private rented sector, as much as £7 billion to £8 billion could be raised to close the gap. With the Government rolling back on these standards last year, how do they plan to meet the fuel poverty targets without them?
Lord Callanan
We are currently looking at the full implications across the piece, across all the different schemes, about how we meet the extremely important fuel poverty targets. I am happy to go into more details about the decisions that we made on the private rented sector energy efficiency standards if you would like. It was a decision that we wrestled with for a long time. These things are always a balance. I am sure Members are aware of the difficulties that exist in the private rented sector at the moment.
Chair
The point is money and decision making so that people have certainty. If you do not have the funding there to meet the targets—you have to have the funding, surely.
Lord Callanan
The target is that we have to eliminate fuel poverty by 2030. As I said—it was just announced—we will spend £6 billion over this Parliament. We have £6 billion from 2025 to 2028 already agreed. We need to look at the full implications of rolling out all these schemes for the fuel poverty targets. Do you want me to go into the rationale?
Chair
No, I am happy with that. The thing that we are looking for is for Government to make decisions. That is really the point of the two questions.
Lord Callanan
The Government are making decisions. You might not agree with the decisions, but we have been making decisions.
Chair
Certainly on ECO4—anyway. Why do the Government believe that those living in homes rated EPC band C or above cannot be in fuel poverty?
Lord Callanan
I don’t think we have ever said that is the case. C is the target that we are aiming to reach, because there are many homes that are still below target. From the figures, in about 2010, 17% of properties in the UK were below C. Now we have about 50% of properties that are C or above. We need to make a lot more progress on that, but I think it is possible for people to be in fuel poverty but still be in more efficient homes. We have all seen the energy price rises of recent years.
Chair
Can you give us a clear timeline of when the Government will publish its updated fuel poverty strategy?
Lord Callanan
I cannot give you a timescale for that at the moment. We are looking at it. It is something that is at the top of our in-tray. It is very important, but we have to look at the implications across the schemes that I mentioned: the implications of the decisions on the private rented sector and how that will affect the fuel poverty targets.
Chair
Again, it is just back to decisions and timelines and seeing what is happening. I am not really asking for it to be published. I am just looking for when it will be updated. Decisions, decisions—we need them.
Lord Callanan
As I said, we have just announced the funding, towards the end of last year, after a lot of negotiation with the Treasury. We need to look at the full implications of that and the effect that it has on fuel poverty. There are obviously a lot of moving parts. There is money that we are spending on the social housing decarbonisation fund. Clearly, fuel prices coming down helps us towards that objective, but there is a lot more that we need to do. I readily admit that.
Chair
Okay, so we are waiting for a clear timeline as to when the updated fuel poverty strategy will be published. What plans do the Government have to encourage innovative business models to support consumers with costs of home improvements?
Lord Callanan
I think that question is more into the green finance strategy. There are a lot of quite interesting developments. We have a number of green finance accelerators that we are funding with some of the financial institutions. There are some really interesting models coming forward as to how things like clean heat and others can be financed, the concept of heat as a service, particularly prevalent under things like heat networks, which we need to substantially expand if we are to meet our targets. There are a lot of developments going on in this sector and we are funding a number of interesting innovations. There are regular seminars and others that we have with the private sector and some great schemes coming forward. Barclays, for instance, to pick one at random that I was speaking to last week, have a scheme where they offer grants to their mortgage customers to help them to improve the energy efficiency of their properties.
Chair
This Committee has heard evidence that there is no route to net zero for the UK unless it goes through the homes of the poor, and those homes must be insulated. Would you agree with that assessment?
Lord Callanan
I would agree with that. Not necessarily just the poor, but everybody’s homes. The UK has the biggest problem in Europe in that, as a consequence of the industrial revolution, we have the oldest property in Europe. Much of it is poorly insulated. I think the figure is that 6 million homes were built before the first world war, many of them single skinned, and so we have the biggest problem in Europe. It is something that we need to take action on, and I think we are across the piece. I would always like to be doing more and am always open to new ideas and suggestions, but one of the most effective things that we can do to relieve fuel poverty is to insulate homes.
Chair
The reason I mentioned the homes of the poor in particular rather than just all homes is because it might be more difficult for the poor themselves to do something about it.
Lord Callanan
That is why the vast majority of our schemes—ECO, HUG and so on—are targeted at those on the lowest incomes.
Barry Gardiner
Lord Callanan, I think you know that I believe that bipartisanship is important in reaching net zero. I want to talk about some of the shortfalls in delivery, but I want to do it in a way that is not trying to apportion blame and go over old ground. I want to see what genuine learning we can have from the failures that there have been. We have seen two thirds of the boiler upgrade scheme not spent, we have seen less than half of the home upgrade grant spent, and fewer than 3,000 households saw measures installed under the Great British insulation scheme from its launch to the end of last year. At the moment the Government are projecting that 300,000 households will benefit from that scheme by 2026. What are the learnings we need to take from those failures and why should we have confidence that the 2026 target of 300,000 homes will be met?
Lord Callanan
There were a number of questions there. First, I would not classify those schemes as failures because they are not complete yet. We are part way through them. To take the boiler upgrade scheme, for instance, the initial roll-out was poorer than we would have liked. You will have seen the announcement—
Barry Gardiner
I genuinely did not want to get into whether it is a failure or not. I used the word, but let’s just—
Lord Callanan
I absolutely agree with the spirit in which the question was phrased, and you deserve an answer. On the boiler upgrade scheme, we looked at that and we increased the grant levels by 50%, up to £7,500. We now have one of the most generous capital grant schemes in Europe. As a direct result, delivery has increased by 39% year on year. We need to do other things as well to extend—
Barry Gardiner
I am genuinely interested and I do not want to interrupt your flow but on that point, while it is right that uptake has increased and that is very welcome, the overall funding package has not increased. The implication would be that your target of the number of new installations has halved because individual grants have doubled.
Lord Callanan
Well, it didn’t quite double; it increased by 50%, but yes. If all of the original allocation of £450 million were spent, we would have been able to do less, but it was apparent that we probably would not have spent that money and therefore we were able to increase the grant to increase delivery. Also, of the £6 billion package that I mentioned for 2025 to 2028, £1.5 billion is allocated to further capital grants for heat pumps, so we do have future money allocated in the next scheme as well. One of the reasons for poor take-up is that there are other factors influencing the take-up of electrification of heat. One is price rebalancing, and we need to proceed with that. There are a number of other mechanisms that we need to expand heat pump production in the future.
Barry Gardiner
In terms of the learning experience and the targets that we have for 2026, what do you think we should be highlighting as things not to do in the future and things to be aware of that we should be doing in the future? What confidence should we have in the 2026 target of 300,000, given that there have only been 3,000 to date?
Lord Callanan
There are of course always lessons that we can learn from the various schemes. In terms of the heat pump roll-out, we moved away from the original version, which was a subsidy based over time, to a subsidy that was a straight-up capital grant. I am a great believer in trying to make these schemes as simple to access as possible. One problem we had, and one learning, is that many of the schemes were overcomplicated and it was difficult for people to access them. Trying to simplify them with a simple, straight-up capital grant allocation I thought was a better way of proceeding. We are now seeing an increase in uptake. One of the other lessons that we need to learn is the importance of it being part of a package of measures. We also need to do price rebalancing, however difficult that may be, and things like clean heat market mechanism, which will also contribute to uptake. The ultimate answer to your question is that it has to be a package of measures; you cannot look at things in isolation.
Barry Gardiner
You lead me very nicely into my next question. I know that the Government are now proposing what they call a front door to these schemes. Other jurisdictions—France, say—have a one-stop shop model; not just a front door but one shop. Behind your one front door there would still be individual pockets, whereas other jurisdictions have done it with real success by having a one-stop shop where people can go and get advice tailor-made to their own situation, and access funds that will give them a result in any of these areas. Would you welcome that as a way forward? Are the Government considering it or are you stopping at the front door, if I can put it that way?
Lord Callanan
I am trying to think of an analogy between a one-stop shop and a common front door. Maybe the shop with a common front door is divided into different departments. In essence, I agree with you. We need to try to make things as simple as possible to access. I am sure the team would confirm that that is one of the points that I am always going on about. We need to make it accessible to the man and woman in the street who may not be conversant with all the different schemes and their acronyms. That is the purpose of the common front door. It is a website—“Find energy improvements for your home”. It links to the EPC database if there is already an EPC in existence for your property. There is also an eligibility calculator built in. You can go on and put in your property details, and it will give you tailored advice, tell you if you are eligible for the ECO scheme, the Great British insulation scheme, the home upgrade grant and so on, without your even needing to know what these acronyms stand for or how you need to access them. It will pass on your details, in the case of ECO to the energy suppliers, or in the case of HUG to one of the local authorities taking part in the scheme. The idea is to remove complications. There are different pots of money, sometimes funded in different ways, but people do not need to know that; they just need to know what they can access.
Barry Gardiner
In the one minute left that the Chair has allocated, how many people have gone on to the website and how many of them have translated that into new insulation or a heat pump? How many have accessed it and had it delivered? Is it actually working or is it too tech-y? In France, they do this with literal shops where you can go and speak to a person, in person or on the phone.
Lord Callanan
People who are not computer literate can access support on the phone. In terms of numbers—do we have any numbers, David? Several hundred thousand is the answer to your question, but—
Barry Gardiner
Perhaps you could write to us with the numbers and what has actually been delivered.
David Capper
Could I add briefly to what the Minister said? Your question about putting everything in a one-stop shop, as you describe it, is a good one. One of the issues with delivery is that if you did that, you would be changing the schemes that are running to do something different. We have seen historically that when you do that, you end up slowing down delivery. Take ECO, which was the subject of the first question. We have had 3.8 million measures in 2.5 million homes over the last decade. If you were to change that approach and do it differently, you would see delivery slow down and take some time to come back up. That is a consideration when you are thinking about whether it is best to do something completely different or to put things behind a front door that makes them easier for consumers to access.
Lloyd Russell-Moyle
But there is a huge problem with the current system. ECO fell by 59% in 2022. Is that not because we are getting to the stage where the easy fruit has been picked—housing associations, big landlords, the kind of people who can have those negotiations with you—and we are now at the stage of talking about private rented accommodation and private owners? The latest iteration of ECO has met 3% of its overall delivery target in the first eight months. These are low figures. I get that things ramp up, but ECO has gone down. Is there not a case for saying that people should be able to mix and match these schemes? We have the Great British insulation scheme, the ECO schemes and the boiler upgrade scheme, but fundamentally they are all doing the same thing, and a lot of people are eligible for two or three of them. You cannot have a holistic approach of saying, “Well, I can draw down a bit of this pot and a bit of that pot.” You are in the process and then you are stuck in it.
Lord Callanan
There were a number of different points there. First, it is possible to mix and match the schemes. It is possible to get a grant for a heat pump through the boiler upgrade scheme and also get insulation measures under GBIS or ECO4. Secondly, I think you are confusing a couple of—[Interruption.] Can I answer the question and then you can come back, possibly?
Lloyd Russell-Moyle
Yes, go on.
Lord Callanan
It is possible to mix and match measures under the different schemes.
Lloyd Russell-Moyle
How?
Lord Callanan
You can do that through the websites. You can apply for a boiler upgrade scheme grant, which is a simple one-off grant, and you can also access other things if you are eligible—obviously, you would need to be on a low income for the likes of ECO. You are also confusing—