Oral evidence: Home Energy Efficiency and Demand Reduction, HC 552
Oral evidence, 17 November 2015.
Witnesses
Isaac Occhipinti, Head of External Affairs, Energy and Utilities Alliance, Holly Jago, Corporate Affairs Manager, Calor Gas, Lawrence Slade, Chief Executive, Energy UK, and Stephen Huller, Head of Commercial, CertiNergy UK, gave evidence.
Chair
Hello, everyone, and thanks for coming along. My name is Glyn Davies and I am the stand-in Chairman—actually, I think I am the stand-in for the stand-in, as it happens. Thank you for coming, and welcome to our Committee. What I would quite like to do is to start by asking you to introduce yourselves. Be as brief as you can while imparting the necessary information, because we hope to finish about 11.30 am if we can. We are running a little bit late, but we will hopefully be as near to 11.30 am as we can. If we could just go through all the witnesses, tell us who you are and how you think you can help us.
Isaac Occhipinti
My name is Isaac Occhipinti. I work for the Energy and Utilities Alliance. We are a not for profit trade association that represents the energy supply business in the UK. Our members are involved in the supply of energy, the fitting of energy, the transporting of energy, so every home in the UK has a product that is manufactured, installed or supplied by one of our members. Very, very briefly, one of the things we as an association look for is a long-term consensus within energy policy and simplicity; the less bureaucracy the better.
Holly Jago
I am Holly Jago. I am Corporate Affairs Manager for Calor Gas. We supply LPG into rural areas of England, Scotland and Wales. Primarily what I would like to talk about today is the delivery of energy efficiency schemes into rural areas and perhaps some of the failings that have been experienced to date, and talk a little bit about how we think we can improve delivery into rural areas.
Stephen Huller
My name is Stephen Huller. I am Head of Commercial for CertiNergy. CertiNergy is a major European energy services company, predominantly based out of France and Italy. More latterly, we have moved into the UK and have been growing. We were a Green Deal provider and a founding member of the Green Deal Finance Company. I have been involved in Green Deal for about the last five years, before CertiNergy at a major retailer who decided to become a Green Deal provider. My main background is financial services and building financial products and financial instruments for people wanting to engage with life-changing events. Hence that is how I got involved in energy efficiency in the first place.
Lawrence Slade
Lawrence Slade, Chief Executive of Energy UK. We are a trade association representing some 21 electricity and gas suppliers, including the major companies, and in total 11 companies that are currently obligated to deliver energy efficiency measures. Our main interest is helping you understand some of the issues with previous schemes, the history of obligations, but most importantly how we can shape future obligations and make sure we are delivering the right result for the consumer.
Chair
Thank you very much. I think we will start with looking at the overall performance of UK energy efficiency measures. That is generally the theme of the entire session. While you all may feel you want to perhaps answer the first question, which is very general, do not feel everybody has to answer the others. Because of the time limits we try to get through the various questions we want to ask. Let us just start with a very general question. Overall, how successful do you think the UK energy efficiency policies have been over the last decade?
Isaac Occhipinti
Given the last five years, I think they have been mixed. If you compare the final five years running up to 2010 and then post-2010, there was a marked decrease in the amount of energy efficiency products installed. If we take it on that basis, we would say that there has been a deterioration in performance in delivering energy efficiency products.
Holly Jago
We feel there has been a persistent underdelivery of energy efficiency measures into rural areas for a variety of reasons, not least because of the way that schemes like ECO have been designed, where the obligated suppliers have been required to deliver measures at the least cost, which we absolutely understand. I think all bill payers would want that, but that inevitably means that the more difficult, hard to treat houses, which you generally find in rural areas, have been missed. That is a particular failure certainly of ECO. We believe that previous energy efficiency schemes, CERT and CESP, experienced similar deliveries but the area-based nature of CESP made it a better mechanism to get into rural areas. Under ECO, the off-grid industry campaigned very hard for a rural safeguard, which we saw within the carbon saving community obligation. We very much welcomed that but unfortunately, due to the way that that rural safeguard was defined, we still did not see the measures going into rural areas.
Stephen Huller
I would probably want to just look at it and see what the definition of success is. If success is about reducing carbon emissions, then obviously there has been some movement in that space. However, I look at success about campaigns like this as how you are able to engage with the consumer. I think traditionally, especially with Green Deal, we have missed the mark massively with that and there could have been so much more we could have done with it. If we look historically, there have been people that have been doing energy efficiency measures ad infinitum, using all manner of different financial instruments, but then what tended to happen is we started to try to sheep dip those consumers into Green Deal Finance as opposed to maybe Green Deal Finance just being part of a wider range of financial solutions to try to feed the activities that people were already undertaking.
Lawrence Slade
I agree with everything that has been said, actually, but I do not think we should disregard what has been achieved. So, ECO, we have seen 1.5 million measures installed so it is by no means a failure. But agreeing with Stephen in particular, in any future schemes you really have to look at what you want to do. Are you trying to help customers save money, are you trying to improve their lifestyles, help the fuel poor, or are you trying to save carbon? Since the first obligations came in in 1994, we have seen costs go up drastically, and remember it is the consumer, all consumers, that pay towards this. We have seen complexity increase on a similar scale, and I think what needs to happen is to revisit that. If you are going to spend £800 million or £1 billion, how can you get that money going towards those people that need it most? I would agree with what Holly is saying, particularly around rural communities, but also there are people who do not have access to gas who live in central cities who also suffer disproportionately because of the amount they pay on their electricity bills. I think you really have to look at just what it is you are trying to achieve and then concentrate on that one objective.
Chair
We are probably going to have a few questions on Green Deal a bit later on. Can I ask you about the energy company obligation? You have said it is still delivering measures but it has not delivered anything like those that we were expecting. What do you think the rationale was for ending previous schemes like CERT and CESP? It would be interesting to know what you think the main reason is for the decline in the number of measures under ECO since the start of ECO.
Lawrence Slade
Again, under ECO 1, it is worth noting that all the obligated parties actually exceeded their targets, so from that point of view it was not a failure. Where I would go back to is the problem around the complexity and how the companies had to work within the complexity of the programme that defined just how quickly and how fast you could get moving. I think they are the elements that need to be looked at. Are you just going to look at one specific group of people? Are you going to target and hit the fuel poor, for example? Or are you going to do a much broader brush approach? I think where ECO went wrong was it was trying to do too much, and companies and the supply chain also were not given sufficient time to look at the major sea change from something like CERT and CESP into the new world of ECO and Green Deal next to it.
Holly Jago
Can I just talk a little about how—sorry, it will be the theme for my evidence—you define “rural”? The Government has put in the rural safeguard, which was welcomed, and yet it defines “rural” as communities of up to 10,000 people. Now, in our opinion, that is far too high a limit. The communities that Calor and the off-grid industry serves are communities of less than 1,000, of a couple of hundred. If you want to really target the rural fuel poor with this, having an upper limit of 10,000 will inevitably drive the suppliers towards semi-urban areas, areas that are likely to be on gas. Having a 10,000 limit for rural, we really believe that definition needs to be looked at very, very carefully.
Chair
Can I pursue this? Has ECO been a success or has it not been a success? The targets have been met. What do you all think?
Isaac Occhipinti
I think we could probably question has it reached the right people and, echoing what Lawrence has been saying, has it targeted the fuel poor? Has it delivered meaningful change in that area? ECO itself, we do not know where that is going to go post-2017, but it really needs to have a renewed focus, and I think everyone probably agrees that it needs to focus on the fuel poor specifically.
Stephen Huller
It has a counterintuitive interaction as well with the able to pay market because if you confuse that particular demarcation between fuel poor, we had a lot of people who would not be classed as fuel poor that were getting free measures in the past, who could have afforded it and would have had options about how to finance it in different ways. If you can make that line of demarcation between only those who have no option and no other alternative of finance, they are the ones that gain access to ECO funding to get their homes retrofitted, and those that can look after themselves and have the options are given all the options that best suit them, then that seems a more balanced approach to take.
Lawrence Slade
I think the other angle to look at is just how these schemes are funded. As part of the success or the question around success you have to ask: is it right that the fuel poor are also having to fund, via their electricity bill, measures going into people who could afford in the able to pay market? I think as part of the question and the future look at this you have to look as to whether you want policies to be worked or delivered in a regressive way—that is, where they are smeared across the entire customer base of the country—or whether you want to put them into general taxation where you can achieve a much more progressive nature and you can pick up on some of the elements of the previous session around how ultimately it is delivered.
Chair
I think we might have a few more questions on the impact of change on the fuel poor later on. May I just finish with asking about the specific impacts and challenges that faced the supply chain in the last year? A short timescale, the last year; how has it impacted and what effect will that have had on the number of jobs?
Isaac Occhipinti
Our members manufacture boilers. Boilers are part of the ECO scheme, and in the last year there has been a dramatic drop-off in the number of boiler installations through the ECO scheme because a number of the targets have already been met. Whilst the boiler industry is less negatively affected as maybe the insulation industry, which I know has had severe problems with this, it is still problematic when you are trying to plan a business and you are not sure what the demand ultimately is going to be through a scheme. The scheme in 2013/2014 was delivering around 30,000 boilers a month; we are now on 4,000. That affects manufacturing processes, how many people you need in the business, in the factories, at any one time, so it is part of business continuity planning. That, then, impacts how much industry will engage with future schemes because then they have to make a business decision. We will probably get on to it with regards to Green Deal. I think that has impacted on how much confidence there is and how much willingness there will be to engage in future energy efficiency schemes.
Stephen Huller
It is the volatility of levels of funding as well that does not help in that space. You could see pence per kilowatt rates being quite high a while back, but then they obviously drop and it starts to make it commercially inviable for people to operate in that space. People have to make decisions about do I continue to trade. That is what we have seen in the recent past. Anything that can add more stability into that space would definitely help.
Lawrence Slade
I do not think we learn the lessons of the past, so as I said earlier, schemes going from 1994 onwards. It always seems that there is a hard stop at the end of every scheme. That causes tremendous issues for the supply chain. You are trying to invest in new kit, you are trying to keep staff on, you are trying to keep installation teams working, pay salaries, and so on. But if the policy just comes to a dead end around an election or around the end of a scheme, you end up with redundancies. One of the things that needs to be looked at is how you manage these processes so that they last more than a parliamentary term and regardless of who is delivering it you give the supply chain and the installer community the certainty, as much as you can, over a long-term policy framework, so you can invest not just over the next three years but over the next five years, the next seven, the next 10 years. That way you stand a chance of dealing with the problem on a national basis, otherwise you are constantly in a stop-start process and ultimately that will waste consumers’ money.
Holly Jago
You need the consistency. With previous schemes we have seen a rush towards the end where measures were being given away to households that were able to pay and under CERT you saw a huge rush on measures being delivered. Now, with ECO, you have seen a huge decline in measures being delivered, and previously where customers would have had a measure delivered entirely funded they are now being asked for customer contributions up to 50%. The customer, as we heard in the previous session, just becomes disengaged at that point and says, “It is not something I am interested in”. You never get that consistency of delivery, of the same measures being available throughout the process to the same people in the same circumstances. There is a huge amount of discrepancy there.
Rushanara Ali
There has been a lot of criticism about the Green Deal. In your view, has it been a complete failure?
Isaac Occhipinti
By every metric, you could probably say it has been a complete failure, yes. We have not had the number of plans go through the system. The number of assessments seems high but I think, as discussed in the previous session, those are probably bolstered by energy assessments that were going to take place anyway. One of the biggest failures of the Green Deal has been the fact that it completely disenchanted industry. Industry were quite excited about Green Deal when it started up. Industry invested a lot of money in the marketing and the planning for Green Deal, and yet the complexity and the whole scheme design meant it had no chance.
Rushanara Ali
How much, in your view, did it cost industry, then?
Isaac Occhipinti
Unfortunately, I do not have the numbers for the exact cost, but, for example, we know that there was the Green Deal Home Improvement Fund and certain products were included in that. Yet within three weeks of its being launched they were no longer eligible. Manufacturers had put out advertising, they had invested in their supply chain, and yet within three weeks that product was pulled. That level of investment that had taken place was effectively wasted.
Rushanara Ali
You do not see any particular value, then, in the Green Deal assessments given, in your view, that they are likely to have happened anyway?
Isaac Occhipinti
I think there is some evidence to support assessments as a driver, but I think there needs to be more research. I think also, very quickly, the actual assessments themselves have to be of better value.
Rushanara Ali
For other witnesses, in particular what is the overall impact on investors’ confidence, then? Mr Huller, I wonder if you could start off.
Stephen Huller
I do not think it is any worse than it was a few years ago. If we think about when Green Deal Finance Company was originally launched, the idea was that we would have external financiers coming in to sit behind it. I think it was too early to engage with the market at that point because there was no track record, there was no evidence, so why should they want to come in and put their money behind it? I think now, even though it is limited, the performance of Green Deal, at least there is something to point towards. Some of the mechanisms that exist about reducing defaults on loan books, such as attaching debt to the bill or the electricity meter, would have some attraction, but it is not just about big institutions coming in and replicating what existed with Green Deal Finance Company. This is potentially looking at are there other financial vehicles that we could use that people have already invested into in better ways to help them make more of their money, such as pension funds, such as mortgages, such as secured and unsecured borrowing, such as equity release where people are bricks and mortar rich but income poor. What sort of things can be done around that space and especially leveraging the trusted relationships they have with their advisers who are already speaking to them around those products?
Rushanara Ali
There has been a lot said about the complexity of the Green Deal. Why was it so complicated and what could have been done to simplify it?
Lawrence Slade
When the Green Deal was being set up, there was a lot of conversations with the Minister at the time that you were changing the whole way energy efficiency was handled, so you were trying to create an able to pay market. I think the words used at the time by the industry were that this was always going to be a slow burn; it was not going to be an overnight success. To quote “World at One”, it was not going to be 10,000 plans by Christmas. It might be 10,000 plans by two years. What should have happened over that period was there should have been a trial period to understand and to gauge customers’ reactions and then to work on simplification. What I felt ended up was that organisations like the Green Deal Finance Company had to undertake a lot of the simplification work themselves to do what DECC, in theory, should have done to bring that forward. Remember, this is an organisation that not only did Government put money into but the energy supply companies ploughed millions and millions and millions of pounds into, all of which has been lost, and ultimately that is customers’ money. I think the problem overall was it was too rushed. It was a good idea. I still believe there is the opportunity for an able to pay market. I think having the infrastructure and spent the customers’ money in setting up a collection system that is linked to the electricity bill is worthwhile, but I think it needs to be seriously looked at in how you can engage customers, as Isaac said earlier.
Rushanara Ali
You indicated the costs both to consumers and the insulation industry, for instance. How could those costs be kept down in future? What are the key lessons from what has happened?
Lawrence Slade
To my mind, if you take the Home Improvement Fund, one thing that you did notice is that when DECC launched each tranche of money there was a massive uptake in assessments and also plan applications. There is a direct link between additional funding support and interest and uptake from consumers. However, as was said earlier, those funds were not sufficient. I think the management of them was poor and the speed at which they went was more speculative as opposed to, “I am definitely going to do this work”. It would be much more use to look at what other fiscal tools are available, be that stamp duty discounts or council tax holidays or salary sacrifice schemes and so on, where people can see an immediate benefit to having this work undertaken. You saw in the previous session a lot of people think not just around being comfortable in their home but what value are they creating and what is the difference going to be.
Stephen Huller
My view would be slightly different to that in that I agree with a lot of what was said, I think short-term incentives are useful as a stimulus to start a market growing; however, you need stability. You need something that is affordable long term. Otherwise, all you get is consumer apathy. All they are ever doing is sitting back waiting for the next tranche to come along and they just do nothing. What you find is the market slowly just dwindles on the vine over time if there is not something there that allows you to continue to trade.
Rushanara Ali
How can consumers be made more aware of the schemes and how to take them up? Who should be doing the engagement?
Holly Jago
I think you have to work with the existing installer base, particularly around installing new boilers. There are over 100,000 boiler engineers out there. They are in communities, they are in the home, they are the people that you turn to when your boiler breaks down, when you need a new boiler. They are the people you look to, and if you do not engage those people, if you do not engage that industry and make it simple for them—I know Isaac can add to this, but the accreditation process that installers had to go through, if you are looking at the smaller installers, one, two-man bands, family businesses, they do not have the time and they do not have the money to invest in additional training and certification. Calor has the largest Ofgas installer network in Britain. We were Green Deal installers. We never installed a single Green Deal measure. We had to go through an awful lot to get that accreditation and we did not install anything. As a business, where is the incentive for us to engage with that? We are a large business, so what happens to the one-man-band installers? They are not going to be interested.
Stephen Huller
Past experience, when you try to grow a market a lot of people throw an awful lot of money at marketing activities or they try to get big brands out there to try to promote their message. The challenge that you have is buying behaviours are either emotional or they tend to be logical. Now, marketing can have an impact on the emotional side of it, but the thing is, is energy efficiency an emotional sort of purchase? I am not sure. Could we have done more on maybe trying to align ourselves to the people that are helping consumers make logical decisions about how the cost of doing something is actually cheaper than the cost of doing nothing, which is what underpinned the golden rule? Could we have not got closer to, say, financial advisers or mortgage brokers or people who are helping people move towards retirement, whereby using the money that they have already accumulated it would give them a better return than, say, buying an annuity in the marketplace? We did very little about trying to align ourselves to trusted advisers. I am talking about financial services but trusted advisers right across the spectrum because it is those people, I think, that can help you grow an infant market.
Rushanara Ali
Overall, do you think it was the right thing to do to scrap Green Deal or should it have been reformed?
Isaac Occhipinti
I think scrapping Green Deal sent a message that, accompanied with other cuts to, say, solar PV and wind, green schemes and energy efficient schemes are coming to an end for the time being. However, Green Deal needed severe reform if it was going to be successful. Just quickly, to echo on Holly’s point, there is a boiler replaced every 20 seconds in the UK and those are the kind of engagements that we need to be working with.
Rushanara Ali
Just a final question about incentives; some of you have already mentioned council tax discounts, stamp duty rates and so on. We had a session earlier on and one of the representatives from the LGA was there. Council tax discounts are not, obviously, going to be particularly popular for local authorities when they are facing massive cuts. How realistic is something like that, and what would be the way to make it a win-win for consumers and councils? They are keen to innovate, they are keen to have more of an input in designing new schemes for local areas, but what is your sense of how this could be taken forward?
Isaac Occhipinti
Council tax, stamp duty, there will be winners and there will be losers if it is going to be cost neutral. If you are going to reduce council tax for people with energy efficient homes, are you going to have to put council tax up for homes that are inefficient? Those are questions that will have to be asked. The same applies to stamp duty. If that is the case, if you are going to reduce it, let us say, across the board, then that is more of a subsidy, and would that subsidy be better spent elsewhere? With local authorities actually utilising the ECO money, the IPPR did a report on this and they said if you put that money into a pot for local authorities to be spending on local initiatives, that might be a better way of delivering local programmes.
Rushanara Ali
Where are the best examples in local areas, in your experience, where those sorts of innovations are already happening?
Holly Jago
There are good examples across the board. The point is that they are pepper-potted and there is not necessarily a sharing of best practice or a co-ordination to it. If you look to Scotland and Wales, for example, where they have additional Government funding that can then be used to leverage in ECO funding—and that was done particularly successfully in the early parts of the scheme to align with HEEPS, with Nest, with Arbed—then that is where you see particularly how something like that could be successful. Whether and how that can be replicated in England given the current financial constraints I do not know.
Chair
James, do you want to come in?
James Heappey
I do, and I will pick up straight on that, not least because everybody who ever played rugby will love that there is a policy called HEEPS. You hold that up as an example of a particularly good, locally driven energy efficiency policy that should be replicated. Are there improvements to it? If you were designing from scratch, how much would you learn from HEEPS?
Holly Jago
I think you can always learn from the schemes that have gone in the past. Where the strength of HEEPS lies is that there is money that is dished out to local authorities to deliver in the most appropriate way for their housing stock, for their residents and their particular incidence of fuel poverty. That is where the local solutions to local problems has to come in. There is no one size fits all answer to this. It is easy to say it and it is difficult to implement what those solutions are, but the people that are best placed to do that have to be the local authorities. They already have the supply chains in place. They know who the installers are in their local area. They can engage with them. They can engage with the insulation industry. They know their housing stock, whether that is their own social housing, whether that is private housing within their districts. In my opinion, it has to be right to deliver the funding via local authorities and they can decide where to best spend it.
Lawrence Slade
I think we have to be a bit careful. I would agree in involving local authorities but with the number of cuts that are coming through for local authorities I think you need to be careful about assuming that all local authorities have the capability to deliver projects on this scale. I do not believe that is the case. It is certainly the case for some, particularly the bigger metropolitan councils. There is an issue there that you take a broad-brush approach to council funding, because managing these schemes requires a significant number of people to be employed and to be managed. What I would say, though, is to take that style but ensure that people who have experience of delivering schemes economically can bid in and can partner with a council, so you take that weight of the delivery responsibility away from the council in that respect. I think, though, there is also a question of you know your building stock; do you know the people who are in most need of help? That is where Government have a part to play. We have seen this in the delivery of the warm home discount, for example, whereby using data matching we have been able to get the warm home discount to people very efficiently by matching against customer databases with DWP data to ensure that the amount is automatically sent through to consumers. I think you can follow the same idea if you match certain benefits with the fuel poverty definition. You should be able to help suppliers if you continue obligating with suppliers, but you should also overall be able to help identification of people in addition to understanding housing stock. Yes, there are council properties and housing association properties that need help, there are also privately owned properties that need help with people who are on the verge of or in fuel poverty, so use every measure you can that is available in the toolbox.
James Heappey
I instinctively agree that local authorities are best to deliver this and that they should not be constrained to, “This is how you will do it. Here is the cash. Do it as appropriate given the challenges that you face locally”. Mr Slade, your point is a good one that there is a large amount required to administrate that policy in each council and potentially not quite the expertise for every council to have a—is that irreconcilable? How does one get past that starting hurdle?
Lawrence Slade
A lot of lessons were learnt with the suppliers working for councils under CESP—not all perfect, I would be the first to admit, but the experience was there. It is really how you can leverage that. The energy supply market in itself has changed radically over the last few years and not all companies are doing this. But if you have a business where you have proven that you can deliver these things effectively for the customer, then you ought to have the opportunity to work in partnership with a council that has the money but does not have the expertise. That should be something that works in favour of the local consumer. I think it is something that could work in favour, to pick up Holly’s point on rural communities, in how you can work with those smaller communities that have missed out in some of the other schemes.
Holly Jago
Can I just comment on that very quickly?
James Heappey
Sorry, please.
Holly Jago
I think as well it depends on what constraints you are putting on the funding. Does every pound of funding have to be tied back to a carbon reduction measure that has been delivered or can that funding be used to draw in local experts who do have the capabilities to deliver, who do know the areas? There are a huge amount of small groups that work particularly in rural areas, and if they can be funded to work in partnership with local councils and bid for some of the funding to deliver the measures themselves or facilitate that, but at the moment the way the money can be spent is very restrictive, I think.
James Heappey
It seems clear to me from the evidence we had from the first panel, and now from you, that this carbon reduction is a very welcome by-product of talking about other areas. You talk about heat, comfort, warmth, savings to bills, and just know that in achieving those energy efficiency measures and in achieving extra warmth in a household and cheaper bills, you are also achieving carbon reduction. Is that a sentiment that you agree with?
Stephen Huller
100%. Going back to what I talked about earlier about people buying on emotions, that is definitely a proven way of doing it. If you look at some of the foreign markets, especially New Zealand and Australia, they really do play probably more the health angle than carbon reduction. It is something that could definitely be replicated in this country.
James Heappey
Okay. I want to look at a few of the issues that have come up in a bit more detail. On suppliers, first of all, a number of suppliers who gave us evidence squeaked over the amount that they were obliged to do under ECO. Under any future ECO-like policy, should they continue to be obliged to do so much?
Lawrence Slade
Our position is quite plain: we think obligations should firstly be paid for out of general taxation and not as part of the electricity bill, and I think suppliers should be able to be involved on a voluntary basis. If you have built up an energy efficiency business you should be able to competitively compete for business. However, if you are one of the independent suppliers and all you want to be able to do is to be good at delivering electricity and gas, then you should be able to do that. Bring competition into the market, make sure that it is being paid for in a progressive manner, not a regressive manner, and let the market deliver in that respect.
Isaac Occhipinti
Just quickly from our perspective, on the one hand we agree completely with what Lawrence has said. The only concern we have is if it comes from general taxation what form of long-term stability will there be? Obviously, taxation is a much more politically sensitive area and, therefore, if you removed the supplier obligation would there still be an energy efficiency scheme? It is quite a difficult challenge.
James Heappey
You also, Mr Slade, earlier on mentioned the importance of data and making sure that suppliers have access to integrated data so they can really target their efforts. Have you any ideas on how you facilitate access to that data?
Lawrence Slade
I suppose, taking again the track record with warm home discount, it has been a long and quite complex road at times. The first time we ran the data match, I think about five years ago, we matched about half a million households. We have now got that to well over a million. We know it can be done. My understanding is that the Department of Energy, DECC, are looking at this very closely as to how you can leverage data from DWP across Government. The noises we are hearing, if you will, are very positive as to how that can be done. I think it is important that it is as open as possible because so many different companies are involved now. A few years ago you just had six obligated parties; you now have over 10 and in a few years’ time probably well over a dozen. You need to make sure that when you are accessing Government data it is available to all, over different systems, et cetera. That sounds simple, but it can often be more complex. Ultimately, we believe the goal is big enough to warrant the effort in how you use that data, and I think there is sufficient public interest that you should be able to get over any data protection issues.
Holly Jago
We would agree with everything Lawrence said there. We would welcome greater sharing of data between Government Departments. A case in point is the early payment of the winter fuel payment, which was brought up in a private Member’s bill by Mike Weir a few years ago. For the off-grid industry, for off-grid customers, that would make perfect sense. Pay the winter fuel payment in the summer when prices are generally cheaper, customers can fill their tanks up in the summer. The industry would welcome it. It smooths out our distribution curve, so it is a win/win. Yet the Government say, “I am sorry, we cannot tell the off-grid industry or we cannot identify who those off-grid customers are who qualify for that. It is too hard”.
James Heappey
That is extraordinary.
Holly Jago
It is frustrating. As we understand it, due to the work of the rural Fuel Poverty Advisory Group, DECC is now producing maps of off-grid postcodes. You would hope that DECC can take their data and compare it to DWP data and we could maybe move that particular item forward because that would make a big difference.
James Heappey
Yes. I am not filled with confidence because we are closing with some pretty dodgy broadband rollouts, and Ofcom, BT and the local authority all have different lists of who has it and who has not. It is not just the Department’s work, it is the integration of three sets of data, stuff held by DECC, stuff held by DCLG, stuff held by DWP. In order for it to be useable it needs to be integrated in a very dynamic way. It was mentioned to us in committee last week that DECC are closing with this at best speed, but—yes.
Lawrence Slade
We are encouraged.
James Heappey
Yes. We heard that trust plays a key role in local approaches to energy efficiency and is one of the reasons that many have been successful. Why have schemes such as the Green Deal and ECO failed to build trust among consumers and the installation industry?
Isaac Occhipinti
I think the complexity, to begin with. For installers, for example, when the Green Deal was launched they introduced a new piece of accreditation that sat on top of existing accreditation called PAS 2030. This cost upwards of £1,000 per year per company, on top of two weeks’ worth of training. This was seen as superfluous by many in the industry and it created an instant barrier. Once you start to create a barrier and if you are not engaging with installers, installers then have less demand to go out and deliver. The other problem, of course, as you mentioned, is consumers. If consumers are not engaged, installers are not engaged, there is no natural demand for the product. Therefore, installers just will not go out advertising a scheme that nobody particularly wants.
Holly Jago
I think complexity has a key role to play. If you look at the number of off-grid heating systems that were delivered through Green Deal Finance, out of just over 6,000 total systems, 27 of those were oil or electricity. It is less than half a per cent. You compare that with the boiler scrappage scheme, where 25% of consumers who were surveyed classed themselves as rural. We are probably not quite comparing apples with apples there, but it gives you an indication of where there is a simple scheme, where people understand it: boiler scrappage, money off your boiler. The manufacturers generally matched that or added their own incentive. A simple scheme: get a voucher, get it installed. Green Deal Finance, far more complicated and you just did not see the uptake.
Stephen Huller
I would probably try to simplify it a little bit more as well. I am not sure whether there is a trust or a distrust issue out there. I think the general public in the main are just ambivalent about the whole thing. I do not think they know enough about it. They have not been engaged enough to understand what the pros and cons are as a mass market. I think the big issue is about what the customer journey is in this. It feels very clunky, the whole journey. From entry and getting the assessment to finally getting the install could be quite lengthy. Also, what they expected to be able to get the funding for doing different measures within the home—sometimes there were shortfalls. It is that, when they are going through the whole journey, it does not meet whatever they have had outlined as their initial expectations. What we have to do is make sure that we try to fully fund as many measures as possible and deliver them in the best way possible. That is how you start to gain consumer trust.
Isaac Occhipinti
Also tied into that DECC did some surveying and found that 41% of consumers go for advice to their local engineer and a further 20% to their builder. That builds up a picture of where they are getting energy advice from. If they are getting energy advice and they are getting further advice from installers and other tradesmen, that is a vehicle to deliver certain messages and certain marketing, and that was something that the Green Deal failed to take up.
Stephen Huller
It comes back again to, and sorry to reiterate the point, trusted advisers. There are all manner of them to help people make these logical decisions, but we have not worked with them.
James Heappey
In all of the discussion we have had so far this morning when we are talking about getting to those in need, those who are in fuel poverty, the suggestion is, it seems, that this is all about pushing on to those tenants, those owner/occupiers who are in need, that there is not much pull from them. Is that the right thing to pick up from this? If it is not, how do we encourage that part of the market to pull more for this stuff?
Stephen Huller
I would maybe challenge that slightly as well because I am aware of some direct sales teams out there who were taking these ECO-funded measures direct to the consumer and the consumer was totally unaware of them. As soon as they were aware as to what was available, then they wanted it. It is about, as I say, this education.
James Heappey
But that is in the able-to-pay part of the market.
Stephen Huller
No, that is in ECO. Obviously, you have to acquire customers to be able to do the ECO obligation installations, and a lot of these people were using external sales agencies to do it in all manner of guises. I have direct experience of firms going out to do that, acquiring a quarter of a million customers over the course of a couple of years, and as soon as you educate them they were willing to listen to the message. It is direct engagement. How do you do that?
Holly Jago
I agree it has to be direct engagement. Particularly with the fuel poor, with the vulnerable, they are very often not willing to self-identify. There is a stigma, they are very concerned about it and they do not want to lose face. Whatever the reasons are, and there are a multitude of reasons, self-certification of fuel poverty is not very high within vulnerable areas. You need that trusted adviser to be able to go in and talk to someone, to talk them through the process. Silly things like people are worried that if the energy efficiency of their rented property is improved their landlord is going to put the rent up. They worry about that, and they do not see the savings that they could be making. People worry they may lose certain benefits if they receive something else or if they have to declare what benefits they are on. People are very cautious about these sorts of issues, and to expect people to self-certify and put their hand up is not always going to work.
Lawrence Slade
I think Holly has hit the nail on the head there around data matching, because if you get data matching right, if you link that in with local delivery agents, the trusted partners here, you solve the self-certification problem and you are starting the conversation in a totally different way. “You are eligible for these measures. It will not cost you anything. This is all we have to do.” It is a different conversation.
James Heappey
So this is the meter checker or the boiler servicer who has checked on the way up the garden path that—
Lawrence Slade
If Dr Poulter was here, there have also been schemes where we have trialled how you work with local GPs and local health providers. There have been other schemes where you use visitors from the fire service, for example, who are going around and checking smoke alarms and carbon monoxide alarms. There are loads of people out there in addition to the boiler installers and the engineers and so on who can also help with this, but it is how you approach it in a holistic manner. I think that is what we need from DECC and other Government Departments is how you pull all of this together, link it all up and bring the funding to this point where you can bring all these different disparate parties together, because ultimately the goal is helping those people in fuel poverty.
James Heappey
Thank you. There is a lot of concern among businesses with regards to what will follow ECO after March 2017. What do Government need to do to give you more certainty? Come up with a policy, but when?
Lawrence Slade
As soon as. It is a silly answer, I know, but it is the most logical one. Clarity over extension; give it an extension so people know where they are going over the next 12 to 24 months. Then sit down with industry as soon as possible and work out just how you can deliver this. Who knows what is going to be coming out of the other side of the comprehensive spending review? Is the warm home discount going to survive? Just what funding is available? What is going to be put behind renewable heat? All of these elements feed into how we are going to handle this. Ultimately, from our point of view, if you turned around and said, “There is going to be another ECO, it is going to be supported by data matching and it is going to be targeted 100% at the fuel poor”, we would be happy.
James Heappey
If it was scrubbed up and put in those new clothes, ECO could carry on? There is no requirement to start again?
Lawrence Slade
There is a requirement to make it easier, faster, more simple to look after. The legions of people who are employed administering ECO is an example of how complex it is. I think you could strip it back to basics and make it simple, easy to deliver, have clear policy objectives, make use of existing standards or leverage building regulations where you can, make it cost efficient, and overall just make it long term so you get the supply chain and you give small companies the framework that gives them the confidence to invest.
James Heappey
If DECC does not hear our call to come up with a new policy as soon as possible and we get to March 2017 and there is a gap, how exposed is the industry? What sort of impact would that have on jobs and your willingness to invest?
Isaac Occhipinti
We do not have any members who are insulation based, but I know for them this would be a serious, serious issue. I think from a heating perspective it would slow down the amount of new boilers that are installed for people who need them in fuel poverty in a very simple way. The boiler industry would carry on, but people who need those boiler replacements may no longer be able to have them.
Stephen Huller
I think if you are going to grow a business in the UK you cannot have the volatility of the ECO funding line, especially if that is a big part of your business, because what happens if that changes? You are left exposed. You need to adapt very quickly. You need the balance between ECO and able to pay. If we cannot get something that fits in the able to pay space that is probably more stable than the ECO side, then you would have to question whether you even grew a business in the UK. That is obviously speaking as somebody that is looking at growing a business in the UK.
James Heappey
Yes. That is a concern that you think is shared by your colleagues across the industry? Because it leads me to ask: what does DECC need to do to support the development of a sustainable market for energy efficiency and to give you real confidence that Government are serious about this and that there is a genuine belief that we need to improve energy efficiency in homes, both in the able to pay and the unable to pay parts of the markets, so that you could see this as a 20, 30, 40 year—
Stephen Huller
This might be a bit of a glib response, but you talked about bringing something out by March of next year. What I would say is it is worth taking the time to come out with a sustainable, stable, less volatile policy that would allow business to grow on both sides of that fence, be it able to pay and ECO. If you cannot do that by March and you end up rushing something out there, then we may end up going through exactly the same process that we have over the last few years.
Isaac Occhipinti
I think, encouragingly, DECC in the last three to four months have been engaging with industry, especially our side, on a much more proactive basis. They have set up a working group between the heating industry and DECC to look at what policies could be introduced to improve energy efficiency. So we are encouraged by certain very recent developments within DECC.
James Heappey
That interaction is giving the industry as a whole some sense of reassurance that DECC understands the failings of ECO and is going to address them? The data integration bit is the bit that I am nervous about.
Lawrence Slade
Yes. As I said earlier, it gives encouragement that they are listening. I think there is a whole number of hurdles to be jumped before we get there, but it is certainly a positive sign. I would go along with what Isaac is saying in that regard.
Stephen Huller
What I would like to say is I do not think there was ever any question that DECC were not listening. If you go back to the original design of Green Deal, they were obviously listening. They were engaging with wide audiences of people. The thing is that when you engage with wide audiences you have an awful lot of vested interests that start to go into the melting pot, and how do you get through that to come up with the right thing that is sustainable? I think that is the challenge that DECC has, out of all the noise that they will hear how do they make the right decisions that allow this thing to grow and flourish?
Holly Jago
I think, as well, DECC need to be very clear about what success looks like. It comes back to the very first item that we discussed this morning. What does DECC want to achieve with this? What do the Government want to achieve? Is it about treating the hardest to treat, the hardest to reach, the solid wall properties? If it is, that is going to be expensive. There was a tension that was highlighted in the fuel poverty strategy that said, “We cannot treat the hardest to treat and still achieve large numbers”. That tension was in the strategy. I do not believe there has been an answer to that. The problem is the solid wall area of ECO, that part of the obligation was pulled. It was pulled overnight, which left the solid wall industry in a very difficult place. There needs to be that consistency there. It needs to be: what are we trying to achieve here? Let’s be very clear about that. Who are we trying to target, what do we want to achieve, and what does the policy look like to achieve that? Then some consistency that says, “We will commit to this for a set period of time and not change things overnight, not change direction, and not take £50 off bills because it is a political point that needs to be made”. It is the consistency.
James Heappey
That is clear. I think we have cracked it.
Holly Jago
Great!
Chair
Well, thinking we have cracked it is probably quite a suitable point to end the session this morning. Can I thank all four of you for coming here and being so helpful to the Energy and Climate Change Committee as we look at these issues? Thanks a lot for coming. Oral evidence: Home Energy Efficiency and Demand Reduction, HC 552 16