Fuel Poverty and Emerging Policy
Issues
Piya Malik
National Energy Action
Overview of what we will cover
– NEA & FPEEG overview
– Fuel Poverty Context
– Fuel Poverty Review
– Budget 2011
– Warm Front Eligibility
– The Warm Home Discount scheme
– Energy Bill : Green Deal and ECO
– Building a Roadmap
NEA overview
• UK’s Leading Fuel Poverty Charity
• Research & Analysis
• Lobbying
• Practical Projects
• Training
• Partnerships
Fuel Poverty Context
• 5.5 million households in the UK in FP
and rising.
• WHECA and UK Fuel Poverty strategy
• A question of political will?
The Government response
• The Government has introduced a number of policies to
address the main factors in fuel poverty:
• Inadequate heating and insulation standards
• Low household income
• High energy prices
Heating and insulation
standards
The Government’s Warm Front Scheme and the Priority Group
requirements of the Carbon Emissions Reduction Target
(CERT) deliver energy efficiency improvements to households
in receipt of means-tested or disability-related benefits. Both
schemes will be replaced in the run-up to the introduction of
the Energy Company Obligation (ECO) element of the Green
Deal. It is intended that the ECO should be the new source of
funding for fuel-poor and other economically disadvantaged
households from the end of 2012.
Low household income
The Government has two separate schemes to help
vulnerable households with fuel bills. The non-meanstested Winter Fuel Payment made to all households aged
60 or over and the Cold Weather Payment, made during
periods of particularly severe cold and restricted to
households on a low income and who are vulnerable as a
result of age (pensioners and children under 5) or
disability.
High energy prices
• The Warm Home Discount Scheme.
• First rebates are expected this winter.
• In the first phase, the scheme will offer a
discount of £130 on electricity bills for
households aged over 60 and in receipt of the
Guarantee element of Pension Credit.
Fuel Poverty Review
• The independent review of fuel poverty definitions and
targets announced in October’s Comprehensive
Spending Review is now underway
• Professor John Hills, a social policy expert from the
London School of Economics, has been appointed to
head the review
• should report interim findings in autumn of this year
with a final report to Government no later than January
2012.
• However the announcement of the review was
accompanied by an initial Call for Evidence which has a
closing date of June 6 2011.
Fuel Poverty Review
• The Call for Evidence invites stakeholders to submit
views that can inform the Fuel Poverty Review Team’s
consideration of the elements that comprise the Terms
of Reference.
• In particular the review would welcome submissions with
a strong evidential base (with emphasis on new and
emerging evidence) relating to a number of specific
areas
Fuel Poverty Review ToR
– To consider fuel poverty from first principles: to determine the
nature of the issues at its core, including the extent to which fuel
poverty is distinct from poverty, and the detriment it causes.
– As appropriate, and subject to the findings of the previous
determination, to develop possible formulations for a future
definition and any associated form of target that would best
contribute to:
- addressing the underlying causes identified
- helping Government focus its resources (which are set out
in the Spending Review for the period 2014-2015) and
policies on those who need most support
- measuring the cost effectiveness of different interventions
in contributing to progress towards any target
- developing practical solutions, particularly around
identification and targeting of households and measuring
progress resulting from Government action
Budget 2011
– From next winter the Winter Fuel Payment will revert to the base
value of £200 in the case of recipients aged 60-79 and to £300 in
the case of recipients aged 80 or over.
– This should result in a saving to the Exchequer of some £600
million as overall expenditure falls from around £2.7 billion to £2.1
billion.
– Floor price for carbon Announced
– The Impact Assessment for the Carbon Price Support predicted
increased fuel poverty levels of between 100,000 and 200,000.
Warm Front Eligibility
• Major reductions in The Warm Front scheme annoucned
with the intention that the programme will be phased
out completely by 2012/13.
• Previous criticism of the poor match between fuel
poverty and eligibility for Warm Front, allied to the fact
that the budget is to be reduced by some 70%
• What will the revised scheme look like?
Warm Front Eligibility
• The new eligibility criteria will combine extreme financial
disadvantage, vulnerability and poor or modest
standards of energy efficiency.
Eligible households must:
1. receive one of a range of means-tested benefits and
2. be vulnerable on grounds of age (over 60 or with a
child under 5) or with some form of disability and
3. occupy a private sector dwelling with an energy
efficiency rating of SAP 55 or below
Warm Front Eligibility
• The new eligibility criteria will reduce the number of
qualifying households from 4.3 million households to 1.5
million households but, since the scheme will only assist
57,000 households in 2011-2012 and 50,000 the year
after (compared with 213,000 in 2009-2010), this is
perhaps less significant than it might have been.
• Certainly demand will continue to outstrip supply and,
unless there is a major change in Government thinking,
Warm Front will terminate in 2013. The intention here is
that, post-2012, the new Energy Company Obligation
will be the main source of funding for heating and
insulation measures for fuel-poor households.
Warm Front Eligibility
• A further disappointing decision will see the end of
Benefit Entitlement Checks under Warm Front.
• The recently published Warm Front Annual Report noted
that, in those cases where benefit entitlement was
identified, average annual income was increased by
£1,850.
• The Government justifies this decision on the grounds
that priority must be given to practical measures that
result in the greatest improvement to thermal efficiency.
• In addition, the next phase of the scheme will not offer
the £300 Heating Rebate Voucher or compact
fluorescent bulbs.
Warm Home Discount scheme
• The Government has finalised proposals for the Warm
Home Discount scheme.
• The scheme will make the current voluntary discounts
that energy suppliers offer pensioners and some lowincome families on gas and electricity mandatory.
• In the first phase, the scheme will offer a mandatory
discount of £120 on electricity bills for households aged
over 60 and in receipt of the Guarantee element of
Pension Credit (the Core Group)
• It also allow energy companies to offer it to other
vulnerable groups that they are able to identify
themselves following some guidelines (the Broader
Group).
• The total that utilities are expected to spend on the
Warm Home Discount will be £250m in 2012, rising to
£300 million in 2014/15.
Core Group (Mandatory
element)
The Broader Group
• Eligibility for the Broader Group is intended to focus on
other vulnerable low-income households.
• The Secretary of State will publish regulations indicating
what sort of groups would fall into this category and
suppliers will be provided with what the Government
believes to represent appropriate eligibility criteria.
• Energy suppliers will be allowed to target sub-sets of
these groups although this will not be compulsory.
Legacy Spending
• Legacy spending comprises the range of discounted
tariffs and rebates currently offered by energy suppliers
on a voluntary basis.
• Over the life of the Warm Home Discount, the balance of
expenditure will shift further towards the Core and
Broader Groups with legacy spending phased out by
2014-2015.
• To ensure effective transition from voluntary
arrangements, suppliers can only provide assistance
based on the same eligibility criteria applying in the final
year of the Voluntary Agreement and to no more than
the number of customer accounts benefiting in that
year.
Industry Initiatives
• Industry Initiatives are those supplementary
programmes funded by energy suppliers on behalf of
vulnerable consumers e.g. energy advice services,
benefit entitlement checks and enhanced energy
efficiency programmes.
• Suppliers will be allowed a degree of flexibility on the
distribution of expenditure across Industry Initiatives
and Legacy Spending but with a cap on the individual
elements of that spend.
Final breakdown
• Anticipated expenditure across the four elements of the
scheme is set out in the table below.
Energy Bill Update
• The Green Deal is intended to bring about a ‘step change’ in
domestic energy efficiency in Great Britain. The key elements
of the Green Deal are thought to be:
• Householders will have access to finance, up to £6,500,
without any upfront payment being required. The finance will
be provided by a range of private sector funders and will be
paid through a charge on household bill over a period of time
up to 25 years.
• The charge will remain with any subsequent occupant of the
dwelling who will be responsible for ongoing payments.
• The Green Deal is underpinned by a ‘golden rule’ specifying
that financial savings resulting from energy efficiency
improvements should exceed the amount of any repayments
made to service the finance arrangements
The Green Deal and fuel poverty
• The Government has recognised that the Payas-You-Save element of the Green Deal is not
appropriate for fuel-poor and financially
disadvantaged households. This is because:
• Vulnerable fuel-poor households will be debt
averse
• They may represent a credit risk to lenders
• Thermal comfort element means wont re-pay
savings.
The Energy Company Obligation
and fuel poverty
The primary mechanism to assist disadvantaged
households improve heating and insulation standards in
their homes will be the Energy Company Obligation
(ECO).
During the debate on the Statutory Instrument relating to the CERT extension,
Energy Minister Greg Barker MP, indicated that:
‘The pay-as-you-save model will serve the majority, if not the lion’s share, of
people. Nevertheless, a significant element, particularly among the fuel poor and
people with hard-to-treat homes, will need additional support, which we will
primarily tackle through an enhanced supplier obligation. We are talking about
more than £1 billion a year in the supplier obligation— considerably more than
the Warm Front budget this year, which is a little in excess of £300 million. The
sums and scale of money are very large. We are designing a new architecture,
which will be far more sustainable than the hand-to-mouth, annual Treasurycapped grants.’
Consumer equity and the ECO
• Future FP policy dependent on ECO
• Funding raised through levies.
• Potential for leakage to prop up Green Deal?
The Impact Assessment for the Energy Bill states:
As of 2007, 33% of fuel poor households lived in homes built
before 1919 and 43% of the fuel poor households lived in
homes without cavity wall insulation (defined as cavity walls in
less than half the dwelling). It is likely that a large proportion
of fuel poor households will fall into the ‘hard to treat’
category. The primary powers for ECO will allow some form of
coordination between the GDF and ECO, which will allow these
‘hard to treat’ homes to still receive measures.
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The ECO has potential to work
providing…
It is sufficiently well funded
The program allows for whole-house energy efficiency improvements
and funds 100% of the work
The Energy Company Obligation funding is used in a structured and
strategic manner that encourages community-wide improvements in
the most efficient and cost-effective form
Local authorities, as the trusted local intermediary, are given the lead
role in coordinating energy efficiency programmes in partnership with
a range of agencies including energy suppliers, voluntary sector
organisations and other relevant commercial enterprises such as
heating and insulation installers
Practical work under the Energy Company Obligation is supplemented
by guidance and advice on the most appropriate energy tariffs, energy
advice aimed at behavior change and support and advice in relation to
fuel debt and consumer protection
Delivery of ECO
• The Bill as drafted does not provide any detail on how
the obligation would be delivered or by whom but it is
expected that energy companies will be predominantly
the delivery agents and the role of local authorities is as
yet unknown.
• This and a number of other relevant points relating to
delivery were highlighted by Peers.
• NEA continues to argue that a comprehensive, efficient
and optimal framework would comprise a systematic
bottom up “area-based” roll-out of energy efficiency
measures led by local authorities and their private
commercial and/or voluntary partners.
Questions remaining
Green Deal
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How exactly will households be incentivised to take part in the Green Deal? Will it
be through a carrot or a stick method or a combination of both?
What level will interest repayment on the Green Deal be set at and how?
What will happen if the “golden rule” is not met and customers do not save as
much on their energy bills as first anticipated? Who will be responsible for
making up any shortfall?
Will finance providers be able to turn down requests for the Green Deal? If so,
for what reasons?
How many people will actually take-out a Green Deal plan? In February 2011 the
Government said it has not yet made any estimates of expected take-up.
Questions remaining on ECO
• What is the anticipated level of resources in the Energy
Company Obligation?
• Will these resources be devoted in their entirety to fuelpoor households in conventional properties and to fuelpoor households occupying hard to treat dwellings?
• Will the resultant fuel poverty programmes be structured
in such a way as to maximise benefit and minimise cost
through delivery on a community basis with local
authorities as key intermediaries?
Building a Roadmap
The government
Greater clarity is needed on:
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the range of actions necessary for tackling fuel poverty;
how they interact together;
who owns each action;
Cross departmental working? Which departments?
the milestones towards 2016;
what is going to happen if those milestones are not reached?
funding.
Thank you
Piya Malik
Policy Campaigns and Parliamentary Officer
Piya.malik@nea.org.uk
07912 994 714
Fuel poverty and Energy Efficiency Group Co-ordinator
malikp@parliament.uk