Energy Correspondent Archie Wallace examines the impact of the Comprehensive Spending Review and its implications for the energy efficiency market…
Remember, remember, the 5th of November. It is perhaps surprising we still remember Guy Fawkes this way given the centuries that have passed and his complete failure to cause any damage or any material change to the Parliament building in Westminster!
Four-hundred and ten years and twenty days later, a gentleman in Parliament decided to make a material change to energy efficiency support however, with a policy bonfire of his own. George Osborne delivered his Comprehensive Spending Review (CSR), which comprehensively derailed the Government’s “Energy Company Obligation”- a support system for energy efficiency.
The Government’s headline policy for delivering energy efficiency measures (forgetting the Green Deal, which flopped) is the Energy Company Obligation. It funds a range of measures from solid wall insulation, loft and cavity insulation to replacement boilers for the fuel poor. It seeks to reduce carbon emissions and limit the impact of fuel poverty on those in need of support through three strands. Following the CSR, a successor to ECO is now on the way.
Across the last Parliament, 1.2 million homes benefited from ECO type schemes according to Amber Rudd, the Secretary of State for Energy and Climate Change. Despite stating, in her 18th November policy re-set speech, that further support should be concentrated on those in the greatest need (a tacit admission access to a reasonably heated home is a need, not simply a desirable element to modern life in the UK) the Minister then announced the Government’s ambition for the 2015-20 Parliament is less than what has been delivered under the previous Coalition — now aiming to insulate only a million homes.
In his CSR speech, Mr. Osborne explained why the Government’s headline plans for energy efficiency are not as ambitious as previous, by quipping “going green should not cost the earth.”
One entity which might state the opposite, that not going green would cost the earth is the Committee on Climate Change (CCC), the independent statutory body established under the Climate Change Act 2008. The CCC’s purpose is to advise the UK Government and Devolved Administrations on emissions targets and report on progress made in reducing greenhouse gas emissions.
Prior to its original implementation in 2013, the ECO scheme was estimated to cost energy companies around £1.3bn per year on average to deliver. A proposed replacement scheme will launch in April 2017 with a value of £640 million annually — equating to less than half the original ECO spending pot for direct household energy policy subsidy.
The CCC has noted that in 2014, the cost of supporting energy efficiency improvements (through schemes like ECO) was around £35 to the consumer. This stands in stark contrast to the fact that, as the English Housing Survey (2013-14) reports: ‘31% of households living in the least efficient G-rated properties were in fuel poverty, with an average fuel poverty gap of £1,274.” [The fuel poverty gap is the difference in energy costs for those occupying such properties with the average household]. So whilst it is commendable that the Conservative Government is seeking to support first and foremost the fuel poor, the estimated funding fall is alarming given the scale of the issue to be addressed.
However, there still exists the opportunity for Government to utilise the CSR – a bonfire of energy efficiency policies — to spark a warmer future for the country. It needs to be recognised that ECO monies could be better targeted and that regulation can ensure some low cost measures such as inexpensive, yet modern boiler controls, become mandatory on installation. This would mean that obligated parties under ECO (or its successor) should rightly, concentrate their resources on the measures that will make the greatest difference to those who need support most — the fuel poor.
The Government could also move to resurrect the now near-extinct Green Deal scheme. Whilst riddled with failings, from poor consumer engagement to its unattractive interest rate, a replacement Pay As You Save (PAYS) mechanism still retains merit, and represents a route to delivering lower energy costs to consumers – particularly those with higher energy bills – without directly sapping the public purse. Motivating the private sector and fully engaging financial institutions is an essential aspect to the future success of any new PAYS scheme.
It might not feel natural for George Osborne – as a Conservative — to regulate in order to deliver public goods, but over the long term, the cost of not delivering energy efficiency measures en masse will be far higher than the £35 paid by each consumer in 2014. Energy efficiency is a prime route for George Osborne to deliver his long term economic plan — and make those suffering from the cold warmer this, and each subsequent winter.
Archie Wallace
Energy Correspondent