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Sarah Newton (Truro and Falmouth) (Con)
It is a great pleasure to serve under your chairmanship, Mr Crausby. In these very difficult economic times, households up and down the UK are struggling with the cost of living, and of all the bills that darken kitchen tables from Aberdeen to Axminster, energy bills are hitting many the hardest.
Rightly, the Government are taking action to help. Following my right hon. Friend the Prime Minister’s commitment to bringing down energy bills, Ofgem—the Office of Gas and Electricity Markets—is introducing a package of measures to reduce bills, improve consumer advice and improve regulation, but, however welcome those changes are, their scope extends only as far as the limits of the mains gas grid. Beyond the flicker of the grid lie millions of households that are at risk of being left in darkness as energy reforms come into force. Those households, unable to access gas from the grid, rely on alternative energy sources, including heating oil, liquefied petroleum gas, electricity and solid fuels. If we are serious about helping people who are struggling with the cost of energy, we must ensure that there is parity between mains gas and off-grid households.
Anne Marie Morris (Newton Abbot) (Con)
Does my hon. Friend agree that the issue is not only that these are rural communities, but that often they are among the most deprived, so it is those who are least able to bear the excessive costs of off-grid gas who have to bear the burden?
Sarah Newton
My hon. Friend makes a very good point. I will come on to illustrate the scale of the problem that she so rightly raises early in the debate.
All households should enjoy energy prices that are as low as possible, along with the protection afforded by a robust regulatory system. All should have access to comprehensive consumer advice services. It is important to stress that, in talking of households left off the mains gas grid, we are not talking about a handful of remote villages. Millions of people rely on off-grid energy. As a Cornish MP, raised in the duchy, I have always been aware that, for many local households, energy is not simply a matter of flicking a switch for a piped supply. It involves an expensive process of sourcing, purchasing and securing delivery of a private supply of heating oil or LPG or, nowadays, of finding a renewable source of energy. However, it was only on entering Parliament and joining the all-party group on off-gas grid, so ably led by my hon. Friend the Member for Suffolk Coastal (Dr Coffey), that I fully appreciated the scale and geographical extent of off-gas grid energy usage.
Across the UK, 4 million households are off the mains gas grid. Their inhabitants comprise 15% of the population. Those households are not confined to rural areas, as 49% of off-gas grid households are situated in urban areas. The households reliant on off-gas grid energy do not represent a marginal group—an exception to be brushed over—but instead comprise millions of families and individuals living in cities, towns and villages and on farms across the country. What, then, is the state of the off-grid gas energy sector that serves them?
A comprehensive study of the sector was published last month by the all-party group, drawing on evidence from off-grid energy suppliers, off-grid energy customers, consumer groups and the Department of Energy and Climate Change. The picture painted by the report is stark. It reveals a sector in desperate need of the sort of changes now being applied to the mains gas grid network.
One thing is particularly clear: off-grid households pay more for energy. Work undertaken by the heating bill comparator Sutherland Tables reveals that a typical three-bedroom house, costing an average of £975 a year to heat on mains gas, would cost more than £1,570 to heat with heating oil and a staggering £2,170 to heat with bulk LPG. Overall, off-grid households pay 60% to 120% more for energy than households connected to the mains gas grid.
Anne Marie Morris
Does my hon. Friend also agree that the challenge is not just the amount, but the mechanism for payment, because sometimes direct debit facilities are simply not available and individuals have to pay up front, which inevitably is a much heavier burden on the purse?
Sarah Newton
That is absolutely right, especially in relation to bulk supplies of oil and gas, for which a single payment can be £600 or £800.
The high prices are compounded by the fact that off-grid households cannot benefit from the range of discounts, such as those associated with dual fuel bills, that on-grid customers enjoy. Similarly, many energy-saving schemes promoted by the Government have, in the words of Citizens Advice when giving evidence to the all-party group,
“not been particularly effective at improving the energy efficiency of off-grid properties.”
Previous schemes, such as the carbon emissions reduction target, have incentivised energy suppliers to provide energy-efficiency improvements to consumers. However, the process used to assess the progress made by different energy suppliers—the system of a point for each household improved—encouraged suppliers to focus on easy-to-improve households. As many off-grid properties were far from easy to improve, having solid, hard-to-insulate walls and being situated in isolated locations, they were accorded a low priority. As a result, many off-grid households missed out.
The all-party group’s report shows that a considerable number of off-grid gas energy consumers believe that the high prices that they have to contend with result from a lack of competition among suppliers. I have been aware of those concerns for some time, and following the winter of 2010-11, when the price of heating oil in my constituency rocketed, I joined others in calling for an Office of Fair Trading inquiry into the off-grid energy market. I am very grateful to the former Energy Minister, my hon. Friend the Member for Wealden (Charles Hendry), for listening to the concerns and for asking the OFT to instigate just such an inquiry. However, while the OFT concluded that the off-grid market was working well and gave most off-grid customers a choice of suppliers, the all-party group’s report indicates that the all-clear issued by the OFT may be premature.
Crucially, the OFT analysed the number of suppliers in a given area by postcode. That approach throws up a number of issues. It has been argued that analysis by postcode district is not sufficiently detailed to give an accurate assessment of the number of functioning suppliers for any one address in that district, as postcode districts can cover many square miles and thousands of households. In particular, sparsely populated rural areas, which are most likely to be off-grid, by definition cover a larger expanse. The average rural postcode for England and Wales comprises 55 square miles, compared with 14 square miles for urban areas. That large rural postcode size means that, although a postcode could be served by five different suppliers, each supplier could feasibly serve only one district within it—a district large enough to support one whole company, but that comprises only a small proportion of the postcode area. Consumers living in that district would therefore have a very limited choice of suppler.
In giving evidence to the all-party group, the OFT admitted that its approach overlooked a lack of competition in rural areas, stating that many rural districts
“actually only support a very small number of suppliers, perhaps two or even only one.”
The first-class Cornish charity Community Energy Plus gave further evidence to the all-party group of a lack of competition in very rural areas served by small, local companies, commenting that
“a lot of the companies have an existing customer base and they’re actually unwilling to expand… that results in… a lack of competition”.
It therefore appears that the OFT inquiry may not paint a comprehensive picture of the state of the market and that a lack of competition may well be a further issue affecting off-grid energy consumers.
Anne Marie Morris
Does my hon. Friend believe that a comparison might be drawn in rural communities between the broadband challenge and the energy challenge? Both issues are difficult for rural communities. The Government have a rural broadband strategy. Would it not be appropriate for them to adopt a rural energy strategy to look very carefully at this problem?
Sarah Newton
My hon. Friend makes a good point. Parts of rural areas have successfully rolled out super-fast broadband. I must commend the super-fast broadband project in Cornwall; we have very high penetration levels, even in some remote rural areas. She makes a fair point: we need parity across our nation. People living in remote rural areas should not be disadvantaged. As policy makers, we should always consider fairness and parity.
Consumers facing high prices and related competition issues are also bereft of the regulatory protections and consumer support that many on-grid households take for granted. Ofgem has no responsibility in the off-grid energy sector and the OFT can investigate only how well the market is operating. Off-grid energy customers with a complaint against their supplier have only one recourse: their local trading standards team. Support from such teams differs across the UK and is extremely limited in many places. Some moves have been made towards the self-regulation of the off-grid energy sector. The Federation of Petroleum Suppliers, a trade association whose membership delivers 80% of the UK’s heating oil to homes, has a code of conduct that requires members to
“act with integrity and honesty”.
The federation is apparently preparing a more rigorous code, giving further specification on what would constitute a breach of “integrity and honesty”. However robust that code is, the ultimate sanction will remain loss of membership. Given the number of suppliers who successfully trade without belonging to the federation, that sanction does not constitute such a disincentive.
Inadequate regulation is matched by limited support for off-grid customers. On-grid households can access a range of support, including a dedicated team in Consumer Focus, but many off-grid consumers struggle to find expert advice. In the words of Citizens Advice, when giving evidence on consumer advice for off-grid customers to the all-party group:
“A team in DECC… that we knew we could go to, would be nice... we just need a far more coordinated effort, essentially.”
That stakeholder experience of consumer advice matches that of too many off-grid customers. To assess the off-grid energy sector is to assess a range of frustrations faced by off-grid energy consumers, from high prices, possibly caused in part by a lack of competition in the market, to inadequate regulation and a lack of dedicated consumer advice.
What can be done to tackle those issues to ensure that off-grid customers benefit from assistance commensurate with that directed to on-grid households? The all-party group’s report suggests a number of common-sense changes that would make a real difference to off-grid gas consumers. The benefits system could recognise the high prices that off-grid consumers face. Two particular benefits are specifically designed to assist with the cost of energy: the warm home discount and the winter fuel allowance. Citizens Advice and the Energy Saving Trust support proposals to create a higher rate in the warm home discount to reflect high off-grid prices. Last year, the hon. Member for Angus (Mr Weir) promoted a private Member’s Bill that would have enabled off-grid gas consumers to receive their winter fuel allowance in September, rather than December. That simple change would allow older consumers to purchase heating oil at low summer rates, thereby saving an estimated £200 a year.
To help to secure lower prices in the long term, the OFT could be asked to reopen its study into the off-grid energy market, using more localised data. Such a revised study could provide a more definitive answer about the scale of competition issues in the market and suggest possible resolutions should such problems exist. To provide regulatory protection and consumer support to off-gas households, the Government could set up a dedicated team within the new competition and markets authority to regulate the sector and support consumers. Community Energy Plus describes the creation of such a body as
“essential to ensure price parity across the market”.
Jim Shannon (Strangford) (DUP)
I thank the hon. Lady for bringing this important matter to the House. The differential in prices across Northern Ireland has been recognised and the regulator is already looking at it. Does she feel that something should be done UK-wide on the regulation of prices? The price, when the stuff comes off the ship in Belfast, is dearer there than in some other parts of the Province. There is something seriously wrong, and the same problem applies across all rural constituencies.
Sarah Newton
I hope the hon. Gentleman will forgive my ignorance, but I am not fully aware of the devolved powers in relation to the energy market. I did not prepare to cover that in this speech, as I am very much focused on England and Wales, but perhaps the Minister will respond to that point. He probably has far greater knowledge of whether his powers extend to the Province than I do.
Alongside the measures I suggested, support to the green deal and the renewable heat incentive should continue. If implemented correctly over the coming years, both have the potential to assist off-grid gas households. The renewable heat incentive in particular could help off-grid households to install air or ground heat pumps, providing a new, cheaper and more sustainable energy source.
Having campaigned for some years on behalf of off-grid energy consumers living in my constituency, I am assured that Ministers appreciate how important the issue is. I am grateful for all the time that the Minister of State, Department of Energy and Climate Change, my right hon. Friend the Member for Bexhill and Battle (Gregory Barker), an off-grid energy consumer himself, has given and for the help that my hon. Friend the Member for Wealden gave in securing the initial OFT inquiry. I now urge DECC to take that appreciation of the issue one step further, take careful note of the further evidence revealed by the all-party group’s report and consider closely the all-party group’s recommendations, which could help to secure a fairer deal for off-grid customers. It is important to stress that many such customers form part of a group that Ministers are keen to prioritise: households in and at real risk of going into fuel poverty. One OFT statistic is telling: 32% of off-gas grid households in Great Britain are fuel poor, compared with 15% of those on-grid.
The Government are right to do what they can to help households struggling with rising energy bills, but that help will pass millions by if reforms to the mains gas network are not complemented by action on off-grid energy. The 600,000 off-grid households in fuel poverty will continue in fuel poverty, joined, no doubt, by many others, if an unreformed off-grid energy sector is combined with a return to winters like those of 2010 and 2011.
For the Government’s package of measures on energy bills to be fair, it must apply both to on-grid and off-grid households, and to be effective it must help the hundreds of thousands of off-grid households that have fallen into fuel poverty over recent years. For the Energy Bill revolution to be meaningful, it must travel beyond the corridors of Whitehall and to all those beyond the edge of the mains gas grid.
Mr Mike Weir (Angus) (SNP)
I am pleased to speak in this important debate under your chairmanship, Mr Crausby, and to support the recommendations made by the all-party group on off-gas grid in its excellent report, which sets out the issues and proposes interesting ideas to deal with them.
I do not intend to speak on the general problem of fuel poverty, the details of which should be well known by Members on both sides of the House, but I note the point that the hon. Member for Truro and Falmouth (Sarah Newton) made: although only 15% of households in the UK are not on the gas grid, 32% of such households are in fuel poverty, as opposed to 15% of on-grid households. That shows the extent of the problem, particularly, but not exclusively, in rural areas. I have raised the issue of off-grid supplies in all the years I have been in the House. When preparing for the debate, I was tempted simply to say—in the manner of “Blue Peter”—“Here’s one I prepared earlier” and produce an old Hansard. It is slightly depressing to see the same familiar problems that we have talked about for years highlighted in the report.
I have raised the particular issue of winter fuel payments for off-grid pensioners on numerous occasions, to Ministers in both this and the previous Government. I am pleased with the strong recommendation in the new report that calls on the Department for Work and Pensions to reconsider its opposition to my private Member’s Bill. My Bill does not seek to extend winter fuel payments to additional groups, nor does it tread on the contentious issue of means testing that concerns some Members. It is tightly drawn to give some relief to a particularly vulnerable sector: pensioners who are off the gas grid.
As the hon. Member for Truro and Falmouth said, all forms of energy have increased in price, but the price of home fuel oil has rocketed in recent years, and there is clear evidence that the cost rises in early autumn and stays high over winter. Even on the website of an oil supplier, www.valueoils.com, we can read:
“Winter months are typically more expensive than the summer given the rise in demand across Europe, the summer months of June and July will usually provide the lowest rates.”
The graph on the site shows dramatic increases in all areas of the United Kingdom over the winter months. It is important to note that this is not just an issue for the rural highlands and islands of Scotland; it also affects rural Wales and all parts of rural England, including Cornwall.
Fiona O'Donnell (East Lothian) (Lab)
What the hon. Gentleman says is further evidenced by the experience of one of my constituents, who queried her bill and had it reduced. No other market—including mains gas and electricity—would operate in that way, so is that not evidence that the suppliers are charging over the odds at times?
Mr Weir
The market is not clear. I appreciate that there are difficulties in the market. There are some big suppliers, but there are many small ones, and one difficulty is that many suppliers buy on the notoriously volatile spot market. The APPG report highlights another difficulty, which is that people are given a price when they ask for oil, but the price is not guaranteed and can be completely different on delivery. That is no way for someone to run their main home heating supply. The presence of the hon. Member for Strangford (Jim Shannon) reminds me that this is also an issue in Northern Ireland—I was interrupted before I could mention that.
Figures from Oil Firing Technical Association suggest that a typical rural household could save £170 if they bought heating oil in June 2010 rather than in January 2011, nearly doubling the value of their winter fuel allowance. When I introduced my Bill, the House of Commons Library produced a note that stated:
“The average costs of heating and providing hot water for a typical three bedroom house with LPG have been estimated at around £2,300 per year (based on April 2012 prices with a conventional boiler), heating oil is thought to cost around £1,700 and gas around £1,200.”
It is worth noting that over the past four years, the cost of heating an average home with propane or home fuel oil has increased by £850 and £750 respectively, while gas has increased by only £400, so not only are off-grid homes more expensive to heat but the costs have risen much more sharply than for homes on the gas grid. In short, it costs almost double to heat a home with LPG than a home with access to the mains gas grid. It is also important to note that the main use of LPG and home fuel oil is for heating, so although these homes generally have electricity they still face greater costs.
The traditional response of Government to the problem has been to call for an extension of the mains gas grid, and that point is made in the report, but there are fundamental difficulties, not least because in many rural areas there is simply no gas main and there is no possibility of a gas main ever coming to areas such as the islands and highlands of Scotland, rural Wales and rural Northern Ireland perhaps. Even where there is a gas main, the connection cost can be exorbitant.
I recently came across a case in an urban setting in my constituency. Even though there was a gas main further down the street, my constituent was quoted £6,000 to connect to it. That would be uneconomical for most households, which are struggling to pay their fuel bills. If the Government are serious about the extension of the gas grid, they have to do something about connection costs. In the case of my constituent, it might be that the quoted cost was high because they were the first person in their small area who wanted to connect. People connecting in future might get it cheaper, but it is still uneconomical for the first person, and that issue needs to be tackled.
The problem in many rural areas is exacerbated by the fact that much of the housing is old and of a construction that makes it difficult to install energy-saving measures such as cavity wall insulation. I appreciate that the Minister will say that the energy company obligation is meant to tackle such issues—and I am sure that it will— but there is still a huge problem over all rural areas of the United Kingdom.
Those households receive the same winter fuel allowances as pensioners on the gas grid, but the crucial difference is how the energy is delivered. Those who are on the gas grid will receive their winter fuel bill around the time that the winter fuel allowance is generally paid, and it therefore works well for them. Indeed, in the explanatory notes to the regulations that last amended the benefit, the previous Government stated:
“They are paid in a lump sum each winter to ensure that money is available when fuel bills arrive.”
That, however, is not the case for those who are off the gas grid. They face the difficulty of having to pay for their LPG or home fuel oil up front at the beginning of winter, well before they have the benefit of the winter fuel allowance, and the hon. Member for Truro and Falmouth rightly pointed out the cost of a full tank of gas. Many find it difficult to make the payment at that point, and may well not fill up the tank completely, which leaves them having to do so in the depths of winter, which can bring problems of its own, particularly during the severe weather that we have recently experienced.
The Office of Fair Trading produced a report that found that there were many competing suppliers in the market. However, by definition many of them are small suppliers, and although some of the larger players offer greater payment flexibility, many smaller ones are unable to so.
Hywel Williams (Arfon) (PC)
My hon. Friend referred to the difficulty of getting gas supplies in the depths of winter, and that was certainly an issue two winters ago in my constituency. Has he come across any local authorities or other bodies that include gas supply as part of their emergency planning?
Mr Weir
I cannot say that I have specifically addressed that issue but, to be fair to the Government, two winters ago, they introduced a regulation to amend drivers’ hours, to enable tanker drivers to deliver during the worst of the winter. In spite of that, in my constituency it was impossible for tankers to get up many of the roads because they were blocked with snow. I had constituents who had no gas over that Christmas. The problem is exacerbated by the fact that some suppliers place a meter in the tank, and unless the remote reading shows that the gas is at a certain level they will not deliver because they do not consider it an emergency.
Roger Williams (Brecon and Radnorshire) (LD)
The hon. Gentleman raises an issue that was very evident in my constituency during that time. The remote sensing meant that the supplier would not deliver unless the gas got down to a specific volume. Some people, for instance those suffering from cancer, were so afraid that they would be without heat that they were caused considerable anxiety and concern.
Mr Weir
The hon. Gentleman makes an excellent point. All these issues need to be addressed.
When I debated the issue with the Minister of State, Department for Work and Pensions, the hon. Member for Thornbury and Yate (Steve Webb),in this Chamber, I indicated that some of the larger firms were interested, at least in discussing possible ways to address some of the issues, and I understand that there have been discussions between Ministers. When the Energy Bill was in Committee, the then Minister of State, Department of Energy and Climate Change, the right hon. Member for South Holland and The Deepings (Mr Hayes), agreed that the Department for Work and Pensions would be included in such discussions. I understand that a round table is due to take place next month, and I would be interested to hear from the Minister on whether he feels any progress has been made.
Although the price of fuel rises, often substantially, as winter approaches, some suppliers offer a fixed price, but one that is much higher than in summer, and my Bill suggested ways in which we might tackle the problem. Winter fuel allowances are paid as a result of regulations that specify a date by which pensioners must apply, and it is worth noting that once someone is in the system they do not have to apply in subsequent years. Clause 1 simply seeks to vary the regulations by bringing forward the qualifying date for those off the gas grid from late September to late July. Clause 2 seeks to bring forward the payment date to no later than 30 September to allow them to take advantage of buying a complete tank of gas before winter.
It seems to me that the real problem—it is not unique to this Government; to be scrupulously fair, it happened under the previous Labour Government as well, and I discussed it with the then Minister with responsibility for energy—is that the Department simply tells Ministers that such changes are too difficult and too expensive, neither of which bears scrutiny. I have already suggested that, if the Government have real problems with an earlier date, we might keep the September date and simply allow payment to off-gas grid consumers at an earlier date from the second year. That would get round many of the problems, none of which seems to me to be insurmountable.
As we gallop towards Prorogation, I fear that time has run out for my Bill in this Session. I recall, however, that when Ted Heath was Prime Minister, he wanted to bring in the pensioners’ Christmas bonus, but was consistently told by his advisers that it would be too difficult or expensive, so he simply went on television and announced its introduction, and the Department suddenly found a way to do it. Perhaps it is time for similar ministerial militancy from the Minister to tackle the problem. To encourage him, I have tabled a new clause to the Energy Bill that would insert the main provisions of my Bill, and I ask all Members who are interested in the issue to sign it. Let us have another go at the Minister before our constituents have to suffer another winter of massively increasing fuel prices and an inability to get oil because of the weather.
Roger Williams (Brecon and Radnorshire) (LD)
I pay tribute to my hon. Friend the Member for Truro and Falmouth (Sarah Newton) for securing this debate. As the hon. Member for Angus (Mr Weir) said, it has been oft-repeated. It is none the worse for that, but progress is pitifully slow. I am sure that constituents throughout the UK who are represented by hon. Members across this Chamber must feel that their cause has not been addressed by this Government or, indeed, by previous ones.
I want to raise several issues, on the first of which some progress has been made. My predecessor, Richard Livsey, pressed the Office of Fair Trading to conduct an inquiry into the supply of LPG for many years, but I was the Member for Brecon and Radnorshire when that inquiry was completed and a report made. It gave customers greater flexibility in being able to compare prices from various suppliers. Until then, they had to change the bulk tank when they changed suppliers, and the complexity and expense of doing so meant that changing suppliers was very difficult.
There have been incredibly good examples of communities coming together to form purchaser groups that can negotiate more strongly with suppliers. Certainly, the little community of Llanspyddid in my constituency has achieved that, although again—we have heard this message from hon. Members—the tariffs proposed by suppliers were so complicated that it was difficult for consumers to come to a conclusion and they needed help to evaluate suppliers’ proposals. That is nevertheless a good example of how the consumer can be more powerful in the market, given the right conditions.
I say to the Minister that those people need support to get groups together. A document has been produced on good practice for consumer groups in the energy market, but the Department of Energy and Climate Change could certainly do more to ensure that LPG consumers know that they can have competitive tenders from different suppliers. I often talk to LPG consumers who still do not understand what can be done, and there should certainly be a public information campaign to enable people to benefit more from that.
Sarah Newton
This topic is very important. In Cornwall, a huge amount of work has certainly been done, with some financial help from the Government, to set up such buyer co-operatives. They have been successful, but there are limits to their success, because of fundamental issues in the market. If there are only one or two suppliers, people can get a discount, but it will be about 10%, and we have heard about the huge disparity between on-grid and off-grid. Such help is welcome and a step in the right direction—of course, 10% is still a decent saving—but it will not really tackle the underlying market issues.
Roger Williams
My hon. Friend makes a good point. However we cut the cake, heating a property with LPG is almost twice as expensive as doing so with mains gas. I am sure that consumer groups can achieve a 10% reduction, which is valuable.
My hon. Friend leads me on to say—this point was also made by the hon. Member for Angus—that although off-grid energy consumers often live in very isolated properties, sometimes their communities have never been connected to the gas mains for some reason or another. Certainly in my constituency, old coal-mining communities where there used to be deliveries of free coal to miners or their widows seem to have been left off the mains grid. As I understand it—the hon. Member for Strangford (Jim Shannon) will correct me if I am wrong—the number of people off-grid in Northern Ireland is much higher than in the rest of the country. Yet, work is going on there to get more people on to the gas mains, which will give them huge savings on their energy consumption.
Whenever I have tried to inquire about getting communities such as Llangynidr and Abercraf on to the mains supply, the cost—as the hon. Member for Angus said—was so enormous that taking that forward was impossible. There is not just the cost of the infrastructure, but people have to be made to commit to taking mains gas, which is a question not only of putting in a connection, but often of having appliances changed for mains gas. In the old mining communities in my constituency, some people are particularly vulnerable and certainly do not have the spare cash to make that type of investment in their properties. I believe that the Government should have some system for making mains connection more affordable for communities, because at one stroke that would make a great impact on fuel poverty. I am not sure what the arrangements are in Northern Ireland, but I would be pleased, perhaps after this debate, to talk about that with the hon. Member for Strangford.
Mr Russell Brown (Dumfries and Galloway) (Lab)
I do not think that any of us denies that it would be good to get more and more people on to the grid. However, does the hon. Gentleman see any dangers in that for those still left off-grid, with the potential for volatile pricing and many of the problems highlighted in the all-party group’s report?
Roger Williams
The hon. Gentleman makes a good point, but there will always be people left off-grid. We will not reach a situation in which everyone is on mains gas. Where there is an opportunity to take a larger step forward in access to the mains supply, we should look at ways to achieve that because, as I have said, it would make a huge difference to fuel poverty in such communities.
To conclude, we are told that the green deal will make a huge difference to the heating efficiency of homes, and I have already seen that in my constituency. None the less, the person who lives in an off-grid property might be at a disadvantage, because the golden rule of the green deal, which is that the savings will be paid for by the reduction in the energy demand, will be harder to meet. It has already been said that off-grid properties tend to be old and difficult to insulate. Will the Minister tell us how the green deal will be made available to people who live in such homes and what will be done to address their needs?
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
I congratulate the hon. Member for Truro and Falmouth (Sarah Newton) on securing a debate on this important matter, which affects so many of our constituents. I do not intend to speak for long, Mr Crausby, as the consensual conclusions on this issue coalesce around a recognised need for more and stronger regulation in the market.
The lack of gas connectivity has been raised by my constituents in the rural parts of East Cleveland, especially those living in outlying houses or small ex-farm buildings in and around communities such as Charltons, Margrove Park and Moorsholm. Although I recognise that there are large urban off-grid populations, the lack of mains gas supply is particularly problematic in rural areas. The 2009 English housing survey found that 36% of households in rural England are not covered by the gas grid, compared with 8% of urban households.
Rural poverty has many causes, but the additional costs of energy and fuel faced by rural households are almost certainly a major factor. Fuel poverty is a major issue throughout the country, but it is all the more acute in small settlements in rural areas. Indeed, in 2010, some 24.1% of households in villages, hamlets and isolated dwellings were fuel poor, compared with the then national average of 16.4%, and that figure has increased again, as we have heard in the statistics quoted today.
Particularly high fuel poverty in such communities can be at least partially explained through the lack of gas connectivity. The cost of heating oil is approximately twice that of heating a home by gas, so it is little wonder, though still appalling, that on average, in 2009, the cost to a rural household in ensuring an adequate standard of warmth was £346 more than for an urban household.
Furthermore, a household with oil central heating is almost twice as likely to be fuel poor as one with gas central heating. With such a clear relationship between gas connectivity and fuel poverty, there are significant benefits in trying to increase connectivity. Where that is not practical, the Government should be working to ensure that alternative fuels are as affordable as possible to off-gas grid households, and to concentrate efforts to increase the energy efficiency of rural households.
Although I am aware that the Office of Fair Trading examined the situation faced by off-gas grid households, I am particularly grateful to the all-party parliamentary group on off-gas grid for its work on the matter. Its co-chairs, my hon. Friend the Member for North West Durham (Pat Glass), whose constituency, like mine, has significant rural poverty, and the hon. Member for Suffolk Coastal (Dr Coffey) deserve credit in ensuring that the APPG undertook its own comprehensive inquiry in addition to that of the OFT. That inquiry has made several interesting recommendations to which I hope the Government award significant consideration.
Although this is something of a niche issue, there are a significant number of park homes in my constituency, and I am aware of the issues that many of those residents face. I urge the Minister to pay particular attention to the insufficient consumer protection regarding the fuel used by park-home residents, as highlighted as a case study in the APPG’s inquiry, and accordingly to introduce the necessary secondary legislation to rectify the situation.
The APPG’s recommendation that a Minister assumes lead responsibility for the off-gas grid sector is a perfectly reasonable and attainable move. Similarly, it seems entirely logical, at least at first glance, that on and off-grid gas should be covered by the same regulator, and I hope that that suggestion is considered by the Government.
Given the current economic mire and the fact that the potential for grid expansion was last analysed in 2001, I urge the Government to consider reassessing the situation, especially in consideration of the dramatic increases in the price of oil, and to extend mains gas heating to the 500,000 people who currently do not have it despite having a mains gas connection.
Mr David Crausby (in the Chair)
I intend to call the Front-Bench speakers at 10.30.
Jim Shannon (Strangford) (DUP)
I congratulate the hon. Member for Truro and Falmouth (Sarah Newton) on raising this matter, which is very important to my constituents in Northern Ireland. The hon. Member for Brecon and Radnorshire (Roger Williams) referred to the fact that Northern Ireland has even fewer people on the gas grid, and that is true. It is only in the last few years that many of our constituents have been offered the opportunity to get on the gas grid. Indeed, it was only some 10 or 12 years ago that Newtownards first went on the grid, and that is a major town; it is not even a rural area.
I want to make a few quick comments, because I am conscious of the time. Some 42% of rural households are not connected to mains gas, compared with 8% in urban areas. The hon. Member for Truro and Falmouth and a couple of other hon. Members referred to the unfairness of the situation. The cost of fuel and the number of fuel suppliers play a particularly important role in the countryside. Rural households rely on oil and LPG more heavily to heat their homes, so we clearly have an unfairness and imbalance in supply not just in Northern Ireland, but across the whole United Kingdom—Scotland and Wales and elsewhere. We are probably all aware that some 10% of costs in the home go towards heating. In December 2012, prices were 14% higher than in 2011 and 20% higher than last summer.
In the past year, I have been contacted by many pensioners, because they are the people in the greatest need and who have the greatest difficulties in paying their heating bills. They say they can no longer fill their oil tanks. Some petrol stations say that buying a five gallon drum is cheaper, but it is not; it is dearer. Pensioners in my constituency, in both rural and urban areas, say that the only way that they can address their heating problems is by wearing extra clothes. It would be interesting to find out how many people have died as a result of the cold this winter. I think that the numbers will be quite horrific, but I do not have definite evidence. None the less, I am certainly aware of a great many people of a certain age dying because of the cold.
Mr Alan Reid (Argyll and Bute) (LD)
The hon. Gentleman is quite right to talk about the problems caused by the high price of heating oil and LPG. Does he share the concerns expressed by the APPG that the OFT study was inadequate? For example, it said that almost all the highlands and islands had between four and seven suppliers, which is obviously nonsense. Does he think that it was over-optimistic about the number of suppliers, that the market is not working properly and that the OFT study should be carried out again?
Jim Shannon
I thank the hon. Gentleman for his intervention, and yes I do agree with that. Quite clearly, the figures mentioned were not true, and that applies to many other parts in the United Kingdom as well.
This past winter, pensioners living in rural constituencies have experienced extreme weather conditions and have been unable to provide heating in their homes. The Government must consider introducing a system in which, in extreme conditions, extra payments are made to pensioners.
I will make one other comment, to take matters to a different level. In introducing the debate, the hon. Member for Truro and Falmouth did not refer to this issue, but it is perhaps important that we refer to it. In addressing rural fuel poverty, there needs to be recognition of and support for the role that British farmers and land managers can play in exploiting the huge potential offered by our agriculture to provide renewable energy resources. The Countryside Alliance has long called in its rural manifesto for
“the potential of farming and its by-products as a significant and often existing source of renewable energy to be harnessed not only as a way of mitigating climate change but also of increasing our energy mix and therefore our energy security.”
Cows produce something in great quantities that could be used to provide energy. Why are we not using it in some rural areas? There are ways of using it that the Government must consider fully; it is time that they did so.
In conclusion, there are many methods of addressing the off-grid gas issue; the hon. Member for Angus, who spoke earlier, referred to one method. We cannot provide gas everywhere, but we have to try to provide it in lots of places. I would like gas to be provided in some areas of my constituency where I have been pushing for it to be provided. I would like to see it provided in Ballynahinch; Saintfield in Ballygowan; and in the villages of the Ards peninsula, such as Donaghadee, Millisle, Ballywalter, Greyabbey and Portavogie. Those are areas where gas should be made available, and it is quite possible to do so. There are small groups in all those rural areas that could justify the expense involved, and that process could be replicated in other parts of the United Kingdom.
I congratulate the hon. Member for Truro and Falmouth on bringing this matter forward; this has been a very important debate at a very important time.
Hywel Williams (Arfon) (PC)
I congratulate the hon. Member for Truro and Falmouth (Sarah Newton) on securing the debate and the all-party group on the off-gas grid on its report. I commend the solutions that the group recommends.
I will not restate many of the statistics that have already been presented this morning, but I will make just a few points. Four million UK households are off the mains gas grid and they use a range of other fuels to heat their homes, including heating oil; gas, as we have heard; mains electricity; and microgeneration. However, they also use solid fuel—coal and wood—and that is a particular issue in constituencies that were previously coal mining areas. Also, there are some rural non-coal-mining areas in my constituency; the point about non-mining areas has already been noted by the hon. Member for Brecon and Radnorshire (Roger Williams).
We know that the cost of using heating oil is substantially higher than the cost of using mains gas—about half as much again as the cost of using mains gas—and the cost of using LPG is about twice as great. However, in my area there is limited opportunity for consumers to switch their fuel source, an issue referred to by my hon. Friend the Member for Angus (Mr Weir). I have heard over a number of years that there are continuing suspicions of what are, in effect, local monopolies, with large companies presenting themselves locally with local names, for example. I do not know if that continues to be a problem, but it certainly has been in the past. There is, therefore, also a difficulty in substituting one supplier for another.
Reference has already been made to the difficulty of adopting some of the solutions that have been recommended by the Government, such as getting better insulation. In my constituency, houses typically are of rubble construction and a large proportion of them are pre-1919. The possibility of insulating those houses more effectively is limited, to say the very least.
Throughout the UK, 42% of rural households are not connected to the mains gas, compared with 8% of households in urban areas, but I think that the percentage of such houses in some parts of rural parts of Wales is much higher. From my experience of living on the Llyn peninsula, which is isolated from the mains in some areas, I know that the percentage is very much higher, which has a specific consequence for those communities, some of which are particularly deprived in the first place.
Rural households rely more heavily on oil and LPG to heat their homes, but there are difficulties in using oil and LPG. I have referred to the problems that I experienced during the particularly hard weather recently. I have a group of pensioners, all of whom depend on LPG and live in an extremely rural area. The lorries carrying the fuel could not get up there. I made inquiries about whether the gas supply was part of emergency planning, and clearly it was not in any real sense, although the local authority acted very promptly, and I might even use the word “heroically”, in getting gas supplies to those people around Christmas time. However, much more attention should be paid to that specific issue.
We have already discussed the fuel poverty that arises from the issue of off-grid gas. We know that fuel poverty leads to ill health. I also looked at the statistics. Cardiovascular diseases and respiratory diseases, such as asthma, are exacerbated in cold, damp and poorly ventilated homes. Again, that is a particular issue in former coal mining areas, where a number of people still suffer from the effects of their involvement in the coal industry. Also, in my area, similar effects arise from people’s involvement with the slate industry.
I will put before the House a case that I came across last Friday. The accepted definition of fuel poverty is
“a household which spends more than 10 per cent of its income on all fuel use and to heat its home to an adequate standard of warmth”,
which is the definition used by the Department of Energy and Climate Change. I came across a case last Friday. A gentleman came to see me who was on benefits; I think he gets about £72.40. By the way, he was very precise about the amount of money he gets—down to the penny, almost—because people on very low incomes have to be. Out of his £72.40, he was considering buying two bottles of LPG, which he thought would cost him around £40. Spending that £40 was going to destroy his finances for that particular week, but he was confident that he could manage, because he had been managing in this way for years. I went through his finances with him very briefly and I asked him in passing, “I don’t think you have allowed there for the cost of a TV or a TV licence,” and he said, “Oh, the TV’s gone years ago,” and that was the way he was coping. I must admit that I scarcely watch TV, but this issue is about being able to take part in society in the way that everyone else does.
Hywel Williams
I hope that the hon. Gentleman will forgive me for not giving way, as time is rather short.
You would not want me to wander off the point, Mr Crausby, but may I note that I saw that particular gentleman because he is also going to be paying the bedroom tax at £18.40? I have no idea how he will do that on £72.40, with bedroom tax at £18.40 and buying LPG at £40 a shot. He has no savings, no job and very little possibility of moving.
I will press on to say, very briefly, that households that use oil or LPG as their main source of heating are more likely to use secondary heating than are other homes. In Wales, 85% of heating oil consumers use fuels for secondary heating and most frequently use solid fuel—that is, they use oil, but they also use coal, or some use wood. Only 23% of consumers in Wales with mains gas heating use other fuels for secondary heating, so mains gas is not an answer.
Lastly, I refer to the Bill introduced by my hon. Friend the Member for Angus and commend it yet again. It would allow pensioners to be given the winter fuel payment earlier in the year. I would like to see that extended to solid fuel. My hon. Friend’s Bill was deliberately restricted in scope to increase its chances of being passed, which I hope it is. Again, I press the Minister and the Government to give it proper consideration.
On 16 January, I asked the Secretary of State for Energy and Climate Change whether the Government could make winter fuel payments earlier, so that people would get more value, or more “bang for the buck” as it were. Interestingly, the Secretary of State said:
“My Department has been encouraging people in many parts of the country who are off grid to buy early, because they can get much better deals than if they leave it until later.”
That is precisely the point that I was making. He then said:
“Although the extra payments are welcome to those who get them, they are not received by everybody. They do not address the fundamental problem of homes and appliances that waste energy and money.”—[Official Report, 16 January 2013; Vol. 556, c. 950.]
Well, “hear, hear” I say—that is a very fine point—but I would not want the Secretary of State or the Minister to use their not being able to do something fundamental as an excuse to do nothing at all.
Mr David Crausby (in the Chair)
There is time for a very short contribution from Alan Reid.
Mr Alan Reid (Argyll and Bute) (LD)
Thank you very much, Mr Crausby, for calling me to speak. I shall be very brief.
I am secretary of the all-party group on the off-gas grid and I thank everyone who contributed to the group’s report on the issue. I also congratulate my hon. Friend the Member for Truro and Falmouth (Sarah Newton) on securing the debate. I spoke in an intervention about the inadequacies of the OFT report. It is ludicrous to say that almost the entire highlands and islands area has between four and seven suppliers. It is clearly a market that is not working. I hope that the OFT will conduct that study again. I also hope that the Government will take on board the illogicality of the gas grid and the off-gas grid being dealt with by different regulators. Both should be regulated by Ofgem. I hope that the Government will put that reform in place.
Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)
It is a pleasure to serve under your chairmanship again, Mr Crausby.
I congratulate the hon. Member for Truro and Falmouth (Sarah Newton) on securing the debate and on comprehensively discussing the issues arising from the all-party group’s report. I also note the efforts made by the hon. Member for Suffolk Coastal (Dr Coffey) and my hon. Friend the Member for North West Durham (Pat Glass), as co-chairs of that group, in pulling that work together. It is a good example of the positive work that all-party groups—sometimes denigrated for other reasons—can do. The hon. Member for Suffolk Coastal is present but unable to take part in the debate, given her elevated status. Her compensation is perhaps that, due to the vagaries involved with recent ministerial changes, she has greater direct interaction with the relevant Minister than was the case before Easter. I am sure she will use that interaction to continue to reiterate to the Minister the concerns expressed this morning by hon. Members from all parties—five parties, from all parts of the UK—demonstrating that the issue arises in many constituencies and in every part of the country. Knowing the Minister’s constituency a little from my youth, he will have constituents in rural parts who are also off-grid.
I welcome the new and latest Minister to his role and wish him well in his new, or partly new, responsibilities. We look forward to debating and discussing with him a range of issues under the remit of the Department of Energy and Climate Change. I was going to say that I welcome doing so in the months and years ahead, but about six months ago I said that to his predecessor, so it might be presumptuous to look too far ahead. For the period in which he and I are in these posts, I look forward to dealing with some of the big energy issues.
Off-grid gas and off-grid power are significant issues that are discussed from time to time. I was a member of the Energy Bill Committee. The hon. Member for Angus (Mr Weir) mentioned the amendment he tabled to that Bill. There was frustration—not just his, but among members of the Committee from all parties—about the paucity of the response on why the proposals in the amendment could not now be implemented, or even further explored. Given the hon. Gentleman’s previous attempts at introducing that amendment, I hope the Minister will bear that matter in mind before we consider the Bill on Report, as it presents him with an opportunity to make progress on that aspect. I am sure that the hon. Member for Angus is right about the prospects for his private Member’s Bill and I caution him as to the prospects for ministerial militancy, given that the Prime Minister’s remarks on energy tariffs have given the new Minister—and gave his predecessor—a problem to deal with in that regard.
Hon. Members have pointed out that some 4 million UK households are not connected to the mains gas grid. According to the OFT, that is a conservative estimate and the figure may be much higher. I will not repeat the list of communities in the constituency of the hon. Member for Strangford (Jim Shannon) that are in this situation, but I will say that in Northern Ireland 80% of households are off the grid, largely because natural gas was introduced there only relatively recently. Although there is a different regulatory and market set up in Northern Ireland, we should pay attention to the efforts to get households on to the gas grid, because, as the hon. Member for Brecon and Radnorshire (Roger Williams) and other hon. Members have made clear previously, this is not just a rural issue; it is an issue in communities that, for some historical reason, have been left off the grid.
The issue is not just one of cost; it also involves the time it takes to get some of those customers access to the grid. I have experienced that in my constituency, which is urban and suburban, but has a number of former coal communities that have not been on the grid for exactly those reasons, although they are close to places that are. The cost and the time it would take are prohibitive. That matter deserves further consideration.
As well as being of concern in Northern Ireland, the issue is significant in Scotland, where 21% of households are off-grid, and in Wales, where the figure is 19%. Hon. Members will be aware that the average dual fuel on-grid bill has risen by more than £300 in about the past three years. For those who are off-grid, that problem is even worse. Consumers using heating oil, LPG or solid fuels pay considerably more to heat their homes than those using mains gas.
Pamela Nash (Airdrie and Shotts) (Lab)
We have rightly concentrated on the costs of LPG and heating oil for heating homes, but many of my off-grid constituents, like my hon. Friend’s, depend on electricity to heat their homes. I would like to highlight the benefits of “Switch Together” campaigns to communities that are wholly dependent on electricity, because, although we want to get them on-grid as soon as possible, this helps them in the meantime.
Tom Greatrex
My hon. Friend makes an important point. We would want to get more consumers on to the grid, but where they are not on it we have to consider what other things can be done. Perhaps the Minister heard about the power of collective switching this morning on the “Today” programme, in respect of a group of councils. A number of groups of councils, and the Labour party and others, have engaged in collective switching programmes, which can have some impact in helping people to reduce their bills. My hon. Friend is right that the long-term issue is about trying to get more communities—some in her constituency are similar to some in mine, in Lanarkshire—on to the grid.
Hon. Members mentioned the House of Commons Library figure on the typical cost for households using oil for heating and hot water in a typical three-bedroom house, which at the beginning of the year was just under £1,700, compared to about £1,250 for gas. The difference of £450 a year would be difficult to deal with at any time and is particularly difficult given the economic situation that the country and many of our constituents find themselves in.
The volatility of the price of heating oil in particular causes off-grid households huge problems. Hon. Members mentioned the winter of 2010-11, when the price of heating oil increased by 55%. High prices coupled with extreme volatility have resulted in many off-grid households being pushed into fuel poverty. According to Consumer Focus, in Scotland, 59% of those using solid fuel and 56% of those using LPG and bottled gas live in fuel poverty, compared with 24% of those using mains gas. The 24% figure is far too high while 59% is very high and should be a matter of concern.
Measures that the Government could take have been highlighted both in the all-party group’s report and by hon. Members. We have touched on the winter fuel allowance, including the timing of the payments. The hon. Member for Angus commented on that. I hope that, by the time we consider the Energy Bill on Report, the Minister will have looked at the new clause, because it is worthy of more consideration and of action now, given the response that his ministerial colleague gave in Committee. I encourage the Minister to look at that to see whether there is work to be done.
I urge the Minister further to consider regulation of the off-grid sector. As the hon. Member for Truro and Falmouth remarked, there is not a specific regulator for off-grid operations and Ofgem’s remit essentially extends only to the on-grid market. The role of the OFT and the Competition Commission is not comprehensive enough to deal with the off-grid market. The Government should give serious consideration to bringing those issues under the umbrella of Ofgem or any successor regulator.
The Minister is aware that his predecessor committed to a cross-party round table on this issue—I think that it will be held next month—and I invite him to confirm that that will still go ahead and that he will be involved. Will he also outline what progress we can expect on that initiative? In addition, will he, on the basis of the discussions he has had, tell us whether suppliers have made any progress on the recommendations outlined in the Consumer Focus report on off-grid gas?
We have heard from the all-party group and Consumer Focus, and we have heard about the OFT report, although it is deficient in some ways, as was highlighted by the hon. Member for Argyll and Bute (Mr Reid). We have also heard concerns expressed by Members from all parts of the United Kingdom and almost all the parties represented in the House. The Minister, who is in his early days in the job and his new responsibilities, will therefore be particularly aware of the fact that this is a considerable issue. We should not pretend that it was created overnight—I do not think anyone is pretending that—but that does not mean there should not be some impetus behind seeking to address it.
If we can have a better regulated system and consider a range of issues, including winter fuel payments and how consumers with gas connections close to them can be connected to the grid, we can provide some comfort to our constituents and ensure that they get a better deal on their energy costs—I say “our constituents” because the Minister and I will both have constituents who are affected by the issue, as will all Members who have spoken this morning. I hope the Minister will take that thought away with him as he starts his new role.
The Minister of State, Department for Business, Innovation and Skills (Michael Fallon)
I join colleagues in welcoming you to the Chair, Mr Crausby, and I thank you for presiding over our proceedings. I, too, congratulate my hon. Friend the Member for Truro and Falmouth (Sarah Newton) on introducing this debate on off-gas grid households.
Let me tell the hon. Member for Rutherglen and Hamilton West (Tom Greatrex) straight away that although we may not agree on everything over the next few months, we can agree on one thing: we both welcome the report recently published by the all-party group, and I am looking carefully at all its recommendations. Such work is a model of how an all-party group can contribute to policy making, and I congratulate those who participated in it.
Let me say very clearly that the coalition Government believe strongly in the importance of domestic consumers having secure and affordable fuel supplies to heat their homes. Like many here today, I remember all too well the issues in past severe winters, including in 2010, which resulted in increased demand for heating oil and weather conditions impacting on the supplies reaching consumers. That is why, under this Government, one of my predecessors, my hon. Friend the Member for Wealden (Charles Hendry), asked the Office of Fair Trading to bring forward its study on the off-grid energy market. One of the first actions I took last week was to work with colleagues at the Department for Transport to relax drivers’ hours for LPG deliveries, to ensure that households continue, in this ongoing winter, to receive fuel for heat.
Since winter 2010, my Department has worked with consumer bodies and industry to encourage households to co-ordinate “buy oil early” campaign messages. The Department for Business, Innovation and Skills has worked with the Department for Environment, Food and Rural Affairs to provide and promote guidance on setting up or joining consumer buying groups. As has been pointed out today, such groups can be of real benefit in reducing costs for all consumers and can provide environmental benefit through reduced deliveries.
By working with other Departments, we try to ensure that we reach the most vulnerable and provide the assistance that they need. Measures such as the winter fuel payment, the warm home discount and cold weather payments provide real assurance to older and vulnerable people that they can keep warm during the colder winter months, because they know they will receive significant help with their bills. In particular, the Department for Work and Pensions provides winter fuel payments of £200 for households with someone who has reached women’s state pension age and is under 80, and £300 for households with someone aged 80 or over. In addition, we have permanently increased the cold weather payment from £8.50 a week to £25 a week. We also want to provide immediate assistance with energy bills to those in need, and help energy companies find these vulnerable people so they can be offered longer-term support. The warm home discount scheme provides that help.
Michael Fallon
This four-year scheme was launched in April 2011. It requires energy companies to provide help with their energy bills to about 2 million low-income households a year. It is worth £1.1 billion over four years.
Michael Fallon
Energy suppliers are required to provide the majority of that support to pensioners on the lowest incomes—a group we know are particularly vulnerable to the ill effects of a cold home over winter.
Such elderly people often struggle to understand and complete complicated forms, so most now receive the discount automatically, without having to claim. That is done through an innovative system of limited data matching between Department for Work and Pensions customer records for those on pension credit and the energy companies. One reason we selected electricity bills to receive the discount was so as not to disadvantage those living off the gas grid. This winter alone, more than 1 million pensioners received an automatic £130 discount by 31 December 2012, providing them with the certainty they needed that they could afford to heat their home over the coldest months.
We are also taking action to ensure we have in place the right framework for measuring fuel poverty so that we can continue to target our resources on those who need the most help. Under the current definition, a household is said to be in fuel poverty if it needs to spend more than 10% of its full income after tax on fuel to maintain a satisfactory heating regime. Last year, Professor John Hills of the London School of Economics published the first report of his review into fuel poverty in England, which the Government commissioned to take a fresh look at the issue. He highlighted serious flaws in the way in which fuel poverty is measured, with the current 10% definition painting a misleading picture of trends. Unless we can properly understand the problem, we cannot design effective solutions to address it.
As a result, we made a commitment to develop a revised definition of fuel poverty, and we have consulted on proposals that will allow for a more accurate measurement of the problem. Under the revised definition, a household will be considered to be in fuel poverty if its income is below the poverty line and its energy costs are higher than typical for that household type. Based on our new understanding of the problem, we promised we would look again at all our policies to ensure they effectively support the fuel poor. That will include setting out how we aim to use the low-income, high-energy-cost definition to identify priority sets of households for support through cost-effective measures.
The green deal has been mentioned. It was launched on 28 January, and it is our main energy efficiency initiative. It aims to play a huge role in upgrading buildings. It is therefore an opportunity to help millions of consumers reduce their energy bills. Opening up the energy efficiency market will unlock new choice for consumers and empower small and medium-sized businesses to enter, grow and innovate, creating new opportunities while reducing carbon emissions and energy bills.
The green deal is important, but it is not the end of our ambition on energy efficiency. Our overall mission must be to connect people with the resources to improve efficiency, reduce waste and save money. We want more businesses to see the financial and economic benefits that come with the development of the green economy. We have already seen clear signs of a promising new market gathering momentum. In little more than a month after launch, there were 9,200 green deal assessments. There are 1,000 more in the pipeline, showing genuine interest from consumers. Some householders in older properties, those on benefits or low incomes, and those in properties off the gas grid, about whom I was asked, may also qualify for extra financial assistance from the new energy company obligation. That scheme has started well, with millions of pounds’ worth of contracts already traded on ECO brokerage alone.
The energy company obligation runs alongside the green deal and has the twin objectives of reducing carbon emissions and tackling fuel poverty. It is targeted at those who live in hard-to-treat homes and those who live in low-income and vulnerable households. It is made up of three separate obligations, which together are worth about £1.3 billion per year. We expect ECO to make progress in tackling fuel poverty. Together, the affordable warmth and carbon saving communities obligations should generate investment worth about £500 million a year across England, Scotland and Wales. We estimate that if suppliers deliver the most cost-effective packages of measures, more than 200,000 low-income households could be supported each year through the obligation. I am pleased to confirm that there has already been some ECO delivery on the ground since January. About 7,000 referrals have been made to suppliers to receive a minimum package of assistance in England and Wales. On top of that, almost £100 million of notional bill savings have been traded under the affordable warmth obligation through ECO brokerage, and more than 75,000 tonnes of carbon have been traded under the carbon saving communities obligation.
I want now to discuss the potential for extending the gas grid. As to options for off-gas grid consumers who want to be connected to the grid, Ofgem is responsible for regulating the extension of the grid, and that is a matter for the local gas distribution network. However, for vulnerable consumers, Ofgem operates the fuel-poor network extension scheme, whereby the large gas distribution networks are incentivised through price control arrangements to extend the grid to vulnerable households, recognising that that will reduce their costs. During the next price control period, which will run from April 2013 to 2021, network owners are committed to connecting an additional 80,000 homes in fuel poverty to the gas distribution network. That is in addition to normal customer requests for gas connections, which are expected to exceed 440,000 over the same period. Therefore, overall, there are projected to be more than 500,000 new customers on the gas distribution network. The promotion and operation of those schemes is a matter for the regulator and the network owners, but I shall watch closely how the network owners meet the target of 80,000 new homes.
DECC is promoting alternative low-carbon options for off-grid consumers through renewable heat premium payments, which can help to reduce costs for consumers not connected to the gas grid. Those technologies have the ability to bring down fuel bills for those using heating oil and LPG, though they will not be suitable for all off-grid homes. The renewable heat incentive is a financial support mechanism to encourage the installation of renewable heating technologies to meet our renewable targets. The non-domestic element was launched in 2011 and provides financial support to commercial, industrial, public and not-for-profit and community generators of renewable heat for a 20-year period.
In September, my Department consulted on the extension of the scheme to the domestic sector. For domestic properties, the lead proposal was for a national scheme to be available to homes both on and off the gas grid, but targeted specifically at the off-gas grid sector through the setting of tariff levels. Tariffs would be set to compensate households for the difference in lifetime costs, including up-front, running, barrier and financing costs, between the renewable technology and currently used conventional heating technology, for the median cost off-gas grid installation. On 26 March, we announced an extension to the renewable heat premium payment scheme. That will provide grant support for installations of renewable heat technologies such as heat pumps, biomass boilers and solar thermal, ahead of the launch of the domestic renewable heat incentive next year.
We intend to announce the final details of the domestic scheme and of expansions to the non-domestic incentive this summer, and to open the schemes for payment from spring next year. In the interim period, we have provided the renewable heat premium payment scheme, which provides grants towards the cost of installing renewable heat technologies in domestic properties off the gas grid, and for solar installations on or off the grid. The first phase of that scheme ran from August 2011 to March 2012. More than 5,000 installations were delivered to off-gas grid households. A second phase ran from April 2012 to March 2013; it consisted of another household scheme and a social landlords competition, plus a community scheme for community groups to test the benefits of community level action, such as securing bulk buying discounts through facilitating the installation of renewable heating systems in their areas. We estimate that RHPP2 will deliver about 11,000 installations, of which approximately 9,000 are currently off the gas grid. In total, about 14,000 off-gas grid installations will be delivered under the renewable heat premium payment. We do not intend to stop there. Last month, we announced a further extension to the scheme, which will continue in 2013-14.
Finally, I want to deal with further regulation of the off-gas grid market. I have heard arguments in favour of more regulation. We must decide whether more regulation is necessary in this area; if it were decided that Ofgem should become the regulator, primary legislation would be required, with a transfer of knowledge of the market from the OFT. Ofgem already has powers to apply the Competition Act 1998 concurrently with the OFT, and to investigate and enforce decisions to deal with anti-competitive practices in its designated sector. Its remit is to regulate the monopoly companies that run the electricity and gas networks. There is no natural or structural monopoly for supply and distribution in heating oil or LPG, so regulation by Ofgem seems less appropriate in this sector than it is in others. The supply of heating oil or LPG is not covered by the natural gas and electricity regulatory regime, because the relevant gas and electricity legislation principally addressed the issues of setting up a regulatory regime to ensure that the natural monopolies of the gas pipe network and the electricity transmission and distribution systems were not exploited. Ofgem ensures appropriate regulation of gas and electricity supply, which are licensed activities for reasons that include the need to balance the systems and the relationship with the natural monopoly networks. Those are not issues in heating oil or LPG supply.
The Federation of Petroleum Suppliers is working with the OFT to improve self-regulation of the heating oil sector. It will publish a code of practice for its members this year. It has already worked with consumer groups to encourage the early ordering of heating oil for winter, and it is working with the OFT and consumer bodies to prepare a new code of practice to mandate its members to engage with consumers on a fair and consistent basis all year round. The federation intends that the code should encourage the implementation of best practice and raise standards in the industry, and I understand that it will shortly be published. We will continue to work with the federation, the OFT and consumer bodies to ensure that the code meets its goal.
There is still much more to be done, which is why my predecessor, the former Minister of State, Department of Energy and Climate Change, my right hon. Friend the Member for South Holland and The Deepings (Mr Hayes), agreed to convene a cross-party discussion on vulnerable consumers in the off-gas grid market. I confirm that I will fulfil that commitment. I look forward to exploring local solutions for heating oil and LPG supplies with members of the House, industry, consumer organisations and local communities. I intend to use the meeting next month to explore in detail further key issues raised in today’s debate, such as what further we can do to identify and support vulnerable off-grid consumers; the merits of regulation or self-regulation of the off-grid markets for heating oil and LPG; and the role that parish councils and local authorities can play in supporting and working with community oil buying groups. The debate has helped to move that work forward and to shape and refine our policy for an important group of consumers. I thank all those who contributed, and repeat my thanks to my hon. Friend the Member for Truro and Falmouth for introducing a debate on this important topic.