Electricity and Gas (Energy Companies Obligation) (Amendment) Order 2014
Baroness Verma
That the Grand Committee do consider the Electricity and Gas (Energy Companies Obligation) (Amendment) Order 2014.
Relevant document: 22nd Report from the Joint Committee on Statutory Instruments
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)
The energy company obligation, commonly referred to as ECO, has a number of important policy objectives. These are designed to reduce the UK’s carbon emissions, which is essential to meeting the UK’s statutory domestic carbon budgets and helping to tackle fuel poverty, by requiring suppliers to install energy efficiency and insulation measures in fuel-poor households.
Energy bills and the cost impacts to customers as a result of ECO have been the subject of great debate in the past few months. As noble Lords are aware, my department launched a consultation on the future delivery of the scheme earlier this month. This included proposals announced by the Secretary of State. The proposed changes to ECO are designed to reduce the cost of the scheme and therefore bill savings to customers.
Before I go on to explain the technical changes, I would like quickly to illustrate the progress of the scheme in its first year. We have seen more than 500,000 households already benefiting from ECO support. In total, we have helped more than 200,000 low-income households through the affordable warmth obligation. We have helped 88,000 households under the carbon saving communities obligation, which focuses on low-income areas. That is more than 335,000 measures in total over ECO’s first year. These numbers are a testament to the success of the scheme in driving home energy efficiency. The scheme’s successful delivery is because of huge effort from a variety of stakeholders—including local authorities, industry and local government elsewhere—who all played a vital role. It is important that that success continues. However, it is also important to recognise that where improvements need to be made, we must make them. The information stakeholders told us that some technical areas need some change. That is the primary reason we consulted last year.
Going on to the range of technical amendments and updates, I will highlight two amendments to noble Lords. First, the provision to ensure that ECO measures can be installed in a period when a property is not occupied, commonly referred to as a void period, will enable ECO measures to be installed in a property when it is empty. We made this change because the existing rules constrained the ability to install more complex measures, such as large-scale retrofits. The amendment will remove the constraints and enable these measures to be installed. Feedback from stakeholders revealed that it is often best to carry out more complex work, such as solid wall insulation and whole-house retrofits, when a property is empty. The order clarifies the position on empty properties.
Secondly, there is provision for certain people in receipt of universal credit to be eligible for support under the affordable warmth obligation. Universal credit is the Government’s new benefit system, and it is important that the policy includes it so that people who should be eligible to receive help are not missed out. The order will allow recipients of universal credit to receive affordable warmth support in circumstances that reflect as closely as practicable the existing affordable warmth group criteria for recipients of other benefits. In addition to the amendments on void periods and the inclusion of universal credit, the order makes some more minor technical amendments, such as amending the scoring rules that apply to glazing measures so that suppliers can be credited with the full carbon savings from the installation of glazing measures.
We are harmonising ECO regulations as they relate to solid wall insulation with the latest requirements of building regulations. The order removes the requirement for solid wall insulation installed under ECO to reduce the U-value of a treated wall to a specified amount. The U-value measures the transmission of heat through the wall. As a result of this amendment, suppliers will simply need to meet standards required under building regulations.
We are making it easier to deliver district heating systems by removing the six-month rule to allow more time. Under the carbon emissions reduction obligation, a connection to a district heating system is eligible only if it is installed at the same property as hard-to-treat cavity wall insulation and solid wall insulation. Under the current rules, it must also be installed within six months of the wall insulation. This order removes that six-month rule for district heating systems. That is in response to concerns that the six-month limit could limit opportunities to deliver large district heating system projects. The change will help to facilitate the delivery of district heating systems.
We have also increased the flexibility for suppliers to receive credit for excess actions. That is because they have already been paid for by suppliers and consumers, and would otherwise be lost investment. With regard to the transfer of excess actions between obligated suppliers, Article 7 of the order inserts new Article 21A into the ECO order, which will allow suppliers to apply to the ECO administrator—that is, Ofgem—to transfer excess actions to another licence holder. The term “excess actions” is used in the legislation to describe work completed under energy efficiency schemes prior to ECO which were not needed to fulfil those schemes’ targets and have since been approved by Ofgem to be carried forward to ECO.
We are making some minor amendments to the definitions relating to parental responsibility to bring them in line with the legislation governing tax and credits. These amendments align the ECO order more closely with legislation governing benefits and tax credits, and will therefore make it easier for suppliers to check whether a person is eligible for affordable warmth support.
In conclusion, I believe that these amendments to the ECO order, while modest overall, will none the less be vital in ensuring that the scheme continues to progress as smoothly as possible, and I am supported in this view by the overwhelming number of positive consultation responses we received. I commend the order to the Committee.
Lord Teverson (LD)
I thank the Minister for that explanation. It is obvious that detailed regulations such as these need to be changed as a result of the experience of contractors and consumers. As the Minister said, when you want to make major changes to houses, it makes complete sense that they should be done during a period when they are unoccupied. It is common sense. If I were in that situation, whether I was the future owner or the contractor, that is exactly what I would want to do.
I also welcome the fact that district heating systems appear in the order. We do not have enough of them in the United Kingdom. We do not have sufficient infrastructure. I welcome anything that makes them easier, even if it is just changing the limits.
On getting distortions out of the market, the Explanatory Memorandum refers to contractors changing window panes instead of whole windows because the regulations state that you can do one and not the other. It is clearly ridiculous. It is the sort of distortion that we need to put right.
I have one question about excess works. I could not understand from the Explanatory Memorandum or from what my noble friend said why, given that this is public money, we want to pay energy suppliers—we might feel they are hard done by generally but, on the whole, we do not—for work that they have not budgeted properly for so there is an excess. I do not understand that. I understand that there may be some effect on the public purse through this, but I would be interested in an explanation of why this is so important. It is up to them to manage their works programme in conjunction with the Government’s programme which, on the whole, is pretty clear.
Baroness Worthington (Lab)
My Lords, I thank the Minister for her introduction to this order. Like the noble Lord, Lord Teverson, we welcome many things here. The order helps to clarify, simplify and tidy up a number of issues about the way the ECO order is currently implemented. I shall say a word about the broader picture, to which the Minister referred. Changes to ECO have been much talked about and were introduced as the Government’s attempt to reduce costs for bill payers.
It strikes me as odd that this is where the Government are choosing to focus. After all, measures to increase the energy efficiency of homes are one of the clearest measures we have for reducing bills. They may add to the incremental unit cost very marginally but, overall, people who have measures undertaken will see their bills fall, yet the Government have chosen to reduce the level of activity under ECO by extending it over a longer period—that is, for measures that do not relate to fuel poverty. We understand that the fuel poverty measures remain in place and are being extended to 2017, which is sensible. However, it seems that overall the effect of the Government’s policy on ECO has been to see a reduction in activity. We have certainly had representations from the insulation industry which is very concerned that the level of activity has dropped off precipitously.
I am sure we have an afternoon ahead of us in which we will discuss many issues, including gas pricing and fracking. All that will relate to this key topic of trying to keep bills affordable and making sure that we are decarbonising at least cost. In that sense, making ECO work more effectively is obviously a good thing.
I have a question on the excess actions credit. Perhaps I was unable to devote enough time to it, but I am not sure whether it is a kind of trading mechanism that enables suppliers to transfer overachievement to another supplier, whether it is a financial action between suppliers or whether it is something involving Ofgem and the Government. Perhaps the Minister can say a few more words about how it will work. I imagine the provision is there because some suppliers were expecting to be required to comply in full, and it was only when the Government rather hastily decided to extend ECO without increasing the level of activity that they perhaps found themselves with an overabundance of credit and are trying to find out what they can do with it. It would be helpful to hear a bit more about that.
On the other measures, I am pleased that the void period is being addressed, which seems entirely sensible. I want some reassurance from the noble Baroness that the provisions on giving credit to glazing and on changes to solid walls will not encourage less activity but that the right activity is being incentivised. I am sure that these orders are sensible.
Baroness Verma
My Lords, I thank my noble friend and the noble Baroness for their warm welcome of these minor changes to the legislation. As to their question about excess actions, perhaps I may first assure my noble friend that it does not involve public money. It is an activity that energy bill payers have already paid for. We do not want them to pay again. This amendment therefore helps to reduce or prevent that risk.
As regards the question around glazing, under current legislation—and I am sorry if I did not make myself clearer—suppliers receive only a partial score when they install a glazing measure. Policy officials received information that suggests that our scoring policy may inadvertently affect people’s choices about the measures that were right for their property. This amendment allows glazing measures to receive the full score for carbon savings. That will ensure that suppliers are encouraged not to deliver replacement panes, which do not fall into the definition, but to put in full replacement double glazing, which is far more effective at saving energy.
As regards the noble Baroness’s point about changing ECO, we had to do so because we, like her, want to ensure that bill payers—those who came back to us saying that they were finding difficulty—have some sort of mechanism to help them to reduce that burden. The Government listened carefully, and that is why we proposed the changes. We have not reduced the measures that we are going to take. In fact, we have extended the period, which enables us to carry out not only those measures but further measures. We must not be cynical about these matters. We listened carefully, we needed to respond, we have responded and all those who have responded have done so favourably. While we, of course, want to make sure that the measures are on track, we need to ensure that we are reducing carbon emissions and putting into place energy efficiency measures. We should see this in the round. The noble Baroness and I have often debated this issue. There has to be value for money in addition to all the other measures that need to be taken into account, otherwise those measures will not be taken up.
I reassure noble Lords that these amendments go a little further in ensuring that the energy efficiency measures that we are all keen on are taken up. I hope that I have reassured noble Lords enough for them to be able to commend the order.
Baroness Worthington
I thank the Minister. I will pick up on the point that everyone is in favour of these eco-changes. Is it the case that nobody from the insulation industry has made representations about the drop-off in the rate of measures being taken up?
Baroness Verma
Of course, there are difficult challenges. We are trying, through all the other measures, to reassure those industries that feared a drop-off that we have taken other measures to counter that drop-off. Whether we have done it in a way which is slightly blunter than we would have wanted, the important thing is that we have now come to part of the process where those business organisations which felt that there would be an impact are beginning to see, in the wider discussion, that they now have greater certainty that those measures will have the same sort of support that other measures were getting.