Energy Efficiency and the Clean Growth Strategy

Debate between James Heappey and Antoinette Sandbach

Thursday 8th March 2018 Westminster Hall

[Antoinette Sandbach (Eddisbury) (Con)]

I beg to move,

That this House has considered energy efficiency and the clean growth strategy.

It is a pleasure to serve under your chairmanship, Mr Walker. I am grateful to the many of my colleagues from both sides of the House who helped me to secure this debate, not least to the hon. Member for Birmingham, Selly Oak (Steve McCabe).

This is an important debate, and I hope that it will spur Members to action, not just today but in the future. This is the first debate of its kind in several years, and it is important to ensure that we keep energy efficiency at the top of the political agenda. This week the energy price cap Bill, the Domestic Gas and Electricity (Tariff Cap) Bill, received its Second Reading. The Bill is a vital step to protect consumers while we reform the market in the short to medium term.

I want to propose a long-term solution for energy efficiency improvements and suggest how to make best use of the time we will have bought with the energy price cap Bill to address energy efficiency. In my remarks, I will outline how far we have come and discuss the challenges we face, before proposing a couple of solutions to return us to a better low-carbon path. I plan to talk generally about the state of energy efficiency, but where I am more specific I shall be addressing domestic energy efficiency. Other Members, I am sure, will focus on other areas, but I shall leave that contribution to them.

It is important to outline how far we have come in building a low-carbon economy and in improving energy efficiency over the long term. That is testament to the commitment of successive Governments, and I am proud to say that we are now a world leader in the green economy. Since 1990 we have cut emissions by 42%, faster than any other G7 nation. We have outperformed the first carbon budget, of 2008 to 2012, by 1%, and we are on course to outperform the second and third carbon budgets by 5% and 4%, respectively.

All that achievement has not come at the cost of economic growth. Emissions dropped by 42%, but the economy grew by 67%. In 2016, 47% of electricity came from low-carbon sources, which was twice the rate of 2010. Household energy consumption has fallen by 17% since 1990, despite a rise in the number of home appliances. More than 430,000 people work in low-carbon businesses and the supply chain. All that work has resulted in bills being roughly £490 lower than they would have been without the energy efficiency improvements made since 2004.

Clearly, significant progress has been made over the past three decades. I applaud Ministers and Members of all parties for their commitment to tackling climate. What is more, we have taken those steps without damaging our economy, the idea of which was originally dismissed by some as simply not possible.

Despite such progress, there is still more to do. Progress on energy efficiency has slowed. Between 2012 and 2015 the annual investment in energy efficiency fell by 53%; and in the same period there was an 80% reduction in improvement measures, with the Committee on Climate Change warning us that that will decline even further by 2020. Fuel poverty remains a stubborn problem that we must continue to address. It is all very well giving assistance with bills, but a long-term solution—insulating houses—is surely the way forward.

As of 2014, 2.3 million households in England were in fuel poverty and 41% of the households in the lowest income decile were fuel poor; 56% of fuel-poor households lived in properties built before 1944. To my mind, those issues make it an urgent requirement of the Government to do a housing survey in England: 60% of fuel-poor households lived in inefficient properties with an E, F or G energy performance certificate rating, and 14% of households in rural areas were in fuel poverty, which is higher than the national average. Those rural households cannot access the efficiencies of dual fuel billing, and that is important, because many are off grid. Many cannot access the warm home scheme measures, which often involve whole streets. The low-hanging fruit has been picked, but the more challenging households, in particular in rural communities, have not been addressed.

The clean growth strategy is a welcome addition to the debate. I support its proposals to combat fuel poverty and to promote energy efficiency, but I hope that the Minister can be more specific about the Government’s plans today than they were six months ago. The Committee on Climate Change assessment of the clean growth strategy found that three actions were expected to deliver, six actions had delivery risks, or were rated amber, and seven proposals were without firm plans, or rated red.

It has never been more important to tackle climate change and to decarbonise the economy. However, the potential rewards have never been so great. A building energy performance programme could save households £270 a year on bills. Over the long term that would save even more than the current proposed cap on energy bills, and it would also make a large contribution to hitting our climate change goals. Bringing every household up to an EPC band C by 2035 would save 25% of the energy used by the UK, which is the equivalent of six nuclear power stations the size of Hinkley Point C. The net economic benefit of such a programme would be between £7.5 billion and £8.7 billion, according to macro- economic analysis by the UK Energy Research Centre, and that figure does not include the wider secondary benefits in growth, jobs or health. With cold homes in England costing the NHS an estimated £1.36 billion, such a programme would have a considerable impact on health budgets, as well as on the wider economy.

The economic and social case for increased energy efficiency measures seems unarguable. We must focus on how to deliver them. Throughout recent history, we have seen that the fight against climate change is most effective when Government and private industry work together. The Government can lead the charge, but we need to harness the innovation and energy of the private sector to truly succeed. That is why I want to suggest one way in which the private sector can step up. It is one way for the Government to make a change that can expedite energy efficiency improvements. Mortgage providers should give people more incentives to purchase energy efficient homes.

In essence, if people make savings on their energy bills they will have more money to service a larger mortgage, and that should be taken into consideration when banks make their lending decisions. We know that in 2014, 51% of fuel-poor households were owner-occupiers, with only 33% in the private rented sector. Were the EPC rating of a house to be included in a lender’s affordability calculation, people could borrow up to £4,000 more in many cases. Under such a system, an EPC A rating would allow people to borrow £11,500 more than an EPC G-rated house. I recommend to hon. Members who are interested in this proposal a report by the Lenders group, which said that energy bills were a sizeable part of borrowers’ essential expenditure, and were therefore a component of the affordability calculation that warranted being made more sophisticated.

[James Heappey (Wells) (Con)]

My hon. Friend is making such a good point about how we can challenge mortgage lenders to revisit affordability, based on how much it costs to live in a house. Crucially, it demonstrates to developers who have pushed back against higher energy efficiency building standards on the basis of affordability that lenders understand that reduced operation costs are a good thing, because borrowers can borrow more to pay more for a house that costs less to live in. It slays the developers’ argument against more stringent building regulations.

[Antoinette Sandbach]

I completely agree, and those houses would be more easily resold, too. The energy efficiency measures that had been introduced in a property would have a market value, and that would be taken into account in the ability to resell—particularly the increased borrowing capability. Furthermore, it would give real value when looking at the EPC rating for the future. It is a simple step that could be taken with relatively little Government interference—a simple statutory instrument so that energy efficiency could be considered as part of the mortgage affordability criteria would be very persuasive, particularly for those companies specialising in green finance.

Despite that, I also agree with my hon. Friend that we have to look at the criteria that we impose on house builders. It is simply not acceptable that in this day and age we are building houses that are likely to need retrofitting in future. By increasing the build standard, people would learn how an energy efficient home can have an impact on their life. I sat and shivered in my own home in London during the freeze last week; I found myself sitting in my sitting room in my coat because the house was so cold and inefficient. I now realise that I have a relatively fuel efficient home where I live in Cheshire, which makes a difference mentally, to comfort levels and to bills. Merely including the energy efficiency measures in affordability calculations would be enough to drive people towards more energy-efficient homes even if buyers do not borrow extra money, because they would be attracted by the perception of value implied by the higher borrowing limits.

My second suggestion is one that the Minister may be able to assist with more directly. When Members talk about infrastructure spending, one is put in mind of boys with their toys: big trains, roads, railways and power stations. However, I suggest that the Minister designate energy efficiency measures as infrastructure spending, bringing it under the purview of the National Infrastructure Commission. The rationale for that is simple: energy efficiency spending is a one-off cost, so it is closer to capital than revenue expenditure. By reducing energy consumption, those investments free up energy sector capacity. That reduces, or at least delays, the need for new capacity to come online. That new capacity—in the form of generation plants, networks and energy storage—would be considered infrastructure spending by the Government, and potentially would involve a large amount of Government expenditure.

Why invest in the big plant if we can roll out energy efficiency measures across the country, as part of an infrastructure project? Energy efficiency measures provide a public service: they insulate consumers—literally—against the volatility of energy markets. Likewise, they provide health and wellbeing benefits, by enabling consumers to heat buildings more effectively, and they have the knock-on consequences of reducing our carbon emissions and contributing towards our overall aim of clean, green growth.

Research by Frontier Economics found that a building energy performance programme would meet the Treasury’s criteria for determining the top 40 infrastructure priorities. The National Infrastructure Commission has said that it will consider

“an ambitious programme of energy efficiency improvements”

and that it

“is examining ways to make the UK’s building stock fit for the future.”

I hope that Ministers will pave the way by committing £1.1 billion to a programme of energy efficiency improvements, under the auspices of the National Infrastructure Commission. It is estimated that that would leverage £3.9 billion of private investment by 2035. That additional capital spending, alongside the £0.6 billion already spent, would dramatically improve energy efficiency, bringing all the benefits I have outlined.

With the £1.3 billion of savings that have been highlighted in the health budget, these measures would effectively fund themselves out of savings to other parts of the Government’s expenditure. The starting step is to recognise that this is capital spending on infrastructure—not revenue spending. Members might like to look at the Energy Efficiency Infrastructure Group report, “Affordable Warmth, Clean Growth”, where they will see a detailed plan to take forward this suggestion.

I look forward to hearing suggestions from other hon. Members of how to renew our energy efficiency drive. The case for pushing forward seems indisputable: it would make significant inroads into fuel poverty and carbon emissions, as well as create jobs and secure clean, green growth for the future. Mine are just two suggestions of how to approach that, but I hope that the Minister and her Department will take them on board. I am also keen to hear the suggestions that the Minister has brought with her; there is a lot of potential in the clean growth strategy, and I know that she is as keen as I am to see that potential realised.

--- Later in debate ---

[James Heappey]

My right hon. Friend is absolutely right, and she knows that she has my full, enthusiastic support on that point. The answer to what happened last week is not that we need more gas: actually, the system worked and demonstrated that there is flexibility. That more efficient, more flexible system brings with it energy security, and we should make that point robustly.

We should also be clear that a more efficient energy system brings with it reduced costs for consumers. Transmission and distribution costs are a not insignificant part of energy bills, so designing a more efficient system should be a priority. I will come back to that point shortly. It is not just price capping that can bring down bills for consumers: we could also find pretty significant savings in the costs of operating the energy system.

The other reason why we need a more efficient system is that, over the next 15 years or so, we will increase by an order of magnitude the demand we place on our electricity system. As we decarbonise heat and electricity, we will find ourselves significantly increasing the load, and the answer to that increased load cannot exclusively be more generation. We must seize the opportunity to create a more efficient energy system to meet that increased demand. For that, we must recognise that all of the clean tech coming along that allows for decentralised generation allows us to generate locally and use locally.

Rather than conceiving the national energy system as we see it at the National Grid control room in Wokingham, with its big map of the UK and its worrying about getting power from Hinkley Point to someone’s toaster, we should start to see it in terms of: what the net energy use is in someone’s home and whether they are putting energy back into the system or drawing down; and whether a community can service its energy needs and whether it is drawing from or exporting to the system.

The system would constantly balance upwards and, crucially, the distribution network operators would become distribution system operators, balancing the flows within their region. The national grid—if we need one in the future—would be left simply to balance the net flows of energy between the regions. If energy is generated and consumed locally, that must bring a significant reduction in distribution and transmission costs.

Of course, I recognise there will always be a requirement to socialise among all consumers the underpinning energy security that comes from a system that backs up when local systems fail. Such a system would bring huge reductions in bills and huge reductions in carbon—and frankly it would be an embracing of progress, given that all of this clean technology is coming down the tracks.

There is another area in which we could make the energy system more efficient: we should recognise that we waste a huge amount of energy in the form of heat. Remarkably few organisations that produce huge amounts of heat as a waste by-product yet understand their ability to monetise that heat. There are some brilliant pilot schemes that should inspire. London Underground has huge amounts of heat moving around its tunnel system underneath our capital city, and there are examples of it trying to get that heat out of the system and into heat networks on the surface. That is great, but such examples are relatively few and far between.

There are examples from heavy industry, where waste heat is being put into a heat network. Also, and this is a shameless plug: the shadow Minister and I—I will also demonstrate the non-partisan nature of the debate by referring to him as my hon. Friend—are both vice-presidents of the Association for Decentralised Energy, which told me the other week about a sugar factory in East Anglia, where waste heat and carbon is taken from the factory to greenhouses, where a prodigious amount of tomatoes are grown. That understanding of the value of the waste product and making energy usage more efficient should be an inspiration to companies all over the place.

There is also the electricity system itself. I understand from some of the distribution networks that the waste heat from the transformers when energy comes from the national grid into a distribution system is huge, and at the moment it goes out into the ether. Surely there is an opportunity to look at how that could be connected into heat systems.

At the Conservative party conference in Birmingham last year, a number of us were invited to go down to a combined heat and power plant beneath the library in Birmingham city centre. What is amazing in Birmingham is there is a network of CHPs—one underneath the library, one under New Street station and a couple of others in the city centre—that generate heat that is sold commercially to the hotels concentrated around the city centre at a cheaper rate than the hotels could get for themselves. The hotels therefore get a good deal and Birmingham business gets a good deal. However, Birmingham City Council, which put the network in place, also gets to sell cheap heat into the social housing immediately beyond the city centre. What I love is that the system is not just more efficient and therefore bringing down costs for business, but allowing for social justice by delivering far cheaper heating into the homes of those who can least afford to heat themselves.

That brings me to the domestic energy efficiency market, and first to those who are fuel-poor and unable to pay. Clearly, when it comes to our intervention, we must look at two types of energy efficiency to support those who are fuel-poor: barrier technology to avoid waste, putting stuff into windows, walls and roofs so that less electricity is required; and putting clean tech into homes, so that they have more efficient boilers and smart appliances, which also use less power. This is a completely non-partisan debate, but I adore the scheme in Scotland—and not just because it is called HEEPS, which was my school nickname. All power to the Scottish Government, who have one of the world’s leading domestic energy efficiency mechanisms—the home energy efficiency programmes for Scotland—in place. I hope we can be inspired by learning about what has been done north of the border.

There are opportunities to intervene. Yes, we can make the point that it is socially just to do so, but I hope the Treasury realises that it is financially sound, too. In the eight weeks of 2018 thus far, the Treasury has shelled out £56,282,500—roughly—in cold weather payments to those who live in fuel poverty. If we were to intervene aggressively to make those in fuel poverty live in better insulated, more energy-efficient homes, arguably that 56 million quid could have been reduced significantly. As my hon. Friend the Member for Eddisbury said, there are huge savings to be passed across to the NHS system and adult social care by ensuring that those who are fuel-poor, those most vulnerable and those living on the lowest incomes are in homes that are comfortable.

There are productivity gains to be had, too. If people live somewhere they can heat and they do not have to choose between heating and eating, they will be much more able to go out and get work, be motivated to be productive and get promotion, which will stop them being in a position where they are fuel-poor.

I have three more suggestions. The first is about the winter fuel allowance. I am aware that it is probably a bad idea to talk in the House of Commons about a universal benefit to pensioners, especially when as a result of this suggestion there is a chance that some will not get a payment any more. However, we might start to look at whether to set aside those who we class as being fuel-poor—those who have qualified for cold weather payments in the past couple of weeks, for example—and make sure they still get a winter fuel payment.

For the remainder, however, instead of giving cash to be used against an energy bill, could we start to give vouchers for that value with which they can improve their homes with energy efficiency measures? They would get the same amount, and I would argue passionately that over time they would be delivered a saving from their energy bills far in excess of what they currently get with the extra cash of the winter fuel allowance. More importantly still, whereas that allowance is given, spent and gone, with vouchers we would upgrade the housing stock of all the houses currently lived in by pensioners that, at some point in the future, will be lived in by people who are not pensioners. We would make an intervention using the existing universal benefit in an ever-so-slightly different way, which would stimulate economic activity—all these people would move into the supply chain to deliver those energy efficiency measures—and upgrade our housing stock permanently. We should consider that.

We also need to look at how we do EPCs and the standards we set for new homes. In hindsight, I think we on the Government side made a mistake in reducing the carbon standards for new built homes. However, even if we leave the standards as they are for the moment, please let us ensure that developers are building houses at the EPC level they say they are. There is too much discussion in this place of charities worrying about energy efficiency—they say that developers can say, “Everything we build that is ‘The James’ is an EPC band C. Therefore, wherever we build it, it is an EPC band C, even if we cannot guarantee those properties were built to the exact same standards as the type tested.”

We need to ensure that all of the hundreds of thousands of homes that the Government are commendably committed to building are built to the very highest standards—at the very least, to the standard it says they are built to in the brochure the developer provides at the point of sale.

Instead of EPCs simply being a mechanism for judging how efficient a property is in terms of its barrier technologies, or how well insulated the walls, windows, doors and roofs are, I wonder whether the Government might also consider how we might start to value the clean tech that might also have been put into the home. Clearly, some clean tech is removable; smart appliances may well be moved with the owner when they move house. But we have asked the energy companies to commit to having offered every consumer in the UK a smart meter by the early part of next decade, and by 2025, I think, we want all properties to be at band C. I wonder whether a requirement for reaching band C by 2025 should be that a band C house has a smart meter within it. That would catalyse the uptake of smart meters quite quickly.

My hon. Friend the Member for Eddisbury has already mentioned the importance of getting energy efficiency, and therefore operation costs, factored into the affordability studies done by mortgage companies. Nothing will bring the value of energy efficiency to the attention of homeowners more. I declare an interest here, insomuch as I am on the phone to my mortgage broker quite often at the moment and spend a lot of time scouring Rightmove, but nothing motivates homeowners more than when they are going through the affordability study and the mortgage company or broker is asking about the bills.

There is a hugely frustrating moment when the mortgage broker asks, “And what do you spend on your household utilities at the moment?” and the homeowner says, “Probably about £200 a month, but within the house I am building there are solar panels on the roof, or solar PV on the roof, or I want to put those things on to the roof or to put in a heat pump,” and the mortgage broker just moves on to the next question and shows no interest whatever in what they have just been told.

[Antoinette Sandbach]

I have been converted, having installed an air source heat pump in a very old property in north Wales, with 75 mm of internal insulation. I can virtually heat the house on a candle—it is not quite that efficient, but it is close. What is more, I get money back in renewable heat incentive payments, which means that my total energy cost has gone from approximately £1,200 a year to about £600 a year. It is extraordinary. It is comfortable to live in; I know that if I walk through the door, it will be warm. It is incredibly efficient. There is a gas boiler that gives hot water on demand with no wastage and no heating up water unnecessarily. It makes a huge difference.

[James Heappey]

My hon. Friend is absolutely right. I suspect that we need collectively to convince our colleagues in the Ministry of Housing, Communities and Local Government that we can value energy efficiency and clean tech within buildings in a much better way. We must shift them away from an analysis that says that the affordability of a property is exclusively about what that property costs to own or rent. It is not; it is what that property costs to own, rent and then live in during the month that follows. With energy efficiency measures, we can significantly bring down what it costs to live in a house, and therefore make it more affordable, by more than the smaller savings we might have got from cutting a few corners with energy efficiency when the place was constructed in the first place.

I have now unloaded all my bright ideas into Hansard. I believe that we must embrace this agenda and see that the renewal of our energy system is about not just building big zero-carbon generation, but making an energy system that is more efficient, that sees the value in waste heat and looks at how we use that more efficiently, and that is re-geared so that it is localised and decentralised and we are balancing upward rather than downward.

We must see domestic energy efficiency as an opportunity to save consumers money in a far more meaningful, lasting and organic way than the price cap intervention, which we necessarily had to make this week, but which must only be short term. If we do all those things, we create economic activity and save money for both the Exchequer and, crucially, bill payers too.