Energy Company Obligation

Lord Barker of Battle Excerpts

Tuesday 11th March 2014 Westminster Hall

[Lilian Greenwood]

My hon. Friend has probably, like me, received a briefing from Calor, which has expressed particular concern about the impact in rural, off-grid locations.

In the Minister’s reply in July 2012, he praised Nottingham for its “progressive agenda” and looked forward to visiting the city in the near future to drive that agenda forward. In the event he did not visit, but he did meet me, along with representatives from Nottingham City Homes, to discuss our ideas and experiences to date. Following those positive and challenging discussions, a joint approach was developed between the city council, Nottingham City Homes and local energy efficiency charity, Nottingham Energy Partnership. They drew up the Nottingham energy saving neighbourhoods proposal, a detailed plan to maximise the insulation work on hard-to-treat homes, promote the green deal and spread benefits to private homes as well as social housing, beginning on the Clifton estate, but with the aim of transforming energy efficiency across more than 20 Nottingham neighbourhoods with hard-to-treat houses.

We were delighted to welcome the Energy Secretary to Nottingham last spring to see how the neighbourhood model had been developed and the potential for future works. He visited the Bulwell Hall super warm zone, where solid wall insulation had been rolled out to 350 council and 352 private homes. That project helped identify the factors for success that were incorporated into the energy saving neighbourhoods proposal: a large-scale project attracting funding from an energy company; the role of NCH as a trusted intermediary for council tenants, overseeing resident liaison and ensuring quality; the key role of Nottingham Energy Partnership, a local trusted and independent organisation, in contacting every private owner and facilitating private resident engagement; and support from the city council’s planning department in developing an attractive insulation solution to suit the area. It also demonstrated the potential to support Nottingham’s local jobs plan, employing more than 200 people and supporting local employment and the development of the solid wall insulation industry.

Responding to Nottingham’s energy saving neighbourhoods proposal, the Minister wrote:

“I was delighted to see the ambitious proposals you have developed to deliver the Green Deal across Nottingham, in particular your plans for a neighbourhood wide approach fits our vision for the delivery of the Green Deal.”

Although we were unable to persuade the Minister to provide financial support for the energy saving neighbourhoods proposal, when the Department launched its green deal communities fund the following July, we were delighted to see the similarities to our plan. It seemed clear that in Nottingham we were already pursuing precisely the sort of innovative, cross-tenure, area-based approach Ministers were looking for.

The scheme was launched in Clifton in September last year under the branding, Nottingham Greener HousiNG, and was an immediate success. As I explained in last Monday’s estimates day debate, the scheme offered external wall insulation at an affordable fixed price based on property type, so private residents paid a contribution of between £1,000 and £1,300 depending on whether they lived in a bungalow, mid-terrace, end-terrace or semi-detached house. Most residents chose to fund their contribution using savings or via informal help from family and 10% took up the option of a loan from Nottingham Credit Union, which was low cost and could be repaid early without incurring a penalty. None chose to utilise green deal finance, even though the option was set out alongside others available.

The remainder of the cost—around 85%—was funded by British Gas as part of its energy company obligation. The insulation works were rolled out street by street across the Clifton housing estate, to council properties and privately owned homes alike. As residents saw their estate being transformed and heard neighbours describe their warm homes and lower bills, demand continued to grow. Within weeks, hundreds of residents had signed up and by the end of November more than 90% of council tenants had agreed to have the work done and there was 65% take-up in the private sector, with more than 1,000 private residents or landlords having signed up and paid their contribution towards getting the work done.

The feedback from residents was overwhelming. People told me that their homes were warm for the first time ever and that they were saving money and were excited about the improved appearance of the estate. Those signed up were impatient for work to start on their homes.

The Energy Secretary’s statement on 2 December prompted high anxiety in Clifton, and that anxiety turned to despair when British Gas used the opportunity of the Government’s policy change to pull out of the Clifton scheme. Last week, the other Energy Minister, the right hon. Member for Sevenoaks (Michael Fallon), responding to the debate, said that I had “suggested” that our Clifton scheme was

“a victim of the changes taking place in the ECO arrangements.”—[Official Report, 3 March 2014; Vol. 576, c. 722.]

I did not suggest it, I quoted the statement from British Gas in which it said,

“In light of the Government’s proposed changes to the ECO, it was necessary for us to review our current ECO contracts. These changes mean we can no longer fund some projects and unfortunately this is the case with our planned programme with VolkerLaser and Nottingham City Homes”.

It could not be clearer. The Minister’s Government’s ECO changes have led to the collapse of our energy efficiency scheme. As a direct result of his policy shift, hundreds of my constituents in Clifton who have paid for solid wall insulation do not know whether they will get it.

[The Minister of State, Department of Energy and Climate Change (Gregory Barker)]

I will respond fully in my closing remarks, but I do not want the hon. Lady to scare or alarm her constituents unnecessarily. I spoke yesterday to the chief executive of Nottingham city council, and we are working closely with Nottingham on a new bid for our green deal communities. Although I cannot announce the result of that bid for our green deal communities fund, Nottingham has made a robust proposal that aims to deliver hundreds of measures, if not more than 1,000 measures, of the type the hon. Lady describes in south Clifton. Far from being dead and over, the south Clifton scheme has every reason to be optimistic.

[Lilian Greenwood]

I thank the Minister for his intervention. Unfortunately, my constituents are both scared and alarmed. They will, however, welcome his indication that there is hope for the scheme in south Clifton. There are many more people across Nottingham South who do not know if or when they will get the help they need with their fuel bills. They continue to live in cold homes that affect their health and the health of their children.

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[John Pugh (Southport) (LD)]

Thank you, Ms Dorries; that will be ample.

I congratulate the hon. Member for Nottingham South (Lilian Greenwood) on her timely and effective presentation of the problems with the energy company obligation. I am increasingly in despair, and not just because of being a Liberal Democrat. I should like to be able to say that the green deal is great, and the ECO scheme is perfect, and that I support every detail of it without criticism or quibble; but I cannot. I should like to be able to say that the Government correctly understand the problems being experienced by people in the ECO scheme and that they are thoroughly engaged and are ironing out possible difficulties; but I cannot quite do that. I am grateful that the Minister responding to the debate is the right hon. Member for Bexhill and Battle (Gregory Barker), because if anyone can solve the problem he can.

I should love to be able to say that everything that is involved in managing a market composed of myriad private suppliers and big corporate giants, to environmental effect, is easy, but it is not. It is difficult, and I sympathise with the Minister. However, like him, I have lived through the solar panel trauma, when schemes hit the buffers and businesses crashed, projects were caught and there was boom and bust—white van man trying to cash in and good schemes being trashed or abandoned. I think that we all learned a lesson from that: in the green business, predictability helps an awful lot. We seem to have a similar problem now, although it is not necessarily the one that the hon. Member for Nottingham South touched on. I want to talk about the problem that the ECO scheme is creating for boiler suppliers—a topic that I have become familiar with simply because suppliers have brought it to my attention.

The phenomenon is similar to what happened with solar panels. There has been an increase in the number of suppliers and installers—I have looked at the Government stats—followed by what currently appears to be the sound of businesses collapsing and the stalling of installation.

[Gregory Barker]

If we could replicate for insulation what happened in the solar industry I should be extremely delighted. The fact is that since we took those difficult decisions in 2011 we have reached the point where nearly 3 GW of solar are installed; almost 500,000 roofs have solar, compared with 15,000 in 2010; and we have the highest growth prospects for solar, with the cheapest installations, anywhere in Europe. Solar in the UK is a huge success, because we cut costs, bore down on the expense to the consumer, and as a result are getting genuine commercial deployment.

[John Pugh]

I am delighted that the Minister can tell me that. I am a great enthusiast for solar panelling. If he can solve the problems with boilers I shall be even more in his debt.

It seems to me that the Government are not quite to blame for the problem I have outlined. It is almost an unintended consequence of the Labour fuel pledge, which led to a bit of a media panic about the green levy, which led to discussions between the energy companies and the Government. There may be some tacit agreements between the Government and the big six. I know not—it is above my pay grade. However, it is true at the moment that the big energy companies are substantially reducing their funding for boilers, from 25p per pound lifetime savings to something like 8p. The drop is sudden and dramatic.

There is some evidence that those companies do not want referrals, particularly in connection with fuel poverty. I am in possession of a letter from British Gas to Sefton, my local authority, which basically says “Don’t send us any more work at the moment. We are simply not going to commission it or progress it.” There is some evidence that some big companies have stopped commissioning altogether, and there is no doubt that the price has crashed. How should a small boiler supplier react to that? If he is severely exposed he goes bust; if he is very canny or unscrupulous he can start to fit boilers of substandard quality, which will not last, and will eventually need to be repaired and replaced. Another thing that he could do is target carbon savings rather than fuel poverty.

A large part of my constituency consists of Edwardian housing, with solid walls. We also have many old houses of the maisonette type, with old or no boilers. In those houses are many elderly people, including widows living alone, and the like. Companies in my constituency once did the jobs needed in such houses, but they no longer do them because they cannot be done without some financial support being offered; and customers in fuel poverty are precisely the ones who cannot do a deal of that kind. In rare cases that I know of, the company exercises a degree of charity and takes a hit on the job. I also have evidence that in some hard-to-treat large houses—we might call them mansions—where there is someone who meets the qualifying criteria in some way, the job will pay; obviously, putting a boiler into those places gives a substantial carbon saving and brings a better reward from the energy companies. A genuine case that was featured on “File on 4”—or it may have been “You and Yours”; I forget—involved a premier footballer profiting directly from the ECO scheme.

Clearly, something is wrong. I am not an expert—I know that there are experts present for the debate—but I know people who are. People in the trade tell me things and I am inclined to believe them. Deborah Judd, who runs a firm in Darlington, writes:

“It is so disheartening having to turn clients down who are exactly the sorts of people who need it. We’ve been going 20 years in June and now we just don’t see a future…In some cases, you can get paid £12,000 for fitting a boiler in a large house because the energy efficiency saving is so large. Realistically, that person can afford to replace their boiler themselves. We could fit 5 boilers in homes where people are in real need for that amount.”

I have similar evidence from a supplier in Blackpool, and from assessors and so on. People who appear to know tell me that there is a problem, and that it is analogous to the one that the Minister solved à propos of solar panelling.

Perhaps I can offer the Minister a solution rather than a problem. He needs to talk not to me, a relative ignoramus on the subject, but to the people who bring the problem to me, who are in earnest and have a genuine problem. Importantly—and this issue has come up previously—during the spring we must monitor how fuel poverty is addressed. Clearly, the targets might slip a long way before anyone notices. I suggest that because of the reduction applied by the gas and energy companies there is a perverse incentive to target big houses and big carbon savings, rather than people in fuel poverty.

My final point, and the point that will haunt the debate, was made by the hon. Member for Nottingham South when she summed up: we need stability in the market. If we are to get many small businesses working regularly to good effect with large corporates and funders—in this case the energy companies—and if we are to solve the problems of greenhouse emissions and fuel poverty, we shall need a strong element of stability and predictability in the market. I am concerned because at the moment the suppliers I know and talk to do not think we have that.

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[The Minister of State, Department of Energy and Climate Change (Gregory Barker)]

It is a pleasure, Ms Dorries, to serve under your chairmanship today. I congratulate the hon. Member for Nottingham South (Lilian Greenwood) on securing this debate and creating an opportunity to discuss our policy on driving home energy efficiency in some of the most difficult to treat properties and some of our poorest and most vulnerable households. She and I may not always agree on the best mode of delivery, but I admire her tenacity on this issue.

I want to reiterate the point that I made in my earlier intervention. I am not in a position to offer guarantees or to spell out details today, but I had a positive conversation with the chief executive of Nottingham city council yesterday. I am pleased with the constructive way that they worked with my officials at the Department of Energy and Climate Change following the meetings that the hon. Lady helped to facilitate. The council is looking more positively at the green deal and working to submit a bid under the green deal for communities, and I look forward to announcing the result of those bids. I am glad to say that there has been a strong response from more than 80 local authorities. We have already announced the first tranche of street-by-street roll-out of the green deal and it is receiving a positive response.

I want to make a general point. The thorough retrofit of Britain’s housing stock is a challenge and is not easy. The hon. Member for Nottingham South and the hon. Member for Stalybridge and Hyde (Jonathan Reynolds), who speaks from Labour’s Front Bench, are absolutely right. I am absolutely committed to the street-by-street roll-out. It is the engine for delivering whole-home retrofit in the most cost-effective way, but I am afraid that that was totally absent from the points raised by the Opposition. I commend them on their concern for the fuel-poor and the will to improve the housing stock of their constituents, but it is at best misinformed and at worst disingenuous to pretend that there is some bottomless pit of money when they represent the party that left us with the biggest peacetime deficit in our country’s history and brought us to the edge of financial ruin. What is more, during the last Parliament they drove up the number of fuel-poor people, which peaked in 2009—the last year of the Labour Government —at 5.5 million. Since then, on any measure, that number has fallen under the coalition Government and, according to the latest figures, it now stands at around 4.5 million.

It is wrong to suggest that energy efficiency is a universal panacea. I am a huge advocate of energy efficiency, but it is delivered at a cost, and it is not fair to deliver policy ambition on the backs of the fuel-poor. ECO is funded by consumers—every single customer. It is not funded by general taxation, and to some degree it is, like the CERT and carbon capture and storage programmes, which Labour introduced, regressive because it falls on the fuel-poor as much as the wealthy. It is unfair to disregard the cost of those programmes.

The coalition Government have acted clearly to reduce the cost of Labour’s levies on fuel bills to help to lighten the load of the fuel-poor and hard-pressed consumers. We removed from bills the cost of the £1 billion CCS programme, which the Leader of the Opposition introduced when he was Secretary of State for Energy and Climate Change, and now fund it more fairly and equitably from general taxation. We removed from domestic bills the cost of the renewable heat incentive, the final part of the domestic scheme, which will be launched in the spring, to the tune of hundreds of millions of pounds. Likewise, we responded to the escalating cost of ECO.

The Opposition must make a choice. Are they in favour of the £50 reduction in energy bills, or are they not? They owe it to their constituents and voters to make it very clear whether they will put those costs back on to energy bills. Are they saying that they would restore the ECO measures and in so doing drive up bills by at least £50 instead of freezing them? There are hard choices to make. Of course, we all want retrofit of the housing stock. I think we could all agree on the desirable measures, but they come at a cost and we must be fair to everyone and talk about how they will be funded.

It is true that it seems inequitable or unfair to cut the cost of ECO, which means that some people will wait longer for improvements to be installed, but bills will fall for millions of people. The improvements we are talking about will be installed in the homes of a few thousand people. We must be realistic. Progress was made under the last Labour Government, but they left millions of homes requiring substantial intervention to bring them up to what we would all regard as 21st century standards.

[Dr Whitehead]

Does the Minister accept that ECO is a carbon-saving obligation in the first instance, the funding of which follows? It would have been possible, even if the overall funding envelope had been kept as it was, to make changes in the carbon obligation in such a way that these programmes might have been saved. That is an entirely different point from the one he is making about whether one should abjure savings on energy bills as a result of trying to keep costs up overall.

[Gregory Barker]

I think we are talking slightly at cross purposes. Let me correct the idea that the ECO target has been obliterated, killed or put to bed, as anyone who listens to the Opposition could be forgiven for believing. The fact is that ECO has not reduced certainty; it has increased it. Labour’s CERT programme was year on year. It ran for 12 months, and was then extended for another 12 months. It was a hand-to-mouth programme. ECO now offers unprecedented transparency and long-term certainty for the insulation industry because we have extended it and guaranteed it up to 2017.

We have not simply stretched the target from 2015 to 2017. From 2013 to March 2015—27 months—we expect to deliver a saving through the scheme of around 14 megatonnes of carbon. In the period April 2015 to March 2017, to which we have extended the scheme, an additional 12.4 megatonnes will be saved, a cumulative total of 26.4 megatonnes, not 14 megatonnes. It is wrong to say that we have not extended ECO or that we are not offering long-term certainty against which companies in the supply chain can invest and set their business model.

We have given a clear message to companies in the supply chain that we cannot simply install the measures regardless of cost. We cannot reach our ambition to install solid-wall insulation at current prices, which is why we are trying to create a competitive market and to introduce new private sources of finance. We are trying to introduce greater competition and innovation to drive down the cost of the measures.

Although it is very early days for the green deal and ECO market, we are seeing real pressure on costs, not from the big energy companies but from the disruptive new entrants—the small and medium-sized enterprises, family business and entrepreneurs that are coming into the market. We should celebrate the fact that prices for solid-wall insulation are coming down. I have seen companies that are not only bringing down the cost of these measures but increasing the quality of the product, and the quality and choice of the offer to consumers. [Interruption.] The fact is that I have seen a lot of solid-wall insulation where what people end up with is homes that look like they have been airlifted from East Germany. The people who do it take out all the character and just put on some uniform fascia. In fact, what people increasingly want is choice. They do not want to see character obliterated from their home. They want to see improvements. I am glad to see that we are getting that sort of innovation into the scheme.

I understand where the Opposition are coming from in their desire to retrofit homes. I understand their ambition to improve the efficiency, warmth and comfort of homes, but unless they can cost that out and be honest with the electorate about how much it will cost and how much of the burden will fall on the fuel-poor and on hard-working families, they are just a pressure group; they are not worthy of being considered the Government. We are making those choices and laying out the whole picture for the electorate. We have to balance the costs to hard-working families with the benefits to the few that will receive ECO.

[Jonathan Reynolds]

The Minister is saying that solid-wall and hard-to-treat measures cannot be economically funded through this programme. Given that this policy is his own policy, when did he become aware that it was unworkable to try to deliver those kinds of measures under the scheme?

[Gregory Barker]

No; I obviously did not explain this properly. What I am saying is that we could not do the whole lot, the 7 million or so—I think that that is the figure, off the top of my head—properties that need to be done at this price, so what we are doing, as we work with other technologies, is getting the market going, using the green deal communities subsidy and the cashback that we have announced to jump-start the market and to fund the amount that we judge we can afford. That is in order to get the market working and to bring forward innovation; and as the market gets going, so we will see the price come down. We should use Government policy as a lever to drive down the cost, just as we have used Government policy in support of feed-in-tariff technologies as a means of driving down cost; and as costs come down, that should not be passed across in inflated profits to installers. It should come across in benefits to consumers, whether they are bill payers or people who are purchasing the technology. That is at the heart of the green deal.

We are trying to move away from the model that was used under Labour, in which there was 100% subsidy. Basically, what that meant was a glorified lottery. Millions of homes were substandard, and each year a lucky few thousand would win the lottery of insulation and get every single measure fully funded. I do not begrudge those home owners or people in the rented sector who had their homes upgraded, but that is not the fairest way of doing it. Yes, there are those who are fuel-poor who will never be able to make a meaningful contribution. We must accept that, but most people who fall into this category are capable of making a meaningful contribution to something that will add considerably to the value of their home.

[Lilian Greenwood]

My constituents back in Nottingham who are listening to these comments will probably be shouting at their radios and televisions. They will say to the Minister, “We are making a contribution to the cost of getting our homes insulated and we are precisely the sort of hard-working families that the Minister talks about.” They might feel somewhat let down by the sort of comments that he is making.

[Gregory Barker]

No. I refer back to my earlier comments: I think that there are grounds for optimism for the hon. Lady’s constituents. She is right: we have had to bear down on the cost of delivering ECO. However, we have put in place other measures, which will allow schemes such as that in Nottingham to go forward. We have already announced—

[Mr Jim Cunningham (Coventry South) (Lab)]

Will the Minister give way?

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[Gregory Barker]

I will not now, as I have very little time left. We must ensure that we deliver value for money, but the hon. Lady is right: a number of her constituents are making a contribution. It is not easy to say exactly what the right level of contribution is, but I think that the principle is important and I salute the work that is going on in Nottingham, as I said. I am increasingly optimistic that schemes such as that and many others across the country will be able to be rolled out, as a result of our green deal communities fund and the increased cashback prices that we have put in place. Those have been warmly welcomed by the supply chain. We have seen a very substantial increase in the cashback offer. Up to £4,000 per household is now available for solid-wall insulation. That is up from £650. It is not a bottomless pit or a blank cheque. It comes from a pot that we judge we can afford in order to get the market moving. We will announce shortly a further tranche of long-term incentives that will encourage people to improve the energy efficiency of their home. That will show that the coalition Government are a genuine partner in that move and that we are trying to build a long-term, sustainable market for energy efficiency improvements.

However, part of that must be green deal finance working together with private finance, subsidy through the ECO and other pots. There is no silver bullet; there is no easy answer, but the situation is simply not as bleak as it is being painted by the Opposition. I understand that every time the Government change policy, that is a challenge for any business that depends on Government policy. We do look, wherever possible, to avoid unnecessary changes and to provide certainty, but the very fact that we have now extended the ECO scheme out to 2017 and put the cashback measures in place, together with the fuel poverty strategy—the first time that anyone—

[Nadine Dorries (in the Chair)]

Order. I call Mr Tom Blenkinsop. Will other hon. Members please leave the Chamber quietly?