Off-gas Grid Households

Anne Marie Morris Excerpts

Tuesday 16th April 2013 Westminster Hall

[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”.