Energy Company Obligation

Kerry McCarthy Excerpts

Tuesday 11th March 2014 Westminster Hall

[Kerry McCarthy (Bristol East) (Lab)]

I congratulate my hon. Friend the Member for Nottingham South (Lilian Greenwood) on securing the debate. As other speakers have identified, unless problems relating to proposed changes to the energy company obligation are quickly addressed, there is a real danger that it will not help the households that it was set up to support. In the limited time I have available, I would like to mention concerns raised with my office by Toby Parker, the chief executive officer of Sustain, a successful Bristol-based small business that, as part of a range of services, delivers energy-efficiency programmes across the country under the energy company obligation.

Sustain was a leading provider under the previous energy supplier obligation regimes: the energy efficiency commitment, the carbon emissions reduction target and the community energy savings programme. When those came to an end, it invested in preparing for the ECO and the green deal. It recognised that getting those programmes up and running would take time, but, in the words of its chair, Julie Baddeley, in a letter to the Energy Minister last year, it took

“much longer, and was more complex, than any of us had envisaged”.

About 5,500 jobs were lost in the insulation industry nationally as a result of the poor transition from CERT and CESP to the green deal and the ECO, and a number of firms went to the wall. The constant chopping and changing causes considerable uncertainty in the sector. The Department of Energy and Climate Change has acknowledged that the recent proposed changes are creating uncertainty, which is affecting delivery on the ground and has resulted in a contraction in demand. That particularly affects areas outside London and the south-east, such as Bristol, where the market comprising small and medium-sized enterprises and sole traders is important for job creation and economic growth.

The energy companies are trying to reduce the costs of their obligations under the ECO, which the Government hope they will pass on to the consumer by reducing energy bills by between £30 and £35. Sustain, which is currently in contract negotiations with the energy companies, tells me that companies are stamping down on the price that they have to pay for carbon. Its chief executive says that the price is being pushed so low that it could have serious unintended consequences. First, it could reduce the quality of installations. He says that companies that work in a quality way will struggle to achieve results in that budget, which will, no doubt, lead to more complaints about poor quality work.

Secondly, the chief executive is concerned that, in all probability, customers benefiting from the carbon savings community obligation or the home heating cost reduction obligation will be expected to pay more towards the cost of those schemes, as the measures are not fully funded. He says:

“whether intentional or not, this will happen”.

Will the Minister provide assurances that that is not the Government’s intention and, if so, what steps he is taking to address that problem? Mr Parker says that, in an industry reeling from shocks, people are putting in suicide bids. In order to survive, companies are willing to deliver at those rates, but he doubts whether it is possible to have high-quality carbon reductions at rock-bottom prices.

Critically, Mr Parker has serious concerns about the effect of Government changes that have both reduced the CERO target for energy companies by 33% and also made it easier to achieve that target. That is pushing down both the volume and the price, with the result that many energy efficiency companies are questioning whether they can make the scheme work. He feels that either one or other of those changes would have resulted in a significant price reduction, but both taken together could pull the rug out from under the energy efficiency market. Has the Minister received similar representations from other companies? I am sure that Sustain is not alone in its concerns. What steps is he taking to resolve those concerns?

I would like to finish by making some wider points about the likely effect of the proposed changes to the ECO, which reflect some of the concerns raised by my colleagues. I am concerned that the problems derive from the Government’s decision to focus on reducing green levies on energy bills in response to the challenge set by Labour’s proposals for cutting energy bills. Essentially, the changes let energy companies off the hook as they do not need to spend a penny on delivering savings to the consumer. In fact, they place them in the driving seat in pressing for reductions to their obligations under the ECO, as it is for them to decide how much of any savings they make will be passed on to the consumer in reduced energy bills.

Changes to the ECO also fail to address one of the key reasons for energy prices, which is the fundamental lack of competitiveness in the energy market. We already know that the ECO is overly bureaucratic, poorly targeted and helping far too few homes. It is not sufficiently focused on those households that need it the most: less than half its funding actually goes to people in fuel poverty. The proposed changes will not improve that situation. The measures under review in the consultation suggest that the ECO will continue to favour those who can afford to part-fund measures, as well as those with larger properties.

The Government’s two flagship energy efficiency policies, the green deal and the ECO, are simply not strong enough devices for improving the energy efficiency of Britain’s housing stock and tackling fuel poverty. In the UK, we have some of the most draughty, poorly insulated housing stock in Europe. Statistics from the shadow DECC team show that a home in Dudley uses four to five times more energy than a typical house in Malmo, Sweden, where the temperature is 7° C colder on average. Figures from the Bristol-based Centre for Sustainable Energy show that there are 5,857 households living in fuel poverty in Bristol East alone.

Shamefully, 31,000 people died needlessly during the winter of 2012-13, 80% of whom were among the over-75s. That was a 29% increase on the previous year and it was estimated that a third of those deaths were caused by homes that were not warm enough. We have been lucky that this winter, although very wet, has been warmer so far.

As part of the recent cold homes campaign, I heard shocking stories from constituents. Some faced impossible choices between heating their homes and eating. I heard from one woman whose husband is extremely ill. Cold homes not only particularly affect people with a health condition, such as her husband, but deny people the most basic of comforts. In her e-mail, she said:

“all we would like is to be warm in our home”.

In this day and age, I do not think that that is too much to ask.