Green Deal Framework (Disclosure, Acknowledgment, Redress etc.) (Amendment) Regulations 2012

Lord Grantchester Excerpts

Tuesday 27th November 2012 Grand Committee

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)]

My Lords, one of my department’s key priorities is reducing carbon emissions from energy-inefficient homes and reducing the number of households in fuel poverty. The Green Deal programme and the energy company obligation are designed to meet these joint objectives and give consumers access to a range of funding streams for energy-saving improvements in their homes.

The Green Deal is an innovative financing mechanism that enables consumers to pay for the cost of energy efficiency improvements over time through savings in their energy bill. Since the Green Deal legislative framework came into force in October, we have seen more than 270 separate installer organisations register to deliver Green Deal measures and more than 140 expressions of interest from potential Green Deal providers, with 13 already authorised.

The energy company obligation, which is worth an estimated £1.3 billion per year, will work with the Green Deal and require energy suppliers to support those living in harder-to-treat properties and assist low income households, helping them to heat and insulate their homes. We estimate that the ECO subsidy will support the installation of more than 1 million insulation measures by March 2015, which will drive the uptake and development of solid wall insulation technologies. We have ensured that at least 40% of ECO support will be targeted at low-income households, and that support is worth around £540 million per year. It will assist around 230,000 low-income households each year and will make a huge difference to the lives of those who need it most.

I am grateful to the Committee for allowing us to debate these statutory instruments together. I will briefly describe the purpose of each of them. First, the Green Deal Framework (Disclosure, Acknowledgment, Redress etc.) (Amendment) Regulations 2012 essentially relates to the energy performance of buildings regulations, which cover energy performance certificates, and are already a common feature of the property landscape. It is important that the Government amend the regulations relating to EPCs by 28 January 2013, which is when the Green Deal plans can begin to be made, to ensure that the EPC framework can be used to disclose the key terms of the Green Deal plan to subsequent bill payers when, for example, a property is sold or let out. This will be an essential element of our approach to consumer protection under the Green Deal.

Our initial legal view was that Regulation 42 of the Green Deal regulations did not need to be in force before we amended the EPC regulations. However, this is highly complex legal territory and, having given further consideration to the issue and in order to avoid any doubt, we have concluded that the amendment that we are considering today should be brought into force before 28 January 2013. In fact, it will come into force on the day after it is signed by the Secretary of State, following its approval by Parliament. This means that we can create a clear window of time within which the separate changes to the EPC regulations can be made. As the amendment that has been made is simply a change of date, I propose not to take up much of the Committee’s time on this instrument in these remarks.

The draft Electricity and Gas (Energy Companies Obligation) Order 2012, known as ECO, places three obligations on energy suppliers that have more than 250,000 domestic electricity and/or gas customers and have supplied more than the specified level of energy in a relevant period. The obligations are a carbon saving obligation, a carbon saving community obligation and a home-heating, cost-reduction obligation.

The ECO order was successfully debated in this House before the Summer Recess. It is brought back now for consideration in light of the technical amendments that we have identified as essential to its effective operation. These technical amendments centre on an “in-use factor”, which is used to reduce the amount of energy that a particular energy efficiency measure is calculated to save, compared to its theoretical assessment. The inclusion of an in-use factor will reflect that measure’s likely actual performance when in situ in a property. The previous ECO order did not incorporate the provisions necessary to ensure that in-use factors were applied, which created a degree of uncertainty for obligated parties. I apologise to the Committee that we did not identify this technical inconsistency earlier. However, as soon as we did we took the necessary steps to correct the position. My department immediately launched a short consultation to address the anomaly and provide greater clarity.

The overwhelming majority of respondents—about 80%—agreed with the three proposed amendments on which we consulted. The following revisions have therefore been made to the draft ECO order that we are considering today. In-use factors have been included for the scoring measures installed under the carbon emissions reduction obligation and the carbon-saving community obligation, and a schedule of fixed in-use factors for specific measures has been added. The draft order now provides for ECO-eligible measures installed from 1 October 2012 to count towards a supplier’s eventual ECO obligation.

We have made a number of other small amendments to the ECO order. These are not changes of policy but will provide greater clarity for energy suppliers and Ofgem in administering the scheme, to ensure that ECO delivers the policy objectives that were set out in the Government’s consultation response and impact assessment. The changes make explicit that ECO affordable warmth assistance should be targeted at individuals living in private-tenure properties and will provide clarity on the treatment of excess actions carried forward from the current CERT and CESP schemes. They also make it clear that the supplier can be credited for both space-heating savings and hot-water savings in a case where a measure delivers both—for example, a boiler or central heating system.

The regulations will help to improve the energy efficiency of homes across Great Britain, reduce our carbon emissions and, crucially, help households to manage their energy bills. I commend the regulations and order to the Committee.

[Lord Grantchester]

I thank the Minister for her explanation of the statutory instruments before us. It will be good to take up the challenge of the Green Deal with her, as it was with her predecessor. There is nothing wrong with the ambition to tackle energy efficiency and the nation’s housing stock. We on this side of the House continue to support the objectives of the Green Deal. It is a vital part of energy demand reduction and energy efficiency improvements to meet greenhouse gas emissions targets and promote energy security and climate change mitigation.

The Green Deal framework regulations were largely debated and agreed in July, so there is no need to revisit our discussions. However, we have the opportunity to press the Minister on progress, to voice some of our continuing concerns, most notably about finance and the Green Deal Finance Company, and to assess the Green Deal’s interrelationship with the energy companies obligation order.

The Green Deal regulations merely bring forward by six to eight weeks the date of the coming into force of some features of Regulation 42. The ECO order allows in-use factors to be used in the assessment of outcomes and benefits under the golden rule. The amendments drew comment in the 14th report of the Secondary Legislation Scrutiny Committee. It stated that it hoped that Her Majesty’s Government’s use of secondary legislation would not increase with further corrections and amendments. I do not criticise the coalition for this; after all, mistakes are a defining characteristic of this coalition. We raise concerns to be helpful to the Minister’s department, and note that a further suite of legislation relating to the Green Deal is expected shortly. It will concern the Consumer Credit Act and will contain guidance on the Green Deal generally, and for Green Deal providers on the confirmation and disclosure process.

I note that plans are intended to go live and to be signed up to from 28 January 2013. Perhaps I may ask the Minister when the House may have sight of them. The seriousness of the situation is underlined by the fact that CERT and CESP are due to finish at the end of December this year. While there may be some allowances for outstanding obligations to be carried over, nevertheless the uncertainty that this generates in the industry critically undermines confidence. If there continues to be slippage, there is a heightened risk of job losses and layoffs in the gap that will open up between the end of CERT and CESP and the implementation of Green Deal plans. While the date in January to allow plans to be signed up to is consequential on finance plans from the Green Deal Finance Company, perhaps I could ask the Minister why improvement plans that participants are content to pay for immediately and without finance may not be signed up to immediately.

There is widespread concern at the lack of clarity concerning interest rates, finance charges and penalties yet to be brought forward by the Green Deal Finance Company. It is largely academic to draw up Green Deal plans when the full cost alternatives are not yet available. We remain concerned that, to many people, the Green Deal may not be a good deal, especially when finance costs are included at a rate between 5% and 8%—which the Minister conceded in July was not an unreasonable figure, to use his words. When will the Government use their shareholding in the banks to inform them that they can do more for less, in the same way as every other company in the country is having to do?

The Government have our congratulations on setting up the Green Investment Bank legislation that is currently in your Lordships’ House. This is the Government’s own seedcorn. What plans do they have to utilise the Green Investment Bank to underwrite the Green Deal, and how will that work? Do they realise that the public’s attitude to debt has changed and that trust in banks is severely shaken?

Concerning the second order, the ECO is intended to work in tandem with the Green Deal policy to enhance further the installation of cost-effective energy efficiency improvement measures, especially those not fully financeable through the Green Deal alone, including measures to help those in fuel poverty and properties in communities in rural areas. The revised order is to ensure that in-use factors are applied when calculating carbon savings attributable to measures installed under ECO—that is, carbon savings that reflect actual performance once installed in domestic properties. Once again, guidance is eagerly awaited by the industry. This revision seems to be in response to the concerns raised about the golden rule. That the golden role may not apply once measures have been completed not only further undermines consumers’ confidence in the Green Deal, it could open up the Green Deal and even the Government to challenges for misselling. As the potential forthcoming Government, we would be especially keen to avoid that mistake.

Concerning the link between the Green Deal and ECO, I remain unclear about under what process the ECO may be triggered and hence the costs mushrooming out of control, leading to extra charges on all consumers’ bills. Does the take-up of measures under ECO expand in line with the poor take-up of the Green Deal plans? Will an attitude be encouraged that if consumers decline the voluntary take-up of a Green Deal, the energy companies under ECO will be obliged to undertake the plan anyway? If expenditure to alleviate fuel poverty is reducing as the definition of those qualifying is tightened up, how will that be financed other than by mushrooming domestic bills, already put under great stress by the actions of this Government? Can the Minister clarify the situation?

I understand that part of the delay in getting Green Deal plans going is that the software to set up the register is itself yet to be set up. I understand that the application of the golden rule and its interpretation, as applied to the specific property in question, is the problem. That seems core to the operation. Can the Minister throw any light on that?

I know that the Residential Landlords’ Association is keen to see and discuss the regulations for the private rented sector, particularly regarding the compulsion elements. I know that the Minister will agree that every encouragement must be given to the sector to get on with improvements before compulsion.

In conclusion, we continue to be concerned that the Green Deal may not be the game-changer that we all wish it to become. It is a huge undertaking, yet the prize of whole streets’ and districts’ housing stock being upgraded, without exception to tenure or to the ability to pay, remains the objective that we all applaud.

--- Later in debate ---

[Baroness Verma]

Absolutely. My noble friend—and the noble Lord, Lord Whitty—raised a very important point. Obviously I have not made myself clear. I will undertake to write to all members of the Committee, setting out exactly what we undertake to do about guidance for consumers and suppliers.

I will finish by addressing the point about job losses raised by the noble Lord, Lord Grantchester. I reassure the noble Lord that under the schemes that we are putting forward, we will see a rise in job creation. In the installation sector alone we expect to see jobs for 60,000 people. The noble Lord should be much reassured that this is a wonderful platform for job creation, particularly for the small and medium-sized sector.

[Lord Grantchester]

I accept what the Minister says. We do not doubt that as Green Deal plans build up, as my noble friend suggested, there will be wonderful opportunities. We wish to see—and will applaud—all the job creation that this will entail. My point was similar to that of my noble friend Lord Whitty, and related to the gap that might open up before the plans are implemented. The installers may get very nervous about the continuing employment of people under CESP and CERT, which are coming to an end. A gap may open up that will make them extremely nervous when it comes to keeping those people on.

[Baroness Verma]

Although I cannot give the noble Lord figures at this moment, I can reassure him that we have no shortage of people signing up to the Green Deal. They fully recognise that there will not be a gap; there will just be a movement from one scheme to another. By and large, the noble Lord’s worry is perhaps slightly unjustified. I therefore commend these regulations to the Committee.

Motion agreed.