Michael Fallon
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The Minister of State, Department for Business, Innovation and Skills (Michael Fallon)
I join colleagues in welcoming you to the Chair, Mr Crausby, and I thank you for presiding over our proceedings. I, too, congratulate my hon. Friend the Member for Truro and Falmouth (Sarah Newton) on introducing this debate on off-gas grid households.
Let me tell the hon. Member for Rutherglen and Hamilton West (Tom Greatrex) straight away that although we may not agree on everything over the next few months, we can agree on one thing: we both welcome the report recently published by the all-party group, and I am looking carefully at all its recommendations. Such work is a model of how an all-party group can contribute to policy making, and I congratulate those who participated in it.
Let me say very clearly that the coalition Government believe strongly in the importance of domestic consumers having secure and affordable fuel supplies to heat their homes. Like many here today, I remember all too well the issues in past severe winters, including in 2010, which resulted in increased demand for heating oil and weather conditions impacting on the supplies reaching consumers. That is why, under this Government, one of my predecessors, my hon. Friend the Member for Wealden (Charles Hendry), asked the Office of Fair Trading to bring forward its study on the off-grid energy market. One of the first actions I took last week was to work with colleagues at the Department for Transport to relax drivers’ hours for LPG deliveries, to ensure that households continue, in this ongoing winter, to receive fuel for heat.
Since winter 2010, my Department has worked with consumer bodies and industry to encourage households to co-ordinate “buy oil early” campaign messages. The Department for Business, Innovation and Skills has worked with the Department for Environment, Food and Rural Affairs to provide and promote guidance on setting up or joining consumer buying groups. As has been pointed out today, such groups can be of real benefit in reducing costs for all consumers and can provide environmental benefit through reduced deliveries.
By working with other Departments, we try to ensure that we reach the most vulnerable and provide the assistance that they need. Measures such as the winter fuel payment, the warm home discount and cold weather payments provide real assurance to older and vulnerable people that they can keep warm during the colder winter months, because they know they will receive significant help with their bills. In particular, the Department for Work and Pensions provides winter fuel payments of £200 for households with someone who has reached women’s state pension age and is under 80, and £300 for households with someone aged 80 or over. In addition, we have permanently increased the cold weather payment from £8.50 a week to £25 a week. We also want to provide immediate assistance with energy bills to those in need, and help energy companies find these vulnerable people so they can be offered longer-term support. The warm home discount scheme provides that help.
Michael Fallon
This four-year scheme was launched in April 2011. It requires energy companies to provide help with their energy bills to about 2 million low-income households a year. It is worth £1.1 billion over four years.
Michael Fallon
Energy suppliers are required to provide the majority of that support to pensioners on the lowest incomes—a group we know are particularly vulnerable to the ill effects of a cold home over winter.
Such elderly people often struggle to understand and complete complicated forms, so most now receive the discount automatically, without having to claim. That is done through an innovative system of limited data matching between Department for Work and Pensions customer records for those on pension credit and the energy companies. One reason we selected electricity bills to receive the discount was so as not to disadvantage those living off the gas grid. This winter alone, more than 1 million pensioners received an automatic £130 discount by 31 December 2012, providing them with the certainty they needed that they could afford to heat their home over the coldest months.
We are also taking action to ensure we have in place the right framework for measuring fuel poverty so that we can continue to target our resources on those who need the most help. Under the current definition, a household is said to be in fuel poverty if it needs to spend more than 10% of its full income after tax on fuel to maintain a satisfactory heating regime. Last year, Professor John Hills of the London School of Economics published the first report of his review into fuel poverty in England, which the Government commissioned to take a fresh look at the issue. He highlighted serious flaws in the way in which fuel poverty is measured, with the current 10% definition painting a misleading picture of trends. Unless we can properly understand the problem, we cannot design effective solutions to address it.
As a result, we made a commitment to develop a revised definition of fuel poverty, and we have consulted on proposals that will allow for a more accurate measurement of the problem. Under the revised definition, a household will be considered to be in fuel poverty if its income is below the poverty line and its energy costs are higher than typical for that household type. Based on our new understanding of the problem, we promised we would look again at all our policies to ensure they effectively support the fuel poor. That will include setting out how we aim to use the low-income, high-energy-cost definition to identify priority sets of households for support through cost-effective measures.
The green deal has been mentioned. It was launched on 28 January, and it is our main energy efficiency initiative. It aims to play a huge role in upgrading buildings. It is therefore an opportunity to help millions of consumers reduce their energy bills. Opening up the energy efficiency market will unlock new choice for consumers and empower small and medium-sized businesses to enter, grow and innovate, creating new opportunities while reducing carbon emissions and energy bills.
The green deal is important, but it is not the end of our ambition on energy efficiency. Our overall mission must be to connect people with the resources to improve efficiency, reduce waste and save money. We want more businesses to see the financial and economic benefits that come with the development of the green economy. We have already seen clear signs of a promising new market gathering momentum. In little more than a month after launch, there were 9,200 green deal assessments. There are 1,000 more in the pipeline, showing genuine interest from consumers. Some householders in older properties, those on benefits or low incomes, and those in properties off the gas grid, about whom I was asked, may also qualify for extra financial assistance from the new energy company obligation. That scheme has started well, with millions of pounds’ worth of contracts already traded on ECO brokerage alone.
The energy company obligation runs alongside the green deal and has the twin objectives of reducing carbon emissions and tackling fuel poverty. It is targeted at those who live in hard-to-treat homes and those who live in low-income and vulnerable households. It is made up of three separate obligations, which together are worth about £1.3 billion per year. We expect ECO to make progress in tackling fuel poverty. Together, the affordable warmth and carbon saving communities obligations should generate investment worth about £500 million a year across England, Scotland and Wales. We estimate that if suppliers deliver the most cost-effective packages of measures, more than 200,000 low-income households could be supported each year through the obligation. I am pleased to confirm that there has already been some ECO delivery on the ground since January. About 7,000 referrals have been made to suppliers to receive a minimum package of assistance in England and Wales. On top of that, almost £100 million of notional bill savings have been traded under the affordable warmth obligation through ECO brokerage, and more than 75,000 tonnes of carbon have been traded under the carbon saving communities obligation.
I want now to discuss the potential for extending the gas grid. As to options for off-gas grid consumers who want to be connected to the grid, Ofgem is responsible for regulating the extension of the grid, and that is a matter for the local gas distribution network. However, for vulnerable consumers, Ofgem operates the fuel-poor network extension scheme, whereby the large gas distribution networks are incentivised through price control arrangements to extend the grid to vulnerable households, recognising that that will reduce their costs. During the next price control period, which will run from April 2013 to 2021, network owners are committed to connecting an additional 80,000 homes in fuel poverty to the gas distribution network. That is in addition to normal customer requests for gas connections, which are expected to exceed 440,000 over the same period. Therefore, overall, there are projected to be more than 500,000 new customers on the gas distribution network. The promotion and operation of those schemes is a matter for the regulator and the network owners, but I shall watch closely how the network owners meet the target of 80,000 new homes.
DECC is promoting alternative low-carbon options for off-grid consumers through renewable heat premium payments, which can help to reduce costs for consumers not connected to the gas grid. Those technologies have the ability to bring down fuel bills for those using heating oil and LPG, though they will not be suitable for all off-grid homes. The renewable heat incentive is a financial support mechanism to encourage the installation of renewable heating technologies to meet our renewable targets. The non-domestic element was launched in 2011 and provides financial support to commercial, industrial, public and not-for-profit and community generators of renewable heat for a 20-year period.
In September, my Department consulted on the extension of the scheme to the domestic sector. For domestic properties, the lead proposal was for a national scheme to be available to homes both on and off the gas grid, but targeted specifically at the off-gas grid sector through the setting of tariff levels. Tariffs would be set to compensate households for the difference in lifetime costs, including up-front, running, barrier and financing costs, between the renewable technology and currently used conventional heating technology, for the median cost off-gas grid installation. On 26 March, we announced an extension to the renewable heat premium payment scheme. That will provide grant support for installations of renewable heat technologies such as heat pumps, biomass boilers and solar thermal, ahead of the launch of the domestic renewable heat incentive next year.
We intend to announce the final details of the domestic scheme and of expansions to the non-domestic incentive this summer, and to open the schemes for payment from spring next year. In the interim period, we have provided the renewable heat premium payment scheme, which provides grants towards the cost of installing renewable heat technologies in domestic properties off the gas grid, and for solar installations on or off the grid. The first phase of that scheme ran from August 2011 to March 2012. More than 5,000 installations were delivered to off-gas grid households. A second phase ran from April 2012 to March 2013; it consisted of another household scheme and a social landlords competition, plus a community scheme for community groups to test the benefits of community level action, such as securing bulk buying discounts through facilitating the installation of renewable heating systems in their areas. We estimate that RHPP2 will deliver about 11,000 installations, of which approximately 9,000 are currently off the gas grid. In total, about 14,000 off-gas grid installations will be delivered under the renewable heat premium payment. We do not intend to stop there. Last month, we announced a further extension to the scheme, which will continue in 2013-14.
Finally, I want to deal with further regulation of the off-gas grid market. I have heard arguments in favour of more regulation. We must decide whether more regulation is necessary in this area; if it were decided that Ofgem should become the regulator, primary legislation would be required, with a transfer of knowledge of the market from the OFT. Ofgem already has powers to apply the Competition Act 1998 concurrently with the OFT, and to investigate and enforce decisions to deal with anti-competitive practices in its designated sector. Its remit is to regulate the monopoly companies that run the electricity and gas networks. There is no natural or structural monopoly for supply and distribution in heating oil or LPG, so regulation by Ofgem seems less appropriate in this sector than it is in others. The supply of heating oil or LPG is not covered by the natural gas and electricity regulatory regime, because the relevant gas and electricity legislation principally addressed the issues of setting up a regulatory regime to ensure that the natural monopolies of the gas pipe network and the electricity transmission and distribution systems were not exploited. Ofgem ensures appropriate regulation of gas and electricity supply, which are licensed activities for reasons that include the need to balance the systems and the relationship with the natural monopoly networks. Those are not issues in heating oil or LPG supply.
The Federation of Petroleum Suppliers is working with the OFT to improve self-regulation of the heating oil sector. It will publish a code of practice for its members this year. It has already worked with consumer groups to encourage the early ordering of heating oil for winter, and it is working with the OFT and consumer bodies to prepare a new code of practice to mandate its members to engage with consumers on a fair and consistent basis all year round. The federation intends that the code should encourage the implementation of best practice and raise standards in the industry, and I understand that it will shortly be published. We will continue to work with the federation, the OFT and consumer bodies to ensure that the code meets its goal.
There is still much more to be done, which is why my predecessor, the former Minister of State, Department of Energy and Climate Change, my right hon. Friend the Member for South Holland and The Deepings (Mr Hayes), agreed to convene a cross-party discussion on vulnerable consumers in the off-gas grid market. I confirm that I will fulfil that commitment. I look forward to exploring local solutions for heating oil and LPG supplies with members of the House, industry, consumer organisations and local communities. I intend to use the meeting next month to explore in detail further key issues raised in today’s debate, such as what further we can do to identify and support vulnerable off-grid consumers; the merits of regulation or self-regulation of the off-grid markets for heating oil and LPG; and the role that parish councils and local authorities can play in supporting and working with community oil buying groups. The debate has helped to move that work forward and to shape and refine our policy for an important group of consumers. I thank all those who contributed, and repeat my thanks to my hon. Friend the Member for Truro and Falmouth for introducing a debate on this important topic.