Draft Electricity and Gas (Energy Company Obligation) Order 2018

Scott Mann Excerpts

Monday 22nd October 2018 General Committees

[The Minister for Energy and Clean Growth (Claire Perry)]

I beg to move,

That the Committee has considered the draft Electricity and Gas (Energy Company Obligation) Order 2018.

It is a genuine pleasure to serve under your chairmanship, Mr Walker, and I am pleased to open this important debate. The energy company obligation requires energy suppliers in Great Britain to reduce domestic energy bills by installing energy efficiency measures. As Committee members know, partly because many of us have debated this issue, the Government place great importance on supporting low-income families, ensuring that their energy bills are as low as possible. To that end, we continue to provide direct financial support to vulnerable households through the warm home discount and the energy price cap, which has cross-party support and will protect some 11 million energy customers who have been stuck on poor value deals.

Our election manifesto restated our commitment to tackling fuel poverty by increasing the energy efficiency of our homes. In 2015, we also said that we wanted to reform the energy company obligation to provide more help to those who need it most. The order completes that reform and will result in the scheme focusing on low-income, vulnerable and fuel-poor households—rather than on a mixture of poverty alleviation and carbon reduction measures—until March 2022. It also supports the Government’s industrial and clean growth strategies by encouraging energy companies to deliver more innovative measures, supporting manufacturers and installers to develop more cost-effective, consumer-friendly products by providing a better route to market.

ECO has operated since 2013 and has currently installed more than 2.4 million measures in about 1.9 million homes. The scheme is funded through energy bills and we will continue the mandated level of £640 million per annum until 2022, but of course the negotiations could deliver a funding commitment beyond that date. Indeed, the clean growth strategy sets out our commitment to keep that level of funding for domestic energy efficiency until 2028.

The Government consulted broadly on the new scheme’s proposals. We received 239 responses, the majority of which were broadly supportive. We published the response to the consultation and laid the order in July. Should the Committee approve the order, the scheme will begin in November. We are aware of the need to maintain continuity of delivery, so the scheme design includes a number of aspects to enable as smooth a transition as possible.

Changes to the scheme reflect various measures: first, our strategic energy objective; secondly, responses to the consultation; and thirdly, the latest market position. As I have said, the measure attempts to focus the scheme as closely as possible on the alleviation of fuel poverty. It is designed to increase the innovation and flexibility that can be delivered by working with local authority partners, because a reasonable criticism of the scheme is that it has not been sufficiently targeted on those homes that need it.

The other important change is my decision to drop the thresholds at which energy suppliers must have an ECO. The current threshold is 250,000 suppliers. We are keen to have a level playing field in this market, and it is not fair that many suppliers do not have to pick up an ECO. There is evidence that suppliers who otherwise claim to be paragons of virtue are deliberately not growing their customer base because it will take them over the 250,000 threshold, which is completely wrong. It is also important that customers do not suffer a detriment if they switch from an energy supplier that offers an ECO to one that does not. We are therefore dropping the threshold, which was last set in 2013. If the order is passed, from April next year suppliers with 200,000 customer accounts will be obligated to offer the scheme. The threshold will fall to 150,000 from April 2020 and could continue to fall thereafter, reflecting a direction of travel in the retail market that we absolutely want to continue.

We have also expanded the eligibility criteria of the scheme so that households on certain disability benefits, their Ministry of Defence equivalents, and low-income working households in receipt of child benefit are newly eligible for support. That reflects my desire for the scheme to be targeted as much as possible at those who are struggling with low income and fuel poverty, and it increases the number of households eligible for support—from 4.5 million under the affordable warmth part of the previous scheme, to 6.7 million under the new scheme—which strikes the right balance between supporting those households most in need and keeping delivery costs low, thereby protecting bill payers.

As I have said, we have increased the proportion of the scheme that can be delivered under the local authority—the so-called flexible eligibility. I have taken that from 10% to 25% because we believe that local authorities are often well placed to identify those households who need help, including people with health conditions that are exacerbated by cold homes. We estimate that a further 300,000 households will be eligible for well-targeted support through that route.

It is important that we develop new products and provide a route to market as part of the investment we are all making, and suppliers will now be able to deliver up to 10% of their obligation using innovative measures not previously supported under ECO: first, by a demonstration action route, which allows suppliers to provide financial support to new products that have been tested in the lab and may have had limited testing in a live environment but now require wider testing; and, secondly, through innovation score uplifts, which are designed to encourage new products that are at a later stage of development but which have not been delivered under the scheme. Of course, while delivering a broader mix of measures we will continue to maintain safety and installation standards.

On heating equipment, the scheme allows the equivalent of 35,000 broken heating systems to be replaced each year so that low-income households can receive support should their heating system be beyond repair. Although other forms of energy efficiency may have greater long-term benefits, a broken boiler, particularly in cold weather, can be the immediate crisis point for a struggling family. Coal-fuelled heating systems cannot be replaced or repaired under the scheme, but we have listened hard to the sector and are allowing oil systems to be replaced so that poor rural households without a current viable alternative can receive support to heat their homes. In my constituency, where more than 40,000 households are off the gas grid, that measure could be very welcome.

[Scott Mann (North Cornwall) (Con)]

The Minister knows that I have some rural poverty, particularly fuel poverty, in my constituency and a lot of people who are off grid. I notice that there is a 15% rural sub-obligation in the order. Could the Minister expand a little on how that might help communities such as mine?

[Claire Perry]

That is an important point. We are keen to maintain at least 15% of that obligation to rural householders. My hon. Friend knows very well that although he represents one of the most beautiful parts of the United Kingdom, incomes there are lower than average and there is a huge amount of fuel poverty—and, indeed, other forms of poverty—in what would otherwise be picture-perfect rural villages. In fact, evidence from the Committee on Fuel Poverty, with which we have worked closely, suggests that fuel poverty is more prevalent in rural areas than in urban ones, and that is why we were keen to maintain the 15% element of the scheme.

My hon. Friend also knows from his wonderful county that we have fantastic heat pump manufacturers working not too far away him, and we have continued to allow ground source heat pumps to qualify for support under both ECO and the renewable heat incentive. We understand the potential for double dipping. We have limited that for other forms of technology but have made an exception for ground source heat pumps due to their high upfront costs and because they are putting in, through the cost of each individual scheme, long-term and potentially valuable infrastructure, which other forms of technology are not required to do.

To encourage installers to take a broader approach to improving the energy efficiency of homes, inefficient heating systems can be replaced if they are delivered alongside insulation measures. We have retained the solid wall minimum requirement, which is now set at the equivalent of 17,000 solid wall homes per year but, as many of us know from our constituencies, that is not always the appropriate technology. Therefore, we have introduced flexibility, by allowing suppliers to meet the minimum through a combination of other measures, as long as they deliver the same bill savings as solid wall insulation.

The changes we have made to the scheme are really important. They will help to upgrade the homes and reduce the energy bills of more than 1 million households living with low incomes or dealing with vulnerability. They will also pave the way for new measures. They will add further impetus to help to meet our fuel poverty and carbon reduction goals by encouraging more cost-effective and customer-friendly solutions.

If the energy companies are listening, I urge them to take these targeting measures seriously. I am fed up of going home to my constituency every Thursday and finding a card through my door offering me a new oil boiler. I am not living in fuel poverty. There are plenty of measures and plenty of information available to allow those companies to do the job properly and to target those households most in need. With the reforms in the scheme, we should work together to deliver that goal. I commend the order to the Committee.