EON WATCH

EON on Energy Efficiency and Fuel Poverty

In EON Parliamentary Statements on December 22, 2008 at 12:41 am

Who:  Jim McDonald, Commercial Director Retail E.ON UK

About:  Energy Efficiency and Fuel Poverty.

To Who:  Environment and Rural Affairs Committee.

Date: 10 December 2008

Link:  Here

Witnesses: Mr Jim McDonald, Commercial Director Retail E.ON UK, Mr Alan Smith, Head of Government and Regulatory Relations Centrica, Mr Gearoid Lane, Managing Director, British Gas New Energy, Centrica, gave evidence.



Q128 Chairman: It is a long time to learn about it. You, from the world of business, work against the background of very clear plans, that is what corporate management structure planning is all about, and if you were not quite clear what the aims and objectives of the policy was did you raise this with government during the previous period?

Mr Smith: Of course we raised them with government but I think business would not on its own always have the same policy drivers and objectives that the government has. It is trying to make sure that we deliver what is right so that businesses can be competitive, that we can deliver things in an efficient way and that government also meets the objectives and targets which it sets itself.

Mr McDonald: I will not repeat what has already been said as that would not be helpful. Can I turn the debate around very slightly from Gearoid’s viewpoint? It is important that we turn around and focus on the customer who is the individual, at the end of the day, we are trying to make the change on behalf of. There are three important elements, and certainly we focus down as a business from that. Without any shadow of doubt energy efficiency is a fundamental part of that, and will be going forward. That is the sustainable solution to fuel poverty, however there are two other very important aspects of this we need to look into: one is there is already specific help out there in terms of government benefits that a lot of these people are not claiming at this point in time. We have access to that and we believe responsibility should sit with those who have the capability of delivering it. We have access to customers and one of the key things we have been trying to do is to ensure that in terms of fuel poverty that we make sure our customers actually are claiming what they are entitled to. I can give a quick example of that. Last year we went out on about 2,000 cases and in 1,000 cases we were able to help those people who were in fuel poverty. The average amount we were able to help them, which was not a contribution from us but was actually entitlement they were entitled to, was on average about £2,000 per annum. I think there is a duty, and we are happy to take it on, to get out to these customers and make sure that what currently exists we are utilising to an optimised basis to ensure that it is there. The third element is we need to focus then on those who are most at risk. I pull together in essence fuel poverty and energy efficiency. We want to certainly focus down on those most at risk from not being able to heat their homes during the winter and we are trying to focus down specifically on the elderly and those over 60.

Q131 Chairman: Are any of you involved in an initiative I heard recently announced by Dame Tanni Grey-Thompson, who set up an organisation under the heading of Home Heat Help where you ring up a line and it is focused particularly on families, I think I am right in saying, with people who have a disability. It has attracted quite a large sum of money to promote help. I thought it was a most laudable objective but I was concerned that it was an indicator to us, with our public programme and the programmes you have been following, that there is still an awful a lot of unmet need, of people unaware of what help exists who are fuel poor. Is that a fair assessment? Have you done any work to identify the unmet need amongst the fuel poor of access to the schemes of which you have been talking?

Mr McDonald: With regard to your first point, I think that contact is via the ERA so I am sure is does involve us but I do not have any specific knowledge of that. You raise a very valid point, and I made the point earlier, that capability should sit with responsibility. As energy companies we do have the capability of accessing those specific customers with specific needs. For example, from an E.ON point of view, we are working very closely with Age Concern again to identify the over 70s. We have sent out a direct proactive communication to those over 70s who we think actually are using less gas than we would expect to be able to keep the house warm and offering them direct energy efficiency advice as well as a warm assist product which is a 15 per cent discount. I do think, without trying to say E.ON is doing all this, it is fundamental that we target down on those who are most at need and we go out and identify them. We are doing a lot on it and I am sure there is more we can do.

Q132 Chairman: E.ON as a company is involved in other European Union countries. Most of our focus has been looking at fuel poverty as a United Kingdom issue but I cannot believe that there are not fuel poor elsewhere within Europe. Do you have any experience of other programmes outwith the United Kingdom which are judged to have been more effective in dealing with this type of problem than the programmes we have been following here?

Mr McDonald: I must apologise I do not. However, we do operate, as you say, in other countries. If you wish we will look into that and supply a written report.

Q138 Lynne Jones: The companies are contributing through CERT, or perhaps more correctly your customers. We know that the reason the government’s fuel poverty targets are way off course is because of the huge rise in fuel costs. Although there has been a huge rise in fuel costs there has also been a huge rise in the profits of your companies. Are your companies doing enough? Clearly we have to gear up in this area to a higher order of magnitude than we are currently spending if we are going to achieve those targets. What more can the energy companies do? What scope is there from the money you are making, or appear to be making, to actually do more?

Mr McDonald: Could I just pick up on one point from an E.ON viewpoint? From the point of view of profitability, our profitability is 25 per cent down this year as opposed to up and as a retail division we will not be reaching money from that.

Q139 Lynne Jones: What about the year before?

Mr McDonald: That, in essence, is what I am saying. I do not want that to detract from the correct sentiment that you are making. Can I turn round to what we are doing? There is a huge investment and we are probably not particularly good at getting out there to say exactly what we are doing to help. That does not mean to say there is a lot more, of course there is, from that. From an E.ON perspective over the next three years we will spend between £450 million and £500 million on the insulation on CERT. This year there is a three-fold increase in terms of insulations and we are very much trying to target those who are most at risk at this point in time. We have also committed £56 million over the next three years in terms of social programmes to try to alleviate those most at risk of fuel poverty. Over and above that, we have particular measures through Age Concern on Winter Fuel Payments through them and particularly social programmes that sit behind that as well. It is very difficult for me to give you an answer to say is that enough; all I can say is it is a huge amount from that perspective.

Q157 Lynne Jones: Could I ask the other two gentlemen, are your companies involved in the wholesale market as well and could you comment on this issue as regards how the expenditure on CERT is actually financed and whether you pass it on to the customers?

Mr Smith: I would like to make a comment that we could get into difficulties if we get into too much detail. We should not forget that apart from the fuel poverty targets we have, as I said at the start, we have other targets one of which is an 80 per cent reduction in carbon. In order to deliver those we are going to have to replace aging fossil fuel and nuclear plant over the coming years. By 2020 we will need to build at least 20 new power stations to deliver the low carbon future. As a company nPower would be spending or investing significantly more than it earns year on year for the next ten years. We are very pleased that our parent company in Germany will bear that cost. I simply wanted to make that point.

Mr McDonald: I only have retail responsibility so I could not comment on the wholesale. I apologise for that.

Q158 Lynne Jones: You are spending that money in the future but you have made huge profits in the past. There is a big call for some of those profits to be taxed in the form of a windfall tax to make sure that it is spent on relieving fuel poverty. Would you care to comment on that?

Mr Lane: I would comment that in terms of excess profits arising from the free distribution of carbon emissions allowances into the market we have been supportive, probably as a lone voice over a long period of time, for every tonne of carbon that is emitted by a power station to carry a cost and for that cost to be borne by the power generator that emitted that CO², and the revenue that accrues from the sale or auctioning of those emission allowances should be used in areas of fuel poverty or delivering low carbon or zero carbon technology.

Q159 Lynne Jones: What about the free allowances that the energy companies are going to get under the next phase, something like £10 billion?

Mr Lane: We believe from phase 3 onwards there should be no more free allowances.

Q160 Lynne Jones: I am talking about phase 2.

Mr Smith: From our perspective there has been a huge amount of debate about windfall gain. I would say we do not necessarily agree with the alleged windfall gain.

Q161 Lynne Jones: I take that as read but why?

Mr Smith: As a vested company we inherited a fleet of high carbon emitting plant from the CGB and in fact to just continue with our normal operations we now have to buy allowances in order to do that so we are already buying allowances. We do not have enough to operate with the fleet of plant we have. One of the key issues is we need to move from this position and develop a portfolio to a position of low carbon electricity supply in the future. I might throw it back and say government also gets free allowances and perhaps it might be more appropriate for government to use the free allowance it will receive into fuel poverty initiatives.

Q162 Lynne Jones: We will have the Minister and no doubt we will ask questions to her but we are asking the questions to you. What about E.ON?

Mr McDonald: As Alan was saying, from that point of view we are looking at a huge investment over the coming years to replace some of the existing generation of fleet that currently exists. We are looking to invest £1 billion per annum from that viewpoint. What we would seek from that viewpoint is stability of investment from that side. We, the same as Alan, have to go to our parent for the investment money and we would certainly seek the stability of the environment around that in order to get that investment money in order to invest £1 billion per annum into the foreseeable future.

Q163 Miss McIntosh: On the Winter Fuel Payments, if I could turn to E.ON first, you seem to think that the Winter Fuel Payment is an appropriate response, in your memorandum to the Committee, and you talk about energy efficiency and help for the elderly over 60. Do you really think the Winter Fuel Payments, as currently drafted, are targeted at those most in need?

Mr McDonald: No, I do not. In all fairness, and I will not try to quote verbatim, our response was attempting to say that the Winter Fuel Payment, in essence to increase the income for the elderly in that sense, is actually the correct methodology in that. I think it can be improved, and improved targeting, so that we optimise the Winter Fuel Payment to those most in need, I would certainly encourage from that viewpoint. I do think the real sustainable element however is to improve the energy efficiency. Again I think there is ultimate targeting needed in everything we do to really focus down on what is most needed.

Q164 Miss McIntosh: Do you think sufficient resources have been made available to tackle fuel poverty in itself so that Winter Fuel Payments again are not particularly relevant in the way the targeting is done?

Mr McDonald: To be honest that is probably a question for government in that it is their responsibility to look after the inflow of money from that. I come back to a point I made earlier about responsibility and capability. We have, as energy companies, that capability to focus down on the energy efficiency and to create sustainable energy efficiency going forward which has to have a huge impact on fuel poverty going forward.

Q170 David Taylor: On a slightly different tack, do you believe there is a need to fundamentally restructure supplier obligations post-2011 to reflect the kind of changes that are taking place?

Mr McDonald: Absolutely. The most sustainable solution is through energy efficiency and CERT, and EEC before it, has been very successful in achieving the objectives set out from that. Any short-term solutions will be just that and they will be annual solutions from that viewpoint. The absolute focus we have in the housing stock in the UK we do need to spread it and we have to work closely with local authorities going forward. We have to work far closer with local communities going forward. I genuinely believe that the more effort we put into improving the housing stock and the energy efficiency will have the dual benefits in the long term.

Q171 David Taylor: Can I put to Mr Smith, as a spokesman of all three of you in a sense, that if the supplier obligation is restructured in a year’s time and if it had two main themes of focusing on fuel poverty and reducing emissions from households, is it not inevitable that where you have two objectives which are not necessarily consistent with one another that you are riding for a fall and likely to fall short on both?

Mr Smith: That is possible. We have said all along that with some of the schemes we have in place at the moment there is this tension between fuel poverty and energy efficiency and that is why we made it very clear that fuel poverty must be separated from that. As we move forward, as Mr Lane said, we welcome the recent Community Energy Savings Package because that tends to move you more in one direction of sorting out the fuel poverty issue and working with the communities and we can focus on energy efficiency measures in other areas. In terms of post-2011 and what it perhaps should look like, to date we have had this input-based approach as part of the CERT mechanism where we do not actually measure physically the benefits we get from that. The lessons we have learnt perhaps is that we could move towards, where possible and practical, a more outwards-based approach. Again, as Mr Lane referred to earlier on, many of the insulation measures that are installed are installed free of charge and so it makes it difficult to move that into a competitive market.

Q175 David Taylor: Have any of you or colleagues had any contact or knowledge with the Community Energy Saving Programmes that exist in Councils such as Kirklees which is seen as a flagship. Could you pass an observation, and I am not expecting detail, as to whether or not that is something that could be rolled out into other areas?

Mr McDonald: We have had some very successful schemes, Kirklees being one of them, similarly with Devon, Manchester and Nottinghamshire. It is a great access route to getting to those customers who most need help and that was the point I was making earlier. You make a very valid point that it is down to all of us to be very efficient in the manner in which deliver this. The partnerships we have with Age Concern, similarly we lack the distribution route to the general public so we created partnerships with Homebase, Argos and Tesco to try to make sure that we can access as many people as possible in an efficient manner.

David Taylor: To me it seems that an area-based programme rather than a project-based programme is more likely to get more complete coverage and less overlap.

Q180 Mr Drew: If government was to come to you and say we know that the problem of this whole area of energy efficiency, fuel poverty and climate change reduction is too complex. We have our schemes, you have your schemes, let us cut through all this and do things on an area-based basis, has that happened? Should it happen and, if it did happen, how would you respond?

Mr McDonald: It is a very fair question. Again I would come back and, if I put myself in the customer’s shoes, as a customer what I would expect is everyone making the opportunity to involve me in any way that I can move out of fuel poverty or indeed improve the energy efficiency of my housing from that. Any opportunity that we have to target down in a community-based principle or indeed in a wider and local authority-based principle and utilise the information that exists in that community or that local authority to better target the efforts can only be beneficial for all of us.

Mr Lane: Both area-based schemes and company to individual schemes have their place. I would not like to say one is good and one is bad. The value of being able to deal with the whole area, we have touched on being able to go deeper and do whole household community approaches. That works particularly well in certain circumstances but it is an expensive approach and delivering a single cavity wall solution to a single householder who has put up their hand and said “I want to make my house better insulated, what can you do for me” will always have a valuable place. We would lose a lot if we chucked everything out and said let us only go for an area-based approach. Both have their place.

Mr Smith: I do not have anything to add over and above that.

Q181 Dr Strang: I think the Committee is bound to accept the government’s definition of fuel poverty at 10 per cent. You said, Mr Lane, you have to be concerned about the numerator as well as the denominator. It is fair to say that Centrica, and perhaps other companies, have been trying to work closely with the DWP and the aim is to try and look very closely at this individual household income cost of fuel. On the question of ignorance as to how much fuel we are using, whether gas or electricity, first of all real-time displays, as you know it has been suggested let us get these in quickly and let people have a better understanding. I have to say I am sure this applies to a high percentage of households in my constituency even if they are relatively affluent, dare I say like a Member of Parliament’s house, or like low paid people I represent, that in fact if they could be better informed as to exactly how much they are consuming vis-à-vis the TV or the central heating, if they are lucky to have it, or whatever. I would like a response on that. On the smart metering programme, which the government is fully committed to, we have evidence, which we also accepted, that it may take two years to plan this thing, and we can probe that. A ten year roll-out does seem, given the enormity of this issue, if you took it to poor constituents living in poor property often with not much money in the house, surely there has to be something more targeted and more effective to move forward, working of course with the companies and the DWP and the local authority or the housing authority.

Mr McDonald: I would be happy to pick it up if I may. There are two separate issues and I will cover them separately. In terms of the hand-held device, we had a proposition last year that went out to 150,000 offering free hand-held devices.

Q182 Lynne Jones: Is that under CERT?

Mr McDonald: It was not; it was a separate proposition entirely. It was an energy saving campaign linked to a specific website. I probably do not have the time to go into that and I apologise. The key point is ensuring that the customer is engaged and wants to save energy in the first place. What we absolutely found is that to do a blanket distribution of these units would not help, and on the feedback we have had on the 150,000 it does not. The key point is if you can engage the customer that would bring you onto the smart meters as well which is fundamental. I think any help you can give to reduce that planning process I think smart meters are the right for an industry to do. They are helpful to customers and we have spent £12 million in consultation with Ofgem on smart meter trialling. Certainly the results we have found on that, linking smart meters and the hand-held device, I think people are far more aware of what they are using and if people are more aware of what they are using they are more engaged to use less of it and therefore move forward. I would stress I think the smart meter delivery is far important than the hand held device.

Q183 Dr Strang: David was implying when talking about joining it up that the retailer or the supplier is at the sharp end and maybe you are the people who should be really giving the lead and getting in there and working with our consumers. Is that a fair observation? That may be the government’s policy.

Mr McDonald: Could I give a quick reply on a project that we have going on at the moment, which has already been mentioned in the House, on Kettering Borough Council. We are introducing smart meters into a number of customers’ homes and Kettering Borough Council will give a rebate to those customers who actually achieve an energy efficiency target. That sort of working together between local authorities and energy suppliers from that point of view can make a difference and speed up implementation and make sure that people are engaged in the process as well.

Q186 David Taylor: It should not be sensitive and vulnerable to exchange of data about properties, should it?

Mr McDonald: I do not think it should be. I have two pleas if I may: one, let us not bite off more than we can chew and let us keep it to a sensible amount of data. Let us ensure the process of transfer works and let us ensure that the security element works before we widen anywhere beyond that. That would be my plea number one. The second thing would be if we actually had customers sitting here right now who could benefit from this I think they would be looking at us and saying “Guys, just fix it.” Come up with a solution, target appropriately from that point of view and let us get on and do it. Those would be my two elements.

Q187 Miss McIntosh: Mr McDonald, you mentioned in the longer term owner occupiers should be responsible for their choice of housing, and presumably within that energy efficiency and heating. What about tenants because they tend to live in the poorer housing?

Mr McDonald: I think that is a big issue even including within CERT. It is very easy to make contact with the customer who is actually using the energy, either gas or electricity but it is much more different to get to the tenant from that. It is always, being honest about it, less beneficial to the tenant than it is actually to the people who are in there. There is work that has to be done around there and we all have a part to play in it. I do not have an answer for it today but I do think it is something we should focus down on because we are not going to improve the quality of housing within the UK unless we do find a better way to get to them. It is something we are working on at the moment but I do not know what the answer is.

Q191 Miss McIntosh: Micro-generation, looking ahead to that, how do you think that can be given a greater role in reducing fuel poverty?

Mr McDonald: I have to say the flex scheme that exists within CERT is an extremely good move forward. We have recently installed our first ten ground source heat pumps under that particular programme and I think that certainly helps. We have about 1,000 ground source heat pumps installed throughout the UK now. The difficulty will be if we do not tackle the targeting of specific houses in specific areas it can do, micro-generation, particularly ground source heat pumps, is not something you do in one house; it has to be in a row of houses and you have to get the agreement of the tenants or the owners as such to that. We have been fortunate in being able to trial some of those schemes and move it forward.

Q192 Chairman: How do you make it pay? Ground source heat pumps are £3,500 to £4,000 a time.

Mr McDonald: You have hit the nail on the head. The priority flex element within CERT, which allows a 270 per cent uplift if you are actually replacing a non-mains gas situation or heating situation, allows you to get that out particularly if it is in the vulnerable category. It is a move in the right direction but there is certainly more that can be done off the back of that. The key point is, and you are right, and this applies to solar photovoltaics, et cetera, the pay back on those to the majority of the population is just way too far at this point in time.

Q193 Miss McIntosh: Presumably with new build, the same as they are doing with these houses we have seen in Wembley where they are putting the new waste in, what I do not understand is they have been doing this in Scandinavia for years, taking energy from waste projects and combined heat and power schemes and putting industrial and household waste plants next door to new developments, but I presume it is only economic to do it with new developments and difficult to do with existing.

Mr McDonald: I am not person the give an exact answer on that but it is important to work with house builders to help them achieve the zero emission element of new housing at the appropriate time from that. We have started that work with Barratts. We have it fairly well established in ten different areas with about 1,000 houses so there is a part for all of us to play in that.

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