NEA: How can the most vulnerable manage energy bills in a high cost, low carbon world?

by Lesley Tudor-Snodin, National Energy Action

The UK Government is committed to a number of statutory objectives relating to energy security, renewables, climate change and fuel poverty. Compliance with this mix of environmental and social obligations has proven to be both challenging and costly and will continue to be so if Government objectives are to be attained.

In January 2008, the European Commission published the 20 20 by 2020 package. This package commits EU Member States to increasing the proportion of all final energy consumption derived from renewable sources to 20% by 2020.

The Climate Change Act 2008 sets legally binding emission reduction targets for 2020 (reduction of 34 % in greenhouse gas emissions) and for 2050 (reduction of at least 80 percent in greenhouse gas emissions); the Act also introduces five-yearly carbon budgets to help ensure these targets are met. Household emissions remain relatively static, while total UK emissions are falling in line with the targets. Greenhouse gas emissions from the domestic sector currently make up some 26% of total emissions. The UK Government is already committed to reducing non-traded household emissions by 29% by 2020.

Featured

just a test

Featured

“Inspiring” Lawrie Stewart wins BASC Shotgun Coach of the Year award

The UK Fuel Poverty Strategy defines a fuel-poor household as one needing to spend more than 10% of household income to achieve a satisfactory and healthy heating regime. However the definition is currently under an independent review led by Professor John Hills of the LSE.

The most recent official Government statistics, announced by the Department of Energy and Climate Change (DECC) in June 2011, put the total number of households living in fuel poverty in the UK at 5.5 million in 2009 a rise of around 1 million when compared to 2008 and representing approximately 21% of all UK households.

The extent of fuel poverty across the UK:

Since these figures were compiled, retail energy prices have risen. The six main energy suppliers have recently increased their prices, highlighting the increase in wholesale prices as the main reason. However, wholesale energy prices are not the only driver for higher retail energy prices.

The Warm Homes and Energy Conservation Act 2000, supported by the UK Fuel Poverty Strategy 2001, requires the Government to seek to end to fuel poverty for all households in England by 2016. The Strategy had also adopted an interim target to end fuel poverty for all vulnerable households in England by 2010 which was missed.

On the 7th December 2010 The Climate Change Committee (CCC) published the Fourth Carbon Budget, covering the period 2023-2027. The CCC has now revised the initial assertion that meeting carbon budgets need not increase the number of households in fuel poverty. The Committee now states that, due to unforeseen increases in energy prices since 2008, it is likely that there will be significantly more households in fuel poverty in 2020 than previously envisaged. This is the clearest illustration to date that the remaining 2016 will not be met.

While social and environmental objectives are not necessarily in conflict (indeed action to meet green objectives through domestic heating and insulation improvements represents the definitive policy in eradicating fuel poverty), a range of factors mean that they are nevertheless often seen as competing for political priority and resources. One recurring cause of tension has been the policy of successive Governments to fund programmes to address both fuel poverty and carbon abatement through levies on domestic energy bills. The effect of this practice is intrinsically regressive since it takes no account of ability to pay and, perversely, can result in additional households becoming fuel poor.

Several levies simply impose an additional burden on all consumers despite the fact that many households cannot benefit from the programme in question. This may be because the structure of the dwelling is not suited to basic energy efficiency improvements (e.g. solid walls) or because financially disadvantaged households lack the capital to invest in measures which bring financial benefit (e.g. Feed-in Tariffs).

While many schemes supported through these levies make a valuable contribution to meeting Government targets to save energy, reduce emissions, and tackle fuel poverty and climate change the latest Government estimate indicated that they currently account for 4% of a typical gas bill and up to 10% of a typical electricity bill. In 2009, the Department of Energy and Climate estimated that existing levies add £85 to average domestic energy prices and, since then, this figure has and will continue to increase.

The EMR sets out the Government’s commitment to transform the UK’s electricity system to ensure that our future electricity supply is secure, low-carbon and affordable. These estimates do not take account of any future pass-through of additional costs resulting from EMR policies. Ofgem has predicted that the UK will need to invest £200 billion in energy infrastructure by 2020 and this will add significantly to already rising energy bills. Further analysis of the impacts of policies on prices and bills, including analysis on households medium-sized businesses and large energy intensive users and a breakdown by individual policy, will be published later this year alongside the Annual Energy Statement and should provide more detail on the uncertainty surrounding the true cost of the Government’s policies.

The EMR therefore could present a number of potential threats to vulnerable consumers. Impact assessments produced by the Department already illustrate that many of the proposals would severely impact on the poorest households, in particular those pensioners living on their own. If the UK wishes to pursue these policies in a progressive manner, a number of challenges must be overcome by the Government, the Regulator and the energy industry:

1. DECC need to further quantify what benefits accrue as a result of decarbonisation policies and be frank about the uncertainties surrounding them.
2. Find a way of ensuring consumers who use less energy don’t contribute disproportionately to the costs of decarbonisation policies.
3. The Government square the successful implementation of these proposals with no loss of consumer protection for vulnerable or disadvantaged households.

If there is to be any prospect of meeting both social and environmental objectives and, particularly, if the 2016 fuel poverty target is to be attained, these points must be reinforced by suitably ambitious mitigating policies to protect low-income and vulnerable groups. NEA’s is urging politicians to address the three main elements of fuel poverty – poor household energy efficiency, high energy prices and low incomes:

Energy Efficiency:

• Since 1978 there has been a Treasury funded scheme to address fuel poverty. These programmes have brought relief to countless households. The Coalition Government is current designing the successor scheme to the current programme that funds the instillation of energy efficiency measures in low income and vulnerable households and communities. NEA are campaigning for the future programme, the Energy Company Obligation (ECO) to be both adequately resourced and ring-fenced to fund a comprehensive energy efficiency programme for low-income households post 2012

Energy prices:

• As highlighted above, the EMR present a number of potential threats to vulnerable consumers. NEA are campaigning for the UK to pursue these policies in a progressive manner and illustrate that energy efficiency is key to mitigating high energy prices and should play a major role in the Government’s proposals

Low incomes:

• Income maximisation measures play a key role in addressing fuel poverty, NEA is campaigning to ensure that instruments such as the Winter Fuel Payment and Cold Weather Payment should be retained and extended and Government should identify all groups at risk of fuel poverty for assistance through these mechanisms and others such as the Warm Homes Discount scheme

• Assessable and independent assistance is essential for low-income and vulnerable households, NEA have campaigned to ensure that the Home Heat Helpline can give independent advice, as well as preserving this service, in the future NEA is also committed to ensuring the Government’s Green Deal Advice Call Centre is effective and utility companies act on their referrals

The need for a joined up strategy:

• Professor John Hills, a social policy expert from the London School of Economics, is leading a Review of Fuel Poverty which should report interim findings in autumn of this year with a final report to Government no later than January 2012. NEA is campaigning to ensure that one of the outputs of the review is a clear road map showing how the Government's target to eradicate fuel poverty by 2016 (2018 in Wales) can still be met.