Electricity and Gas (Energy Company Obligation) Order 2018

Lord Henley Excerpts

Tuesday 30th October 2018 Grand Committee

Moved by

[Lord Henley]

That the Grand Committee do consider the Electricity and Gas (Energy Company Obligation) Order 2018.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, this order was laid before the House on 19 July of this year and I beg to move that it be approved. The Government place great importance on supporting low-income families and 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 scheme, while the energy price cap will protect around 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 homes and the energy company obligation, or ECO, is the key policy in meeting those commitments.

Under ECO, energy suppliers in Great Britain are regulated to reduce domestic energy bills by installing energy efficiency measures. Since its start in 2013, more than 2.4 million measures have been installed in around 1.9 million homes. In 2015, the Government stated their intention to reform ECO to provide more help to those who need it most. The ECO order that we are debating completes that reform and will result in the whole scheme being focused on low-income and vulnerable households until March 2022. We will continue to fund the scheme at £640 million per annum until 2022, and in the Clean Growth Strategy we committed to funding domestic energy efficiency at least at that level until 2028. The Government consulted on proposals for the new scheme in spring and received 239 responses. Most responses were broadly supportive.

Currently, energy suppliers become obliged to act under ECO when they have 250,000 customer accounts. These thresholds were set in 2013, when the “Big Six” energy companies dominated the market. There are now more than 70 domestic suppliers in the market and we consider it appropriate that more are covered. Therefore from April 2019, suppliers with 200,000 customer accounts will be covered, falling to 150,000 from April 2020. We have 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. This increases the number of households eligible for support from 4.7 million under the affordable warmth part of the previous scheme to 6.6 million households under the new scheme. We believe this strikes the right balance between supporting those households most in need and keeping delivery costs low. We have also increased the proportion that can be delivered under the local authority flexible eligibility scheme from 10% to 25%. This allows local authorities to refer households for help, including people with health conditions exacerbated by cold homes.

To support the industrial strategy and the clean growth challenge, suppliers will be able to deliver up to 10% of their obligation using measures not previously supported under ECO. While encouraging a broader mix of measures, we will continue to maintain safety and installation standards. 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. While other forms of energy efficiency may have greater long-term benefits, a broken boiler can be the immediate crisis point for a struggling family.

--- Later in debate ---

The memorandum provided with the regulation states that one of the core aims of the instrument is to contribute to carbon reduction targets. Bearing in mind the assessment of the Committee on Climate Change in achieving the fourth and fifth carbon budgets, what action will the Government be taking to meet the UK’s target?

[Lord Henley]

My Lords, I welcome the generally positive tone of the noble Lord and my noble friend Lady McIntosh, both of whom recognised that this order is a genuine reform of the ECO system. As I made clear in my opening remarks, it is designed to target it far better at those who are less well off and those who find it harder to adapt their houses to make them more energy efficient. It has achieved a great deal in the past and will continue to achieve a great deal.

I am sorry that the noble Lord, Lord Grantchester, takes a less positive approach to this and accused us of a lack of ambition, given that I talked about increasing very dramatically the number of people that we intend to try to reach, and recommended generally spending more taxpayers’ money in a rather haphazard manner. I point out to him and to the noble Lord, Lord Teverson, that technology will encourage those who can afford it to make changes that will lead to a reduction in the use of energy. One only has to look at, for example, the reduction in the cost of things such as LED lights over the past few years, which has made it far easier for people to change to those lights and therefore decrease their use of energy. Similarly, it is right that those who can afford it should pay for appropriate insulation as is necessary, as they will see the benefit in a reduction in their fuel bills and the country and society as a whole will see a benefit in the reduction in carbon use. These measures are designed to encourage those who find it less easy to afford to make those changes.

[Lord Teverson]

As the Minister knows, in the UK, particularly in commercial buildings and increasingly in private buildings, we have a problem that landlords and tenants have very different goals in this area, so unfortunately it does not always work out that way. However, I do not want to interrupt him further.

[Lord Henley]

I totally agree that landlords and tenants have different views on this. Landlords can benefit from these measures. If the noble Lord would like, I will write to him in greater detail on that point. We would also like to see landlords with old houses make the investment that is right in those houses where they can do so.

I shall deal with some of the more detailed questions that were put to me, particularly by the noble Lord, Lord Teverson, and my noble friend Lady McIntosh. I hope that in the process I will also deal with some of the queries of the noble Lord, Lord Grantchester.

My noble friend talked about energy from waste and the possible advantages that the Danes are getting from us exporting some waste. My noble friend will remember that when I served in Defra I had an interest in waste. She will also know that there are sometimes difficulties in getting planning consent for energy from waste plants. I will write to her in greater detail on that, as it goes slightly beyond my brief at the moment. I also note that she mentioned the firm DONG in Denmark—I think it has now changed its name to something else that I cannot pronounce: Ørsted. I have recently seen some of its windmills off Barrow, which is now the largest wind farm in Europe, providing, I think, a very large increase in renewables from that source.

I agree with what my noble friend said about more homes being retrofitted. The new innovation routes could allow multiple measures to be installed in homes. That approach would need to be sponsored by us to demonstrate that it could be cost-effective. That information would need to be provided to Ofgem, the scheme administrator, to ensure that it met the relevant standards. If I can give her some further detail on that and on potential figures for those new district heating connections, I will write to her in due course.

The noble Lord, Lord Teverson, was concerned about the end of the old scheme and the start of the new. I assure him that early delivery means that the measures which meet the new scheme’s rules, and which are delivered before Parliament agrees these regulations, will count towards the supplier’s obligations. We will have a seamless transformation of these matters. I also assure the noble Lord that there will be the appropriate audit he seeks. Ofgem requires measures to be installed to specific standards and 5% of the measures are checked by Ofgem under the scheme’s technical monitoring checks. I hope that 5% will be sufficient for the noble Lord to consider that it provides the appropriate audit and checks.

The noble Lord asked about the housing stock that is not covered by the ECO scheme. We are reviewing the fuel poverty strategy and will make an assessment of how best to meet the fuel poverty targets. As I made clear, the clean growth strategy has set aspirations to decarbonise all sectors of the UK economy. The buildings mission aims to at least halve the energy use of new buildings by 2030, as well as halving the cost of renovating existing buildings to a standard similar to new buildings. I repeat that new buildings are covered by current building regulations, and therefore any new buildings will be appropriately insulated. However, we want to get old buildings up to the same standard as new buildings while increasing quality and safety.

The noble Lord had other queries. He quoted from paragraph 7.20 that there was some interest from the public and said that he wished to see more. We would all like to see more interest from the public—that is true of a great many schemes throughout government, way beyond this one. I assure the noble Lord that a number of members of the public responded to the consultation. They obviously had an interest in energy issues, energy efficiency and fuel poverty. The majority of the responses were supportive of consultation, as I set out in my opening remarks. I hope that as a result of this debate—should people be taking much interest in it—and other measures, others throughout the country will take an interest in this, and that those firms involved in the scheme will do their bit to contact the public and let them know what is available, particularly for those with low-cost housing.

As I said, I welcome the generally positive tone taken by the noble Lord, Lord Teverson, and my noble friend. I hope that in due course the noble Lord, Lord Grantchester, will come round to that view and accept that this will go a long way towards meeting the problems of fuel poverty, will help to decarbonise and will help to meet the targets that we hope to—and will—meet by 2030 and beyond. I commend the regulations to the Committee.

Motion agreed.