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Energy efficiency: the missing piece in the Energy Cost Review jigsaw

Prof. Nick Eyre, Research Councils’ Energy Demand Research Champion, responds to the Cost of Energy Review

The exclusion of gas and transport fuels from the Review is odd, given that both of which form major parts of energy costs. However, these remarks follow the review in focusing on electricity.

Energy Efficiency Evidence

The diversity and scale of energy efficiency research evidence far exceeds what can be set out here.  The Research Council funded End Use Energy Demand Centres alone have produced more than 500 outputs in the last 5 years.  In addition, there is relevant evidence from the work of the UK Energy Research Centre and the Tyndall Centre, as well as research by specialist organisations outside universities (e.g. BRE, EST, NEF, ACE and NEA) and evidence commissioned by Government (e.g. the Bonfield Review and the Electricity Demand Reduction project).  It appears that none of this has informed the Review.

Energy Efficiency: the dominant driver of cost reduction

Energy bills, in commodity driven tariff structures, are the product of unit price and demand.  Even with more complex tariffs in future, energy costs will remain a function of supply price and energy demand.

Historically, energy prices have fluctuated, but energy efficiency has improved monotonically.  Over any significant historical period energy efficiency has therefore been the dominant driver of cost reduction.  UK final energy demand is now lower than in 1970, and 15% below the peak demand year of 2004, despite huge growth in economic activity and energy service demand in the intervening years.  This is due to energy efficiency.  It is widely accepted that this reduction trend will need to accelerate if energy policy goals are to be met.  The Committee on Climate Change projects a 25% energy efficiency improvement in the years 2014-2030 (1).

The CCC recognises that this pace of improvement is not automatic.  Energy efficiency policy interventions are necessary and have historically been highly effective in reducing energy bills.  The Cost of Energy Review recognises this historical effect of policy (2) but does not review the policy intervention options or their outcomes going forward.  This is a major gap in its analysis.

The impact of recent policy changes

The Review also contains very limited analysis of the effectiveness of current (as opposed to historical) energy efficiency policy.  There have been substantial reductions in policy effectiveness in recent years.  The largest change results from the move from the 2008-2012 supplier obligation (CERT) to the far less ambitious current scheme (ECO).  The efficient use of electricity (other than in heating) is excluded from this more recent obligation.  This change was accompanied by the introduction of the unsuccessful Green Deal scheme, but the reduction in supplier obligation activity rather than the failure of the Green Deal was the dominant effect.  In the same period, other energy efficiency policies have been abandoned or reduced in effectiveness, including the CRC Energy Efficiency Scheme and the Zero Carbon Homes policy.  These changes have increased energy costs.

Given this context, we must be careful how we interpret the energy efficiency policy picture painted by the Review.  Two of its key diagrams (Figures 42 and 43) could easily be misinterpreted to show increasing energy efficiency activity. In fact, both start in 2012, i.e. the year in which policy effectiveness was substantially reduced, obscuring this change; and they show cumulative savings, so the rising curves only indicate some policy activity, not an improving policy environment. Even with the policies set out in the Clean Growth Strategy, current policy instrument plans are significantly less ambitious than this in operation before 2012, and they are inadequate to deliver long term policy goals.

The Energy Efficiency Policies that we need

Policy intervention is justified where there are market failures that reduce economic efficiency, such as non-price barriers to cost-effective energy efficiency.  There is a very large literature on these barriers and UK research has played a major role in their analysis.  Much of the evidence supports the assertion in the Review that standards are an appropriate policy response.  The Government’s Electricity Demand Reduction project identified EU product standards as the most important future policy instrument, especially in the residential sector.

However, standards are not a panacea for addressing the market failures that constrain energy efficiency.  Indeed the range of policy interventions set out by the Review (3), and criticised for being too complex, can largely be ascribed to the number of sectors and barriers that need to be addressed.

Existing buildings are particularly problematic, given their long lifetimes.  Given this, the Review does not justify its rejection of supplier obligations as a mechanism for addressing market failures.  The obligations were introduced by the Major Government in 1994 explicitly to address the market failure of suppliers having a vested interest in increasing demand. Data cited by the Review (4) shows how cost-effective the current obligation is.  Widespread international experience, as well as evaluations of previous phases of the GB supplier obligations, confirm this more generally.

Supplier obligations and related mechanisms essentially shift investment from generation to end use efficiency.  By doing this, they enable the same level of energy services to be delivered at lower total cost and therefore with lower overall consumer bills.  In other words, the scale of the market failure is reduced and economic efficiency is improved.  There is good evidence to suggest that supplier obligations alone will not be sufficient to deliver the necessary scale of deep refurbishment of existing buildings, but that is not a reason for their abolition.

Fuel poverty and economic efficiency

The Review recognises the nature of electricity supply as a public good and the implications for a universal supply obligation.  However, it takes the classical economic approach of separating consideration of economic efficiency from distributional issues.  It considers fuel poverty as a social and distributional issue, which it is not appropriate to address through energy market obligations.

Of course, there is much that can be done to address fuel poverty via social policy.  However, fuel poverty is associated with a failure in capital markets, in that low income house-owners are constrained from undertaking energy efficiency investment by lack of access to capital, not the absence of cost-effective projects.  Distributional issues therefore directly affect the market failure of under-investment in energy efficiency, and therefore economic efficiency.

Reasonable people can, and do, take different positions on the relative roles of energy levies and general taxation in funding fuel poverty programmes, but fuel poverty cannot easily be separated from economic efficiency.

In summary

End use efficiency is the largest, long-term driver of energy costs, reducing costs at all of the upstream stages focused on by the Review.  Energy efficiency improvement has been a major driver of cost reduction and carbon emissions reduction, and it will be necessary for this to continue if energy policy goals are to be delivered.

The Review neglects the large evidence base now available on energy efficiency in the UK and its policy drivers. It recognises energy efficiency’s broad role in reducing costs but there is no analysis of the implications for public policy, in particular the complexity of addressing the relevant market failures.

The Review fails to recognise that changes in UK energy efficiency policy since 2012 have seriously undermined policy effectiveness, increasing energy costs.  It appears to assume that energy efficiency improvement can continue at faster than historical rates with weaker than historical levels of policy intervention.  This assumption is not supported by the available evidence.  As a result, the Review does not adequately consider options for stronger energy efficiency policy.  Moreover, it recommends, without justification, the discontinuation of highly effective policy instruments, which would further weaken policy.

In short, the Review is highly skewed towards considering supply-side issues and away from demand side policy.  It will be necessary to undertake a parallel review and analysis of the potential, barriers, and policy instruments for energy efficiency, if a reliable policy framework on energy costs is to be developed.

(1) Committee on Climate Change (2015), Advice on the Fifth Carbon Budget, as quoted in the Cost of Energy Review, Figure 3, p12

(2) Figure 14 and Chart 7, page 43

(3) Table 3, page 41

(4) Page 185

(Image courtesy of TaxRebate.org.uk)

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Why ACE supports the Homes (Fitness for Human Habitation and Liability for Housing Standards) Bill

On Friday 19th January 2018, Karen Buck MP’s Homes (Fitness for Human Habitation) Private Members’ Bill will have its Second Reading in Parliament.

Why is this Private Member’s Bill needed?

According to the latest English Housing Survey, 16.8%, approximately 797,000 households, of private tenanted properties have Category 1 HHSRS hazards, these are classed as a serious risk to the occupiers’ health.  There are a further 243,000 social tenanted properties which have Category 1 HHSRS hazards.

That means that over a million homes in the social rented sector and private rented sector have at least one Category 1 hazard, affecting approximately 2.5 million tenants, including children.

This Private Member’s Bill revives a clause which exists in an old piece of legislation, requiring homes to be ‘fit for human habitation’ at the start of the tenancy and to remain so throughout. Extraordinarily, this is a not a protection currently enjoyed by any renter – social or private – in England.

Landlords have responsibilities to do repairs under the Housing Health and Safety Rating System (HHSRS), and from April 2018 Minimum Energy Efficiency Standards (MEES), but there are omissions including, for example, damp and mould caused by the structure of the building. Landlords have to repair the structure of their property, and keep in repair the heating, gas, water and electricity installations, but this only applies where something is broken or damaged.

What does the Bill do?

The Bill aims to complement existing local authority enforcement powers, by enabling all tenants – no matter what tenure they live in – to take action. .

The central aim of the Bill is to make rented homes ‘fit for human habitation’ and applies to all areas of a building ‘in which the landlord has an interest’, including communal areas.

The Bill text reflects the list of 29 hazards from HHSRS, which avoids creating two parallel standards for conditions. This means that additional regulations will not be placed on private landlords (as these are standards they should already be meeting), and as a result the Bill has support from the Residential Landlord’s Association (RLA) and the National Landlords Association (NLA).

The Bill would empower tenants giving them the right to take their landlord to court if they fail to take action to resolve a problem. This is particularly important for local authority tenants, who currently have no truly effective means of redress over poor condition.

Link to the House of Commons research briefing:

http://researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-8185#fullreport

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ACE’s response to the Mayor of London’s draft London Housing Strategy

Our response to the Mayor of London’s draft London Housing Strategy consultation can be read here. Further details about the draft strategy can be found here.

ACE welcomes the vision and principles of the draft London Housing Strategy and agrees with the Mayor that London’s housing crisis is a barrier to prosperity, growth, and fairness for Londoners.

Improving the energy efficiency of London’s housing can deliver prosperity and growth, by supporting economic growth in the environmental goods and services sector, supporting London’s transition to a zero carbon city; and fairness by lowering energy bills of both new and existing homes and eradicating fuel poverty across the capital. Action to improve energy efficiency can also support activity to improving air quality.

ACE’s response to this consultation focuses on four of the five priorities set out in the draft Housing Strategy:

  • Building Homes for Londoners;
  • Delivering genuinely affordable homes;
  • High quality homes and inclusive neighbourhoods; and
  • A fairer deal for private renters and leaseholders.

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Combatting ‘rogue landlords’

ACE’s response to the Communities and Local Government Committee inquiry: Private Rented Sector: Combatting ‘rogue landlords’ can be read here.  Further details on the inquiry can be found here. A wide variety of organisations have also responded, which can be read on-line here.

Key points in our response

  • Fuel poverty in the private rented sector continues to be a major problem across England and Wales.
  • The Housing Health and Safety Rating System (HHSRS) gives local authorities the power to enforce minimum housing standards related to Excess Cold, thus tackling fuel poverty. However, research has found that HHSRS is not being used nearly as widely or effectively as it could be.
  • Approximately 300,000 properties will be impacted by the introduction of mandatory Minimum Energy Efficiency Standards (MEES) in 2018, however ACE has significant concerns in relation to the effectiveness of the implementation of these regulations.
  • It is essential that both minimum standards are effectively implemented, however there are many obstacles to effective intervention, including limited awareness and resources to implement legislative requirements, and a lack of information to strategically target properties.
  • ACE considers that selective licensing is an important tool in raising both energy efficiency and wider housing standards.
  • Complaint mechanisms are not functioning for tenants facing problems in their homes and tenants fear retaliatory eviction.

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ACE’s response to the Mayor of London’s draft London Environment Strategy

ACE welcomes the vision and principles of the Mayor of London’s draft London Environment Strategy and the ambition for London to be a zero-carbon city by 2050.

We agree that the city’s most pressing environmental challenges are harming Londoners’ health and the city’s economy, and that the current pace of change is too slow. The Mayor highlights that big problems need ambitious responses. Therefore, we would like to see the Mayor’s activity and focus on air quality continue, but also expanded in relation to improving the energy efficiency of buildings, improving the lives and reducing health inequalities of those households that are in fuel poverty, whilst supporting economic growth in the environmental goods and services sector.

Our full response to consultation on this strategy can be found here.

 

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ACE’s response to the Mayor of London’s draft Fuel Poverty Action Plan

ACE welcomes the publication of the Mayor of London’s draft Fuel Poverty Action Plan for London to help support the eradication of fuel poverty across the capital. We agree that fuel poverty remains at unacceptable levels and that it has not received the attention that the issue deserves.

ACE’s response covers four key topics:

  • Supporting the roll-out of borough referral networks.
  • Improving the energy efficiency of London’s homes, with a particular focus on improving standards in the Private Rented Sector.
  • Energy for Londoners.
  • How the Mayor should work with the UK Government.

Our full response can be found here.

 

 

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Private Rented Sector energy efficiency and the Clean Growth Strategy

Our Research Director, Kelly Greer, reflects on what the publication of the Clean Growth Strategy means for MEES in the Private Rented Sector and introduces our new project ‘the Warm Arm of the Law’. We are looking for evidence and support for this work, which examines proactive and strategic enforcement of minimum standards in the PRS.

Clean Growth Strategy

Soon after my last blog about Minimum Energy Efficiency Standards (MEES), the Government published the Clean Growth Strategy. Improving energy efficiency in the private rented sector makes a couple of appearances in the strategy.

The Government have committed to consult on how to make the MEES regulations more effective. However, we don’t yet know what this means…The introduction of a cost cap? Reducing the timescales associated with exemptions to enable landlords to take advantage of new sources of funding and finance? Providing guidance to landlords, local authorities and First Tier Tribunals around the validity of self-certified statements within the exemptions register?

There was also a commitment to look at a long-term trajectory for energy performance standards across the private rented sector, with the aim of as many private rented homes as possible being upgraded to EPC Band C by 2030, where practical, cost-effective and affordable. ACE welcomes this long-term trajectory as the message to landlords should be to take greater action now – beyond EPC band E – so that they benefit from not having to undertake additional works in the future.

The Government have noted that they will be considering options ‘with a view to consulting in 2018’. ACE will of course respond to these consultations once published.

Alongside the Clean Growth Strategy, a series of consultations and calls for evidence were published. Building a market for energy efficiency is seeking data, evidence and ideas on additional measures to encourage energy performance improvements and, while focussed primarily on the owner-occupied sector, some of the solutions identified may also be applicable to the private rented sector. ACE will be responding to this consultation and would welcome your views on the applicability of proposals to the private rented sector.

The Warm Arm of the Law: reducing fuel poverty in the private rented sector

ACE, working in partnership with CAG Consultants, has secured funding from Ebico Trust to look at how the Housing Health and Safety Rating System (HHSRS) and MEES can be proactively and strategically enforced to support the eradication of fuel poverty in England and Wales.  This project builds on previous research focused on HHSRS (*) and has support from a range of stakeholder organisations.

ACE and CAG would welcome local government practitioner views, as well as those from the wider industry, and are seeking evidence of best practice in terms of:

  • Raising awareness of minimum standards within local government departments.
  • Working with landlords and residents about their requirements and rights.
  • How to target enforcement action and ensuring resource levels within local government are maintained.
  • Examples of successful enforcement cases.

Please contact Kelly Greer on kelly@ukace.org to share any information that could feed into the project (information will be kept confidential where requested).

(*) Impetus Consulting Ltd, 2008, Tackling fuel poverty using the Housing Health and Safety Rating System (HHSRS); NEA, Impetus Consulting Ltd and Blooming Green, 2011, HHSRS: your power to warm homes in the private rented sector (policy report and toolkit)

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Local Story – Energy Efficiency in Castle Point

With winter around the corner, we are pleased to announce that our ninth Local Story focusing on the Castle Point constituency is now out: Energy Efficiency in Castle Point.

This report highlights how tens of thousands of local residents have benefited from local energy efficiency schemes in recent years, making their homes more affordable to heat and healthier to live in. However, nearly 11,000 homes in Castle Point still have the very worst energy efficiency rating of an E, F or G EPC. These homes waste hundreds of pounds worth of fuel each year, and living in them can be hugely detrimental to health.

Special thanks go to our two case studies for this report: LOCASE (Low Carbon across the South East) and Aran Services.   Nina Heigham from Aran Services said:

‘Working closely with the two local authorities enables us to assist them in helping improve their residents’ well-being and making their homes more comfortable to live in. We are still identifying homes in the area that need insulation and are entitled to 100% grant funding, and so we are asking residents to help spread the word. There are poorly insulated properties scattered throughout Castle Point and Rochford communities, and even if residents have already had work completed, they may know someone who may benefit’

Castle Point MP Rebecca Harris added:

‘After seven years co-Chairing the Parliamentary Group on Fuel Poverty and energy efficiency I know that fuel poverty remains a significant issue, and many of my constituents were very concerned about the cost of heating their homes last winter. The energy efficiency of the housing stock and businesses across the Castle Point has improved in recent years and I commend the work that local installers and programme managers have done to implement energy saving features in homes…’

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Local Story – Energy Efficiency in Eddisbury

A week after the launch of the Government’s Clean Growth Strategy, we are pleased to release the eighth in of our series of constituency-focused local energy efficiency stories: Energy Efficiency in Eddisbury. The report has been welcomed by local MP Antoinette Sandbach, who said:

“I know that fuel poverty is a significant issue, and that many of my constituents were very concerned about the cost of heating their homes last winter.I welcome the report by the Association for the Conservation of Energy, which sheds light on the energy efficiency of the housing stock and businesses across the Eddisbury constituency and commend the work that local installers and programme managers have done in recent years to implement energy saving features in homes, such as better insulation and more efficient boilers. This report does however demonstrate the need for a long-term energy efficiency policy to tackle these issues.”

The report shows how tens of thousands of local residents have benefited in recent years from proper insulation and efficient boilers, making their homes more affordable to heat and safer to live in. However, it also shows that 3,500 homes in Eddisbury still have the very worst energy ratings of F or G, which is more than twice the national average. These homes waste hundreds of pounds worth of fuel every year. The report goes on to identify the huge untapped potential for delivering to the remaining residents the benefits their neighbours have seen.

We welcomed the input from Peter Owen and Ellie Abernethy from the independent social enterprise and environmental charity, Energy Projects Plus; Emma Edwards, project officer involved in the interest free energy efficiency loan scheme ‘Cosy Loans’ and Councillor Karen Shore, Cabinet Member for Environment, Cheshire West and Chester council.

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ACE’s initial response to the Clean Growth Strategy

Dr Joanne Wade, CEO of the Association for the Conservation of Energy (ACE) welcomes the aims, targets and aspirations outlined within the Clean Growth Strategy. There is recognition of the value of energy efficiency at very core of the strategy and a commitment to further developing policies, and we see the strategy as a clear step in the right direction.

The scale of the opportunity of energy efficiency in buildings is huge. ACE research shows that the net present value of energy efficiency to the UK is at least £45 billion in energy efficiency savings[1]. The UK’s building stock is in dire need of urgent action. Therefore, we welcome the government’s intervention to stimulate energy efficiency markets in both the domestic and non-domestic sectors – to deliver the scale and pace of change that is required to meet current and future carbon budgets. However, there is a lot of work still to be done to drive energy efficiency in the UK and to develop a low carbon economy that works for everyone.

We welcome the government’s proposals surrounding the energy performance of domestic buildings, especially the proposal to further consult on the Minimum Energy Efficiency Standards (MEES) regulations, an enhanced trajectory for the regulations – taking homes in the private rented sector to band C by 2030 – and a commitment to looking at replicating the target in the social housing sector.

We are also pleased that the Energy Company Obligation (ECO) will be extended to 2028, providing longer term certainty for the energy efficiency industry. While it is right that ECO will focus on eradicating fuel poverty, ACE questions whether the investment needed in this area needs to be higher.

The Government have demonstrated leadership in enacting a target to reduce carbon emissions from the public sector, however we are disappointed that the target is voluntary rather than mandatory. We welcome the call for evidence consultation to further develop policies and programmes.

The team at ACE are taking the time over the coming days to analyse the Clean Growth Strategy and supporting documents to identify where there are still gaps in the market, and will then begin to develop the evidence base that the government have called for, thus ensuring that the voice of the energy efficiency industry is heard.

 

[1] £26 billion for homes, and £20 billion for business, ACE & RAP (2016) Buildings and the 5th Carbon Budget.

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