The energy efficiency agenda

The government’s recent Clean Growth Strategy was short on detail but has nonetheless been warmly received for recognising the importance of energy efficiency, says Catherine Early.

It is not often that policy-watchers describe a new government strategy as “very welcome” and “highly favourable”, but set against years of almost entirely negative announcements of policies being scrapped and funds cut, it is not so hard to understand the excitement the energy efficiency sector feels about the Clean Growth Strategy.

Government policy on household energy efficiency has delivered results in the past – energy use in 2016 was 19 per cent lower than in 2002, according to data from the Department for Business, Energy and Industrial Strategy (BEIS). Much of this change was driven by policy, in particular obligations on energy companies to install energy efficiency measures, such as under the Carbon Emissions Reductions Target (Cert), which ran from 2008-12.

But progress has stalled in recent years. According to Ofgem, installation of insulation plummeted from 1.8 million households a year under Cert, to 300,000 a year under the Energy Company Obligation (Eco), which began in 2013. Emissions from heating buildings were higher in 2016 than in 2014, even after adjusting for mild winters.

Commentators agree that the rhetoric in the Clean Growth Strategy has changed significantly. “This is easily the most ambitious document the government has published on this subject, probably since the early years of the coalition,” says Richard Twinn, policy adviser at the UK Green Building Council (UKGBC).

Raising standards

The strategy outlines the government’s aspiration for the energy efficiency of fuel poor and private rented homes to be improved to Energy Performance Certificate (EPC) band C by 2030, and “as many homes as possible” to be raised to the same level by 2035, though it adds the caveat that this needs to be “practical, cost-effective and affordable”.

The strategy also pledges to consider how to strengthen energy performance standards for new and existing homes under building regulations, with a consultation promised next year.

“The strategy is a clear step in the right direction, and gives us some idea of the policies that will help to deliver the required change,” says Joanne Wade, chief executive of campaign group the Association for the Conservation of Energy. The next six months will be crucial for turning this into real action, she adds.

In particular, energy efficiency experts have welcomed proposals on minimum efficiency standards for the private rented sector. Under current policy, private landlords will not be allowed to rent properties that are below EPC band E from 1 April 2018, but this is not good enough, says Twinn. “These homes are still very expensive to heat, considering what we can technically do to properties,” he says. The Clean Growth Strategy wants to see these standards strengthened, and BEIS has also pledged to consult on extending them to social housing.

The strategy does not contain detailed policies, but the government has promised a series of calls for evidence and consultations over the coming months. The UKGBC would like to see measures to incentivise investment in energy efficiency through price signals in the market. For example, private landlords could be required to state the total cost of occupancy for rented properties, which would over time lead to higher demand for more energy-efficient homes, and rent priced to reflect that, according to Twinn.

The elephant in the room, however, is the owner-occupier sector. There has been no policy on how to drive energy efficiency in these homes since the demise of the failed Green Deal, which was scrapped in 2015 after loans to finance energy efficiency improvements were taken up by only 14,799 households, a fraction of what was expected.

Householders wishing to take out a loan under the scheme were faced with interest rates of more than 7 per cent, which was a key failing, according to Jan Rosenow, energy efficiency expert at the Regulatory Assistance Project and the University of Sussex and co-author of a report for the UK Energy Research Centre on the potential for energy efficiency in UK housing. “Most successful loan schemes in other countries have interest rates that are below market rate, or even less than 1 per cent,” he says.

BEIS has invited ideas on successor policies for homeowners alongside the Clean Growth Strategy (see box, right). In addition to a new way of financing improvements, and driving up the minimum EPC levels that homes need to meet over time, Rosenow suggests that the government should involve distribution network operators (DNOs) in delivering energy efficiency. They would benefit directly since it would be cheaper than investing in new supply, he says.

The government’s call for evidence reveals that this is under consideration, along with involving other organisations that would benefit financially from energy efficiency such as mortgage lenders and NHS bodies. But the document acknowledges that in order for DNOs to prioritise energy efficiency projects in place of network reinforcement, they would need to be certain that projects they fund would deliver electricity savings in constrained networks.

The Energy Company Obligation

The strategy also sets out how the government intends to meet its manifesto pledge to upgrade all homes of the fuel poor to at least EPC band C by 2030. Since 2013, its main mechanism for doing so has been Eco, which mandates energy companies carry out measures that reduce the cost of heating a home, such as installing insulation or replacing boilers.

The scheme has been criticised for not providing anywhere near enough funding to tackle the scale of the problem. Eco will provide £640 million a year, but to meet the target to improve energy efficiency for all those living in fuel poverty either in their own homes, council or social housing, or homes let privately, would cost an estimated £1.3 billion a year, according to a report by the Energy Efficiency Infrastructure Group (EEIG) for consultancy Frontier Economics.

The Clean Growth Strategy confirmed that the government will extend Eco till 2028, but at the current level of funding. Wade is not impressed. “Not only is the level of investment on behalf of fuel poor households inadequate, but this approach also fails to set the conditions that will develop the market for energy efficiency investment among able to pay households.”

The low level of funding for the extended years of Eco is “disappointing” and “one of the low points of the strategy”, says Twinn.

David Blakemore, a member of the government’s Committee on Fuel Poverty, is more positive, saying that the strategy shows the government has long-term plans on fuel poverty, and this should drive innovation in energy efficiency products, which will hopefully become cheaper and less disruptive to install.

Dieter Helm’s take

Some believe the government should review its long-practised approach of dealing with fuel poverty and energy efficiency in combination. In his review of energy, professor Dieter Helm stated that the government confuses energy efficiency with fuel poverty, and that the cost of Eco should be spelt out in energy bills. Energy efficiency, meanwhile, should be dealt with through standards, rather than taxes and levies, he says.

Rosenow believes Eco has not been very successful in identifying the right people, and that many of those in need have fallen through the net. “Energy efficiency should be dealt with through a general policy, which is not just open to the fuel poor, and there should be a dedicated programme funded through general taxation to help the fuel poor,” he says.

Nigel Dewbery, director of obligation delivery at Eon, says that government policy should shift towards recognising that energy efficiency is for all, not just the fuel poor. The company advocates a nationwide scheme to insulate homes, with tax incentives and regulation to incentivise households.

Twinn points out the sense in matching incentives for the whole housing market with those for the fuel poor. “Fuel poverty policies must be part of a wider programme to make sure you’re not chasing your tail in that, when the fuel poor move home, they end up in fuel poverty again,” he says.

Although most agree that the Clean Growth Strategy demonstrates a clear change in rhetoric from government, Rosenow cautions that the hard work is still to come. “The real work now starts in persuading the government to put in place the regulation needed. That’s a long and difficult process,” he says. 

Improving the energy efficiency of privately-owned homes

The government is asking for ideas on:

• new methods of financing to reduce the up-front cost of energy efficiency, tailored to different customer groups. These could include equity loans, mortgage extensions and low-interest loans;

• price signals to make more efficient properties more financially attractive;

• improving consumer awareness of the benefits of energy efficient products and technologies;

• involving those who benefit financially from energy efficiency to be involved in delivering it. Examples include
DNOs, NHS bodies and mortgage lenders;

• encouraging innovation in energy efficiency products;

• improving skills in the supply chain. The government is proposing allowing installers to share best practice and access advice through the Energy Savings Advice service.

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