Ofgem has decided to alter the eligibility criteria for the Fuel Poor Network Extension Scheme (FNPES) which provides funding and incentives for gas networks to connect fuel poor customers to the grid.
The regulator intends to remove the criterion which allows households to access the scheme if they live in an area of high deprivation, regardless of whether or not they are otherwise defined as fuel poor.
Explaining the decision in an open letter to stakeholders, Ofgem senior partner for RIIO gas networks, Geoff Randall, wrote: “The primary reason for the change is to ensure that the scheme more effectively targets fuel poor households.
“There is evidence that residing in the 25 per cent most deprived areas is not a good predictor of fuel poverty, and therefore under the current criteria there is a strong risk that the funds allocated to Gas Distribution Networks (GDNs) for FPNES could be used to subsidise connections for non-fuel poor households.”
Under the current arrangements, households can access the scheme if they fulfil any one of the three following criteria:
- They reside within one of the 25 per cent most deprived areas, as measured by the government’s Index of Multiple Deprivation (IMD). The IMD is defined separately for England, Scotland and Wales.
- They are eligible for support under the Home Heating Cost Reduction Obligation aspect of the Energy Company Obligation (ECO), Nest (in Wales only) or the Home Energy Efficiency Programmes (in Scotland only).
- They are classed as living in fuel poverty according to latest definition with their area, which varies between England, Wales and Scotland.
Randall cited statistics published within Ofgem’s consultation on the rule change which stated that in England, for example, only 13 per cent of people which meet the IMD criterion are actually living in fuel poverty, compared with a national average of 11 per cent.
He also quoted data provided by a respondent to the consultation which showed that within a sample of 317 properties connected to the gas grid under the IMD criterion, only around 30 per cent would have eligible according to the relevant definition of fuel poverty.
“We do not consider a 30 per cent target rate to be effective because it suggests that 70 per cent of the connections in the sample went to households that are not in fuel poverty,” he added. “We do not think this represents value for money on a scheme that aims to assist fuel poor households.”
As part of the RIIO-GD1 price control, each GDN has a set target for the number of connections it should make under the FPNES by 2021. Since 2013, they have so far connected more than 52,000 households, putting them broadly on track to meet the targets.
Randall said Ofgem recognises the concerns raised by GDNs that removing the IMD criterion may affect their ability to progress specific connections projects and make it more challenging for them to meet their targets.
Nevertheless, he said the change would not necessarily lower the overall number of connections and that the targets will therefore be maintained at their current levels.
He continued: “We will review GDNs’ performance against their targets at the end of RIIO-GD1 and we expect the companies to demonstrate that they have taken all reasonable steps to meet their targets.”
Where appropriate, Randall said Ofgem will take into account the the removal of the IMD criterion when applying penalties to GDNs which miss their targets, adding: “We will also compare performance amongst GDNs in terms of how they have identified and engaged with relevant stakeholders”.
The revised criteria will come into effect from 1 July 2018, although GDNs will be given until 1 July 2019 to complete any quotations accepted under the current rules.