Background to this response

Transcription

1 National Energy Action (NEA) response to the National Infrastructure Commission consultation on the National Infrastructure Assessment Background to NEA 1.1 NEA is a national charity working to increase investment in energy efficiency 1. NEA has a network of offices throughout England and also has national offices in Cardiff and Belfast which also work to support deprived communities and low income energy consumers in Wales and Northern Ireland respectively. NEA s work to influence and increase strategic action includes research, campaigning and working with partners 2 from industry, local and national government and the third sector to deliver practical solutions to UK - improving access to energy advice, training, energy efficiency products and other related services. 1.2 NEA has helped millions of throughout the UK gain access to energy advice and energy efficiency grants. Over 440,000 heating and insulation measures have also been installed to over 360,000 homes through NEA s Warm Zones subsidiary community interest company which focuses on delivering energy efficiency solutions to low income in deprived areas. NEA also provides the secretariat for the All-Party Parliamentary Fuel Poverty & Energy Efficiency Group, which was first established in 1995 as the Parliamentary Warm Homes Group, to raise awareness of the problem of fuel poverty and the policies needed to eradicate it. 1.3 NEA is currently is delivering a 26.2 million Health and Innovation Programme (HIP) which will bring affordable warmth to over 6,000 fuel and vulnerable in England, Wales and Scotland. The programme is split into three distinct funds; two programmes are being delivered by NEA the Technical Innovation Fund and Warm and Healthy Homes Fund 3 ; and the third is being delivered by NEA s subsidiary Warm Zones cic. The Technical Innovation Fund specifically aims to facilitate community-level trials of innovative solutions utilising measures not traditionally within the scope of current retrofit or energy efficiency programmes. Grant recipients from this multimillion pound programme are working to install a range of technologies 4 and work with NEA to ensure that robust monitoring and evaluation takes place. NEA is also delivering a programme of community engagement and support in each area. 1 Please visit 2 NEA s supporters are made up of energy efficiency installers, manufacturers, utility companies, Escos, gas and electricity network operators as well as other key actors such as local authorities, housing associations, health agencies, community groups and other voluntary sector agencies. All of these groups have a key role to play in deploying EE and can also help to motivate policy makers in different ways. 3 In Scotland a Healthy Homes Fund is being delivered by Energy Action Scotland (EAS) 4 To view the Technical Innovation projects visit: 1

2 1.4 In March 2016, NEA also agreed a partnership with Smart Energy GB to lead a consortium which also comprises Energy Action Scotland, Charities Aid Foundation and Media Trust to deliver a consumer engagement campaign for the smart meter rollout. The consortium will deliver a new programme entitled Smart Energy GB in Communities. The combined expertise of the consortium will help Smart Energy GB to ensure that everyone in England, Scotland and Wales can realise the benefits of smart meters, including those who are more vulnerable and might face barriers to benefiting from this technology. Background to this response 2.1 In March 2016, NEA and our supporters warmly welcomed the creation of an independent National Infrastructure Commission (NIC). NEA now welcome the opportunity to respond to the consultation on the methodology and processes that will be used to inform and produce the National Infrastructure Assessment (NIA). 2.2 NEA also welcome NIC s stated objectives (to have due regard to sustainable economic growth across all regions of the UK, improving competitiveness and the quality of life for those living in the UK). NEA also warmly welcomes NIC stating they will explore the important role that increasing energy efficiency could potentially play in meeting these objectives. NEA believes that increasing investment in domestic energy efficiency is central to meeting these goals. As a result, NEA s response highlights how a step change in permanent reduction for energy demand across the UK will complement the vision outlined in NIC s Smart Power report and NIC s stated objectives within the consultation. 2.3 NEA also illustrates how the NIA will need to operate in order to capture the substantial macro benefits that could be delivered. In particularly, NEA highlights how any NIA can explore the value of avoiding the cost associated with the morbidity that cold homes prompts, reduce the cost of investment in new power generation, avoid subsidising existing electricity capacity and reduce the need for (and cost) of network reinforcement 5. As well as helping to reduce the cost to energy consumers of the transition to a low carbon economy, this approach can also simultaneously improve the quality of life for those living in the UK, particular the most vulnerable. 5 The Energy Efficiency Strategy: The Energy Efficiency Opportunity in the UK, DECC, November

3 Responses to the consultation questions Q1. What issues do you think are particularly important to consider as the Commission works to this objective? NEA welcome NIC s stated objectives (to have due regard to sustainable economic growth across all regions of the UK, improving competitiveness and the quality of life for those living in the UK). As noted above, NEA also warmly welcomes NIC stating they will explore the important role that increasing energy efficiency could potentially play in meeting these objectives. NEA also believes that existing evidence highlights how increasing investment in domestic energy efficiency is central to meeting these goals, as well as the importance of ensuring all domestic customers have access to meeting their energy needs sufficient for their health and well-being 6 and providing equal life chances 7. We therefore urge NIC to ensure increasing domestic energy efficiency is fully considered and central to: The creation of any expert panels and the running of roundtables in 2016/17; Any Calls for Evidence in Autumn 2016 including sector evidence reviews, economic and engineering modelling, and scenarios The Vision and Priorities paper (up to 2050) to be published in summer 2017 In support of these key asks, NEA notes that the Climate Change Committee (CCC) recently highlighted that the Scottish Government has announced that Scotland s Energy Efficiency Programme will be a National Infrastructure Priority 8. This move has been emulated by the Welsh Government and the Infrastructure and Wales Investment Plan 9 which also aims to drive improvements in the energy performance of buildings and tackle fuel poverty 10. By investigating these approaches NIC can ensure this approach is reflected across the whole of the UK. In turn, by taking the steps outlined in the bullet points above this could lead to additional capital investment to help complement current national energy initiatives, helping accelerate and adequately resource the UK Government s fuel poverty commitments in England 11 over the next 14 years as well as supporting the other UK nations to meet their own statutory fuel poverty targets 12. These benefits can also be secured in the UK, alongside stimulating low skilled labour and GDP growth, better air quality, reduced energy imports and carbon reduction etc. These important national macro benefits are explored further below. NEA would therefore urge NIC (through the NIA or call for evidence) to review the independent analysis of the macro benefits of enhancing domestic energy efficiency within the UK context. Building the Future: The economic and fiscal impacts of making homes energy efficient produced by Cambridge Econometrics and Verco, for example noted that an ambitious energy efficiency programme can return 3 to the economy per 1 invested by central government; help create a 26% reduction in imports of natural gas in 2030; domestic consumers could save over 8 billion per annum in total energy bill savings; increase relative GDP by 0.6% by 2030; increase employment by up to 108,000 net jobs and help reduce carbon dioxide emissions by 23.6MtCO2 per annum by An adequate standard of warmth is usually defined as 21ºC for the main living area, and 18ºC for other occupied rooms. 7 Existing evidence highlights infants living in fuel- have a 30% greater risk of admission to hospital or primary care facilities. More than 1 in 4 adolescents living in cold housing are at risk of multiple mental health problems. Children living in cold housing are more than twice as likely to suffer from breathing problems, including asthma and bronchitis. Children living in damp and mouldy homes are also almost three times as likely to suffer from coughing, wheezing and respiratory illness. Fuel poverty also impacts on educational attainment, either through increased school absence through illness or children unable to find a quiet, warm place to study in the home. 8 See CCC, Meeting Carbon Budgets 2016 Progress Report to Parliament, June For more information regarding Scotland s Energy Efficiency Programme visit: 9 For more information visit: 10 Ibid, CCC, Meeting Carbon Budgets 2016 Progress Report to Parliament, June The Fuel Poverty (England) Regulations 2014 are now law. 12 The 2010 Fuel Poverty Strategy sets out a target to eradicate fuel poverty in Wales by The Housing (Scotland) Act 2001 requires the Scottish Government to eradicate fuel poverty in Scotland, as far as is practicable, by November

4 As noted in NEA s initial response to NIC s call for evidence on infrastructure priorities earlier this year, these benefits have also been illustrated in an international context. The International Energy Agency (IEA) s report Capturing the multiple benefits of energy efficiency which demonstrated the potential for energy efficiency to deliver new jobs and economic growth, reduce pressure on health services, improve energy security and reduce carbon emissions (at the same time as providing a long-term, sustainable solution to unaffordable fuel bills for all consumers). The report also found that large scale energy efficiency programmes can lead to increases in GDP of up to 1.1% per year; can create significant employment (8 27 job years per 1million invested) and can have a benefit to cost ratio of 4:1. Table from the International Energy Agency (IEA) s report Capturing the multiple benefits of energy efficiency 13 NEA is confident that achieving these macro outcomes is a realistic prospect and the UK has historically been highly effective in reducing energy use and galvanising economic activity through this activity. Across the UK, this has helped cut energy use by c. 12% since 2000 saving domestic consumers billions of pounds every year. However, in recent years this progress has slowed dramatically with the introduction in the last Parliament of the Green Deal and the Energy Company Obligation (ECO) 14. In particular the CCC has recently highlighted progress to improving the energy efficiency of buildings has stalled since 2012 and annual rates of cavity wall and loft insulation in were 60% down and 90% down respectively on annual rates in As a result, NEA would urge the NIC to investigate the quantum of the shortfall between the level of ambition presented by statutory targets (carbon budgets, fuel poverty targets and minimum energy performance standards in the private rented sector) with current delivery rates and what can be achieved via exiting policy mechanisms. In this context, NEA estimates that the UK Government could miss the fuel poverty target in England by 80 years and 1.8 million fuel may still be living in homes below EPC band C by In addition, some fuel could be waiting over 230 years to receive some insulation measures Capturing the multiple benefits of energy efficiency, International Energy Agency, CCC, Meeting Carbon Budgets 2016 Progress Report to Parliament, June NEA is happy to share our methodology for calculating these figures with the Committee however these figures are based on reported delivery rates using the Government s own ECO statistics. 4

5 In addition, in November 2015 the Comprehensive Spending Review (CSR) stated that there will be deep cuts to the only GB-wide energy efficiency programme from The overall spending envelope for the Energy Company Obligation (ECO) will be cut to c. 640m per annum which follows a similar previous reduction in 2014 when the budget was reduced by a third; from the original notional spend of c. 1.3bn per annum. Prior to the announcement regarding these likely reductions, NEA had highlighted in both written and oral evidence to the Energy and Climate Change Select Committee that the UK Government s stated objective to ensure that as many fuel homes as is reasonably practicable have a minimum energy efficiency rating of Band C by 2030 was at risk of not being met. Once again, according to the CCC 16 and think tanks such as Policy Exchange 17 current resources are less than half that required to meet the aforementioned fuel poverty targets. It was therefore anticipated that the Government would ring-fence current levels of ECO resources on fuel poverty alleviation. The impact of this latest reduction in overall resources therefore cannot be understated. Whilst the new programme is likely to be more focused on vulnerable fuel living in the least energy efficient homes, it is now likely that fewer will be helped with energy efficiency measures through levy funded supplier obligations since Without an intervention, it will also be the first Parliamentary term in the last 30 years that there will be no public funding in England for home energy efficiency in England 19. In addition, from April 2016, domestic landlords in England and Wales are not be able to unreasonably refuse requests from their tenants for consent to energy efficiency improvements, where financial support is available from national or local schemes. However, as noted above, financial resources dedicated to energy efficiency improvements have been dramatically reduced or have ceased altogether. The Green Deal Home Improvement Fund (GDHIF) scheme was not a targeted fuel poverty policy but did provide a financial incentive for energy efficiency improvement in the private rented sector, this scheme is now closed. In addition, the Landlords Energy Saving Allowance (LESA), has also now ended. Amid this context, from April 2018, all private rented properties (domestic and non-domestic) should also be brought up to a minimum energy efficiency standard rating of EPC rating E. Whilst this requirement should demand private landlords invest their own capital in their own properties, there is now a critical concern that this will not occur and compliance with these future regulations will fail entirely or fall on the tenant instead of the landlord who will not currently be supported by any form of public investment. NEA would also urge NIC to have due regard to the role of other non-departmental public bodies (NDPB) that may already be working to secure these outcomes and can help inform NIC or the NIA to undertake the creation of any expert panels, help host roundtables, develop the ToRs for Calls for Evidence and disseminate and provide feedback on the preliminary findings of the vision and priorities paper. In this context, NEA particularly urges NIC to engage with CCC and Committee on Fuel Poverty Addressing fuel poverty and meeting carbon budgets go hand in hand (CCC), 7 October Warmer Homes - Improving fuel poverty and energy efficiency policy in the UK, 2015, Policy Exchange 18 The Energy Efficiency Commitment (EEC), replaced the Energy Efficiency Standards of Performance (EESoP) in 2002, it become the main programme to increase energy efficiency in GB across all. EEC was replaced by a new obligation on energy suppliers to reduce CO2 emissions in the domestic sector, the Carbon Emissions Reduction Target (CERT) in The 2010 Comprehensive Spending Review announced the phasing out of Warm Front in England by This effectively ends over 30 years of public funding for energy efficiency grants for low-income in England. 20 For further info visit:: 5

6 Q2. Are there any principles that should inform the way that the Commission produces the NIA that are missing? The stated principles are sound, however, taking a whole system approach requires explicitly considering counterfactual costs of inaction and this should be stipulated and examined more clearly. In particular, NEA highlights that cold homes cost health services 3.6 million per day and in the past four years alone, over 5 billion of tax payers money may have been wasted treating the direct impacts of morbidity associated with cold homes 21. At present, the large amount owed by many of householders to their energy providers also curtails economic activity within er communities. Both of these impacts should be accounted for within the NIA as they enhance any cost benefit ratios. In response to question 9, NEA also highlights how domestic energy efficiency and permanent demand reduction contributes to peak reduction and this can mitigate or defer the costs of network reinforcement. This evidence should be very valuable to the NIC and should be explored further in the context of developing a comprehensive NIA. As noted above, NEA would also urge the NIC to investigate the quantum of the shortfall between the level of ambition presented by current statutory targets which require capital investment in infrastructure (carbon budgets, fuel poverty targets and minimum energy performance standards in the private rented sector) with current delivery rates and what can be achieved via exiting policy mechanisms (further details are also provided above). Finally, NEA highlights that NIC has a responsibility to balance the interests of taxpayers but equally ensure there is an equitable distribution of benefits to different types of end user of different forms of infrastructure investment that may be prioritised within the NIA. At present, HM Treasury receives very significant sums through carbon taxes and VAT on domestic energy bills. Over the duration of this UK Parliament alone domestic energy consumers will contribute well over 14 billion to the Treasury 22 and 30 billion over 10 years 23. Just before the last General Election the Treasury raised an additional 500 million pounds creating higher energy bills 24 and dramatically impacting low income consumers ability to heat and power their homes and their life chances 25. NEA notes that thirteen other EU governments 26 channel many of these resources back to consumers, future-proofing their economies and helping improving national competiveness by reducing energy demand. Currently no public money is spent on improving domestic energy efficiency levels in England. Q3. Do you agree that the NIA should cover these sectors in the way in which they are each described? As noted through-out this response, NEA warmly welcomes the NIA stating they will explore the important role that increasing energy efficiency could potentially play. We underline the importance of explicitly considering energy demand as a priority as this can dramatically alter the need for investment in new power generation, subsidising existing electricity capacity or carrying out network reinforcement costs and offer more cost effective solutions to meeting future energy needs for the nation with lower emissions. Q4. Are there particular aspects of infrastructure provision in these sectors which you think the NIA should focus on? 21 NEA has extrapolated an Age UK estimate that cold homes cost the NHS in England 1.36 billion per year in hospital and primary care (2012). See: 22 We estimate that 11.82bn will be collected in England, 1.33bn in Scotland, 690m in Wales and 190m in Northern Ireland). 23 This analysis of the revenues the Treasury receives from domestic consumers is based on Government sources to estimate how much expected revenue they will receive from a) the European Union Emission Trading Scheme (EU ETS), b) the Carbon Price Floor (CPF) and c) VAT on an average electricity bill. We have then combined this with expected VAT revenues from domestic gas bills. These estimates are all based on the Government s own assumptions regarding energy consumption and this includes an unfounded assumption that EU products policy will increase the domestic energy efficiency of electric appliances substantially. However, what the analysis does show, regardless of the impact of various assumptions, is that both carbon revenue and VAT receipts help the Treasury yield large amount of money, which is collected regressively and without an intervention will further strain the finances of particularly low income. 24 This figure is the estimated income from the Carbon Price Floor compared to Source: Carbon Price Floor, 14 May 2014, House of Commons Library, p Ibid; see footnote According to a recent report: The economic case for recycling carbon tax revenues into energy efficiency, Prashant Vaze and Louise Sunderland, February 2014: 13 countries in the EU have pledged to return part of the proceeds from the EU-ETS auctions to climate and energy efficiency programmes. 6

7 As above, NEA welcome the NIA commitment to explore the important role that increasing energy efficiency can potentially play as an important form of infrastructure in the domestic sector. As part of this process, NEA s response to question 9 highlights how domestic energy efficiency and permanent demand reduction contributes to peak reduction and this can mitigate or defer the costs of network reinforcement. This will complement the vision for greater demand flexibility outlined in NIC s Smart Power report and should be explored further in the context of developing a comprehensive NIA which reflects the true investment requirements across the energy sector. In addition, NIC s Smart Power report notes the importance of smart meters and their roll-out in Great Britain. NEA have completed a number of research projects into smart meters, including Smart for All (Phases 1 and 2) 27, which looked at consumer vulnerability during the experience of smart meter installation, and Developing An Extra Help Scheme for Vulnerable Smart Meter Customers 28, which interviewed stakeholders to assess potential models for delivering additional assistance during the roll-out. As noted in the introduction, more recently, NEA has become a consortium partner for the Smart Energy GB in Communities programme. This programme forms part of Smart Energy GB s consumer engagement campaign and will be dedicated to ensuring that no one is left behind in the roll-out of smart meters. Through this programme NEA will be providing a range of advice and support to help engage a network of partners (trusted intermediaries) and ensure a wide outreach to support consumers throughout the smart meter roll out and their smart meter journey. NEA also emphasises a careful and phased introduction of time-of-use pricing is critical to ensure tariffs do not impact unfairly on vulnerable consumers. Any requirement for consumers to adopt time-of-use pricing could penalise low income that have inelastic energy usage and may need to maintain high demand at peak periods. To understand the impact of demand side response we highlight the need for trials. Here, NEA draws the NIC s attention to two relevant projects. In 2011, NEA worked with CE Electric UK and its partners, British Gas, Durham University and EA Technology. The project, dubbed "The Customer-Led Network Revolution" (CLNR), was funded as part of the first competition for the Low Carbon Network Fund (LCNF). The first element of the project focused around understanding current, emerging and possible future customer (load and generation) characteristics. Constructing a detailed understanding of customer consumption and generation profiles across a representative cross section of customer and demographic groups. The next phase focused on assessing to what extent customers are flexible in their load and generation, and what is the cost of this flexibility. This included testing different customer perceptions, such as static and dynamic time of use tariffs and direct control tariffs, for customers with different Low Carbon Technologies 29. The second project is energywise 30. Energywise is the first project to investigate how distribution network operators (DNOs), in collaboration with a Supplier, charity groups and local community actors, can engage with vulnerable customers in order to facilitate energy efficiency and provide networks services, such as Demand Side Response (DSR). The project, which also received funding under Ofgem s 2013 LCNF competition, is led by UK Power Networks with NEA as a consortium partner. University College London is the lead academic research institution for the study and British Gas is the energy supplier providing the smart metering technology. Working with over 300 social housing tenants in the London Borough of Tower Hamlets, and targeting those tenants who are in or near fuel poverty, the project explores opportunities for 27 NEA for DECC and Consumer Focus (2012). Smart for All: Understanding Consumer Vulnerability During the Experience of Smart Meter Installation; NEA for DECC (2013). Smart for All: Consumer Experiences of Smart Meters. Report from Phase 2 of Research. Both reports available at: 28 NEA for Citizens Advice (2014). Developing an Extra Help Scheme for Vulnerable Smart Meters Customers. Available at: 29 For all final reports and further information on the CLNR project visit the project website at 30 For further information visit 7

8 this customer group to participate in energy efficiency and demand side response campaigns. This involves, in the first instance, the provision of a smart meter, energy saving devices (eco kettle, LED lights, standby shutdown) and energy efficiency advice, and secondly, using a time-of-use tariff. Results and learnings from the energy efficiency trial will become available by the end of 2016 and will provide important insights for the smart meter roll-out. Specifically, opportunities for vulnerable customers to benefit from smart metering solutions to better manage their energy and save money on their bills. The study will also help electricity network companies understand how demand side response and energy efficiency among this customer group may help manage peak demand to defer or avoid network reinforcement. Q5. The NIA will seek to pull together infrastructure needs across sectors, recognising interdependencies. Are there are particular areas where you think such interdependencies are likely to be important? Q6. Do you agree that the NIA should focus on these cross-cutting issues? & Q7 Are there any other cross-cutting issues that you think are particularly important? NEA believes the cross-cutting themes identified within the consultation are worthy of consideration. In addition, NEA suggests that NIC should also investigate the industry capacity and cross-cutting skills that may be required in order to deliver our future infrastructure needs in aggregate. This will identify any pinch point professions or skills that may be in high demand. NEA would also highlight the need to investigate the diversity in the types of organisations that can help deliver infrastructure solutions. For example, a national infrastructure energy efficiency programme could be delivered by a range of organisations (utility companies, local authorities, housing associations, gas and electricity network operators, health agencies, community groups and other voluntary sector agencies etc). All of these groups could be used to support the successful delivery of an energy efficiency infrastructure programme. In contrast, other infrastructure projects may be heavily reliant on one type of profession or skill type and just applicable to a small number of locations across the UK. Q8. Do you agree with this methodological approach to determine the needs and priorities? Yes. Existing data on energy efficiency delivery is readily available via the National Energy Efficiency Database (NEED) and in the respective national housing condition surveys. This will allow NIC to be able to determine an accurate infrastructure baseline. In terms of other analysis, the benefits, costs and scale of an energy efficiency infrastructure programme can be modelled effectively (see response to question 9 below). NEA has also attached an annex which summarises current fuel poverty levels in England based on the government s own analysis 31. Finally in terms of conclusions, these can also be tested in public and with key stakeholders across industry, academics, local and central government and nongovernmental organisations. Where this may require any support to perform this task, NEA would be happy to help NIC engage these key stakeholders. Q9. Do you have examples of successful models which are particularly good at looking at long-term, complex strategic prioritisation in uncertain environments? 31 These statistics are taken from the Annual Fuel Poverty Statistics Report, 2016, Department of Energy and Climate Change (DECC), June

9 Fuel poverty is the consequence of a combination of factors including the cost of fuel, the level of household income, the physical quality and characteristics of the dwelling and the degree of vulnerability of the occupants of a dwelling. This combination of factors means that fuel poverty can affect regardless of their geographical location or whether they are urban or rural dwellers. Since 2011, following Professor Hills recommendations, the Low Income High Cost (LIHC) indicator definition of fuel poverty is now used in England. This states that an individual is considered fuel where they have required fuel costs that are above average (the national median level) and were they to spend that amount; they would be left with a residual income below the official poverty line. The low income high cost measure consists of two parts, the number of that have both low incomes and high fuel costs and the depth of fuel poverty amongst these. Prior to the introduction of the Low Income High Costs indicator in England, fuel poverty was measured under the 10% indicator across the whole of the UK. The 10% indicator continues to be used in Scotland, Wales and Northern Ireland. Under this indicator, a household is considered to be fuel if they were required to spend more than 10% of their income on fuel to maintain an adequate standard of warmth. An adequate standard of warmth is usually defined as 21ºC for the main living area, and 18ºC for other occupied rooms. In July 2013, DECC produced a report entitled Fuel Poverty: a Framework for Future Action Analytical Annex. This document sets out the details of the analysis that is undertaken to support the development of the strategic framework for fuel poverty. Some of the approaches used may help the development of the upcoming NIA. The report notes that predicting the changes in energy prices is notoriously complex and NEA is reliant on DECC s most recent projected changes in the price of gas, electricity and nonmetered fuels. Projections of metered fuels (gas and electricity) are taken from DECC s publication: Estimated impacts of energy and climate change policies on energy prices and bills, while changes in all other fuel prices are taken from DECC s published fossil fuel price series. The total percentage changes in all energy prices between and are outlined in the aforementioned publications. Prices are projected to increase steadily in the medium term driven primarily by a combination of fossil fuel prices, transmission and distribution costs but also due to the costs associated with Government policies. The price of other fuels (i.e. coal, heating oil & LPG) is assumed to track fossil fuel prices. The application of observed price increases from 2009 to 2011 is consistent with the official DECC Fuel Poverty Methodology, in which differences in regional and payment type costs (e.g. direct debit vs. pre-payment meters) are recognised. When projecting from 2011 to 2027, year-onyear percentage increases in the price of each fuel are only available at the national average level. DECC therefore implicitly assume that while prices increase overall, regional differences in prices and the relative costs of each payment method (e.g. direct debit, standard credit or pre-payment meter) remain fixed at the level set out in the base data. Projections of income are estimated by applying percentage changes in disposable income to the level of income in the base year, subtracting housing costs (to convert it to an After Housing Cost value) and then equivalising to take account of the difference in household sizes. Housing costs are netted from projections of real disposable income. Housing costs are rent and mortgage payments, which are stated in the base dataset and are assumed to remain constant in real terms over time (thus they are linked to the Consumer Price Index (CPI). Projecting disposable income involves combining information on the different types of household income, such as earnings, benefits and savings, and applying the relevant rates of change to them. These rates of changes are applied to the different components of income (from the EHS 2010 base data set) and then converted to real values (i.e. net of inflation). In terms of modelling policy impacts on fuel poverty, there are two parts to the projection model that DECC developed. The first part is a micro-simulation model, which is used to allocate measures to (based on the policy assumptions highlighted above). The 9

10 second part of the model is excel-based. This model calculates each household s energy consumption in the year under consideration (based on their initial energy consumption, reported in EHS 2010 and the energy savings factor that is, the change in energy requirement that results from the measures that are delivered) and combines this with the projected inputs of energy prices and income to calculate fuel poverty. The micro-simulation model (which is run in SAP) is used to allocate energy efficiency and heating measures, bill rebates and renewable technologies to in the English Housing Survey (EHS) dataset. The policy inputs specify the number and type of measures that are installed through each policy as well as the types of that can receive measures. There are also physical constraints to the up-take of measures e.g., cavity wall insulation can only be installed in a dwelling with an unfilled cavity. Each household that is allocated a measure realises an associated reduction in their kilowatt hour (kwh) energy consumption. The amount of energy saved depends on the type of measure installed and the property type in which it is installed. The property characteristics which determine the energy saving are: build type (e.g. end terrace, flat, etc.), depth of roof insulation, dwelling age, boiler age, water heating source, main heating fuel and main water heating fuel. These energy saving factors are provided by the Building Research Establishment (BRE) and are based on the BREDEM model. There are different energy saving factors for different fuel types and fuel use. The fuels included are gas, electric, oil, solid fuel, biomass and the uses are heating, water, cooking and lighting. The savings are broken down in this way because some measures only impact on certain energy types, some increase one element of a household s energy bill and reduce another and others necessitate a complete change of fuel. For example: Where a gas centrally-heated home is allocated cavity wall insulation, it will see a reduction in kwh gas consumption for gas space heating but no reduction in the energy required for water, cooking and lighting; The installation of a biomass boiler means household gas consumption for heating is reduced to zero, but consumption for heating from biomass increases. The impact of policies also leads to an estimated change in a SAP value. The impact policies have on SAP is also provided by BRE and is, again, based on the BREDEM model. For each projection scenario, the micro-simulation model is run 100 times. A representative iteration is then chosen by looking at the iteration that gives an average saving impact or distribution. This representative run is then used as the input for the excelbased model. The original energy consumption for each household (by fuel type and use) from the EHS 2010 is then augmented using the energy saving factors (based on the outputs from the micro-simulation model) to create a new energy consumption value (also by fuel type and use). Current prices are applied to the new consumption to create a new energy bill. The energy bill and income for each household is then up-rated to the target year (i.e. the year that we are projecting to) using the methodology described above. Finally, household incomes are adjusted to reflect any additional income from feed in tariffs and/or RHI tariff payments, and the final energy bill is calculated by reflecting the impact of Warm Home Discount rebates. A new energy threshold and median income can then be calculated so that it is possible to calculate the level of fuel poverty in the target year. Households SAP ratings after policies have been introduced can then also be used to estimate what the average SAP of those people in fuel poverty are or how many people in fuel poverty have a SAP score of below a certain threshold. The Government also determines cost-effectiveness using Marginal Abatement Cost Curves (MACC) and this ranks interventions based on their cost-effectiveness for abating greenhouse gas emissions. The MACC allows decision makers to assess how much progress is already being made and subsequently consider what it would cost (or save) to make more (or less) 10

11 progress from that point. The same approach to constructing MACCs for climate change or overall energy efficiency policy can also be applied to fuel poverty and DECC has established FP-MACCs to assess, at different points in time, what the most cost-effective interventions are and how much progress these interventions could potentially make towards fuel poverty objectives 32. In addition, the Centre for Sustainable Energy (CSE) has developed an analytical model - DIMPSA ( Distributional Impacts Model for Policy Scenario Analysis ) which has been used under license by the Department of Energy and Climate Change for the Government s own assessments of the distributional impacts of policies. DIMPSA enables the assessment of the impact of both the costs and the benefits of policies for domestic energy consumers. Underlying this model is a comprehensive dataset based on the socio-demographically representative sample of UK surveyed in the ONS Living Costs and Food Survey (LCF). Data from six LCF surveys has been combined (financial years 2004/5 to 2009), generating a sample size of over 36,000 cases. CSE have also helped the Climate Change Committee model the implications of the proposed fuel poverty targets poverty to 2030 of meeting the fourth carbon budget using the National Household Model. Building on this work and in light of the Government s Fuel Poverty Strategy consultation, the CCC also commissioned CSE to undertake some additional modelling and analysis using the NHM to explore the costs and benefits of meeting the fuel poverty targets 33. Finally, in 2015, NEA and Agility ECO produced a report investigating the possibility to divert budgets currently allocated to load-related network upgrades into local schemes that improve energy efficiency. In the report this concept is explained fully and is referred to as Alternative Investment Strategy (AIS). Specifically, the report looks to analyse the Size of the Prize on Northern Power Grid s network, the economic feasibility of investment in local energy efficiency and how this compares to conventional network reinforcement and practical feasibility 34. The table below highlights the cost effectiveness of a variety of AIS investment types. These have been calculated in terms of cost per household, for each kw of demand reduction at peak time 35. NEA table highlighting impact of domestic efficiency measures on peak demand which can be used to mitigate or defer the need for conventional network reinforcement 32 It is important to state that all the FP-MACC analysis focuses on the construction of technical MACCs. This means that our estimates of the potential for interventions are made on the basis of technical feasibility and do not account for the willingness of to receive interventions or the delivery mechanism for that intervention. This means that all interventions are considered independently of any current policy approach to delivery. This ensures that the assessment of cost-effectiveness is not in any way biased by the strengths or weaknesses of current delivery approaches for certain interventions. 33 Meeting the proposed fuel poverty targets, Modelling the implications of the proposed fuel poverty targets using the National Household Model, Report for the Committee on Climate Change, November To read the report visit: 35 Our analysis only covers domestic AIS, and there may be non-domestic AIS which could be suitable. 11

12 The table includes an adjustment for confidence level, which reflects the certainty placed in the various energy efficiency measures to achieve the peak load saving, in the context of a diverse population of customers. The number provided is based on industry research 36, and calculated by considering average engagement levels of in a population 37, their receptiveness to a change of behaviour 38, the ability and desire to use technology to best effect and any rebound effect 39 likely in that population 40. This research highlights the variables which impact the ability of permanent demand reduction to contribute to peak reduction. This evidence (and the concept of AIS) can be used by NIC to establish a macro view of this opportunity in the context of developing a comprehensive NIA. In addition, it is possible to identify these opportunities in a given part of a particular distribution area 41. For example, NIC could: 36 NEA Report Technical Feasibility Study for Electricity NW Ltd into Electricity demand Reduction in Heaton Norris and Heaton Mersey areas of Stockport May City-Scale Domestic retrofit Schemes: Learning from the early adopters: 38 What Works in Changing Energy Behaviours in the Home? A Rapid Evidence Assessment DECC Final Report 39 BRE Energy Follow Up Survey The service level standard that a DNO is required to guarantee leaves little space for speculation on the ability of a solution to a network problem to deliver. Current traditional methods of asset upgrades deliver a certainty nearing 100%, because the extra capacity created is a known factor, and this is an aspect on which AIS will have to compete against. In this report, we accept the judgement of the NEA experts as a valid reference point. Further research, including that already undertaken by other DNOs (for example the SAVE project), will help explore this point. 41 Strategy decision for the RIIO-ED1 electricity distribution price control, Ofgem, 04 March

13 I. Identify ahead of time load related reinforcement hotspots within a geographic territory II. Obtain a forecast from the DNO of the business as usual reinforcement costs III. NIC could then establish an alternative cost-benefit analysis indicating which other actions could be taken to either defer or mitigate the reinforcement need in an area entirely (through permanent electricity demand reductions, not demand shifting). IV. This would require working with supportive agents to simultaneously assess the scale of electricity demand reduction potential within that area of the network and aggregate this potential V. It would then be possible to grade the potential aggregation of electrical demand reductions VI. NIC could then evaluate if the AIS met the Golden Rule test set out below In order for these alternative energy efficiency projects to occur, first they must be located in similar locations to those places where the DNO is planning to invest in network reinforcement alongside areas with relatively high population density, high deprivation and high penetration of electrically heated housing. This means the opportunity to invest in these projects will not be evident in every instance and this convergence may only occur in a smaller number of planned reinforcements a DNO s may be planning on their network. Another critical challenge for these alternative investments (and the key for delivering value to all energy customers, not just the direct beneficiaries of these measures) is that the contribution by the DNO to the cost of these projects would always have to be lower than the cost of the business as usual network reinforcement (the so-called Golden Rule referenced above). Where the Golden Rule criteria is met this would ensure the investment in energy efficiency is more cost effective than reinforcement; benefiting all energy consumers on that network whilst also providing a direct social outcome for the recipients of the energy saving measures. In addition, and noted in our initial response to the call for evidence, the Low Carbon Network Fund (LCNF) also provides results and information collected from various projects that have trailed some DNO-led projects aiming at reducing load as an alternative to network reinforcement. These projects (and others) have given network companies a better understanding of the opportunities and challenges of pursuing this model. A brief summary of these projects was provided in our previous response. Q10. Do you believe the Commission has identified the most important infrastructure drivers (set out below)? Are there further areas the Commission should seek to examine within each of these drivers? As noted throughout this response, NEA would urge the NIA to have due regard to impacts on fuel poverty. Whilst NEA believes it would be practicable for the NIC to conduct their own assessments (using the approaches outlined above), NEA would also urge NIC to work with the expertise of other non-departmental public bodies (NDPB) that may be able to help. As noted above, in this context, NEA particularly urges NIC to engage with CCC and Committee on Fuel Poverty. Q11. The NIA will aim to set out a portfolio of investments that best meets the demands of the UK in the future. Do you have a view on the most appropriate methodology to determine that portfolio? As noted throughout this response, NEA would urge the NIA to set out a balanced portfolio which is predicated on a real shift in permanent reduction for total energy demand across the 13

14 UK. This will complement the vision outlined in NIC s Smart Power report and NIC s stated objectives within the consultation. NEA also highlights that any portfolio within the NIA must place a high value on avoiding any unnecessary investment in new power generation, avoid overly subsidising existing electricity capacity and reduce the overall need for (and cost) of network reinforcement 42. As well as helping reduce the cost to energy consumers of the transition to the low carbon economy, this approach can also improve the quality of life for those living in the UK, particular the most vulnerable. NEA would stress that these outcomes will only be fully realised by a blended investment in energy efficiency. As noted above, currently the only form of support for this activity in England is from a levy funded obligation on energy suppliers. Q12. In your view, are there any relevant factors that have not been addressed by the Commission in its methodological approach? As above, NIC need to have due regard and consult closely with the CCC and Committee on Fuel Poverty and the Department for Business, Energy and Industrial Strategy (BEIS) Methodology Working Group. Q13. How best do you believe the Commission can engage with different parts of society to help build its evidence base and test its conclusions? NEA would welcome working with the NIC to engage our stakeholders in the development of: The creation of any expert panels and the running of roundtables Reaching the right audiences for any Calls for Evidence Support in reviewing the vision and priorities paper NEA s supporters are made up of energy efficiency installers, manufacturers, utility companies, local authorities, housing associations, gas and electricity network operators, health agencies, community groups and other voluntary sector agencies and academic institutions. As the principal organisation focused on fuel poverty in England and Wales, NEA can particularly support dissemination through the following: Dissemination of project findings to a wide range of government, energy company and not-for-profit stakeholders through a session on the project at the NEA s annual conference which is the biggest national event focused on fuel poverty issues. Dissemination to regional practitioners particularly in local authorities through our regional fuel poverty forums, which are held three times a year throughout England and Wales. These are aimed at strategic policy makers and front line service providers. Dissemination of findings to national policy makers, analysts and researchers through our broad range of networks and working groups including the All Party Parliamentary Group which NEA facilitates. 42 For further info on the scale of this opportunity see the Energy Efficiency Strategy: The Energy Efficiency Opportunity in the UK, DECC, November

15 Prepared by NEA Research Team 30/06/16 Annex 1: Fuel poverty statistics: Summary and comparison (England only) (Source: DECC, Fuel Poverty Statistics 2013, 2014 published in 2015 and 2016 respectively.) Table 1 - Fuel poverty headline figures Fuel poverty status Year Number of (000's) Proportion of fuel (%) Average fuel poverty gap ( ): Real Terms Aggregate fuel poverty gap ( m): Real Terms Fuel (379) 877 (890) Not fuel All Note: Data for 2012 and 2013 are taken from data published in Data for 2014 is taken from the most recent statistics published in June Figs in parentheses are taken from 2014 trend data published in Data is otherwise taken from tables as first published. Between 2013 and 2014 the proportion of fuel- rose from 10.4% to 10.6%, an increase of 0.2% points. The number of fuel- rose from 2,347,000 in 2013 to 2,379,000 in 2014 a rise in numbers of 32,000 (1.4%) negating the gains made between 2012 and Between 2013 and 2014 the average fuel poverty gap ( ) fell from 374 to 371, a decrease of 3. The most recent (2016) trend table ( ) shows a fall in the average gap but from 379 to 371 a fall of 8 rather than 3. The discrepancy is unexplained. 15

16 Prepared by NEA Research Team 30/06/16 Between 2013 and 2014 the aggregate fuel poverty gap ( m) rose from 877 million to 882 million, an increase of 5 million. However, the most recent (2016) trend table ( ) shows the aggregate gap having fallen rather than increased, from 890 to 882. The discrepancy is unexplained. DECC surmise that rising fuel poverty but a falling fuel poverty gap could be attributed to fuel- having seen a lower than average rise in disposable incomes (pushing them into FP). While fuel prices have increased more than energy efficiency gains, the rise was smaller for fuel- (reduced gap). Table 2 - Fuel poverty by SAP bands SAP E F/G Yea r Proportion of within group (%) Not fuel Fuel Not fuel Number of (000's) Fuel Total number of (000's) Proportio n of househol ds fuel (%) Aggregate fuel poverty gap ( m): Real Terms Average fuel poverty gap ( ): Real Terms Households in E Between 2013 and 2014 the number which were fuel with an SAP rating of E fell from 875,000 to 758,000, a decrease of 117,000. This represents a fall in numbers of 13.4% since 2013, the fall since 2012 is 25.3%. A fifth of that reside in homes rated as E are fuel and they make up almost a third (31.9%) of all fuel- in 2014, down from more than two-fifths in

17 Prepared by NEA Research Team 30/06/16 Households in F/G Between 2013 and 2014 the number of which were fuel with an EPC rating of F or G fell from 313,000 to 287,000, a decrease of 26,000. This represents a fall in numbers of 8.3% since 2013, the fall since 2012 is 17.5%. While the number of fuel- has fallen, the % of all with rating F/G that are fuel has increased from 23% to 24% - this is likely to be due to the lower number of all with an F/G band rating. Where 14.7% of fuel- lived in a home rated F/G in 2012, this has now fallen to 12.1%. In 2014, 44% of the fuel still reside in a home rated E, F or G. Table 3 - Fuel poverty in without a gas grid connection Gas grid connection Year Proportion of within group (%) Not fuel Fuel Number of (000's) Not fuel Fuel Total number of (000's) Proportion of fuel (%) No , , , , , , Households without a gas connection Between 2013 and 2014 the number of without a gas grid connection which were in fuel poverty rose slightly from 437,000 to 441,000, an increase of 4,000. The proportion of without a connection that are fuel remained static at 15% while the proportion of all fuel- that reside in a dwelling without a gas connection fell very slightly from 18.6% in 2013 to 18.5% in Both the proportion and number of living in fuel poverty that reside in a home without a gas connection fell between 2012 and It is also noteworthy that the total number of all dwellings in England without a gas connection fell slightly between 2013 and 2014 but is up slightly on

18 Prepared by NEA Research Team 30/06/16 Table 4- Fuel poverty by tenure Tenure Year Proportion of within group (%) Not fuel Fuel Number of (000's) Not fuel Fuel Total number of (000's) Proportion of fuel (%) LA , , , , , , Owner-occupied ,128 1,163 14, ,219 1,104 14, ,256 1,072 14, Private rented , , , , , , Housing association , , , , , , All ,576 2,360 21, ,236 2,347 22, ,163 2,379 22, A fuel- household is much more likely to reside in the private sector either renting or as an owner-occupier. Together they made up over four-fifths (80.9%) of all fuel- in While there has been a fall between 2012 and 2014 in the proportion of all fuel- that are owneroccupiers (49.3%) to 45.1%), there has been an increase across all other tenure groups over the same period most notably in the private rented sector (33.3% to 35.8%). 18

19 Prepared by NEA Research Team 30/06/16 While it remains true in 2014, as in 2013 and 2012, that those living in the private rented sector are most likely to be fuel (20%) there has been a very small decrease in the proportion of owner-occupiers that are fuel in 2014 (7%) compared to 2012 (8%), but a 2% point increase over the same period in the local authority sector (from 11% to 13%). Local authority Between 2013 and 2014 the number of local authority in fuel poverty rose from 193,000 to 213,000, an increase of 20,000 an increase in numbers of 10.4%. In 2014, 13% of with local authority tenure were fuel this was 8.9% of all fuel-. Owner-occupied Between 2013 and 2014, the number of owner-occupied in fuel poverty fell from 1,104,000 to 1, 072,000, a decrease of 32,000 a fall in numbers of 2.9%. In 2014, 7% of with owner-occupier tenure were fuel this was 45.1% of all fuel-. Private rented Between 2013 and 2014, the number of private rented in fuel poverty rose from 816,000 to 852,000, an increase of 36,000 an increase in numbers of 4.4%. In 2014, 20% of with private rented tenure were fuel this was 35.8% of all fuel-. Housing association Between 2013 and 2014, the number of housing association in fuel poverty rose from 234,000 to 242,000, an increase of 8,000 an increase in numbers of 3.4%. In 2014, 11% of with social rented tenure were fuel this was 10.2% of all fuel-. 19

20 Prepared by NEA Research Team 30/06/16 Table 5 - Fuel poverty by gas payment method Method of gas payment Year Proportion of within group (%) Not fuel Fuel Number of (000's) Not fuel Fuel Total number of (000's) Proportion of fuel (%) Direct debit , , , , , , Standard credit , , , , , , Pre-payment , , , , , , All ,576 2,360 21, ,236 2,347 22, ,163 2,379 22, Households that pay for gas using a PPM are the group most at risk of being in fuel poverty one in five (20%) that paid for their gas in this way in 2014 were fuel compared to 15% of those that used standard credit and just 7% of those that used DD. More of the fuel (39.5%) used DD to pay for their gas in 2014 than any other method; around the same level as in 2012, but up after a slight fall in PPM users made up around a quarter (24.7%) of the fuel in 2014, up from 22.9% in 2012, but down slightly from 25.9% in

21 Prepared by NEA Research Team 30/06/16 Direct debit Between 2013 and 2014 the number of fuel- who paid for their gas via direct debit rose from 849,000 to 940,000, an increase of 91,000 this is a rise in numbers of 10.7%. In 2014, 7% of those that paid for their gas by DD were fuel this is 39.5% of all fuel- and a slight increase on Standard credit Between 2013 and 2014 the number of fuel- who paid for their gas via standard credit fell from 503,000 to 448,000, a decrease of 55,000 this is a decrease in numbers of 10.9%. In 2014, 15% of those that paid for their gas by standard credit were fuel this is 18.8% of all fuel- and a small decrease on Pre-payment Between 2013 and 2014 the number of fuel- who paid for their gas via PPM fell from 608,000 to 588,000, a decrease of 20,000 this is a fall in numbers of 3.3%. In 2014, 20% of those that paid for their gas by PPM were fuel this is 24.7% of all fuel- and small decrease on

22 Prepared by NEA Research Team 30/06/16 Table 6 - Fuel poverty by electricity payment method Method of electricity payment Year Proportion of within group (%) Not fuel Fuel Number of (000's) Not fuel Fuel Total number of (000's) Proportion of fuel (%) Direct debit ,919 1,123 15, ,379 1,012 15, ,494 1,116 15, Standard credit , , , , , , Pre-payment , , , , , , All ,576 2,360 21, ,236 2,347 22, ,163 2,379 22, Households that pay for electricity using a PPM are the group most at risk of being in fuel poverty around one in five (21%) that paid for their electricity in this way in 2014 were fuel compared to 15% of those that used standard credit and just 7% of those that used DD. More of the fuel (46.9%) used DD to pay for their electricity in 2014 than any other method; around the same level as in 2012, but up after a fall in PPM users made up almost a third (31.6%) of the fuel in 2014, up from 29% in 2012, but down slightly from 32.8% in

23 Prepared by NEA Research Team 30/06/16 Direct debit Between 2013 and 2014 the number of fuel- who paid for their electricity via direct debit rose from 1,012,000 to 1,116,000, an increase in numbers of 104,000 (10.2%). In 2014, 7% of those that paid for their electricity by DD were fuel this is 46.9% of all fuel- and an increase of 3.8% points on Standard credit Between 2013 and 2014 the number of fuel- who paid for their electricity via standard credit fell from 564,000 to 512,000, a decrease in numbers of 54,000 (9.6%). In 2014, 15% of those that paid for their electricity by standard credit were fuel this is 21.5% of all fuel-, a slight decrease compared to Pre-payment Between 2013 and 2014 the number of fuel- who paid for their electricity via PPM fell from 771,000 to 751,000, a decrease in numbers of 20,000 (2.6%). In 2014, 21% of those that paid for their electricity by PPM were fuel this is 31.6% of all fuel- and while a slight decrease on 2013 it is an increase of 2.6% points on