What does it mean for poverty?

 

The original article by  Derek Lickorish MBE from the Fuel Poverty Advisory Group

 

As a society, we must all recognise that energy is precious and looking after the environment is essential. By optimising our appliances and utilising smart technologies, we could achieve this balance whilst also ensuring consumer equity. Derek Lickorish MBE from the Fuel Poverty Advisory Group explores the potential opportunity to reuse surplus renewable energy to provide electric heating for the fuel poor.

THE VIDEO

Read more from Derek Lickorish below.

Consumers and Poverty in Energy

The decarbonising of energy, transport and heat currently remain key government goals which are, in my opinion, a very good thing. Part of this transformation has required the government’s intervention in order to facilitate the incentives for investors to fund low carbon technology, which includes many sources of distributed generation (DG) and other programmes to help improve energy efficiency.

Who pays for the incentives and other government policy costs?

Incentives include feed-in-tariffs, renewable and energy efficiency obligations being placed on suppliers. The cost of these incentives and other policy costs are largely funded by levies added by energy suppliers to consumer’s energy bills. According to Energy UK’s analysis[1] of publicly available data, February 2017, this reveals that these costs have been increasing and are set to increase in the coming years. How each supplier deals with rising costs is unknown as it is a commercial and competitive issue for the individual company and their pricing strategy:

2016 2017 2018 2019 2020
Renewables Obligation £52 £61 £69 £71 £71
Feed in Tariffs £15 £16 £16 £16 £16
Contracts for Difference £1 £7 £14 £21 £28
Capacity Market £0 £4 £11 £11 £14
Energy Company Obligation £29 £24 £22 £22 £22
Warm Home Discount £12 £12 £12 £12 £12
Smart Metering £9 £16 £26 £25 £13
Total £119 £140 £169 £177 £176

Electricity bills bear the vast majority of these costs, so consumers who only use electric appliances are particularly the hardest hit. Research[2], by the Centre for Sustainable Energy, predicts that by 2020 electrically-heated households will:

  • represent 11 per cent of consumers by heating fuel type
  • pay 19 per cent of the total cost of the Government’s energy policies
  • yet receive only 7 per cent of the benefits of energy policies

Further, it predicts that, as a result of the Government’s energy policies, those living in electrically-heated households and not receiving benefits will see their bills go up by an average of £282 per year by 2020.

A fairer way of funding could be through general taxation, as this would reflect an ability to pay. Meanwhile, levies cause many fuel poor households to under heat their homes in order to avoid a bill they cannot afford.

In order for the government to try and keep control of the costs to fund incentives, The Levy Control Framework[3] was established by the former Department of Energy & Climate Change and HM Treasury. It set a cap for the forecast costs of certain policies funded through levies on energy companies, ultimately paid for by consumers.

According to the NAO[4] the Government’s latest forecast reveals that the schemes are expected to exceed the £7.6 billion cap and cost £9.1 billion in 2020-21. This is equivalent to £110 (around 11%) on the typical household dual fuel energy bill in 2020, £17 more than if the schemes stayed within the cap.

Fuel Poverty

Meanwhile, Fuel Poverty remains a significant problem across the UK (England, Scotland, Wales and Northern Ireland) with more than 4[5] million households struggling to keep warm during the winter months. However, there are different definitions and measurements of Fuel Poverty covering the UK. Nevertheless, no matter how it is defined, for many households that still means they face a stark choice of between ‘heating or eating’.

In England, following the findings of the Independent Review of Fuel Poverty[6], the timetable to eradicate fuel poverty was modified, leaving devolved assemblies across the UK with the ability to determine their own approach. Simultaneously, the UK Government also confirmed that it would modify the common UK definition of fuel poverty with a new measurement, but specific to only England, with immediate effect. Under this definition, (Low Income High Cost (LIHC)) fuel poverty affects an estimated 2.35 million households, representing approximately 10.4 per cent of all English households.

In 2010-11, there was a growing consensus that there was an urgent need for a road map to eradicate fuel poverty to be reinstated. The National Energy Action’s report at the time noted that the map should set out milestones for progress, and describe in some detail both how these are to be reached and what actions are required by whom in order to make these milestones attainable.

Since then, the Government has amended the Warm Homes and Energy Conservation Act 2000 through the Energy Act 2013. Following this, through secondary legislation the Secretary of State for Energy and Climate Change was required to set out new targets for tackling Fuel Poverty in England and bring forward a delivery strategy to meet these targets. . Subsequently, the Fuel Poverty Strategy for England introduced a new aim to improve the homes of fuel poor households, as far as reasonably practicable, to EPC Band ‘C’[7] by 2030, with interim milestones of EPC E by 2020 and EPC D by 2025. So far progress has been painfully slow and if nothing changes it will be more than 80 years before the target is reached with the current level of resources. However, a potential ‘game changer’ in this respect is for household energy efficiency to become part of the National Infrastructure Delivery Plan[8] which could facilitate the right level of resource being made available with a clear plan to make more rapid progress. This approach is now being given some serious consideration.

Meanwhile, a small step in the right strategic direction has been taken with the Government’s recent announcement [9] regarding the future of the Energy Company Obligation[10] (ECO). Whereas previously this was not purely directed to the Fuel Poor and vulnerable household it will be so in the in the future and eligibility will be extended to social housing tenants in EPC bands E, F and G, and local authorities will also be able to help match people with energy suppliers. However, the financial amount is less than in previous years and complex to explain due to the additional local authority target group that has now been added, nevertheless, the ‘direction of travel is right’.

Meanwhile, Energy Suppliers will also be required to install a minimum 21,000 solid wall insulations per year, up from the previous figure of 17,000 and with a requirement that 15% of suppliers’ Carbon Emission Reduction Obligation be delivered in rural areas.

The ECO has delivered over 2 million measures installed in around 1.6 million properties between 2013 and the end of November 2016.

It is undeniable that there is still a massive amount of work to be done before we can end the struggle of Fuel Poor households for good. However, I believe that there are things that we can do now, such as rethinking the way that energy incentives are paid for, that would drastically ease the burden on fuel poo consumers and supplement the Government’s actions for change. Ultimately, as a country we are certainly making some strategic moves in the right direction and I remain confident that through policy, optimising technology and using new ways of thinking, we can reduce the strain on fuel poor households and ensure consumer equality throughout the UK.


 

 

Thank you for reading.

Philip Smith-Lawrence

 

 

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