Considered in Grand Committee
My Lords, one of my department’s key priorities is reducing carbon emissions from energy-inefficient homes and reducing the number of households in fuel poverty. The Green Deal programme and the energy company obligation are designed to meet these joint objectives and give consumers access to a range of funding streams for energy-saving improvements in their homes.
The Green Deal is an innovative financing mechanism that enables consumers to pay for the cost of energy efficiency improvements over time through savings in their energy bill. Since the Green Deal legislative framework came into force in October, we have seen more than 270 separate installer organisations register to deliver Green Deal measures and more than 140 expressions of interest from potential Green Deal providers, with 13 already authorised.
The energy company obligation, which is worth an estimated £1.3 billion per year, will work with the Green Deal and require energy suppliers to support those living in harder-to-treat properties and assist low income households, helping them to heat and insulate their homes. We estimate that the ECO subsidy will support the installation of more than 1 million insulation measures by March 2015, which will drive the uptake and development of solid wall insulation technologies. We have ensured that at least 40% of ECO support will be targeted at low-income households, and that support is worth around £540 million per year. It will assist around 230,000 low-income households each year and will make a huge difference to the lives of those who need it most.
I am grateful to the Committee for allowing us to debate these statutory instruments together. I will briefly describe the purpose of each of them. First, the Green Deal Framework (Disclosure, Acknowledgment, Redress etc.) (Amendment) Regulations 2012 essentially relates to the energy performance of buildings regulations, which cover energy performance certificates, and are already a common feature of the property landscape. It is important that the Government amend the regulations relating to EPCs by 28 January 2013, which is when the Green Deal plans can begin to be made, to ensure that the EPC framework can be used to disclose the key terms of the Green Deal plan to subsequent bill payers when, for example, a property is sold or let out. This will be an essential element of our approach to consumer protection under the Green Deal.
Our initial legal view was that Regulation 42 of the Green Deal regulations did not need to be in force before we amended the EPC regulations. However, this is highly complex legal territory and, having given further consideration to the issue and in order to avoid any doubt, we have concluded that the amendment that we are considering today should be brought into force before 28 January 2013. In fact, it will come into force on the day after it is signed by the Secretary of State, following its approval by Parliament. This means that we can create a clear window of time within which the separate changes to the EPC regulations can be made. As the amendment that has been made is simply a change of date, I propose not to take up much of the Committee’s time on this instrument in these remarks.
The draft Electricity and Gas (Energy Companies Obligation) Order 2012, known as ECO, places three obligations on energy suppliers that have more than 250,000 domestic electricity and/or gas customers and have supplied more than the specified level of energy in a relevant period. The obligations are a carbon saving obligation, a carbon saving community obligation and a home-heating, cost-reduction obligation.
The ECO order was successfully debated in this House before the Summer Recess. It is brought back now for consideration in light of the technical amendments that we have identified as essential to its effective operation. These technical amendments centre on an “in-use factor”, which is used to reduce the amount of energy that a particular energy efficiency measure is calculated to save, compared to its theoretical assessment. The inclusion of an in-use factor will reflect that measure’s likely actual performance when in situ in a property. The previous ECO order did not incorporate the provisions necessary to ensure that in-use factors were applied, which created a degree of uncertainty for obligated parties. I apologise to the Committee that we did not identify this technical inconsistency earlier. However, as soon as we did we took the necessary steps to correct the position. My department immediately launched a short consultation to address the anomaly and provide greater clarity.
The overwhelming majority of respondents—about 80%—agreed with the three proposed amendments on which we consulted. The following revisions have therefore been made to the draft ECO order that we are considering today. In-use factors have been included for the scoring measures installed under the carbon emissions reduction obligation and the carbon-saving community obligation, and a schedule of fixed in-use factors for specific measures has been added. The draft order now provides for ECO-eligible measures installed from 1 October 2012 to count towards a supplier’s eventual ECO obligation.
We have made a number of other small amendments to the ECO order. These are not changes of policy but will provide greater clarity for energy suppliers and Ofgem in administering the scheme, to ensure that ECO delivers the policy objectives that were set out in the Government’s consultation response and impact assessment. The changes make explicit that ECO affordable warmth assistance should be targeted at individuals living in private-tenure properties and will provide clarity on the treatment of excess actions carried forward from the current CERT and CESP schemes. They also make it clear that the supplier can be credited for both space-heating savings and hot-water savings in a case where a measure delivers both—for example, a boiler or central heating system.
The regulations will help to improve the energy efficiency of homes across Great Britain, reduce our carbon emissions and, crucially, help households to manage their energy bills. I commend the regulations and order to the Committee.
I thank the Minister for her explanation of the statutory instruments before us. It will be good to take up the challenge of the Green Deal with her, as it was with her predecessor. There is nothing wrong with the ambition to tackle energy efficiency and the nation’s housing stock. We on this side of the House continue to support the objectives of the Green Deal. It is a vital part of energy demand reduction and energy efficiency improvements to meet greenhouse gas emissions targets and promote energy security and climate change mitigation.
The Green Deal framework regulations were largely debated and agreed in July, so there is no need to revisit our discussions. However, we have the opportunity to press the Minister on progress, to voice some of our continuing concerns, most notably about finance and the Green Deal Finance Company, and to assess the Green Deal’s interrelationship with the energy companies obligation order.
The Green Deal regulations merely bring forward by six to eight weeks the date of the coming into force of some features of Regulation 42. The ECO order allows in-use factors to be used in the assessment of outcomes and benefits under the golden rule. The amendments drew comment in the 14th report of the Secondary Legislation Scrutiny Committee. It stated that it hoped that Her Majesty’s Government’s use of secondary legislation would not increase with further corrections and amendments. I do not criticise the coalition for this; after all, mistakes are a defining characteristic of this coalition. We raise concerns to be helpful to the Minister’s department, and note that a further suite of legislation relating to the Green Deal is expected shortly. It will concern the Consumer Credit Act and will contain guidance on the Green Deal generally, and for Green Deal providers on the confirmation and disclosure process.
I note that plans are intended to go live and to be signed up to from 28 January 2013. Perhaps I may ask the Minister when the House may have sight of them. The seriousness of the situation is underlined by the fact that CERT and CESP are due to finish at the end of December this year. While there may be some allowances for outstanding obligations to be carried over, nevertheless the uncertainty that this generates in the industry critically undermines confidence. If there continues to be slippage, there is a heightened risk of job losses and layoffs in the gap that will open up between the end of CERT and CESP and the implementation of Green Deal plans. While the date in January to allow plans to be signed up to is consequential on finance plans from the Green Deal Finance Company, perhaps I could ask the Minister why improvement plans that participants are content to pay for immediately and without finance may not be signed up to immediately.
There is widespread concern at the lack of clarity concerning interest rates, finance charges and penalties yet to be brought forward by the Green Deal Finance Company. It is largely academic to draw up Green Deal plans when the full cost alternatives are not yet available. We remain concerned that, to many people, the Green Deal may not be a good deal, especially when finance costs are included at a rate between 5% and 8%—which the Minister conceded in July was not an unreasonable figure, to use his words. When will the Government use their shareholding in the banks to inform them that they can do more for less, in the same way as every other company in the country is having to do?
The Government have our congratulations on setting up the Green Investment Bank legislation that is currently in your Lordships’ House. This is the Government’s own seedcorn. What plans do they have to utilise the Green Investment Bank to underwrite the Green Deal, and how will that work? Do they realise that the public’s attitude to debt has changed and that trust in banks is severely shaken?
Concerning the second order, the ECO is intended to work in tandem with the Green Deal policy to enhance further the installation of cost-effective energy efficiency improvement measures, especially those not fully financeable through the Green Deal alone, including measures to help those in fuel poverty and properties in communities in rural areas. The revised order is to ensure that in-use factors are applied when calculating carbon savings attributable to measures installed under ECO—that is, carbon savings that reflect actual performance once installed in domestic properties. Once again, guidance is eagerly awaited by the industry. This revision seems to be in response to the concerns raised about the golden rule. That the golden role may not apply once measures have been completed not only further undermines consumers’ confidence in the Green Deal, it could open up the Green Deal and even the Government to challenges for misselling. As the potential forthcoming Government, we would be especially keen to avoid that mistake.
Concerning the link between the Green Deal and ECO, I remain unclear about under what process the ECO may be triggered and hence the costs mushrooming out of control, leading to extra charges on all consumers’ bills. Does the take-up of measures under ECO expand in line with the poor take-up of the Green Deal plans? Will an attitude be encouraged that if consumers decline the voluntary take-up of a Green Deal, the energy companies under ECO will be obliged to undertake the plan anyway? If expenditure to alleviate fuel poverty is reducing as the definition of those qualifying is tightened up, how will that be financed other than by mushrooming domestic bills, already put under great stress by the actions of this Government? Can the Minister clarify the situation?
I understand that part of the delay in getting Green Deal plans going is that the software to set up the register is itself yet to be set up. I understand that the application of the golden rule and its interpretation, as applied to the specific property in question, is the problem. That seems core to the operation. Can the Minister throw any light on that?
I know that the Residential Landlords’ Association is keen to see and discuss the regulations for the private rented sector, particularly regarding the compulsion elements. I know that the Minister will agree that every encouragement must be given to the sector to get on with improvements before compulsion.
In conclusion, we continue to be concerned that the Green Deal may not be the game-changer that we all wish it to become. It is a huge undertaking, yet the prize of whole streets’ and districts’ housing stock being upgraded, without exception to tenure or to the ability to pay, remains the objective that we all applaud.
My Lords, I shall briefly make a couple of comments and ask one question of the Minister. I am glad that there is continued all-party support, under her new leadership in this area, for the Green Deal and for the work of the Green Investment Bank, which I strongly echo. I hope that, as the Government have been reconsidering elements of the energy Bill, when we finally read it this week we will see a greater emphasis on energy efficiency measures. It is so important that we see energy efficiency embedded in energy policy, as much as we focus rightly on the need to ensure that we have the correct balance between nuclear, renewables and fossil fuels in a policy geared towards ensuring that we have security of supply at a competitive price.
I welcome the Minister’s clear explanation of the measure before the Committee today. In her opening comments, she made an interesting point: she said that during the consultation exercise undertaken on the three measures that we are considering, 80% were in favour. It would be helpful if we knew the genesis and gist of the 20% who were against the measures, so that we can take that into consideration before reaching a determination.
My Lords, I associate myself with my noble friend Lord Grantchester’s questions, which should throw some clarity on this issue, and with the underlying point made by the noble Lord, Lord Moynihan, about energy efficiency in general. Like other colleagues, I strongly support the concept of the Green Deal and wish to see it in operation as rapidly as possible. Now that we have a clear start date, the company is in place and the assessors are coming online, we stand a good chance of being able to start from that date.
The problem for the Government is that the start-up will be relatively slow. It is still not clear to the general public what the Green Deal is about. I think that I am right in saying that the Government are still setting their face against having a public information campaign on the Green Deal, which seems to negate all the good work that the department has done to get all its ducks in a row by this point. If we do not make a real effort—and it will be quite an expensive effort—to tell the public what is on offer, I fear that take-up will be even slower.
That leads me to my central point, which is broader than these regulations. I recognise that they involve some tidying up and corrections, as well as bringing some technologies into play, so I approve of their general direction. What is needed to surround them, though, is, first, a bigger commitment and information and, secondly, frankness about how quickly the Green Deal will not only have an effect on general energy saving and cost saving for householders but, more particularly, have an effect on and be available to the more vulnerable of those consumers.
The interplay between the ECO and the Green Deal is intended to replace CERT and CESP, and is also intended effectively to replace Warm Front. The total number of households covered by those provisions together, even after being run down over the past couple of years, is still close to 200,000. For those groups in fuel poverty, by the old definition at any rate—and I suspect that it will also be true under the new definition—I do not see how the Green Deal is going to replace a figure of that magnitude. When we are considering this, it would be useful to know the Government’s overall assessment of the impact of this on fuel-poor households, and of how far that and other measures will approximate what went before.
Having said that, I approve, broadly speaking, of the regulations and I approve of the Green Deal. However, we have to be clear that we are covering the hiatus period which, even if takes off faster than I am assuming, will cover the next 12 months at least. We also have to be clear on how it affects help to the fuel-poor who, at the moment, are still growing in number by any definition.
My Lords, I am grateful for the Committee’s comments and, of course, am glad that it has largely accepted the regulations. Noble Lords opposite are a little too pessimistic. On the one hand, they agree with what we are doing but on the other they are saying that we cannot deliver. I have said very clearly that, first of all, it is always helpful if Governments—be they coalitions or whatever—own up that there has been a mistake. At least I am standing here big enough to be able to do that. I am often disappointed when noble Lords opposite forget that many mistakes were made during their time in government. They have still failed to own up to that. That was just the cheap point that I wanted to get across following the cheap point that was thrown at me. I am always very glad that the noble Lord is optimistic in thinking that they are going to be in government next time. I wait to see that day.
Coming back to some of the questions that noble Lords have raised, I will first respond to the noble Lord on how fuel poverty is being tackled when eligibility is being tightened. The criteria for eco-affordable warmth are being better targeted; they are being targeted on low-income, vulnerable households that are in the greatest need of assistance, including—this time around—the elderly and disabled.
Sitting suspended for a Division in the House.
My Lords, we will target eligibility criteria for ECO affordable warmth predominantly on private tenure, where concentration of fuel poverty is almost double that found elsewhere. I am sure that noble Lords will agree that we need to ensure that those who require it the most and are least able to afford it should be at the forefront of our schemes.
My noble friend Lord Moynihan asked about the 20% of respondents who did not agree with including the in-use factor. They wanted it to be a changeable rather than a fixed factor, but they did not disagree with the principle.
The noble Lord, Lord Grantchester, asked whether the software was ready. The software tool to be used in people’s homes is fundamentally an issue for the companies providing the Green Deal, but it is important that it be properly tested and approved to ensure that it generates the correct results. I understand that several tools are undergoing a process of technical validation and we expect to see them on the market in the very near future.
The noble Lord, Lord Whitty asked about the impact on fuel-poor households and how expenditure compares with that in previous schemes. Our figures suggest that total fuel poverty spending was £760 million in 2009-10 and will be £828 million in 2014-15, which represents a 9% increase in spending over the period. It will be a more effective way of assisting low-income, vulnerable households than existing schemes because energy suppliers will be incentivised to deliver a package of measures to help households to heat their homes more affordably, rather than just delivering single measures to individual dwellings.
The noble Lord, Lord Grantchester, asked if we were planning to lay regulations amending the Consumer Credit Act. Using the power in Section 30 of the Energy Act 2011, amendments to the framework regulations will be laid to the framework in December. We have laid a revised draft Green Deal code of practice today and recently we published Green Deal provider guidance. If the noble Lord has not had sight of that, I am sure that he will be able to access it.
I have additional information for the noble Lord, Lord Grantchester, on the Consumer Credit Act. It will be for the purpose of dealing with situations where there is more than one debtor under a Green Deal plan, which I think he was quite concerned about. If one bill payer moves on, but the Green Deal has arrears, there will be a format for us to ensure that we can respond.
The noble Lord, Lord Grantchester, also asked how the ECO subsidy would interact with the Green Deal because of the golden rule. There will be occasions when it will not be possible under the golden rule to cover the full cost of installations of more expensive measures. Therefore, the ECO subsidy will work with Green Deal finance for these measures and will take it into account when calculating the Green Deal finance package for the household.
The noble Lord, Lord Grantchester, asked several more questions and I hope that I will be able to answer most of them. If I do not, I will ensure that the noble Lord is written to. He asked how the Green Investment Bank would underwrite the Green Deal and how that would work. I may suggest to him that this is a negotiation process between the Green Deal Finance Company and the Green Investment Bank. It is an agreed priority for the Green Investment Bank, but these are commercially confidential negotiations, and they are ongoing. I cannot comment further on them.
The noble Lord, Lord Whitty, said that no one really knows about the Green Deal. We have been working closely with local authorities and consumer groups but until we are able to offer the Green Deal, which will go out in January, we do not want to raise the expectations of people and then tell them to wait. We have worked closely to ensure that all the processes we need to ensure that the Green Deal is kick-started in a very progressive, productive way in January are in place. That work has been going on for several months.
I urge the noble Lord, Lord Whitty, to be less pessimistic about the response that we are going to get to the Green Deal. I assure him that many of us, particularly Ministers, have been to a number of events to raise the profile of the Green Deal. In October, it was kick-started when people could sign up to become suppliers, assessors and providers, but the programme will not start until January 2013. The noble Lord needs to sit and wait, and to watch this space. However, I urge him to be optimistic that people will benefit hugely from the Green Deal and that we are working very well and very closely.
My Lords, I am prepared to agree with the noble Baroness that everything is being put in place, and you could not expect and would not want a huge take-up right at the beginning. My point was that, because all the other schemes will have finished by 28 January, there will be a hiatus between that and Green Deal reaching its forward drive path, if everything goes well—I certainly wish it well. Therefore, in 2013 we will see a dip in the number of households treated, particularly in relation to fuel poverty. It may well be that by 2014, if all goes well, the situation will have improved. However, for the next year and a half, the Green Deal uptake, and in particular the uptake by the fuel-poor, who are heavily concentrated in the private rented sector, which is the most difficult to address and where there are most reservations among both landlords and tenants, will not be that fast. I am not complaining about that; I am just saying that there will be a big problem over the next 18 months in the achievement of energy efficiency and fuel poverty targets.
Perhaps I may reassure the noble Lord that we have looked at those factors. People on the current schemes will remain on them and will be protected until the Green Deal takes over. Unless I am corrected by officials, the noble Lord can feel reassured that there will not be the hiatus that he assumes. If I do not receive inspiration immediately, I will write to the noble Lord—but I see that inspiration is on its way. The Warm Front will continue until March 2013.
Yes, Lord Deputy Chairman, it is. We expect that ECO companies will continue to work on affordable-warmth schemes. That will start very soon. If there is a dip, the Warm Front scheme will remain open, and applications for funding will remain in place until the end of the financial year. I suspect that that has not satisfied the noble Lord. Therefore, I will write in greater detail and clarity to him to ensure that when he takes this great Green Deal programme of ours back to the people he wants to talk about it with, he will have absolutely the right information at his fingertips.
If I am right, the noble Lord, Lord Whitty, also talked about the wider and more general issue of communicating guidance on the Green Deal scheme, and of the importance that has been attached to this by all sides of the Committee and of the House. Will the Minister give us a little more information about what is intended on that? I found it very welcome that in section 8 of the guidance notes there is an indication that it is under way and that it is a priority of DECC. I agree with the noble Lord, Lord Whitty, that public information campaigns on this will be very relevant to its uptake and success.
Absolutely. My noble friend—and the noble Lord, Lord Whitty—raised a very important point. Obviously I have not made myself clear. I will undertake to write to all members of the Committee, setting out exactly what we undertake to do about guidance for consumers and suppliers.
I will finish by addressing the point about job losses raised by the noble Lord, Lord Grantchester. I reassure the noble Lord that under the schemes that we are putting forward, we will see a rise in job creation. In the installation sector alone we expect to see jobs for 60,000 people. The noble Lord should be much reassured that this is a wonderful platform for job creation, particularly for the small and medium-sized sector.
I accept what the Minister says. We do not doubt that as Green Deal plans build up, as my noble friend suggested, there will be wonderful opportunities. We wish to see—and will applaud—all the job creation that this will entail. My point was similar to that of my noble friend Lord Whitty, and related to the gap that might open up before the plans are implemented. The installers may get very nervous about the continuing employment of people under CESP and CERT, which are coming to an end. A gap may open up that will make them extremely nervous when it comes to keeping those people on.
Although I cannot give the noble Lord figures at this moment, I can reassure him that we have no shortage of people signing up to the Green Deal. They fully recognise that there will not be a gap; there will just be a movement from one scheme to another. By and large, the noble Lord’s worry is perhaps slightly unjustified. I therefore commend these regulations to the Committee.