Memorandum by Innogy plc
1. Innogy supports the Government's Fuel Poverty Strategy and is committed to playing its part to help the Government meet its fuel poverty targets. We generate electricity and supply gas, electricity and other essential home services through our retail business, npower. We operate and manage our flexible portfolio of power stations, run our own trading business and are developing innovative energy-related technologies. Our energy portfolio is helping to meet the increasing demand for clean and sustainable energy generation and contributing to the achievement of the Government's targets for renewable energy, cogeneration and energy efficiency. Innogy's Chief Executive Brian Count is a member of the Government's recently formed Fuel Poverty Advisory Group, chaired by Peter Lehmann. We believe the most effective way to tackle fuel poverty is to work in partnership with Government and appropriate bodies. We welcome the opportunity to contribute to the Trade and Industry Committee's inquiry into fuel poverty.
AN INDUSTRY APPROACH
2. Our approach to fuel poverty has been to work in partnership with appropriate bodies and in 2000 we launched our Health Through Warmth Scheme, through our retail business npower, which works in partnership with the NHS, local authorities and National Energy Action (NEA). Those who are living in fuel poverty may be reluctant to seek help, or find it hard to know where to find help, and Health Through Warmth uses the eyes and ears of key health and community workers to identify those who seem to be suffering from fuel poverty/cold-related illnesses. Once these households have been identified they are referred to a specialist team which assesses the requirements and determines which grants are available to help fund it. The pilot scheme in Birmingham started in December 2000. In May 2001 the scheme was extended to Wolverhampton and in October 2001 to Staffordshire, Dudley and Herefordshire. Our targets for Health Through Warmth are to extend it to 20 NHS areas, train 20,000 key workers nationally and help 300,000 households. Over the past year we have trained 1,600 key workers, accessed £700,000 worth of grants and 1,200 referrals have been made. We aim to raise a total of £10 million worth of funds, following our core investment of £5.7 million. A further 10 areas have been identified for a nationwide launch of the scheme in 2002.
3. Through npower, we are main sponsors of three out of the five Government Warm Zones: Sandwell, Northumberland and Hull. Sandwell Warm Zone provides a good example of the benefits of this scheme. Around 51 per cent of the 123,000 households in Sandwell are estimated to be in fuel poverty. The scheme aims to reduce fuel poverty by at least 50 per cent giving priority to the most vulnerable households. We are contributing £250,000 a year to the scheme together with the secondment of three Zone Directors.
4. We have also sponsored a research project undertaken by NEA and the New Economics Foundation known as Factor Four. The project looks at what role financial bodies such as Credit Unions could play to help the fuel poor and low-income households get access to cheaper energy payment tariffs. The Factor Four model has been designed to integrate four key areas: energy advice, budgeting and money advice; take-up of energy efficiency measures and bill payment.
Q1 Is the Government target of ensuring that by 2010 no members of "vulnerable households" need risk ill health due to a cold home adequate? Can it be achieved?
5. We welcome the Government's target and believe that it is broadly adequate. However, we believe that the 2010 date will be difficult to achieve with the current level and type of activity. In summary, in our view the main Government schemes (Warm Front and the Energy Efficiency Commitment) do not address the problems fully. Both schemes have a set of complicated qualifying criteriausually based on benefitswhich inevitably misses many fuel poor households. We have outlined below what we believe are the key problems in both these programmes and suggested how we believe they could be improved.
6. WARM FRONT
While we welcome and support the Warm Front scheme and are lead sponsors of three Warm Zone pilots, we believe that more could be done to identify and therefore help vulnerable households. For example, many fuel poor households in the private sector will not be eligible for Warm Front funds. Recent Sandwell Warm Zone data (March Report) indicates this mismatch between fuel poor households and eligibility for Warm Front funds. The Report shows that where income details have been quoted out of 1,656 Warm Front eligible households, 661 (39.9 per cent) were not fuel poor. Conversely, out of 1,424 fuel poor households, 429 (30.1 per cent) were not Warm Front eligible. 44.5 per cent of these households were not eligible because they were under 60 and 43.6 per cent were over 60 but not eligible because they were not on the relevant benefits. Other fuel poor households that are missing out on Warm Front include those renting from small, private landlords and those who are equity rich/cash poor eg a single pensioner living in a large house.
7. Warm Front has also now been removed for social housing and it is suggested that this level of potential investment may not be replaced by Local Authorities. Fuel poor council tenants are likely to suffer accordingly.
8. There is currently no incentive for Energy Efficiency Commitment (EEC) managers to provide funds in Warm Zones or other areas of high fuel poverty. Premium EEC credits should be given in these areas to encourage interest and action.
9. Overall, therefore, there are major problems identifying the fuel poor through current schemes. We would recommend that a central national scheme is set up which invites people, through national or regional advertising to indicate whether they are in fuel poverty (by applying the 10 per cent test) through a clear and simple application process. They could then apply to a central or regional body that would have a source of funds for people in fuel poverty and also access to Warm Front and EEC money.
Q2 Why has the number of fuel poor households fallen recently? Can this reduction be sustained?
10. The definition of fuel poverty is problematic and has been the subject of much debate. This has made it difficult to accurately ascertain the number of fuel poor households. More work needs to be done to agree on one definition that is consistently applied from now until 2010. For example, if the definition of fuel poor households includes Housing Benefit or Income Support for Mortgage Interest (ISMI) the number of fuel poor was 2.8 million in 2000. If the income from these benefits is excluded the figure increases to 3.9 million. This issue is highlighted in the Government's Fuel Poverty Strategy. We would argue that the true number of people suffering from fuel poverty is probably underestimated. In Sandwell Warm Zone, for example, current figures indicate fuel poverty levels of 51 per cent.
11. Structural changes in the energy markets, including the reduction of prices due to competition, are likely to have contributed to the reduction of fuel poverty. Lower energy prices are likely to remain a part of a competitive energy market.
Q3 What is the relative significance of factors such as poor energy efficiency, low incomes or the cost of fuel?
12. Household energy efficiency levels and income are the main elements used to calculate fuel poverty. However the calculation (and therefore identification of fuel poor households) of fuel poverty could become a largely academic exercise because of the difficulties of collecting accurate data.
13. A decision needs to be made on whether the policy focus should be on the housing stock or on the household. A helpful objective might be to bring all housing stock up to a reasonable level of comfort so that any occupant, regardless of personal position, can be warm. Further, improvements to the housing stock through energy efficiency improvements for example would arguably be a more sustainable approach than concentrating on energy prices or income levelsboth of which are subject to fluctuations.
Q4 How effective are the industry-led initiatives?
14. We believe that industry-led initiatives are important and that in partnership with Government and key organisations they can be very effective in tackling fuel poverty. However, these initiatives could be made more effectivefor example, Warm Zones could benefit from the removal of some structural constraints to relax the eligibility criteria for Warm Zones funds. As we have already discussed, this could then bring the benefits of Warm Zone funds to more of the vulnerable fuel poor. We would also suggest that premium EEC credits are awarded for Warm Zone work.
15. We believe that by providing a direct link between vulnerable households, health professionals and funding, our Health Through Warmth scheme is very effective in tackling fuel poverty. Our targets for Health Through Warmth are to extend it to 20 NHS areas, train 20,000 key workers nationally and help 300,000 households. Over the past year we have trained 1,600 key workers, accessed £700,000 worth of grants and 1,200 referrals have been made. We believe, therefore, that Health Through Warmth represents a good example of an industry initiative achieving real results. The limits of Health Through Warmth are the number of health authorities that can be included and the availability of funds. Another limit to the effectiveness of Health Through Warmth is that referrals to Health Through Warmth from social housing cannot be met from Warm Front funds, as discussed in paragraph 7 above.
16. Warm Zones, although in the early stages, are physically helping large numbers of people and raising the profile of fuel poverty in the pilot areas.
Q5 How can the Government promote the take-up of energy efficiency measures in households whose income is just above benefit level?
17. The PIU's recent Energy Review had a welcome focus on the importance of energy efficiency to the achievement of a sustainable energy future. In order to promote energy efficiency measures in low income households, the Government could provide schemes or incentivise companies to provide schemes where contribution from the householder is as low as possible. Government could also do a lot more to advertise the benefits of energy efficiency, which is very low down on the average household's priority list, whether they are fuel rich or poor. Government could incentivise suppliers to target these households, rewarding them with premium EEC credits.
Q6 How much could better co-ordination between agencies or fiscal measures help?
18. Co-ordination and communication are key to success. At present there are a lot of schemes and agencies that could benefit from working together more effectively towards a common goal. Perhaps one national scheme, centrally controlled and directed would help bring about this co-ordinated access to funds and expertise.
19. Local government could also be encouraged to support fuel poverty initiatives especially in very deprived areas, thus bringing them more into line with central Government objectives to eradicate fuel poverty.