Select Committee on Trade and Industry Appendices to the Minutes of Evidence



APPENDIX 11

Memorandum by the Lattice Group plc

INTRODUCTION

  The Lattice Group welcomes the opportunity to submit a paper in response to the Trade and Industry Select Committee's inquiry into Fuel Poverty.

  The Lattice Group was formed in October 2000 and is one of the three successor companies to British Gas. Its principal subsidiary is Transco, which owns and operates the vast majority of Britain's gas transportation infrastructure. Transco's network supplies almost half of the UK's primary energy—three times as much as the National Grid—to over 20 million industrial, commercial and domestic customers.

  The Lattice Group is, of course, available to expand on any aspect of this submission or about our views on fuel poverty and its causes and solutions more generally.

EXECUTIVE SUMMARY

  The eradication of fuel poverty for vulnerable households is justified on the basis of the economic, environmental and social benefits.

  The question is not whether, but how.

  The Lattice Group's experience with the Affordable Warmth Programme has taught us that it is not sufficient to have good supply-side schemes to bring the necessary resources and investment to bear.

  There is also a need for complex end-to-end processes to manage the demand side efficiently and to match the particular needs of the fuel poor to particular solutions and resources. Our experience running the Stockton Warm Zone has taught us that considerable success can be achieved by managing the matching of demand and supply in all its local complexity and diversity, where fuel poverty is particularly concentrated and economies of scale can, therefore, be attained.

  Extending the Warm Zone approach to other areas of concentrated fuel poverty should be the highest priority for Government. If offers substantially the greatest benefit for any given level of expenditure.[6]

  Skill shortages in the gas industry threaten to impede progress on fuel poverty. Addressing them is crucial. Again, our experience in Stockton demonstrates that ``hot spots'' of fuel poverty tend to be areas of high unemployment and places where there is most scope to retrain people from declining manufacturing sectors.

  Using fuel poverty to boost the supply of trained/re-trained people into the gas industry is not a short term measure. The expanding British gas industry faces a looming skills shortage and those entering on the basis of fuel poverty programmes can look forward to long-term employment.

  Many fuel poor communities currently do not have access to the gas network at all. The extension of the gas network to a number of these areas can be justified as part of the Government's fuel poverty strategy. The Government should explore how this can be incentivised to happen.

THE LATTICE GROUP'S INVOLVEMENT IN FUEL POVERTY

  1.  Gas is a relatively cheap and efficient fuel and the lack of high-efficiency gas central heating systems is a contributing factor to fuel poverty for many households.

  2.  Lattice`s technical expertise in understanding the social, environmental and financial benefits that can accrue from providing efficient gas heating systems to households, puts us in a good position to advise and assist the Government in its efforts to tackle fuel poverty.

  3.  Our business experience managing large, integrated programmes has helped us to develop schemes such as the Transco Affordable Warmth Programme and the Stockton Warm Zone, which bring together a range of different public, private and voluntary sector partners to tackle fuel poverty.

TRANSCO'S AFFORDABLE WARMTH PROGRAMME

  4.  Transco's first initiative to tackle fuel poverty was a heat-leasing initiative called the Transco Affordable Warmth Programme (AWP).

  5.  The scheme, which was launched in June 2000, followed a pilot project undertaken in Leeds in conjunction with the NEA which demonstrated that the fuel savings alone resulting from the installation of high-efficiency gas central heating and energy efficiency measures in fuel poor households, more than justified the revenue cost of leasing the equipment.

  6.  To support the AWP, the Government announced a change in the tax rules relating to the leasing of heating equipment in the March 2000 Budget.

  7.  The heat-leasing element of the AWP is currently targeted at Local Authorities and Registered Social Landlords and is also used by the Government as the basis for their Warm Front Programme (formerly known as the Home Energy Efficiency Scheme).

  8.  During 2001, to further reduce the cost of heat-leasing and to bring the power and resources of high street banks to the scheme, Transco brokered a partnership between the European Investment Bank and a number of British banks. To date, lines of credit worth 330 million, which have the potential to remove a total of 330,000 households from fuel poverty, have been extended by these banks to social landlords to support the AWP and discussions are currently being held with a number of additional banks.

  In addition, to allow a further reduction in costs for social housing providers, AWP is working with a number of manufacturers to identify ways in which the scheme can facilitate additional savings by reducing equipment costs.

  9.  To date (April 2002) leases for 40,140 houses have been provided as a result of Transco's Affordable Warmth Programme and applications are being processed for a further 13,855 properties.

THE NEED FOR A CO -ORDINATEd APPROACh

  10.  Transco's AWP is making an important contribution to the Government's fight to reduce fuel poverty. But it is also clear that overall progress on fuel poverty is slow and that part of the problem is the lack of co-ordination between the many fuel poverty schemes, including the AWP.

  11.  There are a huge number of schemes in place to tackle fuel poverty. They range from centrally funded programmes such as the Government's Warm Front Programme to utility company-funded schemes such as Affordable Warmth, down to small, local initiatives being taken by Local Authorities, Registered Social Landlords and charitable organisations. Some of these schemes are run on a semi-commercial basis, others are directly funded by Government. Some offer physical improvement measures (new heating systems etc.) while others offer cheaper fuel, advice and discounts. In Stockton, for example, prior to the Stockton Warm Zone Initiative there were over 30 separate schemes all vying to play a part in the solution to this complex problem.

  12.  Lattice believes that the sheer variety of funds available, their complexity and the fact that they often have inconsistent qualification criteria has caused a number of structural delivery problems.

  13.  Indeed, money available to tackle fuel poverty has sometimes been left unused simply because of implementation difficulties associated with matching needs with particular solutions and resources.

WARM ZONES

  14.  It was in recognition of these problems, and in consultation with industry players such as Transco, that the Government developed its plans for Warm Zones. These were announced in February 2001 and launched in England in five pilot areas in April 2001. The five pilot areas are: Stockton, Sandwell, Newham, Hull and Northumberland.

  15.  Transco Affordable Warmth joined forces with Stockton Borough Council to create the Stockton Warm Zone. The aim in Stockton is to use an integrated approach to eliminate 80 per cent of fuel poverty in the zone (over 10,000 homes) within the three-year life cycle of the pilot. The scheme will also contribute towards the energy efficiency targets of the Borough through reduced carbon emissions.

  16.  When the three-year pilot is over, it is intended that a team be left behind to continue to work with the remaining 20 per cent of fuel poor and the ongoing new cases that arise and also to provide energy efficiency advice to the non fuel-poor.

THE WARM ZONES APPROACH

  17.  Warm Zones are not just another fuel poverty scheme—they are a delivery mechanism and brokerage service which allows for a more systematic and co-ordinated approach to be taken to the implementation of fuel poverty solutions.

  18.  Perhaps most importantly, it is a geographical targeted approach aimed at delivering all the existing schemes and funding streams in a co-ordinated manner to a target area, where fuel poverty is particularly concentrated and economies of scale can, therefore, be attained.

  19.  A small management team in each zone works in partnership with all relevant parties to utilise and attract all available funds to the problem. In Stockton, these include: the Borough Council's capital funds, our own AWP heat leasing scheme, Warm Front Grants, local neighbourhood renewal funds and a flexible "gap" fund created by British Gas' EEC funding which allows the team to bind together all the other funds.

  20.  By carrying out work on a street by street, house by house basis, the Warm Zones model allows solutions to be tailored to individual circumstances. The approach also allows for a constant work-flow for local gas installing companies, boosting job creation and the growth of the local economy. [7]

  21.  Currently, the Stockton Zone management team costs, of approximately 250k per annum, are being funded directly by Transco Affordable Warmth.

OUTCOME SO FAR

  22.  Although the 80 per cent target is an ambitious one, the Stockton Warm Zone has been very successful during its first year of operation:

    —  The systems and processes to run the scheme have been established and a funding package worth some 15 million has been put together.

    —  To date (April 2002), over 12,000 assessments have been completed; 4,343 houses have been insulated; and 848 gas central heating systems have been installed.

    —  The pilot has been helped by the positive approach taken by the local council. Transco has forged a strong partnership with a talented and enthusiastic Local Authority team. Good working relationships have been established with the Chief Executive, Leader of the Council, Housing Director and the Housing and Environmental Projects Teams.

    —  There has also been enthusiastic co-operation from all the other parties necessary to make such a partnerhip work—the local Health authority, social services, voluntary organisations and the housing forum.

  23.  Overall, the success of the Stockton pilot has convinced us that the Warm Zones model has great potential to be applied to other regions in Britain to deal with fuel poverty where it exists in a concentrated form. Of course, the effectiveness of any such schemes will vary from location to location and are crucially dependent on the skills of the local management team and the willingness of local authorities and other interested parties actively to engage and co-operate in the process.

COMMUNITY ENERGY PARTNERSHIPS IN SCOTLAND

  24.  The Warm Zones model has also been exported to Scotland where Transco has developed Community Energy Partnerships (CEPs) in Dundee and Lanarkshire.

  25.  As with the Warm Zones in England, the CEPs attempt to bring together all the relevant agencies in defined geographical areas to co-ordinate and utilise all the resources available to tackle fuel poverty more effectively.

TRANSITION TRAINING

  26.  Through its work in the Warm Zones in England and CEPs in Scotland, Transco has found that a major impediment to progress is the national shortage of registered gas installers. This is a problem for the liberalised gas industry generally, but it also threatens to limit the progress the Government will be able to make on reducing fuel poverty.

  27.  To help meet this challenge Transco has developed a training programme called Transition Training. Transition Training helps workers made redundant in declining industries by identifying those with suitable foundation skills who can be rapidly retrained to fill the demand for gas installers. Although originally designed to support Transco's fuel poverty activities, the programme is a flexible blueprint which has the potential to help alleviate the large-scale unemployment associated with major manufacturing redundancies.

  28.  To date, the scheme has trained, or is training, over 80 people made redundant from the Corus plants at Llanwern, Shotton and Teesside. The model has now been transferred to Scotland where 136 candidates have been identified for programmes at BAE Systems in Glasgow and NEC in Livingston where courses are due to commence in April 2002.

  29.  We believe that this model, with the necessary levels of political support, has the potential to redeploy large numbers of skilled and experienced workers from declining industries back into sustainable employment in the most cost effective and rapid way. With the enhanced support of Employment Services and other organisations, Transco can see the potential for developing many more such courses in the future.

EXTENDING THE MAINS GAS NETWORK

  30.  Many fuel poor communities currently do not have access to the gas network at all. But current arrangements mean that whoever derives the benefit from a gas extension pays the cost—there is no opportunity for cross-subsidy. This means that the communities that would derive the greatest social benefit from having access to gas (ie deprived communities) are the very ones who will never have the opportunity so to do.

 

  31.  With this in mind, Transco Affordable Warmth has been promoting to the DTI methodologies which monetise the wider social and environmental benefits associated with extending the gas network. This methodology has been taken forward by Government to assist with their consideration of the "gas to non-gas areas" issue.

  32.  The initial report of the DTI Working Group set up to look at the issue concluded that the extension of the gas network to some communities could indeed be justified. We suggest that the benefits of extending the gas network as a means of tackling fuel poverty in targeted areas be tested in a number of pilots. We understand that the DTI has applied to the Treasury for funding for such pilots.

  33.  In the meantime, a DTI Gas Network Extension Subgroup has been established to work on detailed mapping of non-gas areas by levels of deprivation. The Group is due to report in June/July and Transco Affordable Warmth is helping the Government take this work forward.

CONCLUSION

  The Government's efforts to eliminate fuel poverty for those in "vulnerable" households by 2010 are justified. The question is not whether, but how.

  The Lattice Group's experience with the Affordable Warmth Programme has taught us that it is not sufficient to have good supply-side schemes to bring the necessary resources and investment to bear.

  Our experience running the Stockton Warm Zone has taught us that considerable success can be achieved by managing the matching of demand and supply in all its local complexity and diversity, where fuel poverty is particularly concentrated and economies of scale can, therefore, be attained.

  Of course the effectiveness of locally targeted schemes will vary from location to location and are crucially dependent on the skills of the local management team and the willingness of local authorities and other interested parties actively to engage and co-operate in the process. But at its best, the Warm Zones model ensures that the many disparate schemes that deal with fuel poverty are properly co-ordinated and that all funding streams are exploited in the most cost-effective manner. Extending the Warm Zone approach to other areas of concentrated fuel poverty should, therefore, be the highest priority for Government.

  The Government also needs to address, as a matter of urgency, the skills shortage problem which exists amongst gas installers. Without continued action, this shortage will compromise Government efforts to tackle fuel poverty.

  Finally we would strongly urge the Government to quantify—by means of a series of pilots—the benefits of extending the gas network as a means of tackling fuel poverty.

Richard Grant

Group Head of Environmental Affairs and Director of Transco's Affordable Warmth Programme

 


6   "Since this paper was submitted, the Prime Minister, on a visit to celebrate the success of the first year of the Stockton Warm Zone (26 July 2002), announced the launch of a second Transco-led Warm Zone in the nearby Local Authority of Redcar and Cleveland. It is hoped that the Redcar and Cleveland Zone will begin operating in the Autumn of 2002." Back

7   The UK Fuel Poverty Strategy, published by the Government in November 2001, explained how the scheme works: "the [Stockton] Warm Zone team use door-step assessors to identify the fuel poor households, whose homes are then surveyed and a list of measures developed, which are implemented by local installing companies. The team also work closely with the Energy Advice centre to provide energy advice to complement the physical measures" (page 48). Back

 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 10 September 2002