Westminster Sustainable Business Forum

Warmer & Greener: A Guide to the Future of Domestic Energy Efficiency Policy

 

EXECUTIVE SUMMARY

 

The Case for Improving Domestic Energy Efficiency

Improving domestic energy efficiency is essential to tackle fuel poverty and meet the UK’s

legally binding target to reduce greenhouse gas emissions by at least 80 per cent from 1990

levels by 2050. In addition to helping to decarbonise the energy system, domestic energy

efficiency offers a highly cost-effective route to engage with the other elements of the UK’s

energy policy trilemma: ensuring security of energy supply and ensuring energy is affordable.

 

There are strong links between the efficiency of domestic buildings and their occupants’ health

and wellbeing. Increasing the efficiency of the UK’s housing stock would therefore lower social

care costs and reduce the burden on the National Health Service. Large scale energy efficiency

programmes would also unlock substantial economic benefits including boosting economic

growth, creating jobs and increasing the ability of individuals to contribute to society.

 

Defining the Problem

There are approximately 4.5 million fuel poor households in the UK. The UK Government’s

fuel poverty strategy for England sets a target to bring as many fuel poor homes in England as

is reasonably practicable up to a minimum Energy Performance Certificate (EPC) rating of C

by 2030. However, this report argues that current policies will be insufficient to engage with

this target and tackle fuel poverty. This report has also identified a clear shortfall between the

Government’s targets on greenhouse gas emissions and the current policy mix. It therefore

seeks to engage with the question of how domestic energy efficiency can be improved to

address these policy gaps.

 

Average efficiency ratings and the proportion of fuel poor households varies between different

housing types and each sector faces particular challenges to improve its energy efficiency.

Additionally, some types of energy efficiency measures have been installed in large numbers.

Other types of measures have only been rolled out on a very limited scale, for example there is

considerable remaining potential to deliver solid wall insulation. Moreover, current and past

supplier obligation schemes have primarily incentivised the delivery of measures at the lowest

possible cost. As a consequence the schemes have tended to under-deliver to households which

are more expensive to treat but are often most in need, such as deep rural properties.

 

Regulation

This report finds that there is a strong case for the use of smart regulation to improve the

standard of homes currently being built and drive up the efficiency of existing homes. For

newly built properties, regulation is necessary to prevent homes being constructed which will

have to be retrofitted at a later date. The Government should therefore reinstate a long term

mandatory zero carbon standard for newly built homes.

 

Recommendation 1

The Government should reinstate a long term, mandatory zero carbon standard for newly

built homes.

 

The report lauds the introduction of minimum energy efficiency standards for the private

rented sector. However, its findings reveal a number of problems with these minimum

standards which threaten to undermine their impact and need to be addressed. The current

standards are linked to the Green Deal which is no longer funded by government and could

therefore make them unenforceable. Houses in Multiple Occupation that are let on a room-by6

room basis are effectively exempt from the minimum energy efficiency standards. There is also

a very high level of noncompliance with requirements to issue EPCs at the point of letting and

the vast majority of landlords can be assumed to be unaware of the new minimum energy

efficiency standards.

 

Energy efficiency in the private rented sector could also be improved by local authorities using

the Housing Health and Safety Rating System more widely and by combining the existing

annual gas safety checks with evaluations of the efficiency of a heating system. The latter point

relates to the risk of a heating system becoming less efficient over time.

 

In the long term, the minimum efficiency standards for private rented sector properties need

to be increased beyond an EPC Band E. This could be done progressively over time but should

include a final, long term target. For example by demanding a higher EPC Band every 5 years,

with the date private rented properties are expected to be at Band A set out far in advance.

Additionally, this report makes the case for requiring the advertising of rent prices to include

an estimate of expected energy costs calculated from the costs displayed on EPCs. This

initiative would incentivise landlords to retrofit their properties.

Recommendation 2

The minimum energy efficiency standards need to be strengthened to ensure that they

have a meaningful impact. The problems associated with the Green Deal, Houses in

Multiple Occupation and landlords’ awareness of the regulations need to be addressed.

Recommendation 3

In the long term, the minimum energy efficiency standards for private rented sector

properties need to be increased beyond an EPC E rating.

Recommendation 4

The Government should mandate that advertising of private rented accommodation

includes a figure for monthly expected energy costs calculated from the EPC for that

property.

 

The report argues for the extension of minimum energy efficiency standards to the owneroccupied

sector. These efficiency standards should increase over time and be mandated at the

point of sale of a property. This would tie in with existing regulations and could be

complemented by introducing consequential improvements. Consequential improvements

mean that when householders carry out larger refurbishment projects they also have to make

energy-saving improvements in other areas of the property. Furthermore, the report argues

that there is a need to introduce a new decent homes standard with a greater focus on energy

efficiency to drive consistent improvement across the social housing sector.

Recommendation 5

The Government should introduce minimum energy efficiency standards for the sale of

properties, which are increased progressively over time.

Recommendation 6

A new decent homes standard should be launched in the social housing sector with a

greater focus on energy efficiency.

 

Financial Mechanisms

The current supplier obligation, known as the Energy Company Obligation 2 (ECO2) will come

to an end in March 2017 and is set to be replaced by a new 5 year scheme which will focus on

tackling fuel poverty. This report finds that there are fundamental problems with the idea of

focusing a supplier obligation on fuel poverty. It assesses some of these problems and makes

suggestions to mitigate some of the potential issues with the next phase of the Energy

Company Obligation (ECO). It argues that the system of delivering ECO needs to be simplified

by re-introducing deemed scores and reducing the overall administration involved in the

scheme. To effectively tackle fuel poverty it will also be necessary to support ECO with a taxpayer

funded scheme administered by local actors. In the longer term there are significant

questions about how best to use a supplier obligation scheme. This may involve not focusing

future obligations solely or predominantly on fuel poverty, phasing obligations out or retaining

the same funding source of energy bills but placing responsibility for delivery in the hands of

local actors.

Recommendation 7

The next phase of ECO should be based on a system of deemed scores and the Government

should aim to reduce the overall administrative burden imposed on those involved in its

delivery.

Recommendation 8

The next phase of ECO should be supported by a tax-payer funded fuel poverty scheme

administered by local actors.

Despite the problems with the Green Deal, this report argues that loan schemes could still have

an important role to play in supporting the improvement of the UK’s housing stock. Recent

research shows that there is considerable potential to use mortgage schemes to both finance

the installation of energy efficiency measures and help increase demand for more efficient

properties. The Government should work to persuade lenders to factor in an accurate

assessment of energy costs on a voluntary basis or make minor adjustments to the Mortgage

Market Review legislation to this effect.

Recommendation 9

Mortgage lenders should include more accurate calculations of energy costs in their

mortgage affordability assessments. This can be achieved either on a voluntary basis or

through changes to the Mortgage Market Review. In tandem with changes to mortgage

affordability assessments, lenders should provide mortgage extensions to finance energy

efficiency measures.

 

This report urges the Government to draw lessons from the failure of the Green Deal and

follow the model of ‘soft loans’ whereby public money is used to subsidise the cost of

borrowing to make it more attractive. The report also strongly advises against the use of short

term grant schemes like the Green Deal Home Improvement Fund, which tend to create a

cycle of boom and bust.

 

Future grant schemes need to be based on a sustainable funding model to provide certainty and long term sources of demand for the energy efficiency industry.Warmer & Greener makes a strong case for the use of tax incentive schemes to encourage energy efficiency improvements as they provide a long term, structural source of demand that the market can deliver against. In the light of the considerable challenges associated with

creating a council tax incentive scheme, this report favours a stamp duty incentive scheme to

support the uptake of energy efficiency measures in the domestic sector.

 

The 2015 Autumn Statement announced a 3 per cent surcharge on stamp duty rates for purchases of buy-to-let properties and second homes as of April 2016. A rebate on this could be used to encourage efficiency improvements, either as an interim measure before a variable rate is rolled out to all properties or as part of a wider stamp duty incentive project.

Recommendation 10

The Government should introduce a stamp duty incentive to encourage the uptake of

energy efficiency measures in the domestic sector. A rebate on the surcharge on buy-to-let

properties and second homes could be included within this, either as an interim measure

or as part of a wider strategy.

 

Advice and Information

This report finds that advice and information are an important part of increasing domestic

energy efficiency. Advice and information can be used to encourage people to take up

measures, ensure that these are the right measures and maximise their effectiveness once

installed. This report criticises the promotion of energy efficiency improvements in the UK to

date which has generally had a narrow focus on energy bills savings. In the future, the

promotion of efficiency measures should also refer to the potential for them to make homes

warmer, healthier and more comfortable places to live. The report also argues that advice and

information needs to feed into a subtle process of social norming to make people more

accustomed to energy efficiency measures. One way of achieving this is through greater use of

retrofitted show homes.

Recommendation 11

Government and commercial campaigns promoting energy efficiency measures should

emphasise their numerous benefits and not focus narrowly on bill savings.

 

Recommendation 12

Local authorities should work with relevant third and private sector groups to showcase

retrofitted homes in their area.

 

The report makes a strong case for a ‘whole house approach’ to energy efficiency

improvements, which sets out how people can get to a very high standard of efficiency in the

long term. The Government should therefore look to provide whole house roadmaps for energy

efficiency improvements in every domestic property. This would enable people to get an

overall view of the level of improvements needed in their property and the potential options

available. Energy efficiency installations also need to be supported with information on how

measures work as leaving households without any advice can significantly reduce their impact.

This should be enforced as part of the quality assurance of installers’ work.

 

Recommendation 13

Support for the end user to understand energy efficiency measures installed in their home

should be robustly enforced as part of the quality assurance of installers’ work.

 

Developing the Energy Efficiency Industry

To date, the overwhelming majority of demand for energy efficiency measures in the UK has

come from government schemes, particularly the series of supplier obligation schemes which

have been in effect since 1994. There is a need for much wider commercial delivery of energy

efficiency improvements. This report finds that the Government needs to work in a way which

is more supportive of the energy efficiency industry by providing a greater degree of

consistency in policy. Going forward, the exact details of the next phase of ECO will need to be

set out as soon as possible and the Government needs to manage the transition between

schemes to avoid the breaks in demand which have been a feature of changeovers between

past supplier obligation schemes.

Recommendation 14

The details of the next phase of ECO need to be set out as soon as possible to provide

clarity to suppliers and their supply chain. The scheme should also remain consistent once

it is implemented to avoid creating uncertainty.

Recommendation 15

The Government needs to manage the transition to the next phase of ECO to avoid the

breaks in demand which have been a feature of changeovers between past supplier

obligation schemes.

Recommendation 16

Future domestic energy efficiency policy should aim to provide a much greater degree of

certainty to industry than has been achieved in recent years.

The report also showcases a particularly good model for the development of the deep retrofit

industry in the UK: the Dutch Energiesprong scheme. This offers the chance for a step change

in the market, with the potential for whole house retrofits to be delivered commercially on a

mass scale. There are financial, regulatory and practical barriers to its implementation in the

UK but these are not insurmountable. The Government should therefore look to support the

development of the Energiesprong UK group, including some initial, small-scale funding for

the project, in recognition of the long term potential of the scheme.

Recommendation 17

The Government should engage with Energiesprong UK to reduce barriers to its

development and provide some initial, small-scale funding to the project.

 

April 2016

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