AgilityEco responds to the Environmental Audit Committee's Inquiry into Energy Efficiency of Existing Homes

AgilityEco is delighted to have the opportunity to respond to this very important inquiry into the energy efficiency of existing homes. Each year at AgilityEco we help tens of thousands of fuel poor and vulnerable households to reduce their energy bills and stay warm and well. We work with a huge network of partners in the public, private and third sectors and together we have achieved much success. Yet we believe much more must be done in public policy and in delivery if we are to meet the Government’s statutory target to ensure no fuel poor household lives in an inefficient home by 2030, and net zero emissions by 2050. New policies and more funding are required, but also innovative approaches and improved efficiency. Our experience working in this sector has shown us first-hand that many of Britain’s most fuel poor and vulnerable residents are living in our coldest, dampest and most unhealthy homes.

AgilityEco is a leading organisation in funding energy efficiency measures under ECO. We currently work with seven obligated suppliers (and have worked with eleven in total during the various phases of ECO), providing them with compliant measures to go towards their obligation targets, in exchange for ECO funding. We work with a network of local installation partners that install these measures, financing their installation activities using this ECO funding. We also work with approximately 160 local authorities and housing associations around Britain, helping them to support their most vulnerable residents through outreach services and community energy efficiency programmes. Two key services we provide are: the Local Energy Advice Partnership (LEAP) which is a holistic outreach service supporting vulnerable residents; and the Emergency Central Heating Offer (ECHO) which is an emergency heating repair/replacement service for vulnerable households in distressed “no heat” situations.

Our detailed responses to the Environmental Audit Committee’s questions are set out below. We would be happy to meet and discuss any of these responses in detail and look forward to the outcome of the inquiry.

1) Are the Government’s targets on residential energy efficiency still appropriate to achieve its ambition to reach net zero emissions by 2050? What are the potential risks and opportunities of bringing forward the Government’s energy efficiency target? Should Government targets for energy efficiency be legislated for, and if so, what difference would this make?

The Government’s existing fuel poverty target is key as the poorest in the worst homes need to be helped first. Tackling fuel poverty also has the potential to stimulate the wider home energy efficiency sector and create benefits for those more able to pay for work. But progress on fuel poverty is wholly inadequate:

  • Government is very significantly behind the trajectory needed to meet the statutory target for all fuel poor homes to be energy efficiency Band C by 2030. The latest annual statistics show only 12.4% of fuel poor homes at that level.
  • Progress on the 2020 milestone of all fuel poor homes being at Band E or above has stalled, only increasing by 0.4% in twelve months.
  • This is part of an overall picture highlighted by the BEIS Select Committee last year – the rate of insulation in homes under Government schemes is 95% lower than in 2012.

Legislative targets clearly carry more enduring impetus across successive Governments and are much more difficult for Governments to miss. So statutory targets across all homes would be beneficial as would moving them forward. But the more critical issue is the need for rapid action to catch up on the progress necessary if existing targets are to be met. The main actions required are:

  • Swift introduction of the Home Upgrade Grant and Social Housing Decarbonisation Fund promised in the Government’s election manifesto with the full £6.3bn of spending committed. We are very concerned that these two commitments were not mentioned in the Budget and that there remains no sign of them being introduced. Far from them being a ‘luxury’ in terms of the impacts of Covid-19 on the UK, it is now even more essential that everyone, especially the old and vulnerable, live in a home fit for purpose.
  • Early agreement on the extension and expansion of the Energy Company Obligation from March 2022 when the current Regulations expire.
  • Priority to be given to a one-year extension of the Warm Home Discount scheme so it doesn’t grind to a halt after this winter. WHD provides essential energy bill rebates to over 2 million of the poorest households. This isn’t as good as making sure they all live in warm and efficient homes, but WHD is vital all the time that continues not to be the case. WHD has been providing this lifeline for 10 years and is needed even more given the difficult economic circumstances now faced by many as a result of the Covid-19 pandemic.

2) How effective is the EPC rating at measuring energy efficiency? Are there any alternative methodologies that could be used? What are the challenges for rural areas?

The current EPC system is well embedded into the property marketing and new-build process and now well understood by householders. Furthermore, the minimum energy efficiency standards have brought the EPC rating concept into the minds of landlords, tenants and buy-to-let purchasers; now, much more than in earlier years, the EPC data is scrutinised and relied upon.

The current EPC system therefore, although not perfect, is effective in raising awareness of buildings’ energy performance and energy efficiency improvements. Revisions since 2007 have enabled householders’ to better understand and interpret their meaning. Moving to a new system is likely to be a distraction at a time when the main focus needs to be on addressing the substantial under-investment in energy efficiency.

In addition, EPC ratings, combined with the public availability of the national EPC database, provide a consistent means of tracking progress on domestic energy efficiency and fuel poverty targets at national, devolved administration, regional and local authority levels. They therefore play an important role in “holding feet to the fire” at all these levels. They could also be used as an easy solution to any future mechanism such as Council Tax reductions for improved energy efficiency in homes, similar to their use to ensure compliance with minimum energy efficiency standards in the private rented sector.

There is one area of EPCs that could be improved. Energy Assessor training, development and auditing is fundamental to ensure consistency and accuracy; the accreditation boards have improved the auditing process to a risk-based process (as well as random sample auditing) to target EPCs where the “smart audit” rule is triggered. Further auditing and training, as well as increasing CPD requirements, will improve standards.

We believe it is possible to retain the EPC system while also improving the way in which progress is measured. We are, for instance, supportive of BEIS’s 2019 proposal to measure fuel poverty through a new Low Income Low Energy Efficiency metric which will improve understanding considerably without requiring a wholesale replacement of the EPC system.

The biggest challenge for many homes in rural areas is the absence of a connection to the gas grid. We recognise that significant further extension of the gas grid may not be compatible with long term decarbonisation of the energy supply system. But the solutions are not straightforward and we say more on heating in answer to the next question.

3) How will lack of progress on residential energy efficiency impact the decarbonisation of heat and the associated costs of this?

This question needs to be considered in the context of the continuing absence of a long-term strategy for decarbonising domestic heat. Establishing a pathway for heat’s contribution to meeting net zero by 2050 is extremely challenging. It is currently unclear whether the most cost-effective long-term solution is:

  • electrification of domestic heat by replacing mains gas central heating with heat pumps; or,
  • upgrading boilers to be “hydrogen ready” and then phasing out natural gas and replacing it with hydrogen (or biomethane); or
  • installing “hybrid boilers” that combine a heat pump and a gas/hydrogen boiler; or
  • a mixed approach, e.g. based around regional hubs with different technologies (including heat networks) being used in different parts of the country.

What is clear is that writing off the many billions of pounds invested in gas infrastructure or spending the many billions of pounds needed to establish a fully decarbonised electricity system, are not decisions that can be taken without full confidence in the approach to be followed. We strongly believe that options need to be kept open until a clear heat strategy is in place and ready to be implemented.

There are, however, worrying signs that views are being reached in advance of a properly developed heat strategy. For instance, the recent MHCLG consultation on a Future Homes Standard had a strong bias in favour of heat pumps. Many local authorities and housing associations are following this lead and have decided that electrification of heating is the only solution compatible with their declared Climate Emergencies.

Our view is that the government should quickly adopt a definition of what constitutes a “Net Zero compatible” heating system and that this should then be used alongside an affordability metric to decide which technologies should be eligible for subsidy in the various government schemes. As time moves forward, and the lifetime of the subsidised heating system is likely to extend into a period where it may become incompatible with Net Zero, the definition can be adjusted.

For example, upgrades of existing gas boilers with more efficient ones could be defined as Net Zero compatible for the first five years (as these will have expended their economic life by~2035, which is the point at which the Committee on Climate Change says “all replacement heating systems should be low carbon”). Or a “hydrogen ready” gas boiler can be defined as “Net Zero compatible” given large scale hydrogen heat is a realistic possibility going forward. If that turned out not to be the case in the light of emerging evidence and analysis, it could then be removed from the definition of Net Zero Compatible.

This approach would allow some limited replacements of gas boilers with more efficient versions and support those facing the greatest hardship, whether from a cold home caused by a non-working boiler or the delays and extra costs if the only remedy available is a heat pump. It would allow inevitably finite subsidy to be focused on the relative expense of replacing carbon intensive heating systems in off-gas grid areas with renewable heating. We would argue that such an approach is much more in keeping with the Committee on Climate Change’s view that “strategic decisions on the future of the natural gas grid and the future balance between hydrogen and electric heating” need to be taken in the mid-2020s. The CCC recognise that the answer is likely to be a mix of both.

Returning to what we believe is the nub of this question, it should be noted that the recent MHCLG consultation on the Future Homes Standard also presented support for heat pumps and investment in building fabric efficiency improvements as if there was an element of trade-off between the two. We see this as entirely the wrong set of options. Improving the thermal efficiency of homes is an absolute priority whatever shape the future heat supply takes. Improving the energy efficiency of homes provides lasting benefits that will be relevant whatever low carbon heating solutions emerge. Indeed, the core principles of the PAS 2035 industry standard include “the need to reduce heat demand so far as possible through improving the building fabric before introducing new energy systems”.

Whatever the pathway to net zero (full electrification, green gas or hybrid), the costs involved in producing and transporting this low carbon energy will be high, and the “marginal cost” rises with demand. The evidence for this can already be seen in the decarbonisation of electricity generation, where the quick wins of onshore and offshore wind and small and large scale solar, sitting alongside flexible thermal generation, have gotten us to ~50% low carbon energy. But going further comes at a much higher cost, probably involving new nuclear and very large-scale energy storage. There is no doubt that driving down demand (“negawatts”), particularly through energy efficiency, comes at a much lower price tag than producing more and more zero carbon electricity for electricity, heating and transport.

4) How can the Government frame a Covid-19 stimulus strategy around improved energy efficiency of homes?

Improved home energy efficiency has two key benefits in terms of Covid-19. First, there has to be a real risk that the virus has a resurgence or that a new virus emerges. Either may lead to a further period of lockdown and quite possibly over the cold winter months. In these circumstances it will be essential that as many people as possible have warm and healthy homes in which to be locked down, with affordable energy bills. This is particularly the case for the old and vulnerable as well as those on low incomes. In turn, warmer and more efficient homes help improve the wellbeing of the occupants and reduce pressure on the health service. Energy efficiency services are already being delivered with the input of health and care providers in terms of identifying the most vulnerable, but there is scope to do much more to improve the lives of those with medical conditions who are struggling in cold homes.

Second, the energy efficiency sector is well placed to support an economic recovery following the pandemic. This is due to:

  • its ability to pump prime local economies, with the sector including a large number of SMEs that have a healthy GB-wide geographic distribution as evidenced by data on the allocation of ECO;
  • a long-established and robust delivery mechanism; and,
  • the proven ability of the sector to adapt to change and bring new forms of support to market quickly, with firms able to expand in line with increased Government support and new businesses entering the market. The industry has demonstrated on multiple occasions that the time lag between Government announcing support and on-the-ground economic activity is very short by comparison to other infrastructure areas.

One particular approach we would suggest, if the objective is an injection of funding into energy efficiency in order to quickly stimulate action on the ground, is the re-introduction of a voucher scheme. The Green Deal Home Improvement Fund, operating in 2014 and 2015, was very successful in stimulating rapid take-up of energy efficiency measures by householders. Vouchers were issued which allowed work to be undertaken with set Government contributions depending on the measures being installed. It provided probably the biggest ever impetus to the take-up of Solid Wall Insulation. Whilst there is no doubt that the scheme did lead to a number of issues, particularly in relation to quality of work undertaken, we are confident that these can be dealt with by specifying installer qualifications, quality assurance and technical monitoring. The element of GDHIF supporting the installation of at least 2 other measures was less successful, learning from what happened 5 years ago would allow some redesign to make that part of a new scheme attractive too. If the Government is prepared to offer healthy contributions to work up to set proportions of costs and upper cash limits, then many householders will be sufficiently attracted to pay the difference. For those unable to meet the balance, it should be permissible for the voucher contribution to be combined with support from ECO so that the fuel poor can also benefit. The big advantage of this scheme would be that the relatively recent experience from GDHIF should allow Government to re-activate a new initiative quickly.

5) Is the £5 million Green Home Finance Innovation Fund enough to stimulate the market for and drive action from the banks to encourage owner occupiers to improve the energy efficiency of their homes? What policy and/or regulation could supplement it? Which models in other countries have been successful at stimulating demand for energy efficiency within this market?

A fund of this size seems unlikely to be sufficient given there are 29 million homes across the UK. The likelihood that the UK is about to enter a period of recession is also relevant; while householders will see repairing or replacing a broken heating and hot water system as a priority, installing insulation is unlikely to be seen as immediately essential by householders concerned about finances or job security.

At the time the funding competition was announced we discussed the opportunity with several banks (who must be the lead bidder in the funding round). They strongly suggested that the timescales set by Government (all projects to be complete by March 2021) were unrealistic given the internal and regulatory approval processes involved in launching new products even at a small scale. We note that although the window for bids closed in October 2019, there has been no further announcement since then, nor have we seen any more recent news coverage. We suspect that Covid-19 will have made this timescale even more challenging.

As stated above, we believe subsidy should be focused on those most in need. As 51.3% of fuel poor households are in owner occupation, funds directed at tackling fuel poverty will have an impact on the owner occupier sector. For those more able to pay, investing in energy efficiency should be incentivised through mechanisms such as Stamp Duty and Council Tax reductions for more energy efficient homes. Such proposals, and others, have been under consideration for many years and the important thing is that decisions are taken on how to proceed as quickly as possible, with trials likely to be beneficial.

While the Green Deal was unsuccessful, we do not believe that the potential of a Pay As You Save scheme should be ignored. There are lessons that can be learned from the Green Deal, particularly avoiding over-complexity, and the statutory mechanism for it remains in place to be utilised. We would urge the Government to look again at whether a streamlined Pay As You Save scheme could be introduced.

6) What additional policy interventions are needed for social housing, leaseholders, landlords and tenants?

Our view is that the existing Private Rented Sector Regulations should be expanded to require landlords to rent properties at higher levels than Band E, moving up to Band C providing landlords are given sufficient time to prepare. The current £3,500 cost ceiling should be revisited with a view to increasing it and it is essential that local authorities have the capability and capacity to rigorously enforce the scheme as non-compliance in this area has historically been very high.

The Social Housing Decarbonisation Fund (SHDF) set out in the Government’s election manifesto will, once activated, be an excellent mechanism for establishing social housing providers as the flagbearers for high standards of energy efficiency in homes. The key is to get the SHDF up and running quickly. Our main comment is that the manifesto proposals seemed to envisage that the entire £3.8bn would be limited to installation of insulation. We believe this should be re-visited especially if the Government wishes to encourage whole house retrofit.

7) How should the proposed Home Upgrade Grant Scheme be delivered to help the fuel poor? Should the new grant scheme supplement ECO in its current form, or should ECO be redesigned?

ECO has been hugely successful in terms of large scale roll-out of energy efficiency measures. We believe it should be extended beyond 2022, with an increased budget, until the late 2020s in order to provide the certainty that is very much needed.

ECO works best as a requirement on energy suppliers to install measures within a set of broad parameters. This allows them to find the most efficient and cost-effective ways to meet their obligations, thereby minimising the amounts they pass on through bills and maintaining their competitiveness. It works less well where there are very specific rules and constraints placed on the suppliers or where the homes they are required to treat unavoidably need the most expensive interventions.

We therefore see sense in allowing ECO to have a broad focus on tackling energy efficiency in low income and vulnerable households while HUG focuses on a more specific purpose; to improve the energy efficiency of the 177,000 fuel poor households that remain in Bands F and G, allowing the occupants to heat their homes to acceptable levels. These will inevitably be expensive interventions but unless action is taken some of the poorest households will continue to face energy bills that are up to three times higher than the most efficient homes at Bands A to C – or, more likely, be unable to afford the costs and be forced to accept living in cold, damp homes.

There are three improvements to ECO we would recommend:

  • ECO can sometimes default to a roll-out of a single measure, whether it is what a household requires or not; too much focus is placed on identifying households that are eligible under the scheme rather than what they or their homes really need. At least an element of ECO should be set aside to provide more holistic support. This could be energy efficiency retrofit measures, help with tariff switching, energy advice or safety checks. As ECO now has a new element designed to encourage innovation, it could also include support with the use of innovative new low carbon products.
  • The new PAS 2035 quality standards help with the above as they require a ‘retrofit designer’ to present a whole house retrofit design to the customer. Given there are sizeable costs associated with finding eligible customers under ECO, it makes complete sense to establish all the work that could usefully be done in one inspection. Following this up with the recommended home improvements taking place would be further encouraged if ECO were to incentivise the installation of multiple measures; a more efficient heating system is often the primary interest to the customer but there are significant financial and carbon benefits if the home is also made more thermally efficient at the same time. This idea could be further developed to cover the suggestion we make in the first bullet. An element of ECO could be used as a ‘fuel poverty pot’ with the funding enabling the installation of measures and providing the wider help we mention. The object would be to take the householder out of fuel poverty. We recognise the need for value for money and this could work on the basis of a payment by results approach whereby simple metrics were used to determine whether the householder had indeed been removed from fuel poverty. BEIS already measure progress on fuel poverty through such a metric known as the Fuel Poverty Energy Efficiency Rating.
  • Whilst we agree that a focus on the whole-house approach through PAS2035 is the right one, we believe that ECO should retain the flexibility for smaller “easy win” measures (particularly where there is little or no potential for the installation to create ventilation, damp or mould problems), to be installed through a pathway that does not involve the cost or complexity of PAS2035. A good example is the smart thermostat, which has proven energy savings, helps engage residents with energy use in their homes and can act as a segue into a broader retrofit conversation between an installer and the resident. The cost and complexity of PAS2035 renders the installation of standalone measures such as smart thermostats uneconomic.

These ideas are just outlined and we would be happy to provide help to take them further.

8) Are there examples of where energy efficiency policy has fallen between Government Departments? How could cross-departmental coordination be improved?

We believe the issue we have outlined at question 3 with regard to the Future Homes Standard consultation illustrates the sort of problem that can arise when policy in a related area is being developed without full consideration of the energy efficiency implications. The big gap to be resolved is the need for a very clear long-term heat strategy that can be followed across Government. This is second only in importance to the need for rapid extension of the ECO and WHD schemes alongside the introduction of HUG and SHDF.

AgilityEco thanks the Committee for the opportunity to comment on this important inquiry.