Highlights from the Government’s Energy White Paper

16/12/2020

After months of delays, BEIS finally unveiled its Energy White Paper on Monday (14 December). The White Paper builds on the Prime Minister’s Ten Point Plan for a Green Industrial Revolution and the National Infrastructure Strategy (NIS) in outlining how the nation plans to transform its power and heating systems to support the net-zero emissions target for 2050. It also provides a bit more clarity for businesses and green groups as to how the national energy mix will change over the next 20 years as well as the funding and regulatory mechanisms that will help us get there. As such, the White Paper has been broadly welcomed.

For AgilityEco, with our focus on helping fuel poor and vulnerable customers, the highlights lie in the detail surrounding the future of the Energy Company Obligation (ECO) and Warm Home Discount (WHD), as well as a proposed newly updated Fuel Poverty Strategy, due to be published  in early 2021. Our team of experts have produced a handy summary and commentary on the key announcements in these areas:

The Future of ECO and the Warm Home Discount (WHD)

Energy Company Obligation

  • The White Paper repeats the Ten Point Plan commitment to extend ECO to at least 2026, and confirms it will continue to be focused on low income and vulnerable households. The Ten Point Plan also confirms that ECO will continue to be funded through licensed energy suppliers
  • ECO and the expanded WHD will be worth £4.7 billion across 2022/23 to 2025/26. Although the numbers are not easy to unpick, we think this means a £700m per annum budget for ECO
  • ECO will focus primarily on improving the worst homes across GB
  • It will work alongside the Home Upgrade Grant (HUG), which will also aim to deliver “worst first” support, but with HUG focussed on off-gas grid homes and low carbon heating
  • The Government intends to consult on removing supplier obligation thresholds, with a buy-out mechanism to enable smaller suppliers to have their obligation delivered through a central pot.

Warm Home Discount

  • The White Paper gives much needed clarity on the future of WHD beyond March 2022. It confirms that WHD is also being extended to at least 2026 and expanded to capture another 750,000 customers (up to approximately 3 million in total). It will have a budget of £475m per year across the 4 years. The size of the rebate is being increased to £150 after many years at £140
  • The scheme is also going to make better use of government data to provide automatic rebates to most recipients with the intention of allowing smaller suppliers to participate at lower cost (as with ECO, it is also proposed the obligation thresholds for WHD will go too)
  • Whilst the White Paper does not provide any detail on the future of the Industry Initiatives component of WHD, which funds many vital services including our LEAP, ECHO and HEART programmes, the budget figure does suggest that Industry Initiatives will continue to be funded, and our discussions with BEIS civil servants confirm that they are keen to protect the role of Industry Initiatives going forward.

 

There will be an updated Fuel Poverty Strategy and further plans on Regulation and Standards

Fuel Poverty

  • Details of how the poorest quality housing will be transformed is to be set out in the updated Fuel Poverty Strategy for England, due to be published in early 2021
  • The updated Strategy will set out the Government’s approach to tackling fuel poverty in the context of net zero emissions and the nation’s recovery from the COVID-19 pandemic while also covering “how we will ensure the fuel poor benefit from a fair and functioning energy market”. If this is done properly, it could provide much needed clarity on how sometimes conflicting policy interests in carbon saving versus tackling fuel poverty are to be reconciled.

Regulations and Standards

  • There will be consultation on regulatory measures to improve the energy performance of owner occupied homes, and it will be interesting to see if the Government is prepared to tackle this in a meaningful way
  • There is to be an Action Plan exploring ways to increase the quality of EPCs
  • There will be a review of the Decent Homes Standard in terms of how it can better support the decarbonisation and energy performance of homes
  • There are proposals to regulate smart appliances based on principles including interoperability, data privacy and cyber security
  • The Government is also going to look at the roles of Ofgem and National Grid. It will be consulting in 2021 on a Strategy and Policy Statement for Ofgem.
     

On heat, electrification and hydrogen

  • The White Paper gives little clarity on heat and a few mixed messages on electrification vs hydrogen, with the statement that the Government will consult on the role of hydrogen-ready appliances in 2021
  • On the one hand it says “Britain’s gas network is one of the most efficient, resilient and advanced operations in the world, connecting over 23 million users through 284,000 km of pipelines….. We will continue to rely on natural gas for some years, even as we work to largely eliminate carbon emissions from the entire energy system including those from gas”
  • And it also says “We are not targeting a particular generation mix for 2050, nor would it be advisable to do so….. We will therefore make sure the natural gas markets and networks evolve in a way which enables continued investment and ensure secure supplies but also promotes the use of low-carbon options, wherever possible….. Electric heat pumps and hydrogen, green gas and shared heat networks all have their part to play. So, while we are clear on the eventual outcome, we will be flexible in how we achieve it, always looking for the most cost-effective, consumer-friendly approach and open to innovative solutions”
  • But then it says “However, unlike electric heat pumps and heat networks, the feasibility of using hydrogen for clean heat needs further testing and development ….. Reducing emissions from buildings will require an annual market for heat pumps by 2028 at least 20 times the size of today’s market.”

 

Other significant announcements on consumer markets and smart meters

Smart Meters

  • The White Paper sees consumers making the most of the data from smart meters if it is combined with half-hourly settlement for suppliers, enabling households to access more real-time prices, e.g. different prices in each 30-minute period of the day
  • Lots of coverage of smart tariffs including: tariffs where costs vary by the time of use; export tariffs for those with generation technology; load control tariffs that can manage when appliances are used; and tariffs designed for consumers with low-carbon technology so they can charge at the cheapest times. We know that some of these tariffs, including ‘time of use’ tariffs in the context of domestic heat, may potentially have downsides for low income and vulnerable households.

Consumer Markets

  • The White Paper also sets out plans to regulate third parties (including energy brokers/price comparison websites). More consultation is therefore expected in 2021
  • It also discusses “energy as a service”, where customers buy an outcome for an agreed price, is also explored. This could include a guaranteed temperature at home or guaranteed level of heat pump performance, rather than paying for units of gas or electricity; or the bundling together of utilities, such as water and energy. This is of course a topic that has been bandied about for many years, with little progress towards it becoming a market reality. We will watch with interest any practical steps by government to promote this further
  • The Government wants to look at both more opt-in switching (switching made as easy as possible for consumers but it not automatic), consulting by March 2021 on a framework, and opt-out switching (whereby consumers automatically move to the best tariff at the end of a contract) where the plans are less clear
  • Consumers are to get more transparent and accurate information on carbon content when they are choosing their energy services and products, with consultation in early 2021.

 

If you’d like to discuss these aspects of the Energy White Paper with a member of our team, please contact us.