Written evidence submitted by Tom Lowe, Founding Director, Thermal Storage UK (WIN0003)

 

Thermal Storage UK welcomes this inquiry as the UK energy sector prepares for winter 2023/24. Annual energy bills remain high, having doubled since autumn 2021. Energy debt is expected to increase again this winter. The evidence we provide below focuses on improving advice about energy efficiency and heat decarbonisation and increasing demand-side electricity flexibility.

 

Customer service and energy efficiency

 

Looking ahead to winter 2023/24, we welcome Ofgem’s focus on improving customer service, particularly for those in vulnerable situations and in debt. While we agree with Ofgem that energy suppliers should respond promptly to resolve issues and complaints this winter, we are concerned by the lack of consideration of energy efficiency and heat decarbonisation within Ofgem’s consumer standards framework (which is out for consultation at the time of writing). For instance, the qualitative research recently conducted by Ofgem did not explore the link between energy debt and the energy (in)efficiency of homes.

 

High-quality energy efficiency advice and support could significantly reduce energy bills, help people to manage their energy bills and reduce the risk of future debt. We recommend that energy suppliers provide tailored advice to people to support a reduction in heating costs and the decarbonisation of heating wherever possible. Depending on the property and the person, this may include advice and support in reducing damp, improving the fabric of the building, improving the efficiency of the existing heating system, making the property heat pump-ready and / or installing other low carbon electric heating solutions. 

 

We have separately recommended to Ofgem that they raise the bar so that energy debt advice provided by energy suppliers always explores energy efficiency, heat decarbonisation options and eligibility for government support schemes. On learning that a customer is in debt, energy suppliers may offer to conduct an energy efficiency survey. For fuel poor households, a conversation about debt could cover eligibility for Energy Company Obligation (ECO) or the Great British Insulation Scheme (GBIS). For those who are not eligible for these schemes, the energy supplier could point people to Energy Saving Trust advice and to the TrustMark website.

 

We recommend that Ofgem conducts a review of the quality of energy efficiency advice provided by energy suppliers under SLC 31G.2. As the UK electrifies heating, the quality of the installations of heating systems and energy efficiency will have a significant impact on electricity consumption, energy bills and demands on the distribution system. Energy suppliers are expected to have a central role in achieving this transition.

 

More broadly, we recommend that Ofgem increases its oversight of how electricity and gas is used in buildings, including for heating. As the UK electrifies heating, the quality of the installations of heating systems and energy efficiency will have a significant impact on electricity consumption, energy bills and demands on the distribution system. Energy suppliers are expected to have a central role in achieving this and Ofgem will soon have a statutory duty to achieve net zero.

 

Demand flexibility

 

We welcome the continuation of the National Grid ESO (NGESO) Demand Flexibility Service (DFS) into winter 2023/24. The DFS values at least some of the flexibility that people can provide to the electricity grid, rewarding them for adjusting their behaviour. We recommend that NGESO works to evolve the DFS into an enduring flexibility service, considering both transmission and distribution constraints. Demand-side flexibility will become an increasingly important part of the electricity system as we electrify heat and transport.

 

During winter 2023/24, we strongly encourage NGESO to repeat the consumer research undertaken for participants in the DFS during winter 2022/23. We agree with the recommendation from the Centre for Net Zero to require supplier participation in the DFS. Similarly, we recommend that all participants in the DFS are required to engage with all aspects of the consumer research as a condition for participating in the DFS. We recommend that the consumer research explores how people adjusted their demand, for instance considering which Energy Smart Appliances they turned down to receive rewards. This may include smart thermal stores, heat pumps and batteries.

 

We answer the questions set out by the inquiry below. We would be happy to speak with the clerks or the Committee directly about the response that follows.

 

August 2023


More about Thermal Storage UK

 

Thermal Storage UK represents companies who have developed modern thermal storage products. We promote the use of smart thermal storage in buildings in the United Kingdom and other countries to achieve net zero. Our mission is to take the carbon out of heating buildings.

 

You can find out more about Thermal Storage UK at www.thermalstorage.org.uk

 

 

 

 

 


Response to preparing for the winter inquiry

 

  1. What role did the UK grid play in the high domestic prices of winter 2022-23?

 

During winter 2022-23, the National Grid Electricity System Operator (NGESO) ran the Demand Flexibility Service (DFS). While the DFS was established very quickly and with limited promotion by most energy suppliers, over 1.6 million people signed up to provide flexibility to help manage the electricity system. This demonstrates the potential value and scale of flexibility, which will become more important as we electrify transport and heat.

 

We welcome the continuation of the DFS into winter 2023/24. This values at least some of the flexibility that people can provide to the electricity grid, rewarding them for adjusting their behaviour. We recommend that NGESO works to evolve the DFS into an enduring flexibility service, considering transmission and distribution constraints. Demand-side flexibility will become an increasingly important part of the electricity system as we electrify heat and transport.

 

During winter 2023/24, we strongly encourage NGESO to repeat the consumer research undertaken for participants in the DFS during winter 2022/23. We agree with Octopus’ Centre for Net Zero recommendation to require supplier participation in the DFS. Similarly, all participants in the DFS should be mandated to participate in all aspects of the consumer research as a condition for participating in the DFS. We recommend that the consumer research explores how people adjusted their demand, for instance which Energy Smart Appliances they turned down to receive rewards. This may include smart thermal stores, heat pumps and batteries.

 

We would like to see the 2023/24 consumer research explore any regional variations in participation in the DFS. Such variation would help Distribution System Operators (or Regional System Planners in future) and energy suppliers to understand where demand may be more responsive to price signals.

 

We also recommend that NGESO considers how to maximise the potential flexibility offered up by small businesses. This may include promoting the scheme with business groups, as well as non-domestic suppliers. There are few time-of-use tariffs available to small businesses, with the notable exception of Octopus Energy’s “Shape Shifters” tariff (launched in July 2023). Offering flexibility on when they consume electricity could provide a potential revenue stream for at least some small businesses during winter 2023/24.

 

Finally, we agree with the recommendation from Octopus’ Centre for Net Zero to require DFS suppliers to compensate households for flexibility at a minimum rate. We recommend that this involves a cash payment or discount on bills, putting flexibility on the same footing as payment for electricity import and export.

 

  1. What more could have been done to prevent price shocks being passed to consumer bills?

 

We note that households were shielded from most of the volatility in energy markets during winter 2022/23. While energy bills have roughly doubled in the last two years, people were protected from much higher bills by a combination of the Domestic Tariff Cap, the Energy Price Guarantee and the Energy Bill Support Scheme (and equivalent support for businesses). The UK government provided approximately £40 billion of support to households and businesses during winter 2022/23 alone.

 

People could have benefited from lower energy bills through additional efforts to deliver energy efficiency and heat decarbonisation. This would involve accelerating whole house retrofits, undertaking individual insulation measures and moving to low carbon electricity heating. To allow people to benefit financially from switching to low carbon electric heating, the government could rebalance policy costs away from electricity bills and ensure that the electricity system fully values flexibility. The energy system also needs to change swiftly. This includes delivering market-wide half-hourly settlement, completing the smart meter roll-out and mandating that energy suppliers provide at least one time-of-use tariff.

 

  1. How should energy companies respond if customers cannot pay their bills and what actions should they not have recourse to?

 

We welcome Ofgem’s focus on improving customer service ahead of winter 2023/24, particularly for those in vulnerable situations and in debt. While we agree that energy suppliers should respond promptly to resolve issues and complaints, we are concerned by the lack of consideration of energy efficiency and heat decarbonisation within Ofgem’s consumer standards framework. For instance, the qualitative research recently conducted by Ofgem did not explore the link between energy debt and the energy (in)efficiency of homes.

 

High-quality energy efficiency advice and support could significantly reduce energy bills, help people to manage their energy bills and reduce the risk of future debt. We recommend that energy suppliers provide tailored advice to people to support a reduction in heating costs and the decarbonisation of heating wherever possible. Depending on the property and the person, this may include advice and support in reducing damp, improving the fabric of the building, improving the efficiency of the existing heating system, making the property heat pump-ready and installing low carbon electric heating. 

 

We recommend that Ofgem raises the bar so that energy debt advice always explores energy efficiency, heat decarbonisation and eligibility for government support schemes. On learning that a customer is in debt, energy suppliers may offer to conduct an energy efficiency survey. For fuel poor households, a conversation about debt could cover eligibility for Energy Company Obligation (ECO) or the Great British Insulation Scheme (GBIS). For those who are not eligible for these schemes, the energy supplier could point people to Energy Saving Trust advice and to the TrustMark website.

 

We recommend that Ofgem conducts a review of the quality of energy efficiency advice provided by energy suppliers under SLC 31G.2. As the UK electrifies heating, the quality of the installations of heating systems and energy efficiency will have a significant impact on electricity consumption, energy bills and demands on the distribution system. Energy suppliers are expected to have a central role in achieving this transition. This review will also support Ofgem in adhering to the new net zero duty introduced by the Energy Security Bill.

 

  1. Has Ofgem got its priorities right in addressing customer protection?

 

We welcome Ofgem’s focus on improving customer service, particularly for those in vulnerable situations and in debt. While we agree that energy suppliers should respond promptly to resolve issues and complaints, we are concerned by the lack of consideration of energy efficiency and heat decarbonisation within Ofgem’s consumer standards framework. For instance, the qualitative research recently conducted by Ofgem did not explore the link between energy debt and the energy (in)efficiency of homes.

 

High-quality energy efficiency advice and support could significantly reduce energy bills, help people to manage their energy bills and reduce the risk of future debt. We recommend that energy suppliers provide tailored advice to people to support a reduction in heating costs and the decarbonisation of heating wherever possible. Depending on the property and the person, this may include advice and support in reducing damp, improving the fabric of the building, improving the efficiency of the existing heating system, making the property heat pump-ready and / or installing low carbon electric heating. 

 

We recommend that Ofgem raises the bar so that energy debt advice always explores energy efficiency and eligibility for energy efficiency support schemes. On learning that a customer is in debt, energy suppliers may offer to conduct an energy efficiency survey. For fuel poor households, a conversation about debt could cover eligibility for Energy Company Obligation (ECO) or the Great British Insulation Scheme (GBIS). For those who are not eligible for these schemes, the energy supplier could point people to Energy Saving Trust advice and to the TrustMark website.

 

We recommend that Ofgem conducts a review of the quality of energy efficiency advice provided by energy suppliers under SLC 31G.2. As the UK electrifies heating, the quality of the installations of heating systems and energy efficiency will have a significant impact on electricity consumption, energy bills and demands on the distribution system. Energy suppliers are expected to have a central role in achieving this transition. This review will also support Ofgem in adhering to the new net zero duty introduced by the Energy Security Bill.

 

More broadly, we recommend that Ofgem increases its oversight of how electricity and gas is used in buildings, including for heating. As the UK electrifies heating, the quality of the installations of heating systems and energy efficiency will have a significant impact on electricity consumption, energy bills and demands on the distribution system. Energy suppliers are expected to have a central role in achieving this and Ofgem will soon have a statutory duty to achieve net zero.

 

We also recommend that Ofgem steps up its oversight and work with energy suppliers on the shift away from the Radio Teleswitch Service (RTS). The RTS is likely to disappear in less than 2 years, which means energy suppliers working with people to upgrade their meters, change their tariffs and ensure their heating system is still fit for purpose. Proactive efforts by Ofgem and energy suppliers now will reduce the risk of poor outcomes later. The replacement of the RTS provides a great opportunity to upgrade homes to more efficient and flexible electricity heating systems.

 

  1. How effective is the Government's approach towards supporting the sector and delivering a functioning energy market?

 

We encourage the UK government to pursue measures that will increase the flexibility - and the value of that flexibility - within the energy system. This includes delivering market-wide half-hourly settlement, completing the smart meter roll-out and mandating that energy suppliers provide at least one time-of-use tariff.

 

We welcome the continuation of the DFS into winter 2023/24. This values the flexibility that people can provide to the electricity grid, rewarding them for adjusting their behaviour. We recommend that NGESO works to evolve the DFS into an enduring flexibility service, considering transmission and distribution constraints. Demandside flexibility will become an increasingly important part of the electricity system as we electrify heat and transport.

 

  1. Is the legislative framework on pricing controls suitable for protecting consumers?

 

Much of the pricing in the energy sector is now regulated, with generators receiving Contract for Difference (CfD) payments (or capacity market payments), networks operating under Ofgem’s five-year price controls and suppliers working under the price cap (or Domestic Tariff Cap) for most of their customers.

 

Since the fossil gas crisis, the price cap has become largely untargeted, as most customers moved to the Standard Variable Tariff during 2021 and 2022. One option under consideration is to introduce a social tariff for vulnerable or fuel poor customers. We recommend that any evolution from the energy price cap to a more targeted social tariff should consider flexibility. This could include one or more of the following design principles:

 

        applying any social discounts to the electricity bill only (to reflect the gradual phasing out of fossil gas for heating and cooking)

        applying any social discounts to the standing charge or on a percentage basis to electricity consumed during off-peak hours (to avoid unhelpfully distorting signals to the grid about supply and demand)

        applying social discounts to all tariff types, including time-of-use tariffs (to avoid customers choosing between the benefits of flexibility and a social discount)

        socialising the costs of removing gas meters and gas pipework as homes are electrified (to reduce the cost of the transition overall)

 

The enduring support framework could look at consolidating payments that people receive to support them with their energy bills. In normal circumstances, there are three main support mechanisms:

 

        The annual Warm Home Discount

        The annual Winter Fuel Payment

        The weekly Cold Weather Payments (weather-dependent)

 

Those in receipt of certain benefits, primarily pensioners, receive these separate payments.

 

Bringing together the various payments and incorporating them within a social discount would simplify support payments and may reduce the risk of fraud. Combining the Warm Home Discount and Winter Fuel Payment with a social discount would also be administratively more simple for customers, government, Ofgem and energy suppliers.

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