Written evidence submitted by British Gas (GRE0030)

Executive Summary

Energy efficiency remains the key way to counter rising unit costs, keeping bills lower and cutting carbon emissions. British Gas supports the Government’s ambition to deliver energy efficiency measures across Britain through the implementation of Green Deal and ECO and believe these programmes can play a significant role in helping to deliver UK carbon reduction targets and energy security objectives.

In December 2013, Government proposed key changes to ECO as part of its review of green levies. This allowed British Gas to cut bills by 3.2%, saving the average dual fuel customer £41. An additional £12 customer rebate for the Government’s Warm Home Discount (WHD) scheme means the average British Gas dual fuel customer will save £53 in 2014. These changes will mean we are able to install more energy efficiency measures and help more people as a result. We expect to now install 1.2 million energy efficiency measures under the ECO programme to 2017, 100,000 more than would have been installed if the old scheme was extended on pro-rata basis.

The Green Deal could play a pivotal role in delivering energy efficiency measures to Britain’s homes and businesses. The Government’s recently announced package of support for the Green Deal is welcome, particularly the £540m funding, which we believe will help encourage uptake of the scheme. However, take-up could be improved further with changes to the framework to make the scheme more attractive and cost-effective for customers.
 

The cost of Green Deal finance and the length and complexity of the scheme are potential barriers for many people. British Gas research has found that many customers do not appreciate the value and benefits of the Green Deal assessment, particularly when they already know what measures they would like installed. The process is also lengthy, so we would urge Government to simplify the assessment requirements to drive take up.

The Golden Rule is constraining the amount of Green Deal finance available. To help ensure the ambition of improving millions of homes is met, we believe funding per property needs to increase significantly.

Questions

Question 1 – Is the level of public awareness about the Green Deal satisfactory?

We believe there is reasonable public awareness about the existence of the Green Deal scheme.  A recent British Gas study found that 43% of the target market is now aware of the Green Deal and this awareness is largely driven by media. However, the same study highlighted that some consumers have only heard negative stories about the Green Deal, which has coloured their perception of the scheme.

In our experience, the level of public awareness about the finer details of the scheme – how it works, what is available, how you apply, how you repay, how finance works etc – is low and consequently acts as a barrier to consideration and take-up of the Green Deal.

Question 2 – How effective have DECC’s communications regarding the Green Deal been?

It is important that DECC and Green Deal Providers work together to communicate the scheme. It is currently challenging for Providers to market an attractive proposition to consumers.  However we believe this could be improved with the introduction of key changes to the scheme, which will make the Green Deal more attractive for consumers and in turn make the scheme a more marketable proposition for the private sector.

We also believe there is a role for Government in continuing to raise awareness and improve understanding of the detail of the scheme.  In this regard we welcomed the Government’s decision in January 2013 to appoint a consultancy to assist with communication of the Green Deal.[1]  However we believe that more could be done in this area and will continue to speak to DECC about how this might be progressed.

Question 3 – Has the cashback incentive been effective in raising awareness and take-up of the Green Deal?

British Gas believes that the cashback incentive has a definite role to play in take- up of the Green Deal. We have found that incentives tend to crystallise purchase decisions for customers who have already considered installing measures. However, our experience to date suggests that unless the incentives are very generous, cashback alone is not enough to reach customers who have previously not shown any interest in the Green Deal.

We welcome Government’s recently announced £540m three year energy efficiency package for home buyers, landlords and public sector buildings. The £450m funding for rebates for home buyers and help for private landlords to improve their properties’ energy efficiency will provide an important incentive.

Question 4 – Are take-up levels for the Green Deal satisfactory?

The Green Deal could play a pivotal role in delivering energy efficiency measures to Britain’s homes and businesses. However, we believe that there are currently some challenges with take-up of the scheme that require attention if the Green Deal is to succeed, both as part of an integrated programme alongside ECO and as a standalone programme.

Currently the rules governing the banking of carbon through ECO mean that the vast majority of Green Deal assessments are driven by the ECO programme.  This is borne out by recent DECC research which shows that more than 80% of customers reported that they did not pay for their assessment.[2]  In our experience free Green Deal assessments are almost always provided through ECO schemes and with less than 20% of assessments being paid for, this indicates to us that take-up of standalone Green Deal could be significantly improved.

British Gas believes that take-up could be improved with changes in three key areas – changes to the Green Deal assessment, the introduction of further incentives and amendments to the Golden Rule. These changes are described in more detail in Question 21.

Question 5 - Is there sufficient take-up to meet the UK’s goals for reducing carbon emissions and keeping down bill costs?

Take-up of the Green Deal has been slow. To ensure that the Green Deal works effectively and delivers its part of the measures, we suggest key changes are made, to ensure it is a simple, low-cost and customer-friendly process (see answer to Question 21 for more detail).

Question 6 – Are there key points of the Green Deal process at which customers are dropping out? If so, why?

Yes, British Gas has seen evidence of consumers dropping out at various points in the Green Deal process.

Recent research by British Gas shows that while 17% of homeowners would consider Green Deal in principle, this falls to 9% when asked if they would consider a Green Deal assessment. This stage of the process is clearly a significant barrier for many people, as they do not see the benefit of an assessment and, in many cases, already know what measures they would like to install. The Green Deal assessment is often viewed as unnecessary bureaucracy.

The cost of Green Deal finance and the Golden Rule are also key parts of the journey where customers drop out. The Golden Rule is very restrictive and many customers are simply unable to raise the funding to cover the installation cost. Some suppliers have seen an 80% drop-out level due to the Golden Rule.

We have also seen drop-out rates increase because of the complexity of the process, which can involve multiple visits to customers’ homes. The visits are unnecessarily lengthy, which can significantly delay the process. As a result, customers’ interest can wane and we see dropout rates increase. We suggest the Green Deal is simplified and streamlined to ensure customers do not lose interest in the process.

Question 7 – Is there any evidence that consumers are installing energy efficiency measures on the back of Green Deal advice but not using Green Deal finance?

Yes. Recent DECC research shows that 65% of respondents indicated that they had already installed one or more energy saving home improvements following a Green Deal assessment.[3]  According to the most recently published Green Deal statistics almost 130,000 Green Deal assessments had been carried out to the end of December.  By way of comparison, only 1,612 homes had Green Deal Plans in progress in the same period. [4] However, in our experience, a large majority of the measures that have been installed without Green Deal finance have been done though ECO funding.

Our own research indicates that many homeowners are debt averse and only 10% said they would consider using Green Deal finance to pay for improvements.  The majority, over 70%, said that they envisaged paying for improvements from savings.  This agrees with DECC research which found that of those households planning to install an improvement, 11% would consider using Green Deal finance.

Question 8 – Are energy and carbon savings being delivered? If so, are they sufficient to meet the UK’s goals for reducing carbon emissions and keeping down bill costs?

Yes, energy and carbon savings are being delivered. British Gas helped to install 236,000 energy efficiency measures in UK homes in 2013, over half of which were for the elderly, disabled or those most in need .  Since 2010, we have helped save around 9.8mtCO2e through the products we have installed in UK homes and businesses, equivalent to taking 668,000 cars off the road.”

If Government were to make the Green Deal more attractive and cost–effective we believe take-up would increase, which in turn would deliver more carbon savings.

Question 9 – Are Green Deal customers achieving financial savings in practice?

We expect that Green Deal customers are achieving financial savings and industry figures support this.

Question 10 - Do the Green Deal and ECO represent value for money?

Energy efficiency remains the key way to counter rising unit costs, keeping bills lower and cutting carbon emissions.  We believe that for those customers who have received measures through ECO or the Green Deal cashback, these schemes do offer good value for money as they have been able to benefit from free or heavily subsidised measures.  To date around 461,000 measures have been installed in around 394,000 properties through ECO and almost 8,500 households have received Green Deal cashback.

We believe that the proposed changes to ECO represent good value for consumers and for billpayers.  We expect to install 1.2 million energy efficiency measures under the new ECO programme. Taking into account the extended timetable, that is 100,000 more measures than would have been installed if the old scheme was extended on a pro-rata basis.

We believe that the reintroduction of support for loft and easy to treat cavity wall insulation, which are among the most cost effective measures, will now be far more widely taken up and help reduce energy bills in thousands more homes.

Furthermore, the proposed changes to ECO broaden the eligibility criteria for the CSCO element of ECO which is specifically targeted at households in low income areas.  We calculate that because of the proposed changes we will be able to increase the measures targeted at these areas to 340,000 by March 2017, an increase of more than 10%.

Question 11 – Is access to the Green Deal and ECO satisfactory?

Access to ECO is good and will be vastly improved by the recently proposed changes, which will enable easy to treat measures to be allowable primary measures under CERO. This will increase the number of customers who can benefit – British Gas expect to now install 1.2 million energy efficiency measures under the ECO programme to 2017, 100,000 more than we would have previously anticipated.

Access to the Green Deal is currently hampered by a lack of commercial offers in the market. If the underlying proposition were made more attractive for customers, we believe access for customers would be improved as the private sector would be encouraged to promote Green Deal more proactively.

Question 12 – Are any particular groups of people benefiting disproportionately or failing to benefit from the Green Deal and ECO?

We have not seen any evidence of particular groups of people benefiting disproportionately, or failing to benefit from these schemes. However, the relatively low take up of the Green Deal means that there is a large market not benefitting from the available measures.

Question 13 – Is the Green Deal providing customer satisfaction?

Our experience of the scheme to date has shown high customer satisfaction amongst those who have benefited from the cashback incentive. As such, Government’s recently announced funding package is particularly welcome.

However, the Green Deal assessment is not particularly popular amongst customers. Whilst customer satisfaction following an assessment has been generally positive, we have found that customers feel the assessment lacks a call to action and as such, few of those who weren’t already minded to make a purchase take any action.

Green Deal finance can also lead to dissatisfaction amongst some customers. We have found that homeowners have high expectations regarding finance and are therefore disappointed when they have further details. The finance package is not perceived to be competitive and lacks the flexibility and control of a standard homeowner loan.

Question 14 – How satisfied have customers been with the different stages of the Green Deal process and with different Green Deal providers?

British Gas research has shown that most customers see the Green Deal assessment as a means to an end and not a valuable tool in its own right.

Customers also find the assessment unnecessarily lengthy. They also wary of the nature of the assessment and worry they will be given the ‘hard sell’. If customers do not take action after the assessment they tend to have lower satisfaction levels. However, it is worth noting that those who do progress realise it offers greater value than a simple ‘quote’.

Green Deal finance can also lead to dissatisfaction amongst some customers. We have found that homeowners have high expectations regarding finance and are therefore disappointed when they have further details. The finance package is not perceived to be competitive and lacks the flexibility and control of a standard homeowner loan.

Question 15 – Are satisfaction levels disproportionately high or low for any particular group of people?

As highlighted in Question 13, satisfaction levels can be mixed. Those who have benefited from cashback incentives have been very satisfied with the scheme. However, customers who have paid for a Green Deal assessment, but do not progress any further tend to have lower satisfaction levels.

Question 16 – Have the Green Deal and ECO had any impact on the supply chain and job creation?

The Green Deal and ECO have both had a positive impact on the supply chain and job creation. British Gas alone has trained 300 Green Deal assessors.

The recently proposed changes to ECO will also strengthen the supply chain and allow it to grow in a sustainable way. The new minimum commitment by the industry to deliver 100,000 solid wall insulation measures will provide certainty for the market over a longer period of time and in a more cost-effective way for bill payers. 

Question 17 – Are DECC’s stated aims and objectives for the Green Deal and ECO satisfactory?

In our last submission to the Select Committee on the Green Deal, British Gas suggested that in order to track the progress of the Green Deal, a simple scorecard of measures should be developed.

We also suggested that consideration should be given to establishing a forecast for each measure, so progress could be benchmarked against expectations. Given the Green Deal has now been in place 12 months we would recommend that this is now introduced.

Question 18 - Is DECC’s approach to evaluating the success of the Green Deal and ECO clear and robust?

The success of these programmes should be based on the number of measures installed and the number of consumers benefiting from more efficient homes. We are pleased DECC is focusing on this.

Question 19 – Is DECC collaborating with other organisations to maximise its understanding of how the Green Deal is performing?

DECC is collaborating successfully with other organisations to commission research. This has helped to increase our understanding of the scheme.

Question 20 – How robust are DECC’s recent proposals to streamline and improve the Green Deal and reduce the cost of ECO?

We welcome Government’s proposed changes to reduce the cost of ECO and believe they will ensure the programme can be delivered as cost-effectively as possible and mean we will be able to install more energy efficiency measures and help more people as a result.

We expect to now install 1.2 million energy efficiency measures under the ECO programme to 2017, 100,000 more than we would have done without the changes.  The changes will also benefit the fuel poor. As consequence of these changes, we have been able to reduce bills by £41, which along with the rebate for Warm Home Discount will take over 40,000 households out of fuel poverty in 2014. Meanwhile, more people in low income areas, where fuel poverty is most prevalent, will be eligible for energy saving measures.

We also welcome the recently announced £540m Green Deal funding package, which we believe will help encourage take up of the scheme. However, this funding should be coupled with changes to simplify the process and make it more cost-effective, to ensure the scheme is an attractive proposition for customers.   In principle we welcome many of DECC’s proposals to streamline Green Deal, however we await greater clarity on the detail of the proposed changes in order to be able to properly evaluate them.

Question 21 – Could DECC take further action to improve the Green Deal and ECO?

DECC’s recently announced £540m funding package is welcome, but Government must ensure that this incentive package genuinely drives customer demand. As well as incentives, we believe the Green Deal would benefit from important changes to make it more attractive for customers.

The current Green Deal process can be lengthy and complex. We have found that having to make multiple visits to a customer’s property acts as a key barrier and many customers lose interest and drop out of the process at this stage. The Green Deal assessment is unnecessarily lengthy and, as a result, expensive. We would urge Government to simplify the assessment requirements to drive take up.

Green Deal finance should be streamlined. The Golden Rule is a potential barrier for customers by constraining the amount of Green Deal finance available. To help ensure the ambition of improving millions of homes is met, we believe funding per property needs to increase significantly, by 100 – 200%.

In our experience, customers are deterred by the low loan values available. In addition, the structure of Green Deal finance means that low loan values lead to high APR, which again acts a barrier to take-up. We believe the Golden Rule should be more flexible and customers should be given the choice to increase their repayments.

This rule is having a particularly adverse impact on less affluent customers, who typically occupy smaller properties, with lower estimated savings and lower Golden Rule funding. These customers are often unable to proceed because Golden Rule funding is significantly less than the installation cost, which they are unable to either pay for upfront or secure a personal loan to cover.

 

February 2014