EEH0060

Written evidence submitted by ADE

The Association for Decentralised Energy welcomes the focus of the Environmental Audit Committee inquiry on this important issue, as well as the opportunity to submit written evidence.

The ADE is the UK’s leading decentralised energy advocate, focussed on creating a more cost effective, efficient and user-led energy system. The ADE has more than 140 members active across a range of technologies, they include both the providers and the users of energy equipment and services. Our members have particular expertise in heat networks, combined heat and power, demand side energy services including demand response and storage, and energy efficiency.  

Summary

Improving the energy efficiency of existing homes is a vital opportunity to drive a green recovery from coronavirus. It will also facilitate the net zero transition through low carbon and flexible heat, and address the ongoing fuel poverty and health impacts of poor housing.

The steps taken to make homes more efficient must be clearly aligned with progress towards net zero. This should start with a review of existing targets and prioritise early no-regrets actions in areas of social housing and fuel poverty. It should also be complemented by strong policy to stimulate wider demand, such as mandating action at key trigger points and accelerating the trajectory of minimum standards.

Domestic energy efficiency retrofit also needs to expand beyond a measures-based approach through schemes like ECO, towards a long-term and sustainable programme. This can be facilitated through better and accessible data, such as building renovation passports; it should capitalise on innovation in areas including finance and delivery models; and it must be underpinned by a robust quality assurance scheme.

Responses to questions

Are the Government’s targets on residential energy efficiency still appropriate to reach net zero emissions by 2050?

The Association does not believe that Government targets for residential energy efficiency are appropriate to reach net zero by 2050.

Residential energy efficiency targets were set out in the Clean Growth Strategy.[1]This preceded commitments to net zero and targets should be updated to account for this increased ambition.

Current targets are set around reaching EPC Band C by 2030 or 2035, depending on tenure. However, the suitability of EPC Band C targets in meeting net zero has been questioned.[2] Even if existing targets were enough, progress is not being made at the required rate. As an example, insulation is currently being installed at approximately 5% of its market delivery level in 2012,[3] leaving UK homes cold and draughty in comparison with other European countries.[4] The extent of underperformance against targets is set out in the latest CCC Progress report to Parliament.[5]

The ADE’s Energy Efficiency Policy Working Group has been tackling the question of a net zero-consistent approach for retrofit over recent months. Its views will be set out its views in a forthcoming publication. The group have identified 5 key elements of an approach to take homes towards net zero:

1. Government must commit to revising domestic energy efficiency targets to set out the energy performance of a net zero-consistent housing stock. The optimal level of energy efficiency improvements will depend on different options for heat decarbonisation. The viability and cost of heat decarbonisation options is also dependent on levels of energy efficiency. This interdependency and the uncertainty associated with scaling different heat decarbonisation technologies must be accounted for in setting targets.
2. Local Area Energy Plans should be developed or adapted to include optimised retrofit pathways within wider system decarbonisation. These should derive from a UK-wide or devolved nation target, and should account for factors including the prevalence of different housing archetypes and available heat sources. Local plans would be assessed against national and regional policy and would have to be amended if inconsistent with meeting these policy aims.[6]
3. Local plans are delivered through a zoning framework. This framework means that areas are designated and prioritised for early action where clear decarbonisation pathways are available, such as the development of a heat network or homes most appropriately suited to heat pumps.
4. Demand is stimulated across tenures through a rising trajectory of minimum standards, using natural trigger points, and introducing incentives for householders to act early. The Scottish Government has considered these opportunities in consultations under the Energy Efficient Scotland Programme.
5. House-specific advice is tied to building renovation passports. These are provided by skilled retrofit coordinators, and any measures installed are underpinned by established quality assurance regimes. These steps would help protect consumers and investments and ensure that optimal routes to net zero are followed. 

What are the potential risks and opportunities of bringing forward the Government’s energy efficiency target?

The opportunities of bringing forward energy efficiency targets derive from the avoided emissions of early action and increased public awareness of energy efficiency. Bringing forward targets in certain sectors can also help drive innovation and reduce costs for the wider market. 

However, an earlier target date does not automatically make the target net zero-consistent. Households must also be clear on how an earlier target relates to the actions required for their home to reach net zero consistency. This clarity will help garner public support, de-risk investments and enable some households to take comprehensive early action.

Should Government targets for energy efficiency be legislated for, and if so, what difference would this make?

Legislation can help strengthen commitments to energy efficiency, which the Association supports. However, legislating against ambiguous or unambitious targets or without increased support to drive action may not aid progress towards net zero. 

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?

There are flaws with EPC ratings, but the Association supports reform over replacement. Key areas for improvement include:

• Better reflecting the value of low carbon heating options, such as heat networks, in the underlying SAP methodology. At present, it is possible for an EPC rating to decrease through the installation of low carbon heating technologies.
• Integrating and making better use of operational data to ensure that homes are performing as well as they should be, given the assumptions set out in the EPC rating. This will help close the performance gap and increase the usefulness of EPCs.
• Reflecting ‘smart readiness’, as being developed in the EU. This would account for a home’s ability to provide system benefits such as demand response. As renewable generation and the electrification of heat and transport develops, domestic demand side response will provide crucial system services. EPCs should therefore better reflect the flexibility potential of homes.  

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

Without improved energy efficiency, heat decarbonisation is more expensive and less viable. Inefficient homes add to the scale of heat that requires decarbonisation and are incompatible with established low carbon heating technologies. The CCC has highlighted the need to pursue energy efficiency measures alongside low carbon heat, given the carbon savings and demand reduction potential.[7]

Efficient homes can use low carbon heat sources, including low temperature district heating and heat pumps.[8] Without strong energy efficiency, homes will remain incompatible with leading pathways to heat decarbonisation.

Efficient homes can also provide system benefits to decarbonise electricity supply.[9] Efficient homes can remain comfortable when heating systems are turned down or off, providing opportunities for pre-heating and avoided use at peak times. This ability can help manage grid constraints and avoid renewable curtailment and more carbon-intensive peaks. The relationship between heat flexibility and energy efficiency is currently being explored through trials by electricity distribution network operators.

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

The Association welcomed the Chancellor’s announcement of a £3bn package for energy efficiency, including £2bn for the energy efficiency of homes. This announcement should form part of a wider programme for energy efficiency, to be set out in the upcoming National Infrastructure Strategy and Heat and Buildings Strategy. It should focus on:

• Stimulating sustained demand for energy efficiency and an able to pay market. This should begin with the declaration of energy efficiency as an infrastructure priority and be accompanied by:
• Introducing an ambitious trajectory of rising minimum energy efficiency standards across tenures, similar to what has been proposed in the Energy Efficient Scotland programme.
• Mandating action at key opportunities, such as the sale, lease or major renovation of a property.
• Introducing fiscal incentives where possible, such as through linking the reintroduction of stamp duty to energy performance.
• Continued framing around the job creation potential of energy efficiency. Energy efficiency creates jobs in SMEs which are distributed across the UK. To sustain jobs and provide skills to people entering the workforce, a strong quality assurance framework should underpin measures funded through the stimulus package and beyond.
• A heavy focus on a robust quality assurance framework, such as TrustMark, which would:
• Ensure investments deliver the anticipated benefits in energy bill savings, emissions reductions, improved comfort, and health outcomes, particularly ahead of winter;
• Protect consumers from underperformance through product guarantees;
• Encourage businesses to invest in skills and training.
• Linking energy efficiency improvements to further longer-term renovation plans, including for heat decarbonisation and opportunities for domestic flexibility.
• PAS 2035 and the role of retrofit coordinators should be used to guide the measures funded through the stimulus package.
• The uptake of funding should also be promoted in local authority areas with established local area energy plans and designated zones for heat and energy efficiency upgrades.
• The use of building passports can also align measures installed through a stimulus package to longer term action.

For specific recommendations, the Association would highlight a briefing on Rebuilding for Resilience by the Energy Efficiency as Infrastructure Group and the recent publication by the Green Finance Institute on stimulus actions for a greener and more resilient property sector.[10]

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?

The Innovation Fund was welcomed by the ADE. However, financial products should complement and not substitute effective policy and the £5m is unlikely large enough to stimulate major action. The Green Deal is a clear example of when a functioning and resourced finance offer failed because insufficient action was taken to tackle underlying demand.

What policy and/or regulation could supplement it?

The Association strongly supports policy and regulation that targets natural opportunities to improve energy efficiency. A rising trajectory of minimum standards could be used to determine the scale of changes required at any one time. Key trigger points include:

• When a property changes ownership. In this case, products such as green mortgages would help buyers plan retrofit activity, or green loans or equity release used by sellers to make changes ahead of a sale. Knowing that a standard had to be met given changing ownership would allow for the market to account for the scale of required investment and better reflect energy efficiency in property valuations.
• A change of tenancy. Green leases and loans can be used to make the action required by landlords appealing and overcome issues of split incentives. The Association has also supported raising the landlord contribution cap higher than the current level of £3,500, including VAT. Significant investments will be required over the next few decades to make homes fit for a net zero future and innovative finance products are being developed to address this need.[11]
• A major renovation. Billions is spent on the repairs, maintenance and improvement market each year which could be better channelled towards investments in energy efficiency. The Scottish Government are currently considering using this approach to drive action in owner-occupied homes.[12]

Which models in other countries have been successful at stimulating demand for energy efficiency within this market?

The Association is presently completing for BEIS an international review of energy efficiency retrofit supply chains. This review identifies a number of schemes that have had some success in stimulating demand for energy efficiency retrofit. We expect the results of this research to be published in the near future.

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?

The Association does not support the Home Upgrade Grant Scheme being delivered through ECO.

ECO and its predecessors have been successful in funding and delivering energy efficiency measures across the country. However, issues with the scheme mean that it is not a suitable vehicle for the Home Upgrade Grant:

• ECO is a measures-based approach and has been successful at delivering measures to fuel poor households. However, a piecemeal approach to retrofit for those in fuel poverty will not get us to net zero. Measures being installed must be aligned to long term decarbonisation pathways for the specific property. An example of a fuel poverty scheme that takes a more comprehensive approach is WarmWorks in Scotland.[13]
• It is vital that the Home Upgrade Grant Scheme is spent on measures that take households out of fuel poverty and their homes towards net zero. Recent rounds of ECO funding have seen reduced emphasis on measures such as insulation and a greater focus on replacing fossil fuel heating systems. While the Association recognises the bill savings realised through efficient heating systems, the Home Upgrade Scheme should not be channelled into measures that take us no closer towards a net zero housing stock.
• Although suppliers have successfully met obligations, search costs have risen in recent years. The 20% Local Authority Flexibility in ECO3 has helped, but the Home Upgrade Grant should not be channelled through a scheme which has seen increased costs associated with finding eligible recipients of funding. This detracts from the impact of the funding to alleviate fuel poverty. Fuel poverty charities and local authorities may be better placed to coordinate funding and delivery of the Home Upgrade Grant scheme.

The Association welcomes a consultation on the future of ECO and would support changes to address the issues outlined above. However, the Home Upgrade Grant must begin to be delivered in the short term and should therefore be independent of ECO.

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

There are numerous examples of where energy efficiency policy has fallen between Government departments. A prominent example is that standards for new build homes are set by the Ministry of Housing Communities and Local Government, whereas retrofit targets and the decarbonisation of existing homes sits within BEIS.

Vital to coordination is the increasing recognition that the efficiency of our homes is a vital enabler of heat decarbonisation and smart energy systems. The Association welcomes the forthcoming publication of the Heat and Buildings Strategy which should cross the existing divide between heat decarbonisation and energy efficiency within BEIS.

The Association has also advocated the classification of energy efficiency as a national infrastructure priority, partly as a means of ensuring greater departmental accountability. The benefits of this move were outlined by the BEIS select committee who commented that it ‘should help drive the necessary cross-Whitehall coordination and attention over the long-term and prevent departments avoiding their specific responsibilities on the issue’.[14]

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