August 2016 Response: Energy Company Obligation: Help to Heat Consultation Summary of key points: The UK housing stock is amongst the least energy efficient in Europe and it must be recognised that ECO falls far short of the level of the investment required at the national level to tackle fuel poverty and meet the UK s carbon reduction commitments. We support the move to focus the supplier obligation on tackling fuel poverty. 11% of housing association households are fuel poor and we welcome proposals to include social housing in the Affordable Warmth scheme. Proposals around flexible eligibility provide a clear opportunity to strengthen local partnerships in order to develop holistic area-based cross tenure local partnership schemes. Housing associations are well placed to support the delivery of these schemes. We would like to see government; working alongside industry and housing providers, to support new and innovative approaches to solid wall insulation and other deeper retrofit measures that help bring down costs for all customers.
1. Introduction The National Housing Federation is the voice of affordable housing in England. We believe that everyone should have the home they need at a price they can afford. That s why we represent the work of housing associations and campaign for better housing. Our members provide two and a half million homes for more than five million people. Each year they invest in a diverse range of neighbourhood projects that help create strong, vibrant communities. We welcome the move to focus the supplier obligation on tackling fuel poverty. Fuel poor households bear a disproportionate impact of the supplier obligation on their energy bills and the support available through the scheme should be directed at those that need it most. 11% of housing association households are fuel poor and with annual household incomes that are significantly lower than average, social renters more often struggle to pay their energy bills or to keep their home adequately warm compared to households in other tenures. The National Housing Federation welcomes the government s recognition of this through its proposals to include social housing in the Affordable Warmth scheme. Removing some of the complexity and administration required for the scheme is welcome and we expect that this will make it more straightforward for housing associations to access ECO, helping them to improve their worst properties and support government s ambition to improve all fuel poor homes to EPC band C. It is disappointing that the overall funding available through the scheme is reduced. It is important to recognise that ECO falls far short of the level of investment required to tackle fuel poverty and meet the UK s carbon reduction commitments. The UK housing stock is amongst the least energy efficient in Europe and there is a vital need for a strong and focussed government-led drive to significantly improve the energy efficiency of our existing homes. Housing associations offer a unique opportunity to deliver effective energy efficiency programmes at scale - with expert knowledge of their stock, understanding of customer behaviour, track record of innovation and established partnerships with industry, government and service providers. New models of delivery that drive innovation, efficiency and collaboration would enable housing associations to do more, creating a competitive and commercial supply chain that would benefit all sectors and support the delivery of the 2030 fuel poverty target.
2. Response to consultation questions Purpose and structure of extension 1. Do you agree with our proposal to extend the current ECO by one year, whilst making improvements that transition to a longer-term fuel poverty focused obligation? Policy stability is key for housing associations which need longer term offers and a degree of certainty in funding programmes in order to align ECO with their investment and asset management plans. Though the one year transition is designed to prevent a hiatus in installations, it could still lead to delays to schemes in social housing as landlords await the conditions of the 2018 scheme before taking forward larger scale projects. The sector welcomes the proposals for a four year scheme to be introduced from 2018. The certainty provided by a four year scheme, alongside deemed scores that will provide some assurance on the level of funding, will allow housing associations to incorporate ECO into long term business plans alongside their own investment budgets, supporting the business case for associations to retain and improve their worst performing properties. 2. Do you agree with the proposal to re-balance the obligations for 2017-18; by increasing the Affordable Warmth obligation by 1.84bn notional lifetime bill savings (provisional figure), increasing the Carbon Emission Reduction Obligation by 3.0 MtCO2 (provisional figure), and not increasing the Carbon Saving Community Obligation? We welcome the proposal to increase the proportion of Affordable Warmth funding, particularly as households on lower incomes contribute proportionally more towards the supplier obligation. The Taking Stock research, recently published by the National Housing Federation has shown that with a median annual household income of around 13,700, housing association residents have the lowest household incomes of any tenure type in England typically almost 20,000 less per year than owner occupiers and 10,000 less than private renters. Improving solid wall properties presents one of the biggest challenges to the housing association sector and it is vital that some funding remains in place to address this challenge at scale. Due to the high cost of solid wall insulation even highly efficient retrofit programmes struggle to deliver improvements at a manageable cost which means that some external investment will be necessary. In light of this we welcome the retention of CERO and of the solid
wall minimum target for 2017-18. We urge government to retain some funding provision for solid wall insulation in the longer term. Evidence suggests that CSCO has been underutilised and we accept that it is reasonable to remove this stream in order to simplify ECO overall. 3. Do you agree that the CSCO deadline should remain at 31 March 2017? 4. Do you agree that there should be no rural sub-obligation from April 2017? There is a clear need to improve energy efficiency in the rural housing stock. Recent research carried out by the National Housing Federation found that rural housing associations stock is less energy efficient, with higher proportions of E/F/G rated properties than in urban areas. 40% of all rural housing association stock is electrically heated and almost a quarter of uninsulated solid wall housing association homes are off-gas (23,000 properties). However, we agree with the moves to simplify ECO overall and accept that current uplifts for measures delivered in rural areas are preferable to the more complex and expensive rural subobligation. Affordable Warmth targeting and household eligibility criteria 5. Do you agree with our proposals to introduce income thresholds for 2017-18 which take account of household composition for Tax Credits and Universal Credit? 6. Do you agree with our proposal to adopt ten household composition types with relative income thresholds based on whether the household consists of a single person or a couple and whether they have one, two, three or four or more dependent children? 7. Do you agree with our proposals to allow recipients of other eligible benefits (Income Support, Income-based Jobseeker s Allowance and Income-related Employment and Support Allowance) to continue to be eligible and to remove the additional subcriteria in 2017?
8. Do you think we should amend the eligibility requirements so that those in receipt of Guarantee Credit in Pension Credit continue to be eligible under Affordable Warmth but those only in receipt of Savings Credit should only qualify through CERO or if they meet the flexible eligibility proposal? 9. Do you agree with the proposal to extend eligibility to social tenure households with an EPC rating of E, F or G for their home, and for no additional benefits criteria or income thresholds to be required A significant proportion of social housing tenants are in fuel poverty and any scheme designed to tackle fuel poverty should include social housing. Particularly as low income households living in social housing continue to contribute to the supplier obligation through their energy bills. Despite considerable improvements over recent years, 10% of housing association properties around 229,000 homes are still classed as having an EPC rating of E - G. Of these E/F/G rated housing association homes: 45% have uninsulated solid walls. Around 21% has loft insulation of less than 100mm 49% are not on mains gas 5% use solid fuel or oil fired systems 32% were built before 1919 With a median annual household income of around 13,700, housing association residents have the lowest household incomes of any tenure type in England. Due to a likely increase in tenancy churn as government policies incentivise moves into home ownership for those tenants that can afford it, and with those households in the worst financial circumstances being prioritised through local allocations policies, it is not unreasonable to assume that any E - G rated housing association property is likely to be occupied by a low income tenant at risk of fuel poverty within the next 10 years. The high cost of bringing underperforming properties up EPC C or higher means that even highly efficient retrofit programmes struggle to deliver the necessary improvements at a manageable cost. Ultimately, to deliver the Government s target for as many fuel poor homes as reasonably practicable to achieve EPC Band C by 2030, some external investment will be necessary to improve the worst performing housing association homes. However, this also
represents a substantial opportunity to use the economies of scale available through housing associations to bring retrofit products to a market ready position. Targeting a portion of ECO funding towards the most inefficient housing association properties and designing a longer term, stable scheme that landlords can utilise in line with their planned investment programmes can help to deliver the Government s key ambitions for ECO: It offers a straightforward route to identifying and targeting the fuel poor It improves cost effectiveness of the supplier obligation as housing associations leverage in their own additional funding It helps deliver the ambition of the Fuel Poverty Strategy for England to improve all fuel poor households to EPC band C It takes advantage of the economies of scale available through housing associations to support the wider roll out of energy efficiency retrofit measures. The draft legislation defines social housing as that which is let below market rent. We would request that government instead utilises a definition already provided in legislation. Section 68 of the Housing and Regeneration Act 2008 provides the most frequently used definition of social housing and that definition includes both low cost rental accommodation (e.g. social or affordable rent) and low cost home ownership accommodation (e.g. shared ownership or shared equity). We are also very concerned about any ongoing restrictions which might be applied to the tenure of properties that have received ECO funding. This would increase bureaucracy in terms of tracking properties and would be incompatible with the voluntary right to buy deal which gives the tenant the opportunity to purchase their home (thus moving the property out of sub-market rent). These restrictions would strongly deter social landlords from taking up ECO and mean a missed opportunity to improve E-G rated properties through housing associations, properties which are then much less likely to be improved if they move into owner occupation. Analysis of the HCA s Statistical Data Return shows that less than 2% of the stock owned by housing associations in England is rented or leased at market rate. As such we believe it is disproportionate to require verification and assessment of tenure type. It also contradicts government s own commitment to improve all properties to EPC C by 2030. We would also disagree with term social landlord in the draft legislation which has a restricted usage under the Housing and Regeneration Act 2008 and should be replaced with registered
provider of social housing. It is also important to ensure that wholly owned subsidiaries that provide sub-market rent properties are included within this definition. 10. Do you agree an EPC would be an appropriate way of proving the efficiency banding of social housing?, however we do not agree that a full EPC is required in all circumstances in social housing. The cost of providing EPCs for all properties before and after works can be inhibitive for large scale programmes. We do not agree that a full EPC is required in all circumstances in social housing to ascertain the SAP rating and associated EPC banding. Housing associations hold SAP ratings for all of their properties and are required to confirm to the social housing regulator that their properties meet the minimum SAP requirements of the decent homes standard. However, a proportion of this data is often modelled or cloned from EPCs carried out on a representative sample, based on common property archetypes found within the stock. Where landlords can provide modelled SAP ratings, based on a minimum representative sample of full EPCs and robust stock analysis, we believe that a well-evidenced declaration from the landlord would be sufficient to demonstrate that a property is rated E-G. As the improved technical standards around design and installation and improved quality assurance procedures expected as a result of the Bonfield Review and associated improvements to PAS2030 are implemented we do not believe that this approach would adversely impact the quality of measures installed under ECO in social housing. 11. Do you agree that measures delivered in new build homes should not be eligible under ECO from 1 April 2017? 12. Do you agree with the proposal to allow flexible eligibility? If so, what proportion of the 2017-18 Affordable Warmth obligation do you believe that suppliers should be able to deliver using this route? - 10% This proposal provides a clear opportunity to strengthen links with local, combined authority and health agencies in order to develop holistic area-based cross tenure local partnership schemes. However, this should be limited to 10% of ECO, particularly in the transition year, in order to limit the risk that flexible eligibility schemes detract from addressing fuel poverty.
13. Do you consider that solid wall insulation for non-fuel poor private tenure homes should be included under flexible eligibility as described in Chapter 3? For social landlords this proposal could support the delivery of traditionally problematic area based schemes and installations to blocks of flats where some properties are occupied by leaseholders or other private residents. We would also like to see this flexibility applied to social housing in some circumstances, for example if there were a proportion of E-G rated properties in a block then ECO could be utilised for the whole block. 14. Do you agree with the proposal to allow local authorities to determine whether some households are eligible through local authority declarations in the way proposed? 15. Do you consider that schemes involving other intermediaries should be allowed, as described in Chapter 3, in addition to local authority declarations? Allowing other organisations to be involved in flexible eligibility schemes will help support delivery in areas where the local authority lacks sufficient resources to develop a local scheme. It also provides an opportunity to strengthen links with local health agencies, non-government organisations and other stakeholders to develop holistic area-based cross tenure local programmes. Housing associations are likely to have sufficient data on property archetypes and/or the instance of fuel poverty amongst their tenants in order to adequately evidence whether neighbouring private tenure properties are at risk of fuel poverty. In these circumstances, housing associations should have the ability to identify households eligible for funding, either directly or working through other intermediaries. Area based schemes that work with housing associations as an anchor organisation in an area can deliver economies of scale and efficiencies. The capability to deliver area-wide retrofit programmes across rented and private households already exists within many social landlords, and could be scaled up.
Eligible energy efficiency measures 16. Do you agree with the proposal aimed at limiting the delivery of qualifying gas boiler replacements (and not limiting other types of heating measure)? However, we urge government to consider other funding mechanisms that will incentivise households and landlords to replace older inefficient heating systems. 17. Do you agree that only measures installed after a specified date should count towards the Affordable Warmth minimum, and that date should be 1 July 2016? 18. Do you agree with the proposal to in effect limit the delivery of qualifying gas boiler replacements at a level equivalent to 25,000 boilers under the ECO extension? 19. Do you agree with our proposal not to impose new limits on the level of installation of the following measures? 20. Do you have views on whether Government should take action to prevent shifting the balance of measures delivered and the potential for energy suppliers to receive disproportionate benefit under ECO from renewable heating supported by RHI payments? A small number of housing associations have installed renewable heat measures utilising ECO and the RHI. In these cases, the ECO subsidy has been vital for the viability of the scheme. It is important that any action government takes is proportionate to the risk of overcompensation and does not jeopardise this mechanism which has supported delivery of low cost renewable heat to fuel poor households. Given the very small scale and volume of these installations currently, we expect that the proposed approach to monitoring installations that combine ECO and RHI is sufficient. 21. Do you consider that heat network schemes funded or part funded by the supplier obligation should be required to include arrangements for consumer protection?, but this should not require the use of the Heat Trust scheme specifically. Consumer protection should be a key component within communal and district heating systems which, by design, limit consumer choice and do present a risk of inefficiencies and higher costs.
As a regulated sector, housing associations and other social landlords already offer a system of redress for customers through their tenancy agreements and complaints procedures (which include referral to the Housing Ombudsman if complaints are not sufficiently addressed). This existing housing association policy framework covering heat network schemes offers adequate consumer protection should be sufficient to access ECO funding. A requirement to utilise the Heat Trust scheme specifically would effectively eliminate social housing from qualifying for any funding for district heating under ECO as, in its current form, there are a number of elements that conflict with social landlords operating models. This includes for example, the Heat Trust definition of a complaint which may not match a housing associations complaint policy meaning that all customer contact regarding heat networks would have to be treated differently. Housing associations are working with Heat Trust around options that will work better for social landlords, however it is not clear at this stage what the outcomes of this will be. 22. Do you agree with the proposal to allow insulation but not to allow boiler or other heating system replacements or repairs (of any fuel type) in social tenure properties, with the exception of first time central heating (including district heating) and renewable heat? No We believe that funding for boiler and heating measures should be available for E, F, and G rated social housing properties. We acknowledge that social landlords have a responsibility to repair broken heating systems and to ensure tenants have a functioning form of heating. However, current constraints on housing association budgets limit landlords capacity to replace inefficient but working heating systems. We do not believe there is justification for further limiting the affordable warmth measures that can be installed in social housing when housing association residents are at risk of fuel poverty and continue to contribute to the supplier obligation. 23. Do you agree that we should retain a solid wall minimum within the scheme? Solid wall insulation represents the biggest retrofit challenge for housing associations and is a significant contributing factor to fuel poverty in the sector. It is vital that some funding is retained for solid wall insulation and we would encourage government and industry to work more closely with social landlords to establish new partnerships and approaches to solid wall insulation. Housing associations have considerable
buying power and increasing demand in this sector will help to drive down costs and enable the solid wall insulation supply chain to build capacity and skills. Housing associations own around 2.7 million homes in England, over 10% of the total housing stock. Around 229,000 of these homes have an EPC rating of E G and, as already highlighted, 45% these homes have uninsulated solid walls. 24. Do you agree that the solid wall minimum is set at the right level? No We would like to see the solid wall minimum target increased to align more closely line with the proportion of uninsulated solid wall properties in the UK. As outlined in the consultation document there are 8 million homes of solid wall construction and only 5% are insulated. Concerted action to address these properties through the supplier obligation would have a significant impact on fuel poverty and help to scale up the market, reducing costs and improving quality. 25. Do you agree that an in-use factor of 15% should be applied to party wall insulation measures delivered under CERO after 31 March 2017? 26. Do you agree that party wall insulation measures installed after 31 March 2017 should support secondary measures? Delivery and administration 27. Do you agree that the requirement for measures to be recommended on either a GDAR or a CSR should be removed from 1 April 2017? The requirement for Green Deal or chartered surveyors reports add significant cost and administration to the ECO process, whilst providing little additional value. This is particularly the case for social landlords developing large scale schemes for which the cost of assessments is prohibitive. As we have already outlined (Q10) there are instances in social housing where an EPC should not be required to access ECO funding.
28. Do you have views on whether any alternative requirements should be introduced in order to provide consumer advice, or ensure technical suitability of a measure prior to its installation? There is a clear need to improve quality of the design, specification and installation of measures under the supplier obligation. We strongly support the objectives of the Bonfield Review and the implementation of the recommendations of the review - including the quality mark, improved standards and consumer advice service - through the delivery of the supplier obligation. We would like to see stronger technical monitoring of installations under the supplier obligation and stronger action on poor quality providers or products. 29. Do you agree that from 1 April 2017 we should move to a system of deemed scoring, as described above, rather than the current bespoke RdSAP or SAP based property by property assessments? Deemed scores will help to reduce the administrative burden of taking up ECO funding and provide a greater level of certainty over the level of funding that will be received. For housing associations this certainty is key for business planning as large scale schemes often require lengthy development and customer consultation periods. 30. Do you agree that savings for district heating system measures should be calculated based on bespoke SAP or RdSAP assessments, rather than deemed scores? 31. Do you agree that up to 5% of each supplier s measures should be granted automatic extensions for up to three months? 32. Do you agree with removing the restriction on extensions where it is due to supplier administrative oversight? 33. Do you agree that we should introduce a mechanism for the trading of obligations between licensed suppliers?
However, if it becomes apparent that there is a risk of supplier trading reducing competition and choice in the delivery of ECO measures the government must take steps to address this. In the longer term we would like to see the potential for energy suppliers to transfer their obligations to third parties, including housing associations. Enabling energy suppliers to trade obligations with social landlords would allow landlords to utilise both their existing expertise and their ability to deliver at scale, using existing contractors and procurement to reduce delivery costs and providing a guaranteed work standard. Such a mechanism would allow housing associations to act as anchor organisations in areas where they are the major landlord, delivering economies of scale and enabling them to support private landlords and home owners to make energy efficiency improvements. 34. Do you agree that Ofgem E-Serve should approve trades, to ensure that energy suppliers can bear the consequences of non-compliance? 35. Do you agree the version of PAS 2030 cited in the ECO regulations should be updated to refer to the most recent version, following the anticipated updates to PAS 2030? 36. Do you agree that installation companies delivering measures which are referenced in PAS 2030 under the extension to ECO should be certified against the requirements set out in PAS 2030? 37. Do you think there is value in collecting and publishing more information on ECO costs in the future? In particular, housing associations would like to see greater transparency around the higher delivery costs currently attached to schemes in urban and rural areas. It is important, however, that any data provision requirements are not overly onerous and do not inadvertently prevent landlords taking up funding. 38. Do you agree that, with the exception of the Affordable Warmth minimum requirement, the new scheme rules being proposed should be introduced for measures installed from 1 April 2017?
39. Government invites views on whether we should introduce any additional rules to incentivise greater delivery to areas with higher delivery costs? No Complex arrangements for assessing eligibility and funding levels in different areas create additional administration and cost for housing associations. 40. Should a brokerage mechanism be continued? No Though ECO brokerage was designed to provide another route to funding, this has not been particularly successful. The system has been overly complex, lacking in transparency, and the funding available has typically been less favourable. As stated in question 33, in the longer term we would like to see the potential for energy suppliers to transfer their ECO obligations to third party agents, including social landlords, allowing them to utilise their existing expertise and their ability to deliver at scale through cross tenure, locally based schemes. 41. If a brokerage mechanism continued in the future, what eligibility criteria and due diligence checks should be carried out to enable access to a range of organisations? 42. In addition, should access for an individual organisation be reviewed for any reason (eg at certain intervals or for certain behaviours)? 43. Is brokerage a barrier to local delivery? 44. Does the current performance rating system provide the assurance of quality and delivery needed? 45. If brokerage continued, would you recommend any substantial changes to its design to better reflect the future fuel poverty focus? Second set of reforms (2018-2022)
46. Government invites views on the aspects of the future supplier obligation (eg measures, scoring, objectives) where a Scottish scheme could diverge from the GB wide scheme without increasing the administration or policy costs unreasonably 47. When would you consider that differences between an English and Welsh scheme and a Scottish scheme could be detrimental to the operation and competition of the United Kingdom-wide energy market? 48. Do you believe there is any justification for changing the customer number threshold in the future obligation (2018 onwards)? 49. Do you believe there is any justification for changing the taper for newly obligated suppliers in the future obligation (2018 onwards)? 50. Under current and previous supplier obligations, are there barriers in scheme design inhibiting innovation in delivery models and technologies Delivering ECO solely through the energy suppliers has led to increased delivery costs, delays and uncertainty for housing associations, and, in some cases a lower quality of work. We would like to see ECO designed to encourage local partners to work together to deliver local and regional programmes. The current ECO arrangement encourages a piecemeal approach to installing energy efficiency measures that will not meet Government s fuel poverty and carbon reduction targets. We would like to see a shift to supporting innovative approaches designed around whole house performance outcomes rather than individual measures. For example, ECO could support the initial prototyping of the Energiesprong retrofit model an approach which has provided massmarket affordable whole-house retrofits in the Netherlands. 51. Government invites views on what specific improvements could be made to the design of the ECO scheme to facilitate administration and delivery. We believe that, fundamentally, a supplier obligation in the hands of energy providers is the wrong approach to tackling fuel poverty in the UK.
Relying upon obligations put on the energy companies to deliver retrofit programmes has proved to be politically vulnerable, leading to a lack of transparency and uncertainty, both for households that need support and the landlords and supply chain that aim to deliver energy efficiency improvements. We would like to see ECO delivered independent of energy suppliers and designed to encourage local partners to work together to deliver local and regional programmes with strong links across health, housing, social care and regeneration. Housing associations offer a unique opportunity to deliver effective energy efficiency programmes at scale - with expert knowledge of their stock, understanding of customer behaviour, track record of innovation and established partnerships with industry, government and service providers. New models of delivery that drive innovation, efficiency and collaboration would enable housing associations to do more, creating a competitive and commercial supply chain that would benefit all sectors and support the delivery of the 2030 fuel poverty targets.