4.52. The first part of the chapter highlighted some, but not all, of the circumstances that can lead to consumers being vulnerable, suffering detriment, and needing support as a result. There are several ways in which suppliers, the government, Ofgem, and
charities provide support for these consumers, either to make their bills more
affordable, or to help them engage in the market directly to protect their own interests.
This section summarises the main financial and non-financial support available, and the impact these interventions have.
Financial support is available for energy consumers in vulnerable situations
Direct subsidies
Table 4.2: Direct financial support for consumers in vulnerable situations
Policy Eligible Recipients
(winter 2017-18)
Winter Fuel Payment All pensioners 11.8 million individuals
Source: Department for Work and Pensions, Winter Fuel Payment Statistics 2017-18;
Ofgem, Warm Home Discount Annual Report: Scheme Year 7, December 2018; and Department for Work and Pensions, Cold Weather Payment Statistics, 2017-18.
Notes: The total cost has been converted to 2018 prices using the CPIH index.
4.53. The UK government provides direct financial support to consumers in circumstances that make them vulnerable, with most of the support directed towards pensioners. As illustrated above, the total amount of financial support provided in the financial year ending 2018 was around £2.5 billion in 2018 prices, spread across winter fuel
108 payments (around £2 billion); the Warm Home Discount (around £330 million); and cold weather payments (around £121 million) (Table 4.2).
4.54. A low-income pensioner on Pension Credit could receive financial support up to £440 (excluding any cold weather payments), depending on their age.156 This would cover around 37% of the average dual fuel energy bill in 2018. Cold Weather Payments are another source of financial support for potentially vulnerable consumers during
sustained periods of very cold weather, when heating requirements increase. Payments are made to pensioners and consumers receiving income support or income-based jobseeker’s allowance, when the average local temperature is recorded as, or forecast to be, at or below freezing for seven consecutive days. In winter 2017-18, there were 4.7 million cold weather payments, worth a total of £121 million in 2018 prices. In winter 2018-19, this decreased to 1.08 million payments totalling £27.1 million. This was largely down to the winter of 2018-19 being, on average, warmer than that of 2017-18 across much of the UK.
4.55. In 2018, the government extended the Warm Home Discount scheme until at least March 2021, and broadened the scope and scale of the support. In particular, the threshold for the size of suppliers that must participate, based on the number of customer accounts they hold, will fall over time.157
Price protection
4.56. Ofgem has put in place a cap on default tariffs and we also administer a cap on prepayment meter tariffs that was designed by the CMA. These price protections are likely to benefit vulnerable groups proportionately more as they are more likely to be on these tariffs.
4.57. In January 2019 we introduced the cap on default tariffs, protecting around 11 million consumers on more expensive tariffs by ensuring that the price they pay for their energy more closely reflects the underlying costs of energy. The cap sets a maximum price that suppliers can charge customers per unit of energy, as opposed to a maximum bill, which depends on the amount of energy used. The savings for
individual customers will depend on how much energy they use, the price of their
156 https://www.gov.uk/pension-credit
157 Ofgem (2018) Warm Home Discount Annual Report: Scheme Year 7
109 current tariff, whether they have both gas and electricity and how they pay for their energy. When the cap was first introduced, we estimated that it would save customers who use a typical amount of gas and electricity around £76 per year, with a typical customer on the most expensive tariff saving £120. In total, we expect that the price cap will save consumers in Great Britain around £1 billion per annum in nominal terms.158
4.58. Prior to the price cap on default tariffs, Ofgem administered the CMA’s Safeguard Tariff on prepayment meter tariffs which came into force in April 2017, initially
protecting over 4.5 million households.159 In February 2018, the Safeguard Tariff was extended to protect a further 0.8 million vulnerable consumers that are in receipt of Warm Home Discount. We estimated that eligible vulnerable consumers would initially make annualised savings of around £110 in nominal tems.160
Energy Company Obligation 3 (ECO 3)
4.59. The Energy Company Obligation (ECO), first introduced in 2013, is an energy efficiency scheme for Great Britain. ECO places legal obligations on larger energy suppliers to deliver energy efficiency measures to domestic premises. It focuses on insulation and heating measures and supports vulnerable consumer groups. Following completion of the ECO2 in September 2018, the current ECO3 scheme came into force in December 2018 and will run until March 2022. ECO3 is comprised entirely of a single obligation – the Home Heating Cost Reduction Obligation (HHCRO) – which focusses on reducing heating costs for low income, fuel poor and vulnerable households living in private or social housing. Between December 2018 and the end of August 2019, almost 76,000 measures were approved to improve the efficiency of homes.161
158 See our default tariff cap decision document at https://www.ofgem.gov.uk/publications-and-updates/default-tariff-cap-decision-overview. For an overview see
https://www.ofgem.gov.uk/publications-and-updates/energy-price-cap-will-give-11-million-fairer-deal-1-january
159 We calculate the level of the PPM cap following the CMA’s methodology.
160https://www.ofgem.gov.uk/system/files/docs/2017/10/financial_protections_for_vulnerable_consu mers_-_technical_document.pdf
161 https://www.ofgem.gov.uk/environmental-programmes/eco/contacts-guidance-and-resources/eco-public-reports-and-data/measures
110 Wider (non-financial) support
4.60. There are a range of channels through which consumers can receive non-financial support.
Support to engage
4.61. There are mechanisms in place to support vulnerable consumers to engage with the market and ultimately save money. These include:
Big Energy Savings Network (BESN), funded by both BEIS and National Energy Action (NEA) to support third sector organisations and community groups in advising vulnerable consumers.162 This has provided support to over 500,000 consumers in vulnerable situations since 2013.
Big Energy Saving Week, a national campaign to help people cut their energy bills and take-up/be aware of the financial support they are eligible for.
Energy Best Deal Extra run by Citizens Advice, which is funded by some energy suppliers’ Warm Home Discount industry incentives allowance. This programme gives advice to vulnerable groups such as people with low incomes and those living with a disability or long term health concerns.
Priority Services Register (PSR)
4.62. Suppliers are required to register vulnerable customers onto their PSR. This enables them to help these customers better manage their energy needs through a range of services including: assistance with meter reading; communication in accessible formats services; password protection schemes; and advance notice of planned power cuts.
Figure 4.17 illustrates the number of PSR services provided to electricity customers over the period 2012-18. There has been a marked increase of almost 200% in the
162 https://www.gov.uk/government/publications/big-energy-saving-network-grant-offer-fund
111 number of quarterly meter readings undertaken by suppliers over this period, from 155,000 in 2012 to 470,000 in 2018.163
Figure 4.17: The number of PSR services provided to electricity customers on PSRs
Source: Social Obligation Reporting Data 2018, Ofgem.
Addressing problems when things go wrong
4.63. Vulnerable consumers may need help understanding their situation or to make complaints when things go wrong. Citizens Advice Extra Help Unit (EHU)164 has a specialist team that investigates complaints on behalf of vulnerable domestic consumers, as well as microbusinesses that may require extra support. Domestic consumers reported reaching either a satisfactory or very satisfactory outcome in over 88% of the 12,056 complaints cases that the EHU closed in 2018, compared with 6,123 cases closed in 2017. The volume of complaints made by domestic consumers to the EHU increased substantially in 2018 compared to previous years, with the majority of complaints continuing to be about billing (42%) and debt/disconnections (22%). When
163 If no person occupying the premises is able to read the meter and there isn’t anyone else that the customer can nominate to read the meter on their behalf, the supplier will come out to read it.
164 The Citizens Advice Extra Help Unit (EHU) is a GB wide service managed by Citizens Advice Scotland on behalf of the Citizens Advice Service. It has statutory powers and responsibilities which are outlined in section 12 and 13 of the CEAR Act (2007).
112 market share is taken into account, the number of cases referred to the EHU is
disproportionately higher for some small and medium sized energy suppliers.
113
5. Decarbonisation of Energy
Introduction
5.1. Dramatic cuts in annual global greenhouse gas emissions are required to limit temperature rises. The Climate Change Act (2008) requires the UK to reduce carbon emissions by at least 80 per cent of 1990 levels by 2050 and, in the 2016 Paris
Agreement, the EU pledged to reduce its emissions by at least 40% below 1990 levels by 2030. The UK is a party in its own right to international climate change agreements Summary of findings
The UK is a global leader in emissions reduction and the electricity sector has been at the forefront of this progress. Greenhouse gas emissions from the electricity sector have fallen by more than half since 2012. However, progress in other sectors has been slow, and overall UK carbon emissions fell by only 12 million tonnes in 2018, the slowest rate of decline since 2012. This presents risks to the UK’s strong record of fulfilling its decarbonisation obligations.
Carbon dioxide emissions from electricity generation fell by 11% in 2018, driven by wind, solar and bioenergy as well as a reduced reliance on coal. The value for money of policies to support this transition varies widely. We estimate that the carbon price cost consumers around £31 for each tonne of carbon emissions avoided between 2010 and 2018, while small scale renewable subsidies cost consumers around £322.
The decarbonisation of heat and transport are key to achieving carbon targets.
Collectively, heat and transport now account for over 40% of the UK’s total annual greenhouse gas emissions of 449 million tonnes of CO2 equivalent, and progress in decarbonisation of these sectors has stalled.
114 and has signalled its intention to retain these commitments following its expected withdrawal from the EU.165
5.2. The Intergovernmental Panel on Climate Change (IPCC) has voiced serious concerns about the pace of change. It believes that the world is heading towards temperature rises of 3°C above pre-industrial levels and that policy makers need to consider more rapid and far-reaching measures to avert disaster.166 This sense of urgency contributed to Parliament’s decision to declare a ‘climate change emergency’ on 1 May 2019. In June 2019, the Government announced that it will target net zero emissions by 2050.
5.3. Ofgem plays a part in ensuring that the UK delivers its pledges on reducing emissions in the electricity and gas sectors. We have a duty to current and future consumers to protect their interests taken as a whole, including their interest in the reduction of greenhouse gases. As such, sustainability is an integral part of our medium-term strategy, which includes facilitating decarbonisation efforts to deliver a net zero
economy at the lowest cost to consumers. We’ve committed to carrying out more direct decision making that will support the transition to a low carbon world, including
efficiently administering renewable energy and energy efficiency schemes, and factoring environmental impacts into all of our significant regulatory decisions.
5.4. In this chapter, we examine:
progress in reducing emissions;
the extent to which reductions may be attributable to policies; and
the cost-effectiveness of policies in reducing carbon emissions.
5.5. In this context, we consider the environmental benefits of reducing greenhouse gas emissions. We recognise that decarbonisation policies can contribute to greater
165 BEIS (2019). Guidance: Meeting climate change requirements if there’s no Brexit deal. Available at: https://www.gov.uk/government/publications/meeting-climate-change-requirements-if-theres-no-brexit-deal/meeting-climate-change-requirements-if-theres-no-brexit-deal
166 IPCC (2018). SPECIAL REPORT: Global Warming of 1.5ºC. Available at:
https://www.ipcc.ch/sr15/
115 innovation, productivity and, by extension, economic growth, but these areas do not form part of the scope of this chapter.167
5.6. We also consider the challenges in meeting our commitments from 2023 onwards, as well as the potential role that different technologies can play in supporting the
transition to a low carbon energy system.
5.7. We focus on ‘production based’ emissions from electricity and gas to avoid the risk of double counting that can arise if both ‘production based’ and ‘consumption based’
figures are used to calculate total emissions.168 However, using only production-based figures can lead to an underestimation of the carbon impact of UK activity - production and consumption carbon emissions are both falling but consumption-related emissions are falling at a much lower rate. Increasing reliance on imported goods results in a shift to more carbon intense production processes and a relative increase in the emissions impact.