Electricity and Gas (Energy Efficiency Obligations) Order 2001 (Hansard, 4 December 2001)

§ The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Whitty)
rose to move, That the draft order laid before the House on 14th November be approved [10th Report from the Joint Committee].
The noble Lord said: My Lords, the Electricity and Gas (Energy Efficiency Obligations) Order is an opportunity for a significant step forward in the promotion of domestic energy efficiency in Great Britain. The main purpose of the order is to place an obligation on electricity and gas suppliers to achieve 784 targets in energy efficiency. They will do this by encouraging and assisting their domestic consumers to take up energy efficiency measures.
The energy efficiency obligation, more commonly known as the energy efficiency commitment, or EEC, will have three important benefits. First, we estimate that it will cut greenhouse gas emissions by around 0.4 million tonnes of carbon a year. Secondly, by helping electricity and gas consumers to save energy, it will reduce their fuel bills, or they may choose to enjoy greater comfort by living in better-heated homes without increased costs. Thirdly, it will give practical and particular help to lower income consumers who spend a larger proportion of their income on energy. This will contribute to the alleviation of the problem of fuel poverty.
The order sets out an overall obligation on all electricity and gas suppliers of 62 fuel-standardised terawatt hours of energy savings. This is a challenging but achievable target. It represents a significant increase in activity over the programmes that have been operated successfully since 1994 by the regulator, Ofgem. The cost of meeting their targets will fall on suppliers, but, even if it was passed on in full to their customers, it should be no more than £3.60 per customer per fuel per annum.
The order also sets the framework for the EEC to be administered by Ofgem. Ofgem will set the energy efficiency targets for individual suppliers and monitor their achievement. It will also be responsible for their enforcement.
The order offers a balanced approach to achieving environmental and social objectives. It contributes both to our range of actions for tackling climate change and to the eradication of fuel poverty. With this in mind, I commend the order to the House.

§ Lord Glentoran
My Lords, I thank the Minister for bringing forward the order. While my party applauds any move to arrange an effective target for carbon savings, the issue of cost is an important concern. The Electricity Association, in particular, feels that householders will greatly suffer in terms of price. While DEFRA officials have stated that they hope that the increase in price will be met to some extent by suppliers, the regulator, Ofgem, seems to believe that local authorities will assist suppliers with expenditure. The Electricity Association claims that consumers will have to bear the full brunt of the changes. According to the very nature of the energy supply industry, it understands that suppliers will not subsidise the additional costs.
These facts seem to beggar some extremely important questions. Who will pay for these energy efficiency targets? Will the Government outline how much they estimate the average householder will be affected by these measures? The Government estimate that the average annual financial gain for those in the priority group of lower income consumers who would 785 benefit from measures under the scheme, either in lower energy bills or increased comfort, would rise to around £14 a year by 2005. The Electricity Association claims that the Government have been over-generous in their attempt to estimate the effectiveness of energy efficiency measures, and consequently have understated the resultant costs.
While I and my party wholeheartedly commend energy saving initiatives, my consultations with the industry lead me to believe that the Government have not lent a rational argument to both the proposed costings and timescales. Will the Minister enlighten the House and tell us who will pay, and how much?

§ The Earl of Mar and Kellie
My Lords, I regret that my noble friend Lord Ezra is unable to be in his place. He has given me three succinct sentences of what he would have said. I suspect that the Government will appreciate these words. This is a measure which these Benches supported during the passage of the Utilities Bill. We are very much in favour of the energy efficiency obligation. We very much welcome that there will be an annual report on the progress achieved.
The House will not be surprised to learn that repeating three succinct sentences is not quite my style. Therefore I should like to raise a connected issue. Before doing so, I declare an interest in that I sell firewood on a very small scale. That said, I am very concerned about the practice of local authorities "burying" fuel in the form of waste wood. I regard this practice as complete energy inefficiency.
I recognise that recently we have been removing—or not installing in homes—chimneys, flues, stoves and grates. The Minister mentioned the issue of fuel poverty. I have always felt that by having houses with only automatic systems—ones which consume the electricity and gas so clearly covered by the order—people enduring fuel poverty are unable to do anything about it. I hope that the Minister will be able to give some leadership towards enabling citizens to acquire some of the waste wood which is otherwise being buried. I feel like weeping buckets when I am at the skip site at Forth Bank, in Alloa, as I am frequently, to see so much fuel being buried.
I do not know whether waste is a devolved matter. I see it as energy, and energy is a reserved matter. At the risk of starting a turf war, I hope that the Minister can offer some leadership on the matter.

§ Lord Whitty
My Lords, I thank the two noble Lords who have spoken from the Opposition Benches.
Perhaps I may reply to the point raised by the noble Lord, Lord Glentoran, about costs. I should preface my remarks by pointing out that there have been lengthy and at times somewhat difficult discussions with suppliers, users and others during the various phases of consultation. The process began in March last year and went through its various stages until it reached the final stage of statutory consultation.
During that period some of the figures have changed to take account in part of the views of the Electricity Association and other suppliers. The figures that we 786 have now alighted on for the picture in 2005 are broadly achievable—as is accepted by most of those involved. It is true that some achievements in energy efficiency are not easy. They will be cumulative over the period up to 2005 and beyond.
That said, we should expect the average gross benefit to households, having installed the energy efficient measures—or, alternatively, having heated their houses at the same cost but to better effect—to be over £15 a year for the low income groups, at whom the bulk of the measures will be targeted. The average for all groups will be approximately £11 a year by 2005. For those in the non-priority group, the saving will be between £8 and £8.50. That is the figure at the end of the process. In the interim, if the supplier companies pass on all the costs of meeting the targets, the maximum cost per customer should be no more than £3.60 per fuel per annum. The benefit beyond 2005, however, will be a net benefit, even to the non-priority groups, of nearly £5 in their fuel bills.
The cumulative effect of the measures over the three years in which they will operate will lead to a net saving for all groups of some significance, and to a very large net saving for those in the direst need, who are in the fuel poverty bracket and close to it. I hope that my remarks explain the noble Lord's point.
I turn to the comments of the noble Earl, Lord Mar and Kellie, in the absence of the noble Lord, Lord Ezra—whose views on this matter are well-known and whose support for many of these measures we greatly appreciate. I recognise and appreciate the support from the Liberal Democrat Benches as enunciated by the noble Earl. The position on firewood, however, will not please the noble Earl quite so much.
In regard to the general issue of fuel poverty and renewable resources, the Government recognise that the by-products of forestry and other agricultural activities can be used to produce energy. The most effective use of that energy is probably in biomass, and possibly in the production of liquid fuels. Nice though a domestic wood fire is, it is not the most efficient way of producing heat and not necessarily the most cost-efficient. Therefore, wood is not one of the fuels specified under the order on which energy savings can be achieved.
I regret that, having declared his interest, the noble Earl may be caused some commercial disadvantage. However, there is a wider question as to how we use those by-products in a better way than in domestic grates and stoves to contribute towards greater energy efficiency. So far as concerns this process, wood will not play a role. Having answered those questions, I commend the order to the House.

§ Lord Filkin
My Lords, I beg to move that the House do now adjourn during pleasure until one minute past nine o'clock.