Consumer Focus Scotland's response to the Scottish Government's consultation on its draft Electricity Generation Policy Statement June 2012
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Consumer Focus Scotland’s response to the Scottish Government’s consultation on its draft Electricity Generation Policy Statement June 2012
About Consumer Focus Scotland
Consumer Focus Scotland is the independent consumer champion for Scotland.
We are rooted in over 30 years of work promoting the interests of consumers,
particularly those who experience disadvantage in society.
Part of Consumer Focus, our structure reflects the devolved nature of the UK.
Consumer Focus Scotland works on issues that affect consumers in Scotland,
while at the same time feeding into and drawing on work done at a GB, UK and
European level.
We work to secure a fair deal for consumers in different aspects of their lives by
promoting fairer markets, greater value for money, improved customer service
and more responsive public services. We represent consumers of all kinds:
tenants, householders, patients, parents, energy users, solicitors’ clients, postal
service users or shoppers.
We aim to influence change and shape policy to reflect the needs of consumers.
We do this in an informed way based on the evidence we gather through research
and our unique knowledge of consumer issues.
Consumer Focus Scotland’s response to the
www.consumerfocus-scotland.org.uk
2 Scottish Government’s draft Electricity Generation
Policy StatementScottish Government Electricity Generation Policy Statement
Consumer Focus Scotland response to the consultation
Introduction
Consumer Focus Scotland welcomes the opportunity to contribute to the debate
on the Scottish Government’s Electricity Generation Policy Statement. While it is
not within our remit to comment on technical aspects of electricity generation
policy, we are able to comment on the consumer perspective of energy costs,
which are influenced by the decisions made on technical issues.
Energy prices for consumers have risen consistently in recent years. Forthcoming
Consumer Focus Scotland research shows clearly that consumers are now far
more concerned about energy affordability than in the past. In combination with
flat incomes, rising prices have outstripped the welcome gains made in the energy
efficiency of Scottish housing, and Scottish Government estimates show that
some 35% of all households now live in fuel poverty.
At the same time, there is a clear recognition of the need for investment in energy
infrastructure to ensure security of supply at affordable prices for consumers in
the future, while also reducing climate change emissions.
There are tensions between these aims. Although investment is needed to ensure
long term energy policy goals are achieved, investment costs are, at the same
time, part of the reason that prices for consumers are increasing. We are currently
carrying out research to explore consumers’ views on the contributions they are
being asked to make.
Early findings from that research inform this submission and are detailed below.
Despite concern about current costs, consumers understand the need for
investment, when provided with sufficient information. However, they do not feel
that such information is easily available, or that they are involved in an open
debate on the process. They are also – rightly - concerned that the balance of
costs of investments between consumers, government and industry should be fair
and transparent, and that subsidies, where necessary, are justified and
appropriately targeted. These themes also underpin our recently published report
Reaping the Benefits of Renewables1, which explores issues around the use of
Community Benefit Funds (CBFs) associated with renewable energy
developments.
Following from the above, we welcome the Scottish Government’s aim2 that
Scotland’s generation mix should deliver a range of outcomes:
a secure source of electricity supply;
at an affordable cost to consumers
which can be largely decarbonised by 2030;
1
http://www.consumerfocus.org.uk/scotland/publications/reaping-the-benefts-of-
renewables
2
Paragraph 4 of the Electricity Generation Policy Statement, executive summary
Consumer Focus Scotland’s response to the
www.consumerfocus-scotland.org.uk
3 Scottish Government’s draft Electricity Generation
Policy Statementand which achieves the greatest possible economic benefit and
competitive advantage for Scotland including opportunities for
community ownership and community benefits
However, we consider that there is a need for greater balance between these
aims than is currently set out in the Statement, alongside greater clarity of the
costs and benefits.
In particular, more detail is needed on the implications for affordability for
consumers; it is notable, for example, that the high level metrics provided in
paragraph 5 of the executive summary of the EGPS do not include any measure
which relates directly to the ‘affordable cost’ aim. Only the generic target of
reducing final energy consumption in Scotland by 12% implies the delivery of
savings for consumers.
More detail is needed on how this commitment will be integrated to ensure that
consumers have access to essential energy services at affordable cost as other
policy aims are delivered: it would be possible to deliver against each of the
paragraph 5 targets without considering affordability. A related point is that the
opening paragraph of the statement refers to economic and environmental
benefits of moving to lower carbon generation, but does not make mention of
social aims.
We expand on these comments below, concentrating on aspects of the EGPS
where we believe wider consideration of the interests of consumers should be
included.
Consumer Focus Scotland’s response to the
www.consumerfocus-scotland.org.uk
4 Scottish Government’s draft Electricity Generation
Policy StatementAffordable Cost for Consumers and Energy Efficiency
The box on pp6-7 of the EGPS expands on the overall policy aims set out in the
summary. Following from our comments above, we believe that there is a need for
more emphasis on ensuring that supplies are affordable for consumers, and also
that this section could be clearer in its summary of the effect on energy bills.
The EGPS quotes DECC modelling3 which shows that, overall, there will be a fall
of £95 by 2020 in domestic consumer energy bills as a result of cumulative impact
of environmental and social policies. This reduction is a comparison with the
counterfactual scenario for that year (that is, what would have happened had
there been no energy using product, energy efficiency or renewables policy since
2000). It does not mean there will be a decline in costs compared to today’s bills.
Two points follow from this.
Firstly, there is an expectation in the DECC paper that bills will continue to rise,
with associated impacts on consumers and likely impacts on attitudes. As the
Scottish Government’s fuel poverty statistics show, costs are already unaffordable
for many consumers.
Secondly, there is a clear distinction between energy prices – the unit costs of gas
or electricity - and energy bills, which depend on total energy use. DECC’s
modelling4 shows that:
Compared to the counterfactual scenario in which climate change and
energy policies do not have an impact on energy bills, on average,
domestic energy bills will be 1% higher in 2020 and non-domestic energy
bills, for medium-sized consumers, will be 26% higher as a result of climate
change and energy policies. (para 3)
This is because:
The impact of climate change and energy policies on energy prices is
higher than the impact on bills (18% and 33% on gas and electricity prices
respectively for domestic consumers and 24% and 43% respectively, for
medium-sized non-domestic consumers). The impact on bills is lower as
the Government has in place a range of policies to improve energy
efficiency, which helps households and businesses reduce energy
consumption, lessening the overall bill impact. (para 4)
This last point is critical. Savings will only be delivered if energy efficiency
measures are offered and delivered to consumers in ways which meet their needs
and aspirations, and at affordable cost.
While the Scottish Government’s continuing commitment to delivery of publicly-
funded energy efficiency measures is welcome, the scale of the work required
remains considerably greater than the resource available. There is a clear need to
identify further funds which could be used to deliver energy efficiency work at
3
Estimated impacts of energy and climate change policies on energy prices and bills, UK
Department of Energy and Climate Change, 2011
4
Source as above
Consumer Focus Scotland’s response to the
www.consumerfocus-scotland.org.uk
5 Scottish Government’s draft Electricity Generation
Policy Statementscale, and in ways which make available measures suitable for off gas and hard
to treat houses.
Paragraphs 19 – 24 of the EGPS look in more detail at demand reduction, and
make reference to the Scottish Government’s Energy Efficiency Action Plan.
While it would not be appropriate to replicate the full detail of that document here,
we believe that it would help balance the discussion if more emphasis was placed
on how energy efficiency measures will be delivered, and also on the importance
of energy efficiency in delivering the headline aims of energy affordability and
economic benefit. It would also add balance to link this discussion to the existing
Scottish Government target to eliminate fuel poverty by 2016.
An additional point is that rates of fuel poverty are higher among consumers
without access to mains gas. For many of these households, renewable heating
systems are likely to be part of the solution to affordable warmth, as discussed in
recent Consumer Focus Scotland research5. The EGPS touches on the
relationship between generation, increasing electricity demand and renewable
heating at different points throughout the document (para 51 – 54), but it would be
helpful to examine this in an integrated way, including more detail both on the
consumer perspective and on the importance of installing energy efficiency
measures alongside renewable heating.
Economic Benefit is also a key driver of the EGPS, and it is clearly a role for the
Scottish Government to promote and deliver economic development. However,
we would argue that, where a particular decision is made on the basis of
economic benefit, it should be supported by economic development funding,
rather than by levies on consumers.
Consumer Willingness to Pay for Environmental and Social Policies
As discussed above, the main driver of rising energy bills are increasing
wholesale costs of energy. However, various environmental and social levies,
together with other less obvious charges, are also increasing electricity bills, and
to a lesser extent, gas bills. Although relatively small individually, these levies are
estimated by Ofgem6 to account in total for around £100 per dual fuel household
at present.
In addition, there are pressures on some of the mainstream elements of bills
which will be impacted by the policies described in the EGPS. For example, the
Scottish Government’s policy is to seek the introduction of a socialised, or
postage stamp, approach to electricity transmission charging. Ofgem’s modelling
shows clearly that this approach would result in increased costs for consumers,
and especially for consumers in the North of Scotland, where rates of fuel poverty
are already among the highest in Scotland. This highlights the need for a more
integrated consideration of affordability issues in generation policy.
Consumer Focus is currently working on a suite of GB-wide research projects
designed to explore consumer attitudes to levies designed to achieve social and
environmental goals. There are, not surprisingly, variations in attitudes between
5
http://www.consumerfocus.org.uk/scotland/publications/21st-century-heating-in-rural-
homes
6
Household energy bills explained, Ofgem, January 2011
Consumer Focus Scotland’s response to the
www.consumerfocus-scotland.org.uk
6 Scottish Government’s draft Electricity Generation
Policy Statementdifferent groups of consumers and between consumers in different GB countries
which we are in process of exploring. However, it is possible to draw out some
initial headline findings:
For all consumers, attitudes to investment are coloured by their day to day
experience of energy markets and energy companies. Consumers are, as
noted above, concerned both about absolute levels of energy bills and
about price volatility.
In line with wider public attitude surveys, our deliberative research shows
that most consumers recognise and accept the need to reduce climate
change emissions from domestic energy use. However, there is
widespread recognition that our growing dependence on imported energy,
with associated political and economic risks, is affecting energy prices for
consumers. As a result, consumers’ attitudes to low carbon investment are
driven to a greater extent by the degree to which these investments
increase energy security, and will therefore ultimately benefit consumers,
rather than concerns about climate change.
Consumers’ willingness to pay for social and environmental outcomes
through levies on their bills is influenced by a combination of the above
background factors, and varies between groups.
Our deliberative research assessed willingness to pay for investments both
before and after groups of consumers, from a range of backgrounds, were
given an opportunity to explore the issues in some detail.
At the start of the process, a significant minority of consumers were willing
to pay for investments. As a result of discussions, attitudes changed in
favour of renewables, with a majority of consumers willing to contribute
towards investments; but their willingness to pay is very much conditional
upon:
- investment costs being fairly spread among Government and industry,
not just consumers. Not surprisingly, consumers are not comfortable
about bills rising to pay for investments at the same time as companies
announce increasing profits;
- the benefits of investments being clear and clearly targeted at those in
greatest need (for example, subsidies on bills for older people, or for
people with disabilities)
It is also important to note that very few consumers are aware that levies are
already in place, despite this information already being provided on bills by some
energy companies.
A further key point is that levies which raise bills but from which consumers derive
no benefit, and the effects of which they cannot evade, are understandably seen
as very unfair. EU-Emissions Trading Scheme costs, which are expected to reach
£129 per household per year by 2030 are particularly unwelcome for this reason.
This is an area in which Consumer Focus is already active. We are a founder
member of the Energy Bill Revolution campaign, which aims to recycle money
raised from consumers under the ETS towards energy efficiency, and therefore
reduce bills. An average of £4bn each year will be raised through the ETS;
recycling that money towards energy efficiency measures for fuel poor consumers
Consumer Focus Scotland’s response to the
www.consumerfocus-scotland.org.uk
7 Scottish Government’s draft Electricity Generation
Policy Statementwould represent a huge increase in the resources available to deliver energy
efficiency measures when compared to the current CERT or proposed ECO
programmes.
Community Benefit Funds
We have recently published Reaping the Benefits of Renewables7, a report which
explores the extent and use of Community Benefit Funds (CBFs) associated with
renewable energy developments.
We appreciate that CBFs provide some compensation for communities directly
affected by (most commonly) windfarm developments. Our initial motivation in
undertaking research on the use of CBFs was to learn more about the
opportunities to better link energy production and energy consumption, through
support for energy efficiency measures at local level.
The report identifies ways in which this aim can be taken forward, building on both
community and local authority led examples of good practice. However, during the
course of the research, wider issues which relate to the consumer attitudes
outlined above became clear.
The sums available through CBFs are rising significantly, as both the number and
scale of individual windfarms expands. As the sums of money involved grow, we
would suggest that there is a risk of tension developing. At local level, this could
be between communities where one benefits while neighbouring communities do
not.
More widely, there is a question about the relationship between communities
receiving funds and consumers whose electricity bills are ultimately the source of
the funds. In line with the discussion about consumer views of levies above, we
consider that consumers have a right to expect funds to be used effectively, and
in ways which maximise benefits.
Consumer Focus Scotland
Royal Exchange House
100 Queen Street
Glasgow G1 3DN
Telephone 0141 226 5261
Facsimile 0141 221 9695
www.consumerfocus-scotland.org.uk
We can often make our publications available in Braille or large print, on audio
tape or computer disk. Please contact us for details.
7
http://www.consumerfocus.org.uk/scotland/publications/reaping-the-benefts-of-
renewables
Consumer Focus Scotland’s response to the
www.consumerfocus-scotland.org.uk
8 Scottish Government’s draft Electricity Generation
Policy StatementYou can also read
