Can we end fuel poverty by 2016?

Norman Kerr, Director of Energy Action ScotlandBy NORMAN KERR

Director, Energy Action Scotland

At this time of year, the weather is cold and damp and so keeping warm at home and paying for energy bills are challenges that more people are now facing. And the affordability of energy has been a topic that has produced much political comment and a great deal of media attention over the last year.

But for many people, the issue is not new: the fuel poverty charity Energy Action Scotland has been campaigning for an end to cold homes for 30 years. 

While much progress has been made since the start of the campaign, it is clear that the problem has not yet been solved, despite there being a statutory duty on the Scottish Government to end fuel poverty by 2016.

But in these difficult economic times, is it realistic to expect progress?

Fuel poverty is defined as needing to spend more than 10% of income on fuel to adequately heat and power the home. The Scottish House Condition Survey (SHCS) shows that the number of households in fuel poverty in Scotland fell from 738,000 (35%) in 1996 to 286,000 (13%) in 2002. 

Since then, numbers have increased to 647,000 households (27.1%) in 2012, which is down slightly from 721,000 (30.5%) in 2011.

The increase is largely attributed to rising energy prices. 

The SHCS states that for every 5% increase in energy prices, another 46,000 households (2%) move into fuel poverty.  Based on this, Energy Action Scotland estimates there are currently around 900,000 (approximately 40%) fuel-poor households in Scotland.

Around half of a customer’s energy bill consists of wholesale energy costs, which are largely influenced by global energy prices.  Greater transparency of the wholesale market is needed, in EAS’s view, to make it clear who the energy companies are buying from, how many times a unit of energy has been bought and sold before the consumer buys it, and how many times one company has profited from that one unit.

This part of the market is little understood by anyone other than the energy companies themselves. The UK Energy and Climate Change Committee has said that the regulator, Ofgem, needs to do more in this area to make sure consumers are getting a fair deal and EAS agrees.

However, the remainder of the bill consists of a combination of network costs, supplier costs/profit, VAT and various energy, climate change and social levies. 

The UK Government’s levies on energy bills are currently largely regressive and, in EAS’s view, should be reformed. Ability to pay ought to be taken into consideration otherwise these taxes hit the poorest the hardest as they pay proportionately more. EAS therefore supports the moving of some levies from consumer bills into general taxation, as has been announced recently with regard to the Warm Home Discount.

In order to win back trust and customer confidence, all energy retailers ought to offer a full review of their customer accounts annually.

This would serve to inform existing customers of any better tariffs, check payment methods are suitable and raise awareness of services such as energy efficiency advice or the Priority Services Register for more vulnerable customers. Some companies offer this; others need to follow.

Energy prices are not the only cause of fuel poverty, however. It is acknowledged that the two other main factors are low disposable household income and poor energy efficiency of the home. 

Efforts to boost income and energy efficiency therefore help to off-set the effects of energy prices.  Energy efficiency in particular is viewed by EAS as the most sustainable way of taking – and keeping – people out of fuel poverty.

A number of initiatives are in place to reduce fuel poverty. Programmes focus in the main on delivering various forms of insulation, plus the installation of central heating systems for certain groups. Increasingly, micro-renewables are also available and these are particularly useful in off-gas grid areas to give greater choice of fuel type.

Higher fuel costs, less choice of type of fuel, rural premiums on energy, a challenging housing stock and difficulty getting companies to deliver energy efficiency measures in some areas: these are a few of the difficulties faced by consumers in rural areas.

Significantly more can be paid in rural areas for the same fuel sold in urban areas. EAS considers that the reason behind this discrepancy in price could be attributed, in some part, to the lack of regulation of most rural heating fuels.

The focus of most energy regulation is on mains gas and electricity via Ofgem.  Regulation is therefore, in EAS’s view, needed on other domestic fuels such as heating oils, solid fuels and LPG.

Housing stock in rural areas also poses problems. Older, stone built houses with greater wall surface areas that have poor- to no-insulation and – situated in often exposed areas – means retrofitting becomes challenging and expensive.  However, EAS would urge that it is essential that particular attention should be made to retro-fit energy inefficient homes in rural and remote areas.

In terms of housing tenure, the private rented sector is coming increasingly under the spotlight. Unlike the social rented sector, where local authorities and housing associations are required to meet certain energy efficiency standards, private landlords are not.

There is pressure on the Scottish Government to remedy this situation, as has been done south of the border. The Scottish Government has indicated that it will look to regulation in this sector in 2018, but, in EAS’s view, this is not ambitious enough and is pressing for the date to be brought forward.

It should be remembered, however, that tackling fuel poverty is not at heart about energy regulations or bricks and mortar; it is about everyone having the basic right to a warm, dry home. That, surely, is an ambition worth pursuing.


Pixie Energy

Pixie logo Pixie Energy is an incubator and a facilitator of strategic research and project work, focusing on energy regulation, policy and markets at the local and national level. Find out more about Pixie Energy here.

Local Energy Matters: Scotland

Local Energy Matters: Scotland is a free-to-download brochure with a focus on energy tariffs in the two Scottish electricity distribution regions, as well news on local energy and low-carbon schemes.

Previous editions can be download here.

Scottish energy market overview

You can read an overview of the Scottish energy market here.

Scottish Government energy feed