Consumer Scotland - energy, post and water - draft workplan 2022 to 2023: consultation

5. Energy

Fairness in the energy retail market

What is the issue?

Energy price increases will impact on customers' bills in two ways. Increasing wholesale costs may see bills increase by 50% when the price cap is next reviewed in April. Further the estimated £2.6bn cost of multiple supplier failures is set to be recovered through consumers' bills at close to £100 per household. The existing regulatory framework failed to protect consumers by allowing unfit and unsustainable suppliers to enter the energy market with only limited checks and a lack of enforcement of the regulations in place.^[4]

Why are we looking at it?

In recent years the prevailing theory has been that switching would provide consumers with the best deals in the energy market, and that retail competition would ensure most consumers interests would be met. Specific measures were seen to be required for vulnerable consumers. In current circumstances the retail market is not meeting consumer's needs, with the Standard Variable Tariff (SVT) available as the most competitive tariff for most suppliers at present. There have been industry predictions that high prices could remain for at least two years^[5] . In the short-term it is necessary to protect those most vulnerable as bills increase.

Regulation must be fit for purpose and we will work with the regulator to place consumer interests at the heart of the market as it rebuilds. The current situation and the anticipated changes in fuel source, technology, supply, demand and consumer behaviour that will result from the transition to Net Zero suggest that the structure of the energy market needs to be reviewed so it serves consumers effectively. The particular circumstances experienced by consumers in Scotland will require specific consideration in any such review. Consumer Scotland will investigate the needs and aspirations of energy consumers in relation to the future energy retail market at an appropriate time.

What is the outcome we're looking for?

To ensure that fairness for consumers underpins all aspects of the energy retail market as it continues to evolve

Markets to power the transition to low carbon heating in Scotland

What is the issue?

As a result of efforts to reduce the carbon intensity of the power system in Great Britain, the most environmentally friendly way to heat our homes and buildings today is with electricity. This progress has to date been largely funded by consumers through the addition of environmental levies to electricity bills. As we transition to low carbon heating, this creates a tension between governments' statutory Net Zero and fuel poverty targets which must be addressed if a just transition to Net Zero is to be secured.

Why are we looking at it?

By 2030, a much larger proportion of Scotland's heat demand will be met by electricity. By 2045, many models predict that the majority of Scotland's homes and buildings will be electrically heated. To meet Scotland's twin ambitions of eliminating fuel poverty by 2040 and reaching Net Zero by 2045, significant changes to Great Britain's energy market and the provision of energy services within it are therefore required.

We will engage with stakeholders across the energy industry to investigate what changes are needed to relieve the cost pressures on current and future users of both traditional and 'low carbon' electric heating in Scotland, and address price signals which actively discourage the transition to low carbon heating.

What is the outcome we are looking for?

Consumers in Scotland benefit from equitable access to and prices within energy markets that encourage and support the decarbonisation of heat in all of Scotland's homes and buildings.

Implementation of the Fuel Poverty Strategy

What is the issue?

A quarter of Scottish households are unable to heat their homes to an adequate level at an affordable cost. This proportion will almost certainly increase as the impacts of the steep increase in energy bills take effect. Fuel poverty forces households to adopt dangerous coping mechanisms such as rationing energy use and cutting back on other essential expenditures. Its impacts are proven to be detrimental to the physical and mental health of adults, and developmental issues and poorer outcomes in children.

Why are we looking at it?

The Fuel Poverty (Targets, Definition and Strategy) (Scotland) Act 2019 set interim and overall targets towards the eradication of fuel poverty, across all four of its recognised drivers, and in every local authority area in Scotland. The final Fuel Poverty Strategy, as laid before the Scottish Parliament in December 2021, outlines how various local and national delivery programmes and support schemes will realise these ambitions. Consumer insight will be important to inform the implementation of the strategy and associated programmes and understand their impact.

We will use evidence to inform our ongoing advocacy work in this area, and we will engage with relevant bodies such as the newly established Fuel Poverty Advisory Panel.

What is the outcome we're looking for?

To ensure that there is a consumer-centred approach to tackling fuel poverty in Scotland by helping positively inform and shape the delivery of the Fuel Poverty Strategy and associated programmes.

A Whole Home approach to energy regulations

What is the issue?

Since 41% of Scotland's CO2 emissions come from heat, improving the energy efficiency of homes and installing zero-emissions heating systems is essential to achieve Scotland's climate change targets. A whole home approach is necessary as zero-emissions heating systems are most effective in well insulated homes.

Why are we looking at it?

The 2021 Heat in Buildings Strategy (HiBS) set out a pathway to Net Zero in Scotland and target of a million homes to have zero-emissions heating systems by 2030. It includes a commitment to regulation to set a minimum standard of energy efficiency and introduce measures to encourage the adoption of zero emissions heating systems. These regulations will directly affect consumers' homes and in most cases require investment and changes to behaviour to succeed.

Rules and requirements must be easy for people to understand and designed to meet the needs of Scotland's homes and communities. We will work with stakeholders to ensure that regulation is easy to adapt to, balanced and realistic.

What is the outcome we are looking for?

Regulations governing the minimum standards of energy efficiency for homes and buildings in Scotland are clear, people-centred and sensitive to the needs and aspirations of local communities.

Understanding the barriers and opportunities for accelerating the uptake of EVs in Scotland

What is the issue?

People who use cars will need to adopt electric vehicles (EVs) over the next few decades, which will prove greener and, if accompanied by good infrastructure and policy incentives, cheaper than petrol vehicles. Cars are essential transport in many parts of Scotland, especially in remote and rural areas. Urban areas face their own set of infrastructure challenges. The transition to EVs requires a robust policy framework and clear, simple to understand processes, and guaranteed consumer rights as part of a just transition.

Why are we looking at it?

The transition to EVs is in full swing in many other countries with comparable challenges, such as Norway, where 80% of all new car sales in 2021 were electric vehicles.^[6] Understanding what has incentivised or disincentivised consumer use of EVs in other countries, particularly in remote and rural areas where public transport is limited, will help inform an effective approach in Scotland.

What is the outcome we are looking for?

The provision of infrastructure and policies that make it simple for consumers to adopt EVs wherever they are in Scotland.

Networks for Net Zero

What is the issue?

Scotland's gas and electricity networks will play a central role in facilitating the transition to Net Zero. The decarbonisation of heat, transport and industry will require significant investment in networks' operational capacity and resilience, and changes to the way in which consumers are charged for their access to and use of network infrastructure. To realise a just transition to Net Zero, these changes must deliver good outcomes for consumers in all areas of Scotland.

Why are we looking at it?

Gas and electricity network costs currently comprise 25% of a typical energy bill. As the Network Operators are regulated monopolies who have no direct billing relationship with consumers it is particularly important that the consumer voice is represented in discussions about network investment. Scotland's two Network Operators have been developing their five-years RIIO-ED2 Business Plans for the regulatory review and Ofgem are due to reach decisions on these during 2023.

In 2022/3 we will champion a whole energy system approach to the development of the gas and electricity networks in Scotland which supports communities to achieve their Net Zero ambitions. We will advocate for community participation in flexibility and other energy system services.

What is the outcome we are looking for?

Gas and electricity networks that power the Net Zero transition, maximising the benefits of the energy transition for consumers while keeping whole system costs affordable for all.

Smart meters - gateways to decarbonisation

Smart meters will form a central part of the digitalised energy system of the future. They hold the potential to revolutionise the delivery of energy services to consumers, reduce consumers' bills, and serve as a key enabling technology for the connection and optimisation of small-scale renewable and low carbon technologies. As a gateway to future market access, the benefits of smart meters must be available to all consumers in Scotland, regardless of meter type or location.

Why are we looking at it?

Scotland has the most ambitious statutory CO2e emissions reductions targets of any UK nation. Many models predict that these targets will only be met through the widespread electrification of heat and transport. Smart meters facilitate the smart charging of EVs and the flexible use of space and water heating technologies, providing demand side response to fluctuations in low carbon power generation and whole energy system demand. They are therefore key to enabling the energy transition at the lowest cost to consumers.

Despite plans for universal smart meter coverage by the end of 2020, figures from November 2021 reveal that only 25% of gas and electricity meter points in Scotland were served by metering infrastructure with the capability to handle time of use tariffs and which can be remotely updated. This compares with 31% of all gas and electricity meter points in England and Wales.

There is a growing risk that the rate of smart meter uptake in Scotland will act as a barrier to decarbonisation. We will therefore work with stakeholders to identify and address the real and perceived barriers to the uptake of smart meters in Scotland, and ensure that a Scottish perspective is included in relevant decisions taken by industry and policy makers.

What is the outcome we are looking for?

Consumers in all areas of Scotland can benefit from smart meters, regardless of meter type or location, and are empowered to maximise the benefits of the transition to low carbon heating and private transport.

Big Energy Savings Winter Campaign

The Big Energy Saving Winter campaign provides consumers with advice to reduce their energy bills. It is a national campaign which in 2021 reached over 3 million people through media, digital and advertising. Locally 36 individual Citizens Advice Bureau (CABs) ran local campaigns alongside the national activity, engaging individual consumers. In 2022-23 Consumer Scotland will work with Citizens Advice Scotland to deliver the Big Energy Savings Winter Campaign.

Big Energy Savings Network

The Big Energy Savings Network funds programmes related to the provision of energy advice. We will discuss the coordination of the Big Energy Savings Network in Scotland with Citizens Advice and Citizens Advice Scotland and confirm arrangements for 2022-23 in the final version of the work plan.

Consultation Questions:

3. Are these the appropriate energy issues to focus on in our work?

4. Would you recommend the addition or removal of any energy issues?