Fuel Poverty: Scottish Government response to working group reports

Chapter 3 - Making Energy Costs Affordable

Both groups highlighted the impact of energy costs as a significant driver of fuel poverty. The groups made a number of recommendations for the Scottish Government, recognising that much of the necessary action to be taken on fuel prices is outwith the Scottish Government's control, including:

• Include fuel poverty alleviation as a central objective in the new Energy Strategy;
• Work with Ofgem and energy suppliers to ensure the Competition and Markets Authority remedies on metering are implemented without delay, and their impact in Scotland monitored and evaluated accordingly;
• Use newly devolved powers in relation to the Warm Home Discount to better target support on those most in need and improve efficiency of delivery;
• Use every opportunity to influence the UK Government and work with Ofgem to ensure regulation of the GB energy market addresses fuel poverty;
• Work with Ofgem to ensure that all pre-payment customers have access to tariffs and support;
• Investigate whether there is market supply failure in non-regulated fuels;
• Explore best use of smart meter energy data to reduce fuel poverty;
• Fund Home Energy Scotland to extend the switching service provided through the HES network; and
• Work with UK Government to deliver a supportive and stable policy framework that enables the development of local energy projects that tackle fuel poverty.

This chapter addresses the following recommendations:

Strategic Working Group Recommended Actions

Rural Fuel Poverty Task Force Recommended Actions

*please refer to Annex A of this report for full details of each recommended action

What the working groups said

The Strategic Working Group highlighted that "energy prices are the most significant driver of fuel poverty, with prices rising faster than household incomes, and outstripping fuel bill savings due to improved energy efficiency". The Strategic Working Group outlined direct measures that could support households to lower their energy costs, as well as longer-term strategic approaches that may create more sustainable solutions to providing households with affordable energy.

In the short-term, the Strategic Working Group recommended that direct support is offered to householders to manage their energy costs, by helping them to switch energy provider and get accurate billing. The Group also wanted the Scottish Government to explore how smart meter data can be used to advise people on their energy costs and thereby help reduce fuel poverty. It asked that these steps are set out in the new fuel poverty strategy, alongside longer-term actions on the use of newly devolved powers. On the Warm Home Discount, the Group asked that, once powers are devolved, the Scottish Government ensures it is better targeted towards those who need it most and that the current 'Industry Initiatives' part of the scheme is retained.

The Strategic Working Group also called on the Scottish Government, the UK Government and Ofgem to work together on pricing and regulation of the energy market to reduce energy bills and tackle fuel poverty.

The Rural Fuel Poverty Task Force set out why it believes the energy market is not serving rural customers well. The Task Force recommended that action is taken to ensure customers on pre-payment and restricted meters have access to equitable tariffs, as set out by the Competition and Markets Authority, and that those on the Priority Services Register ( PSR) are helped first. Both groups highlighted that many of the challenges around costs could be addressed through supporting implementation of the CMA's recommendations, such as those around metering and billing.

The Task Force raised a number of concerns about non-regulated fuels and recommended that, if a market supply failure is identified, the CMA should investigate further. It also recommended that the SG promotes, supports and incentivises collective-buying clubs for heating oil and LPG.

Both groups set out the benefits of encouraging new suppliers of affordable energy to enter the market. They recommended the Scottish Government takes a lead role in this, by working with UK Government to remove or overcome barriers to community energy projects and by promoting the further development of district heating. The groups also made recommendations on a number of reserved issues, including fuel duty; oil price differentials and the Hydro Benefit Replacement Scheme.

What the Scottish Government is doing

We have long made clear that rising fuel prices can outweigh progress made in tackling fuel poverty through improved energy efficiency. Modelling based on the Scottish House Condition Survey statistics show that the fuel poverty rate for 2015 would have been 8.4% (rather than 30.7%) if fuel prices had risen in line with inflation between 2002 and 2015. As recommended by the groups, fuel poverty alleviation is central to the new draft Energy Strategy. The recently published consultation on the draft Strategy aims to set out how Scotland can meet the needs of those who are least able to pay for their energy, through supporting energy solutions that provide warmer homes and better outcomes for consumers overall.

We believe that the UK Government has so far failed to provide a competitive energy market that delivers fair and transparent energy bills for all consumers. It is unacceptable that some of the most vulnerable consumers - particularly those on pre-payment meters - should be paying more for their energy.

Energy bills and the poverty premium - whereby lower income households often have to pay higher prices for basic necessities than better-off families - was a major concern in the Fairer Scotland conversations held last year, and we are determined to tackle this issue.

In our Fairer Scotland Action Plan we set out a number of actions we would take to address high fuel costs, including convening a meeting with the 'Big Six' energy companies to discuss ways to help low income households living in fuel poverty and facing a 'poverty premium' of paying more for their energy. That meeting took place in December 2016 and we were pleased to hear positive examples of sharing best practice and improving the provision of advice to consumers. However, we are keen to explore further actions energy companies could take that will make a material and important difference to low income families in Scotland, including addressing the long-term growth in the use of pre-payment meters as well as the number of consumers who could save money by switching tariff. We expect this meeting with the energy companies to be the first of a series of meetings and we will work collaboratively with energy suppliers and consumer groups to explore ways of helping low income households reduce their energy bills.

We will also continue to engage with the UK Government and Ofgem to secure effective regulation of the changing energy market, including monitoring and evaluating implementation of the remedies following the CMA's energy market investigation, the smart meter roll out and the sub-sea cable replacement programme. Where specific areas of concerns are identified, including those highlighted by both groups, we will work with the relevant authority to shape and influence policy and regulation where appropriate.

We agree with both groups that local authorities and housing associations should promote and support initiatives by new energy providers, like "Our Power", that seek to provide cheaper energy specifically to vulnerable customers within the community. We support innovation in non-traditional business models in the retail market and encourage local authorities and others to consider developing a wider range of options of energy supply, including district heating schemes.

Although the existing market does provide scope to save money by switching, many consumers do not do so. We want a fair deal for all Scottish consumers and are taking forward a number of actions to help promote the benefits of engaging in the energy market. We are taking into account the specific barriers that consumers in rural areas may face. For example, we have recently rolled out an impartial supplier-switching support service through a partnership between Home Energy Scotland and the social enterprise Citrus Energy which is available to anyone who contacts Home Energy Scotland. Advisors from Citrus Energy are experienced and knowledgeable on issues concerning many rural householders, including options for those who use restricted meter types, such as Dynamically Teleswitched meters. We are also currently looking at the merits of collective switching models, including collective purchasing of unregulated fuels like heating oil, as a means to increasing engagement, with a particular focus on disengaged and offline consumers.
We will build on learning from this, as well as the ' HES Homecare' initiative, set out in Chapter 5, which is being piloted in two rural areas. We are committed to continuing to recognise rural dimensions and will be held to account on that by ensuring the Scottish Fuel Poverty Forum includes rural representation.

We recognise that suppliers and network operators will offer additional free services to a range of vulnerable consumers through the Priority Services Register, such as priority support in an emergency or additional help to understand their bills. However, the proportion of customers on the PSR is significantly lower in Scotland than in the rest of Great Britain (under 11% compared to 13-14% for Wales and England), which would suggest there are households eligible for support from their supplier who aren't receiving it. We will work with suppliers to explore how this is being addressed.

The advice services that consumers have access to will have a critical role in guiding those who need additional support through the range of choices that will be available to them. We continue to encourage the uptake of smart meters and agree with the Strategic Working Group that access to additional data from smart meters could be useful in helping people understand their energy use and therefore the impact on their bills. We are currently considering options for Home Energy Scotland to use this data (within data protection constraints) to allow for more tailored advice and support to be provided to consumers.

Actions

The Scottish Government is committed to the following actions:

• Further to the meeting with energy companies in December 2016 we will work collaboratively with energy companies to identify and deliver practical solutions and outcomes to support low income households;
• We will make strong representations to the UK Government and Ofgem to ensure that particular issues and barriers faced by consumers in Scotland are recognised and addressed in regulation;
• We will closely monitor the implementation and effectiveness of the CMA's package of remedies to ensure they address failures in the energy market;
• Further to the session with the Fuel Poverty Forum, Ofgem and the CMA to identify synergies in approaches to tackling fuel poverty in February 2017, we will continue to review the progress of the implementation of measures and convene a further session in 2018.
• We will continue to support the development of robust new business models that offer reduced costs to energy consumers, through existing support mechanisms;
• We will continue to support impartial switching through the partnership between Home Energy Scotland and Citrus Energy to help consumers get the best deal on their energy bill;
• We will ensure continued tailored advice and support is provided to those considering switching to smart meters as part of the Home Energy Scotland advice provision; and
• We will work with suppliers and Ofgem to ensure vulnerable households are on their supplier's Priority Services Register so they can access the full range of support available.