A Scotland without fuel poverty is a fairer Scotland: report

3. Address all four drivers of fuel poverty

The new fuel poverty strategy must address all four drivers of fuel poverty: incomes, energy costs, energy performance, and how energy is used in the home. Gains in energy efficiency have been outstripped by fuel price rises and insufficient increases in income, and many vulnerable consumers and wage earners have seen real time decreases in income.

The Scottish Government recognises the first three of these drivers, and we have added the fourth driver on how energy is used because many households are not getting the most out of their heating or the energy saving measures put in place.

We used the analysis undertaken by some members of the Fuel Poverty Forum in 2015 on joining up fuel poverty influencers and a fuel poverty logic model to inform our thinking (see appendix 3) on the four drivers.

3.1 Raising incomes

Low income is a key driver of fuel poverty - eight out of ten households living in income poverty are also fuel poor. In some cases, low income households live in social housing with good energy performance, yet still are fuel poor (19% of fuel poor households live in properties rated EPC band B or C) ^[23] .

National and local governments can address income levels through:

• Immediate actions through the social security system; and
• Longer term, strategic local and national economic development policies which create jobs and businesses.

There are strong links here to wider Scottish Government policy on poverty and inequalities. The SWG met with Naomi Eisenstadt, the First Minister's Advisor on Poverty and Inequality, to discuss her report, Shifting the Curve ^[24] . The report highlights the problem of housing affordability, particularly for those suffering from in-work poverty, and its impacts on the life chances of young people. It makes a specific recommendation on fuel poverty: "ensure fuel poverty programmes are focused to support those on low incomes, and do more to tackle the poverty premium in home energy costs." Through our report we suggest how this recommendation could be achieved.

In addition, we sought the advice of poverty stakeholders (see appendix 2) who highlighted the need to 'join the dots' between the fuel poverty strategy and other poverty concerns such as food poverty, to provide an effective approach that fits the needs of the household. It may be the case that energy costs have a direct impact upon household budgets, or that they have an indirect impact if households prioritise the payment of energy bills (for fear of disconnection) over other budget items ^[25] .

They also noted the need for crisis support for consumers where there is a demonstrable need. This is particularly important given the immediate and long term impact on the health and wellbeing of people of having no access to energy.

3.1.1 Social security system

The creation of a Scottish Social Security Agency and the transfer of new powers over social security benefits aimed at reducing energy costs, namely the Winter Fuel Payment ( WFP) and Cold Weather Payment ( CWP), offer good opportunities to address fuel poverty and these are discussed in section 3.2.3.

We also considered how broader social security policies could be implemented in a way that would help the fuel poor.

Recommendation - Incomes 3: National and local governments should enhance existing efforts to maximise benefits through working with a wider range of local partners who understand the challenges of applying for benefits and the stigma of self-identifying as 'poor'.

No-one should be fuel poor because they are not in receipt of benefits to which they are entitled ^[26] . We welcome the existing inclusion within the national fuel poverty programme, Warmer Homes Scotland, of benefits checks for individuals and families who might be eligible. We also welcome the Scottish Government's plans to conduct a campaign to encourage benefits take-up for those who are entitled ^[27] .

We discuss in section 4 how local partnerships are well placed to identify people who are in fuel poverty or at risk of becoming fuel poor and provide benefits checks as part of a package of interventions to promote wellbeing.

Recommendation - Incomes 4: The Scottish Government should review devolved welfare and social security policies to ensure they are aligned with fuel poverty eradication and make recommendations to the UK Government to do the same with respect to reserved welfare policies.

The SWG believes devolved welfare and social security policies should be reviewed in terms of how they could help alleviate fuel poverty. Furthermore, the Scottish Government should urge the UK Government to review reserved welfare policies through a fuel poverty lens. In our view, a key principle of social security policy should be to achieve healthy living for all, which would include affordable warmth and energy use. For example:

• Ill Health and Disability Benefits Policy should take account of the additional costs associated with achieving appropriate levels of warmth to avoid deterioration of disability or long term heath condition.
• Discretionary Housing Payments ( DHP) could be used to increase tenants' incomes, for example in situations where tenants face higher fuel costs until such time as a landlord installs energy efficiency measures.
• The Scottish Welfare Fund grants which address housing needs should take account of energy costs.
• Scottish Living Wage and Social Security Policies should work together to ensure a basic minimum living standard for every household ^[28] .
• Employment Support Service Policy should have an explicit aim to support people into and to sustain work that provides sufficient income to meet basic needs.

3.1.2 Local economic development

While the social security system can provide immediate and very welcome relief for fuel poor households, long term solutions to raising incomes depend on thriving local economies, supporting well-paid, secure jobs. We also must have the skills and capacity throughout Scotland to take up these opportunities.

The significant investment in Scotland's transition to low carbon energy and fuel poverty alleviation provides opportunities to create a virtuous circle of more jobs, better incomes, and reduced inequalities. There is little information available on the jobs created and sustained through energy efficiency programmes. One exception is a review of a previous fuel poverty programme, the Energy Assistance Package, which found that prioritising local contractors supported economic generation in rural and island areas. ^[29]

There is some recognition that energy efficiency programmes can assist with local economic development and employment. The Scottish Government has funded the Energy Saving Trust to help ensure Scottish businesses, especially SMEs, are benefitting from the large amount of spend on energy efficiency and fuel poverty schemes. This also included research on the supply chain in remote and rural areas, where small businesses often find it difficult to comply with the various accreditation schemes because the costs often outweigh the benefits ^{[30] , [31]} . As part of the Warmer Homes Scotland contract, Warmworks and its supply chain have committed to over 700 jobs, apprenticeships, placement and training opportunities, to be delivered by 2020. Warmworks has 34 local contractors registered with the scheme, including 7 in island areas, all pay the Living Wage. ^[32]

Recommendation - Incomes 5: The National Infrastructure Priority on energy efficiency and its cornerstone programme, Scotland's Energy Efficiency Programme, should be designed to maximise economic and social benefits for local communities with appropriate targets set for the creation of training places and job opportunities.

The National Infrastructure Priority and the development of Scotland's Energy Efficiency Programme ( SEEP) provide an unprecedented opportunity to create jobs the length and breadth of Scotland. Employment can be generated in the fabrication, maintenance and installation of energy efficiency measures. The creation of local businesses that form positive relationships with their local customers can help drive more engagement with the programme. In the long term, a critical mass of skills and capacity can be created, resulting in lasting economic benefits.

This will require a supportive policy context, and coordination between agencies and departments, working in partnership with stakeholders. The Scottish Government should learn from previous infrastructure projects that have sought to link labour market objectives with regeneration activity, such as the Commonwealth Games 2014 ^[33] . This experience suggests there is a need to work with the skills and development sectors and the economic/business development agencies so that there are trained workers coming out of colleges to work in local firms to deliver the national policy goals on energy and fuel poverty.

In particular, the following policies or actions should be put in place:

• Public procurement for energy efficiency and renewables schemes (advice, installation, maintenance) should give priority to local businesses and workers, and include requirements to train local people.
• Payment of a minimum of the Living Wage ^[34] should be included in any contracts awarded.
• Planning regulations could not only enable the work but, if framed appropriately, encourage or require the work.
• Enterprise agencies should promote and support local businesses to deliver schemes.
• Trade bodies, colleges, and Skills Development Scotland should collaborate on developing the required skills where needed. There is concern that the reduction in further education college places will have a negative impact on filling the skills gap.
  

Recommendation - Incomes 6: The Scottish Government should include fuel poverty alleviation as a central objective in the new Scottish Energy Policy, working to create affordable and secure energy supplies through the development of local energy systems, creating and sustaining local jobs and businesses.

The proposals for the new Scottish Energy Policy present local business and employment opportunities which in turn can help eradicate fuel poverty, through a big shift from 'business as usual' to a 'whole system view' that encompasses demand reduction, energy efficiency, a balanced energy generation mix, energy storage, low carbon transport and heat. The proposals include ambitions for:

• Local schemes with local generation, distribution, consumption and storage.
• District (or communal) generation/heating schemes, based on local available fuels.
• Local hydro, photo-voltaic and heat pump schemes.

Given this potential, as well as the ambition to provide more sources of affordable, low carbon energy, we believe the strategy should have an explicit objective to help alleviate fuel poverty.

Recommendation - Incomes 7: Support for local community energy projects, in particular the Community and Renewable Energy Scheme ( CARES), and the Local Energy Challenge Fund, should be continued and extended.

The Scottish Government supports the development of local and community-owned renewable energy projects through the Community and Renewable Energy Scheme ( CARES) ^[35] and the Local Energy Challenge Fund. The former provides loan finance, advice, and grants. The challenge fund is for large-scale projects that link energy generation with demand, and can demonstrate the value of local low carbon energy economies. ^[36]

These funds have been successful in supporting local and community ownership of renewables, and in taking forward innovative projects in energy storage and distribution. The funds will need to evolve to meet the challenges of creating new models of generating and using energy locally given the significant reductions in subsidies (feed-in tariffs) for wind and other renewables.

With sufficient ambition, resource and leadership, the National Infrastructure Priority and the new vision for energy policy in Scotland could result in a network of local schemes, supporting local jobs upgrading existing housing stock, building efficient new housing stock, and creating and operating local energy schemes.

3.2 Making energy costs affordable

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. While energy policy and regulation are reserved to Westminster, there are many ways the Scottish Government can address inequities in pricing and costs of fuel that are outwith the consumer's control. Devolved powers under the Scotland Act 2016 provide new opportunities in this area.

These efforts should be linked to the wider poverty and inequality policies which are focusing on reducing costs. For example, reducing costs (including energy) is a key theme within the child poverty strategy as the inability to heat the home undermines child wellbeing.

This section explores:

• Direct measures that can help households ameliorate energy costs, such as tariff switching advice, rebates, top up payments and equal access to tariffs.
• Benefits aimed at easing the cost of energy bills (Warm Home Discount) and income supplements notionally aimed at reducing energy bills (Winter Fuel Payments and Cold Weather Payments).
• Longer term, strategic approaches to create more sustainable solutions through different approaches to energy pricing and the provision of energy supplies.

Recommendations are made in terms of what can be done through a new fuel poverty strategy, and what needs to be done in terms of wider policy. For both, the focus should be on what can be done to mitigate high prices for fuel poor households and to create affordable energy sources through the maximum use of Scottish powers, implementation of UK powers and piloting good practice and innovation.

The starting point should be direct actions that can make a real difference to reducing the energy bills of the fuel poor with immediate effect.

3.2.1 Direct measures to reduce energy bills

For the majority of individual consumers in the next few years, the main opportunity to reduce prices will remain, as now, by switching tariff and/or supplier. Advice on switching will require a concerted and sustained effort to achieve much better engagement with the fuel poor to overcome the propensity not to switch - especially in rural Scotland.

There are lower levels of consumer engagement (switching) in the energy market in Scotland than the rest of GB. The Scottish Government is committed ^[37] to undertaking research to better understand why this is the case (also for other regulated markets).

The recent Competition and Markets Authority ( CMA) review of energy markets ^[38] concluded that the GB energy market leaves two-thirds of households disengaged and paying more for their energy than customers who have switched suppliers. The minority of engaged consumers tend to be from higher socio-economic groups, use mains gas for heating, pay by direct debit and have internet access.

The CMA has indicated that, with the exception of a limited, short term cap on pre-payment meter ( PPM) prices, no intervention in the market is intended, and it is effectively up to consumers and intermediaries to design mechanisms to support households.

Recommendation - Energy costs 8: The new fuel poverty strategy should include direct support to the fuel poor, or those at risk of fuel poverty, on managing their energy, switching to the best tariff, ensuring correct billing, and debt relief.

The support for switching and energy bill management should build on current efforts by Home Energy Scotland, the network of Citizens Advice Bureaux and local outreach energy advice and advocacy services delivered by local authorities, housing associations and voluntary organisations that provide advice on energy billing and debt management. It is important to have a variety of routes to advice to ensure everyone who can benefit from switching and fuel debt support is reached and offered help.

A useful development is Home Energy Scotland's pilot impartial supplier-switching support service for social tenants, which is due to be extended to all tenures in a further pilot phase.

All of these efforts need to be mainstreamed and replicated across Scotland, working through local partnerships (see section 4), so that anyone who is fuel poor, or at risk of being in fuel poverty, is offered support through local casework to determine energy needs including:

• Tariff and/or supplier switching advice.
• Debt relief advice.
• Advice on metering, changing meters and understanding bills.

In relation to switching advice, we support:

• Improving face-to-face and tailored advice services to extend the reach of switching advice/support, particularly in rural/remote areas. This service should complement and support online switching.
• Continuing and extending support for Energy Best Deal (through CABs).
• Developing more effective/accessible online comparison tools (e.g. Citizens Advice).
• Extending the impartial supplier switching support service to all consumers following the pilot phase.
• Investigating how collective switching might be supported.

Recommendation - Energy costs 9: The Scottish Government should work with Ofgem and the energy suppliers to ensure the Competition and Markets Authority remedies on metering are implemented without delay and their impact in Scotland is monitored and evaluated accordingly.

The CMA has proposed that Dynamically Teleswitched ( DTS) and other non-E7 time of use tariff consumers ^[39] should be able to move to single rate tariffs, which will in many cases be cheaper, without requiring a change of meter. There will be a need for additional advice to support this change.

Ofgem should support thorough and rapid implementation of the CMA remedies and it should continue to keep these issues under review particularly as they affect consumers in Scotland (for example, the price cap for prepayment meters only applies until the smart meter roll out is complete).

3.2.2 Social security benefits aimed at reducing energy costs

Recommendation - Energy costs 10: The Scottish Government should explore potential solutions to support people on low incomes to afford sufficient energy for healthy living through their new social security powers.

We have already made a recommendation (recommendation - income 4) that the Scottish Government should review its broad set of devolved welfare and social security policies in terms of how they could help alleviate fuel poverty. We want to ensure that this review also focuses on how these policies can help reduce energy costs so that those on low incomes can afford a warm and healthy home - either through devolved benefits such as the Winter Fuel Payment, a top up to a reserved UK benefit, or through the creation of a new benefit.

For example, there are groups in society who incur additional heating costs due to health or disability. Support could be incorporated into the Ill Health and Disability Benefits that are due to be devolved, or as a separate Winter Fuel Payment. This is a similar approach to the Scottish Government decision to extend the Winter Fuel Payment to families with children in receipt of the highest care component of disability living allowance ( DLA).

While the use of social security benefits to help the vulnerable with additional energy costs is important from a social justice perspective, we must bear in mind that these benefits should not be used to subsidise high costs resulting from unfairness in pricing or failure to create the infrastructure to produce and supply fuel at equivalent cost to all households and regions.

As the Winter Fuel Payment and the Cold Weather Payment are particularly relevant to fuel poverty concerns, these specific benefits are explored in more detail below.

Recommendation - Energy costs 11: Routine assessment of need for additional fuel poverty support should apply to all recipients of Winter Fuel Payments and Cold Weather Payments.

Recommendation - Energy costs 12: The Scottish Government should review the delivery of the Winter Fuel Payment and consider the pros and cons of potential changes to its eligibility, how it is paid and what it is used for.

The Winter Fuel Payment ( WFP) was introduced as part of the UK Government's effort to tackle fuel poverty amongst pensioners ^[40] . Anyone over the female state pension age is eligible and the significant majority of payments are made automatically. The payment ranges between £100-£300 depending on the household circumstances (e.g. age, living alone). In essence, the benefit operates as a pension top-up rather than being targeted at those in fuel poverty. Over 1m people (760,000 households) in Scotland were eligible for WFP in 2014/15, with over £180m awarded in total. ^[41]

The Scottish Government has stated that it will maintain the WFP for pensioners and will make payments early for those who are off-grid, so they can use the payment flexibly to take advantage of lower prices. We welcome the Scottish Government's commitment to change the timing of the WFP to those who are off the gas grid so they can replenish their oil tanks, LPG supplies, etc. before the coldest months.

The WFP represents a significant amount of funding and there are two schools of thought on its best use, with both being reflected in the SWG.

One is that the funds should be used differently to better address fuel poverty, through targeting. We discussed this issue with Ms Eisenstadt, the Poverty Advisor, who has general concerns about over-reliance on the universal approach when we are working with constrained budgets. Her report states that "universal can also mean spreading a limited budget too thinly to help those who need the service the most, and making little difference for those who need it less but choose to use it." It goes on to say that "tax-payers' money should be spent on trying to level the playing field, not, as is sometimes the case, reinforcing ongoing disadvantage."

The other view is that targeting could be expensive in itself and may lead to some vulnerable individuals not receiving payments; and that WFP is in essence an old-age benefit to which people are entitled as citizens, and therefore should not be changed.

We therefore believe the Scottish Government should carry out a review, including a cost-benefit analysis, of how the WFP could have the best impact on alleviating fuel poverty and supporting people on low incomes to afford sufficient heat for healthy living. A Health Inequality or Poverty Impact Assessment should be applied to any changes in policy and the Welfare Reform Health Impact Delivery Group ( HIDG), ^[42] which has a focus on mitigating the health impact of welfare reforms, should be asked to give advice and to monitor the impact of any social security changes to health.

The review could include an analysis of the following issues and alternatives:

• The costs and benefits of different approaches to eligibility for future WFP recipients.
• The amount of WFP paid to the non-fuel poor and/or higher rate tax payers.
• The potential impacts of making payments automatically to those on benefits with other groups having to apply, and any additional funds this could generate to be used to help the fuel poor.
• Changes to the payment method, for example moving to a discount off fuel bills to ensure the payment achieves a reduction to fuel bills, or using the payment to lower fuel bills through energy efficiency improvements. Information about Home Energy Scotland could be provided with the payment.
• Providing a premium on the WFP to those off the gas grid, until fairer energy distribution and pricing can be achieved.
• Prioritise payments according to the energy performance of the home to encourage and fund upgrades. This would require a hybrid system so those on benefits still get the payment even if their house has a higher EPC rating.

Any changes to the existing WFP should be based on the outcomes of this review.

Recommendation - Energy costs 13: The Scottish Government should maintain the Cold Weather Payment with minor changes including: taking account of exposure to wind and damp; linking payments to the fuel poverty programme; and making the payment a discount off bills rather than a cash payment.

The Cold Weather Payment ( CWP) is an automatic government grant of £25 for households on certain benefits for each week the temperature drops below zero degrees Celsius for seven consecutive days. In 2015/16, 119,000 people in Scotland received a payment with £3.4m awarded (as of April 2016). The total spend depends on the winter weather, for example in 2012/13 it was £12m, and only £1m in 2013/14. Poorer pensioners tend to be the largest single recipient group ^[43] .

We believe the CWP is made on the basis of a good proxy for those that are income and fuel poor and serves a useful purpose - targeting those most in need when the weather is coldest. There are some changes we believe should be considered to improve the impact on achieving affordable warmth for fuel poor households:

• The trigger point should take account of location (exposure to wind, damp).
• The payment could be a discount off bills rather than a cash payment - or at the very least this should be offered as an option.
• An additional payment should be made to those off the gas grid to reflect higher energy costs.
• Those in receipt of CWP should automatically be considered for additional fuel poverty support to help tackle any other relevant causes of fuel poverty.

Recommendation - Energy costs 14: The Scottish Government should use the newly devolved powers in relation to the Warm Home Discount to better target support on those most in need and improve efficiency of delivery.

Recommendation - Energy costs 15: The Scottish Government should maintain the Warm Home Discount Industry Initiatives, with parameters amended to enable innovation and complement SEEP and the fuel poverty programme.

The Scottish Government has new powers through the Scotland Act 2016 over how supplier obligations, including the Warm Home Discount ( WHD), are designed and implemented in Scotland. The Warm Home Discount provides rebates of £140 pa off electricity bills to low income and vulnerable customers who meet the eligibility criteria. The WHD also includes 'Industry Initiatives' with suppliers providing a range of measures including debt assistance, benefit entitlement checks and energy advice to domestic customers in or at risk of fuel poverty.

In previous years, the Warm Home Discount was worth about £330m pa GB wide, with £30m spent on industry initiatives and the rest split with approximately two thirds going automatically towards poorer pensioners, and one third to other groups, who have to apply annually. ^[44] If it is distributed proportionately across GB, then it would mean around 180,000 households in Scotland received WHD in 2013/14.

The UK Government Autumn Statement 2015 gave a value of £320m for WHD in 2016/17 rising by inflation to 2021 ^[45] with better targeting at "the households most at risk of fuel poverty - those on low incomes living in homes which are expensive to heat - while protecting the pensioners who currently benefit." ^[46] The UK Government has also proposed primary legislation which would allow wider data sharing between government and delivery bodies such as energy suppliers.

We are concerned that the WHD is not sufficiently well-targeted, and that the investment could do much more to help those in fuel poverty. We propose the WHD should have more of a focus on geographic/climate variations; targeting those most in need; and linking to energy efficiency programmes. However, adequate safeguards should be put in place to ensure any changes are not to the detriment of those in need.

In terms of streamlining delivery as well as freeing up monies for distribution as rebates, the government should also consider how there could be more automatic data-matching for the allocation of WHD rebates. The 'first come, first served' approach to allocation of rebates should be changed to ensure all who are eligible receive the rebate.

The WHD rebates offer a good opportunity to engage with those in fuel poverty to offer energy efficiency advice and access to improvements. This could be part of a more holistic approach within the new fuel poverty strategy.

Finally, while the WHD offers temporary relief for some, the Scottish Government needs to continue to focus on longer term solutions that address inequitable charges and inadequate infrastructure that create higher costs for some people.

3.2.3 Measures to create long term solutions for affordable energy pricing and supplies

3.2.3.1 Pricing

Recommendation - Energy costs 16: In the longer term, the Scottish Government should work with the UK Government to explore the possibility of an alternative approach to the current 'universal price plus rebates' system to 'Customer Differentiated Pricing' ( CDP).

We believe there is scope for a partnership between the Government/Department for Work and Pensions, Ofgem and energy suppliers to do much more to adjust prices for customers at risk of fuel poverty at the point of sale, without reliance upon either rebate budgets set by Ofgem, or applications for rebates made by customers. This would shorten the implementation chain, and be more effective at reducing the impact of energy prices upon customers.

Priority pricing schemes have been suggested in the past on the basis of outage costs, or reliability needs ^[47] , but in principle there is no reason why differentiated pricing could not be considered in order to lower prices (rather than raise them) for some customers on the basis of vulnerability criteria, for example offering lower prices for those reliant on electric heating, or those in low-wage, part-time jobs who spend more time at home but have smaller budgets from which to pay for their energy costs.

Recommendation - Energy costs 17: The Scottish Government should identify specific measures to support customers in rural and off-gas grid areas who suffer from higher energy costs than the rest of Scotland.

We note that electricity customers in the north of Scotland face higher network charges than those in the south of Scotland. A report from Ofgem showed that a standard national network charge would result in a greater number of people getting slightly higher bills with a smaller number receiving larger reductions, so although it would be redistributive by geography, there would be no net overall benefit ^[48] .

However, as fuel poverty is far higher, by heating type, among electric heating users, there is a case for a specific programme, to support these consumers through interventions ranging from an urban or gas equivalent tariff to a tailored tariff switching programme to overcome the current resistance in the north of Scotland to supplier switching.

3.2.3.2 Regulation

While regulation of the electricity and gas industries is reserved to Westminster, the Scottish Government can work with Ofgem and the energy industry to ensure both embrace the challenge of alleviating fuel poverty by pro-actively implementing regulation and going beyond regulatory requirements with new initiatives where possible. The Scottish Government's new powers for consumer protection advocacy are particularly relevant here; they should be used in concert with Ofgem's regulatory powers to effectively manage energy market conditions in Scotland.

Recommendation - Energy costs 18: The Scottish Government should use existing and new powers and work with Ofgem, energy suppliers and network operators and their respective industry bodies to explore the full scope of what can be done to alleviate fuel poverty in Scotland.

Engagement with the industry and Ofgem could start with the pro-active implementation of the CMA's findings. In parallel, they should work together to explore the full scope of how the energy suppliers and networks can contribute to fuel poverty alleviation in Scotland through corporate social responsibility requirements ( CSR), network incentives, stakeholder engagement and building trust. A number of specific ways in which the key actors can work towards the goal of alleviating fuel poverty are described below.

Priority Services Register

We support Ofgem's final proposals on the Priority Services Register to improve support to vulnerable customers ^[49] in terms of service, awareness-raising, data sharing and compliance monitoring. It is worth noting that early work is underway in England to link vulnerability databases across different industries; in our view the biggest gain for fuel poverty would come from linking vulnerability databases to the health sector. We also believe more could be done to ensure that unusual energy use triggers action by the supplier to check in with the customer.

In the longer term, we believe Priority Services Registers should be held by the Distribution Network Operators ( DNOs) (and Gas District Network Operators) with whom the consumer has an enduring relationship. We are also concerned that existing practice does not necessarily lead to 'clean' or up to date registers, effective referrals, and good partnership working to deliver an effective service.

Innovative tariffs

The CMA proposes removing a restriction on the number of tariffs. This could allow for more innovation and tariffs designed for certain customer groups. This means zero standing charge tariffs could be more common in future, and could possibly benefit the fuel poor, but there is no guarantee that will be the case. However, it could also lead to more confusion for vulnerable consumers, and a requirement for further support and advice.

One area where energy suppliers could have a big impact would be to target their cheapest tariffs at eligible groups, such as those eligible for the Cold Weather Payment.

DNO Stakeholder and Consumer Vulnerability Incentive

We believe there are good prospects for the DNO Stakeholder and Consumer Vulnerability Incentive to make a difference for the fuel poor. The annual scheme encourages network companies to engage proactively with stakeholders in order to anticipate their needs and deliver a consumer focussed, socially responsible and sustainable energy service.

However, this will need careful monitoring of progress and support by Ofgem to guide the DNOs on developing good local partnerships (e.g. with Community Planning Partnerships, Health and Social Care Partnerships), and linking in with the wider social policy agenda (inequalities, health, resilience) - see section 4.

Voluntary measures

There are many ways the energy companies and network operators can take innovative measures - going beyond their regulatory requirements - to fulfil their corporate social responsibility requirements ( CSR) and help the fuel poor.

Increase understanding of energy market in Scotland

We believe there is a need for a better understanding by policy makers and regulators of the energy market in Scotland compared with the rest of GB (e.g. is there dominance by fewer players; or more/different barriers to increasing competition).

Ofgem should provide more regionalised reporting, and the Scottish Government's new powers for consumer protection under the Scotland Act 2016 will allow them to refer concerns to the CMA based on their own market research. Together, this information will help inform Ofgem's regulation of the market, and work with the Scottish Government and others to overcome barriers to competition.

Recommendation - Energy costs 19: The Scottish Government should use every opportunity to influence the UK Government and work with Ofgem to ensure regulation of the GB energy market addresses fuel poverty.

We believe there are two areas where GB energy regulation could be improved:

• Greater use of 'incentivised regulation' whereby energy suppliers are tasked by the regulator with identifying and monitoring vulnerable customers and the impacts of direct fuel poverty and indirect fuel-induced poverty, having their performance measured against targets for reducing these two impacts.
• Ofgem's shift to 'principle-based regulation' could be used to include a principle of equality in energy prices, e.g. there should be no regressive impact of energy prices, billing or payment arrangements such that inequity of cost results for low income and vulnerable groups.

Recommendation - Energy costs 20: The Scottish Government should work with energy suppliers, energy advice networks, and the UK Government to explore best use of smart meter energy data to reduce fuel poverty while ensuring consumer protection.

Every property will be offered a gas and electricity (if applicable) smart meter and display unit by 2020. The smart meter will provide real time energy consumption information and ensure billing is based on actual use rather than estimates. Smart Energy GB is tasked with communications and engagement for the smart meter roll out and has particular responsibilities to assist vulnerable customers to realise the benefits of smart meters.

Smart meters should ultimately do away with estimated bills, which are frequently wrong and can result in real distress and debt problems. Other benefits could be a wider range of tariff choices. However, the roll out is expected to start with easy properties, leaving rural and remote rural households that would benefit most to be the last to be served. We believe priority should be given to providing a solution for those households who are most in need first.

While we must be sensitive to data protection concerns, we believe it would be worthwhile exploring how smart meter energy data could be used to assess over-use or under-use of fuel and trigger action to support the consumer. In this way, it might be possible to identify those who are unable to afford to heat their home, are unable or unwilling to use their heating system, have no heating system, or have poor understanding of the relationship between the temperature of their home and their health.

The Energy Saving Trust Smart Meter Advisory Project ^[50] could offer the possibility for consumers to share their smart energy data with a government-funded, impartial energy advice network such as Home Energy Scotland, so that they can receive more tailored energy management and saving advice. This would also make it much easier to understand consumers' real patterns of energy use before and after energy efficiency measures, helping with monitoring and evaluation (see section 5.5).

3.2.3.3 Developing affordable energy supplies

Recommendation - Energy costs 21: The Scottish Government should support the development of more choices of affordable energy supplies and work with local authority partners to set realistic and ambitious targets for every local authority area in this regard.

Alternative business models have the potential to create new supplies of secure, affordable and low carbon energy which could benefit the fuel poor. In 2015 local and community energy generation capacity was 508 MW, only a small proportion of the overall generation capacity in Scotland. Local authorities owned 17% of this capacity, with housing associations owning a further 7% ^[51] . For community energy to have a significant impact on fuel poverty, as well as meet the government's targets for decarbonised heat and climate emissions reductions, a considerable expansion will be required.

This could take the form of local authority Energy Service Companies ( ESCOs) ^[52] , social landlord initiatives, community-owned energy suppliers, and co-operatives. Such social enterprises or community trusts can incorporate aims to provide even cheaper energy specifically to vulnerable customers within the community, because they are locally governed, non-profit and have social objectives. The public sector's capacity and skills to develop, implement and regulate new energy supply and generation models are lacking. Thus, a development programme is required to meet this aim.

There are also local economic gains to be made through this approach, as referenced in 3.1.2. The recent cuts in feed-in tariffs for renewable electricity generation mean new models will need to be developed for generating and using energy locally - e.g. through private wire connections to businesses and through energy storage.

The public sector should be required to take an active role in deploying and facilitating these approaches. For example, local authorities can use their purchasing power to support community-based energy generation. The public sector also needs to raise awareness of and engagement with these opportunities by consumers, as consumers will need to engage with the market to move to any new supplier. This must be done in a way which demonstrates the models are financially viable for private sector investment. Once established, the public sector should help scale these approaches up across Scotland - both in rural and urban areas.

Case studies - public sector and non-profit energy services

Hebrides Energy is a not-for-profit community interest company working in partnership with GB Energy Supply ^[53] with the aim of providing lower electricity costs in the Outer Hebrides, where some of the highest levels of fuel poverty exist. The company includes the following partners: Comhairle nan Eilean Siar, Hebridean Housing Partnership, Tighean Innse Gall, The Stornoway Trust and Community Energy Scotland. Any profits that are generated will be reinvested into reducing fuel poverty in the Outer Hebrides.

Our Power is an energy supply company established by housing associations and local authorities in Scotland with the aim of reducing heat and fuel costs to the tenants in their communities. Our Power does not pay dividends to shareholders and reinvests any profits to benefit their customers and communities. Our Power is a Living Wage employer and received backing from the Scottish Government and Social Investment Scotland.

Ovo Communities operates mainly in southwest England and provides a model for local authorities, communities and co-operatives that want to supply energy directly to their tenants, communities or members. In this way, they become the energy company, offering services from supply and generation, to smart technology and energy efficiency.

Robinhood Energy was set up by Nottingham Council as a not-for-profit energy company. It uses energy generated from the city's incinerator, solar panels and waste food plants and also buys in gas and electricity from the market. Energy is provided at the lowest possible price and the tariff is available on a UK-wide basis.

Recommendation - Energy costs 22: Scottish Government should work with the UK Government and Ofgem to remove or overcome barriers to community energy including access to finance, capacity building, grid constraints, complex licensing requirements, upgrades to transmissions systems and priority for connections.

Community energy projects have several benefits: they generate revenue for the local community, they create community assets to create local solutions to local problems, and they give local control over energy production ^[54] . There is good evidence this approach benefits health and wellbeing and provides the opportunity to develop local expertise and jobs.

Despite these social outcomes, community energy projects are treated the same as any other developer/supplier by the regulatory system, and large, private sector developers have huge advantages in terms of finance, capacity, expertise, and scale. This can mean community projects struggle to get off the ground.

There are opportunities for the Scottish and UK Governments (for example through City Deals) to facilitate strategic partnerships with DNOs and communities to develop new energy systems models.

Particular issues include:

• Transmissions system upgrades are needed to facilitate local energy generation.
• There are relatively high costs (for smaller projects) for reinforcement and upgrade costs.
• Supply and DUoS (distribution use of system) licensing and charges for community owned electricity co-operatives is complex (Note that Ofgem will publish a discussion paper before the end of 2016/17 exploring how local energy interacts with the regulatory regime and whether changes are required in order to unlock consumer benefits.
• Support for innovation in connecting local generation to local supply is still at a developmental stage.

Recommendation - Energy costs 23: Ofgem should include fuel poverty alleviation as a criterion for innovation funding for network operators, ensure adequate take-up in Scotland, and consider applications from wider partnerships of stakeholders.

As Scotland moves towards a decarbonised heat and electricity, it will be important to use existing infrastructure, such as the gas network, to support this transition and to do so in a way that provides for affordable, low carbon energy in the future. It is also important that research is undertaken throughout Great Britain, to ensure solutions are explored that meet the problems and opportunities of different regions, including Scotland.

Smart grids or networks that moderate demand and consumption could offer opportunities for more affordable energy. 'Smarter' or active grid management could also free up greater capacity and reduce constraints. Ofgem has a key role to play in supporting research and funding pilots in order to provide evidence as to whether alternative models such as smart grids are better for reducing levels of fuel poverty. The Low Carbon Networks ( LCN) Fund and the Network Innovation Competitions

( NICs) for electricity and gas have an important role to play in this regard. ^[55]

SGN's Real Time Networks project uses innovative sensors and up to date information on consumer demand to give greater accuracy in modelling the energy delivery capability of the network. This could assist with the use of downstream renewable technologies, such as heat pump and combined heat and power ( CHP) units and demonstrate how 'green gas' such as biomethane can be managed within the network. The expectation is that any savings made will be passed on to the GB gas consumer.

This project is funded through Ofgem's Gas Network Innovation Competition fund. More effort is now needed to scale up and replicate this and other examples for greater impact in the Scottish context.

3.3 Improving energy performance

Improving the energy performance of properties will not only help those currently in fuel poverty but will also reduce the likelihood of fuel poverty for future householders. People living in a home with low energy performance are 3.5 times as likely to be suffering from fuel poverty as those in a home with high energy performance ^[56] .

Out of a total of 2.3 million homes, 1.4 million homes are below EPC band C, of which 400,000 are the worst rated at G, F and E. The social housing sector has the highest energy efficiency ratings with 56% of dwellings at band C or better and only 8% below band D. This is due to the regulatory standards in the Scottish Housing Quality Standard, now superseded by the Energy Efficiency Standard for Social Housing ^[57] .

Until recently, Scotland's housing stock was not built or designed with the maximisation of its energy performance as a core element. Our housing has generally been built to last, with 20% of our stock over 100 years old and around 85% of the homes that we will have in 2050 have already been built ^[58] .

As a result of fuel poverty and energy efficiency schemes over the past fifteen years or so, the housing stock has improved with the number of properties with an EPC rating of C or above having increased from 24% in 2010 to 41% in 2014. ^[59] However, properties with an E-G rating are found throughout Scotland, though there is a higher concentration of properties in lower bands in rural areas as shown in figure 3.

This section explores the scope to extend efforts to tackle fuel poverty through improving energy efficiency through the forthcoming Scottish Energy Efficiency Programme, regulation of minimum standards, and the use of new devolved powers over the energy supplier obligation ( ECO).

Figure 3: Data from the EPC register has been mapped on a multi-member ward level basis (Changeworks)

3.3.1 Scotland's Energy Efficiency Programme ( SEEP)

Recommendation - Energy performance 24: The SEEP Programme should have a central objective to eliminate poor energy performance of a property as a driver of fuel poverty throughout Scotland including rural areas.

The Scottish Government has made the energy efficiency of buildings a National Infrastructure Priority. Scotland's Energy Efficiency Programme ( SEEP) will form the cornerstone of the infrastructure priority. It will be a 15-20 year programme with multi-year funding, aimed at improving the energy performance of both domestic and non-domestic buildings. The Programme for Government states that the SEEP programme "will start in 2018 with accompanying regulation to improve the energy efficiency of the building stock over the long-term, helping reduce energy costs and tackling fuel poverty." ^[60]

The aim should be to virtually eliminate poor energy performance as a driver of fuel poverty, while at the same time tackling the other drivers of energy price, incomes and how energy is used in the home. To achieve this it is vital to significantly expand the number of homes in which energy efficiency measures are installed.

Recommendation - Energy performance 25: The SEEP Programme should include a milestone towards achieving this anti-fuel poverty aim, with all properties of fuel poor households upgraded to at least an EPC band C by 2025 with five-yearly targets set for progress towards EPC band B thereafter.

To significantly reduce energy inefficiency as a root cause of fuel poverty, the energy efficiency rating of the vast majority of Scotland's housing stock should be brought up to a minimum of EPC band C ^[61] and beyond.

The statistics illustrate the important influence of energy efficiency on fuel poverty levels. For those who are income poor and who live in a more energy efficient home with an EPC rating of B-C, 66% are in fuel poverty. However, the incidence of fuel poverty among the income poor rises to 99% among those in the least energy efficient properties, EPC rating E-G. For those who are not income poor and who live in a more energy efficient home, 7% are fuel poor, whereas 58% of those who are not income poor but live in the least energy efficient properties are in fuel poverty (see table 2). ^[62]

Table 2: Incidence of income poverty and fuel poverty by EPC ratings

EPC	% income poor in fuel poverty	% not income poor in fuel poverty
B-C	66%	7%
D	94%	25%
E-G	99%	58%

If the energy efficiency of the housing stock was to be improved to band C or above, those in fuel poverty would correlate much more closely with those in income poverty.

This is a major undertaking which will deliver much greater societal benefits than tackling fuel poverty alone. Improving the energy efficiency of the vast majority of the housing stock to band C or above has many advantages, but there are some issues in relation to modelling and assessment methods that are worthy of attention and these are set out below.

The EPC rating is a theoretical measure of the CO ₂ emissions and energy costs of a property. There is a marked difference between the actual and theoretical emissions, with the actual emissions being approximately 70% of the modelled emissions due to the disparity between models and lived experience ( SHCS).

This can be due to the modelled performance not accurately reflecting the real life performance and/or householders not heating their home to the expected levels. Since policy and evaluation are often based on the theoretical emissions, it is important the theoretical modelling is improved to become closer to real life.

Weaknesses in the RdSAP ^[63] , the system on which EPCs are based, should be explored in greater detail and recommendations made to the UK-wide process of updates to SAP and Rd SAP to ensure that measures installed to theoretically improve performance result in actual energy savings. Particular attention needs to be paid to the treatment of non-traditional and rural properties. ^[64]

15% of households report difficulty heating their homes due to draughts ( SHCS), the second most common reason. However, the impact of draughts on householder heating patterns is not fully reflected in RdSAP. ^[65]

There are also concerns that increased airtightness may lead to health problems due to poor air quality. ^[66] Appropriate design and ventilation incorporated as part of SEEP measures should be able to overcome these issues, thus providing healthy environments at the same time as ensuring ultra-low heating costs.

Recommendation - Energy performance 26: The SEEP Programme should consider the use of higher standards and incentives to promote new and 'deep-retrofit' low energy homes in the social and private housing sectors to help eradicate fuel poverty, reduce carbon emissions and provide other benefits such as jobs and enhanced health and wellbeing.

Setting a target for SEEP of EPC band C must not be seen as a maximum ambition. On the contrary, fuel poverty and carbon reduction commitments mean it is likely that even greater energy efficiency will be required. Consideration should therefore be given as to whether it is more cost effective in overall terms, including re-engagement costs, and taking into account the benefits in terms of eradicating fuel poverty and improving health and wellbeing, to undertake 'deep retrofits' where possible.

New approaches to designing low energy homes are becoming more mainstream and affordable. These are extremely well insulated and well-sealed properties, with ventilation controlled mechanically using a heat recovery system and minimal requirements for heating. These homes provide a sustainable solution to the problem of high energy costs, and in some cases can even provide a small income through generation of electricity.

During the course of our work, we visited sites in the Borders with experts from Strathclyde University to see new and refurbished properties designed to Passivhaus ^[67] specifications. The cost of building and retrofitting these homes was not much more than traditional properties and all work had been undertaken by local tradesmen. The great benefit was in terms of measured heating, water heating and lighting costs which, for a 3 bedroom house, were returning at around £100 per annum (see appendix 4). This is a fraction of the average energy bill in Scotland of £1,334 per annum ^[68] . Occupants were delighted with their Passivhaus homes.

Other examples include low energy housing solutions demonstrated at BRE's Innovation Park and the factory built modular houses constructed for athletes at the Commonwealth Games. A useful resource is Retrofit Scotland ^[69] , which provides case studies and best practice information on refurbishments. A new entry to the market is Energiesprong ^[70] , which delivers deep retrofit, at scale, in a single intervention (within 10 days) guaranteed to operate at a net-zero carbon standard and funded through the energy savings.

As part of SEEP, the Scottish Government should use building regulations, planning requirements and incentives to bring forward new and retrofit designs of affordable housing with such low energy standards. This could achieve triple objectives of large greenhouse gas reductions, fuel poverty alleviation and opportunities for local trades and businesses to be up-skilled in this low energy specialism for delivery in Scotland and to export markets.

Recommendation - Energy performance 27: The SEEP Programme should be designed and implemented according to key criteria provided in this report including meeting households' needs, a targeted approach, and the best use of public funds, all building on the current Home Energy Efficiency Programmes for Scotland ( HEEPS).

Recommendation - Energy performance 28: The SEEP Programme should be targeted at those properties for which energy efficiency is the main driver for fuel poverty, with additional weighting on extreme fuel poverty. This will result in, for example, a greater focus on rural and remote rural properties which are disproportionally represented against these criteria. Clear measurement of performance is required.

The SWG has not made recommendations on the detailed design of a future fuel poverty strategy. However, we have specified a range of criteria in section 3.3.1.1 below (including priority for rural and remote households) against which SEEP should be developed and assessed.

3.3.1.1 Criteria for the design and implementation of SEEP

Meeting householders' needs: Fuel poverty is about people. The design and operation of the programme should reflect people's needs and desires.

Timely support for those most in need: People most in need require help now and should continue to get it through a high quality national reactive scheme in place which is accessible, well promoted and of a sufficient scale.

Long-termed planned approach: A complementary planned approach covering all homes with poor energy efficiency to ensure householders not accessing the national scheme are included and to prevent full poverty developing as householder circumstances changes.

Support for householders: Provide government funded impartial advice, based on what people need and want, and in a way that they wish to access.

Delivers across all of Scotland: To ensure that rural communities are fully included in any programme there must be flexibility to ensure that the particular challenges of delivering in rural areas can be overcome.

Extended delivery: To maximise engagement and to support local delivery a multi-year programme within geographical areas is required.

Protection for householders: Energy efficiency works should be of high quality, and acceptable in terms of appearance and long term effectiveness. Sufficient protection and redress should be in place for householders.

Reap the benefits: Support for householders must be included to address the fourth driver of fuel poverty, so that people can make the most of any new heating systems or energy efficiency measures and know how to use their heating controls.

Making the best use of public funds: For those most in need, full public funding support is required. For others, finance and incentives are required to encourage, support and enforce improvement.

Resources to match ambition: Further work is required to establish the overall cost of raising most properties to a band C and options as to the split between public and private finance.

Targeting of funds: Targeting should result in a transparent and equitable distribution that provides an acceptable balance of helping those most in need and benefitting the greatest number.

Ensuring best value: Ensure that competition among suppliers is maintained and that maximum grant levels do not become the minimum price. Choose the most cost effective approach for delivery with a focus on particular types of measures or a whole house approach. Schemes should be delivered in terms of management, procurement, quality, scale and time frames so that best value is obtained.

Most appropriate work: Ensure that the most appropriate measures are installed for each property and that innovation is promoted.

Supply chain: The design of the programme should ensure that wider economic and community benefits are obtained in terms of sustainable jobs, wider community benefit and a competitive suppliers market.

Exceptions: A strict but manageable exceptions system will be required (including abeyances, relaxations and exemptions) that excludes some properties from treatment. There will be an even smaller number of properties where the standard of construction is so poor and levels of disrepair so high that further works are not appropriate and new build options should be considered.

Evaluation and continuous improvement (see section 5.5 on monitoring and evaluation): Ensure that evaluation and continuous improvement are embedded into the programme from the start.

3.3.2 Regulation of energy performance

Recommendation - Energy performance 29: Introduce regulations for a minimum standard of energy performance at the point of sale and rental for the private housing sector. Such regulation will be an important driver towards eradicating fuel poverty and should be introduced as soon as possible.

Recommendation - Energy performance 30: Regulations should be designed to protect vulnerable households, and be accompanied by appropriate funding and advice to support compliance.

We welcome the Scottish Government's commitment in the Programme for Government 2016/17 that it will "consult on the regulation of private rented sector housing to increase efficiency standards and heat regulations commensurate with the scale of the heat market" and "consult on phased regulation of other existing buildings to bring them up to higher energy efficiency standards…" ^[71]

The Scottish Government has already done considerable work on preparing draft proposals for consultation that would set minimum energy efficiency standards for all private sector houses through the Regulation of Energy Efficiency in Private Sector Homes ( REEPS) working group ^[72] . This work should be developed further for consultation, including detailed mechanisms which are fair and reasonable to consumers. The government delayed its plans to consult on the draft regulations in spring 2015 and we urge the government to seek views as early as possible on regulations for both the private rented and owner occupied sectors.

Minimum standards of energy performance for the private housing stock at the point of sale and rental will ensure the worst-performing stock is improved. As discussed earlier, poor energy performance is strongly correlated with fuel poverty. Regulation will also benefit social housing tenants and providers, by facilitating the upgrade of mixed tenure properties and preventing private owners from blocking reasonable and advantageous improvements. Minimum standards will play an essential role in promoting a market transformation in how we value energy efficiency, and encouraging private investment from homeowners and landlords to support the National Infrastructure Priority on energy efficiency.

The Scottish Government should give consideration as to how to support compliance in 'expensive-to-treat' homes. Other factors such as building conservation will also need to be taken into account. There will also need to be support for owners of long-term empty homes, of which there are around 34,000 in Scotland, and support to help private landlords comply with the new standards to ensure tenants can reap the benefits. In all cases, the principle should be that every affected property is improved, with the over-arching aims of ending fuel poverty and reducing climate emissions. Steps should be taken to inform property owners of requirements as soon as possible so that action can be taken well in advance of sale if desired.

It is essential that appropriate mechanisms, safeguards and support are put in place to ensure that regulation does not adversely affect consumers, especially disadvantaged groups. Provisions should be made available to ensure consumers, particularly those who are vulnerable, are able to afford the upgrades and sell their homes. For example, we suggest householders should be able to pass the requirement to upgrade the energy performance on to the purchaser of the property, this being reflected in the agreed sale price, with a requirement that the works are completed within a specified time-frame.

It is worth saying that fuel poverty is not static; encouraging those who are able to pay now to invest in their homes can reduce the numbers needing greater public sector support in the future. This will allow government funds to be focused on those most in need now and in the future.

3.3.3 Energy Company Obligation

Recommendation - Energy performance 31: The Scottish Government should use its new powers in relation to the Energy Company Obligation ( ECO) to ensure that ECO supports the objectives of the National Infrastructure Priority on energy efficiency and its cornerstone programme SEEP. This will involve a holistic approach to programme management, using different sources of funding to minimise the cost of getting the maximum energy efficiency measures to eradicate fuel poverty.

The Energy Company Obligation ( ECO) is a legal obligation on energy suppliers to improve the energy efficiency of domestic properties. The Scottish Government has new powers under the Scotland Act 2016 to design and implement the ECO with respect to Scotland. The government plans to use these powers from 2018, coinciding with the start of the SEEP programme. The Scottish Government does not have powers over the obligation itself (i.e. who is obligated, scale of ambition or apportionment between GB nations) and whatever the Scottish Government decides must not be to "the detriment of the rest of the UK".

The proceeds of the obligation will be 'apportioned' by the UK Government from commencement (likely 2018) with Scotland receiving a share based on a formula to be agreed between the Scottish and UK Governments. Scotland will therefore, not be able to leverage additional ECO spending in Scotland through Scottish Government programmes as was done in the past. The UK commitment is for £640m per year from 2017-2022 and the expectation is that Scotland will receive around £60m per year. While this funding is significant, it will only account for about 2% of the total costs of the SEEP programme - which the Scottish Government has estimated at £10bn.

There are concerns that the supplier obligation programmes are not well-targeted for Scotland and could do more to address fuel poverty. Furthermore, the impacts of measures upon occupants and their fuel use and affordability has not been measured or monitored.

Distribution of ECO investment has been uneven, with the central belt of Scotland benefiting most. ^[73] Cost limitations and specification restrictions have resulted in a very unbalanced geographic delivery and a failure to address older housing stock and provide measures for solid walls and coombed ceilings, typically found in exposed rural and island locations with concentrations of poverty. ^[74]

The new powers allow the Scottish Government to decide:

• How to target the obligation: eligibility criteria, targeting the fuel poor, emissions reductions, building types.
• Where to focus activity: rural, urban, all Scotland.
• What measures to prioritise.
• How the obligation is enforced and consumer protection assured.

The Scottish Government should take a holistic approach to ECO programme management, using different sources of funding (and powers) to minimise the cost of getting the maximum measures (and advice, referrals etc) to eradicate fuel poverty. The supplier obligation should not drive programmes but be used flexibly to help delivery the nature and scale of activity necessary to meet SEEP objectives.

Recommendation - Energy performance 32: The Scottish Government should explore the costs and benefits of approaches which would integrate ECO investment into the SEEP programme and include stakeholders, along with Ofgem and energy suppliers, in these discussions.

We believe there could be significant gains to be made if ECO investment could be given to the Scottish Government to administer and complement its own funding for fuel poverty programmes. This could create greater efficiencies in delivery, reduce confusion, and cut costs in bureaucracy. However, we are aware that this solution may not be practical, and it is unclear if it would be allowed under the powers provided under the Scotland Act 2016.

An alternative would be for the Scottish Government to take on the responsibility for delivering the measures provided under ECO, which could then be sold to the supplier for an agreed cost (as per notional costs estimated by the UK Government). ^[75] In essence, this would be no different from the trading arrangements which already allow some suppliers to contract out some or all of their obligation to other suppliers. This would be done on a voluntary basis, and suppliers could still opt to meet the obligation themselves, as long as they meet the Scottish Government criteria for measures and targeting.

We find this approach attractive because it would:

• Provide additional funding into the SEEP 'pot', making the design and administration of the SEEP and the fuel poverty programme simpler and potentially more cost-efficient.
• Be easy for suppliers who do not have a customer base in Scotland to meet their requirements.
• Meet the UK Government requirements of fairness to consumers without much additional cost because delivery costs would be capped and the administrative burden would be minimal.
• Allow others to use existing market approaches, if they wanted.

If the market approach is continued, it is essential that Scottish Government monies are not used to 'subsidise' the suppliers meeting their targets. While the Scotland Act 2016 provisions require that the implementation of a 'Scottish ECO' must not operate to the detriment of the rest of the UK, we believe it is essential that ECO must not operate to the detriment of Scotland.

3.4 How energy is used

The additional fourth driver for fuel poverty relates to how people live in their homes. To maximise the potential of fuel poverty interventions, we need to know that people are getting the most out of their heating systems and adopting the best energy-saving behaviours.

Adopting energy-saving behaviours can make a significant difference to fuel bills by reducing overall demand. With more houses fitted with photovoltaics and solar thermal panels, there is also a need to understand how and when to make best use of on-site generation. Heat pumps also provide a steady temperature all day, rather than the on/off peaks and troughs of heat delivered by a boiler.

There are also wider issues to do with decisions to take up energy efficiency improvements by home owners and landlords. These decisions relate to the cost, suitability and availability of appropriate measures for properties, but also to wider motivations (individual, social and material factors ^[76] ) that can influence these choices.

Finally, there may be issues of lifestyle which have repercussions for vulnerable households in terms of time spent at home and resultant fuel poverty.

3.4.1 Using heating and energy saving technologies

We have chosen to focus on the way people use their heating/comfort systems as a start, particularly given the priority of affordable warmth for the fuel poor (space heating accounts for 73% of modelled energy bills).

Recommendation - How energy is used 33: The new fuel poverty strategy should acknowledge and address a fourth driver of fuel poverty which is how people use energy in their homes.

There is clear evidence that energy efficiency investments have not always achieved their projected impact in terms of lowering fuel bills and reducing fuel poverty. This can come down to how people use the new systems, and/or to poor quality heating controls and often poorer information on how to use them.

Although most households in Scotland report actively using their heating controls ^[77] , other research has identified ^[78] that many people find heating controls hard to use, are confused about the different controls, and are uncertain over how to best use the timings and settings. In addition, there can be problems such as poor location of controls, difficult to read, small or difficult to use controls or complex interfaces.

Research on the installation of renewable heating systems such as heat pumps revealed a need for follow-up support to supplement any written information, with vulnerable people needing greater support. ^[79] Other research on the use of photo-voltaics in social housing found that the majority of tenants were not aware of how to use them to reduce their bills. ^[80]

The lack of knowledge in the use of new heating systems and controls has also been identified in Scottish research as a potential reason for a lack of impact of housing improvement works upon the affordability of energy for occupants ^[81] .

Recommendation - How energy is used 34: The Scottish Government should conduct research to understand the best approaches for support and engagement on the use of heating and energy saving technologies.

There is a clear requirement to develop routes to support and empower householders to take action to manage their heating systems more effectively, and to encourage the development of more intuitive controls and operating systems.

The research should build on the pilot project being undertaken by Energy Saving Trust on behalf of the Scottish Government into home heating advice. This project demonstrated how an increased focus and more targeted or proactive approach to home heating system behaviours could be delivered. It has also highlighted that there is potential to enhance Home Energy Scotland practice with this targeted approach (offering advice on key behaviours to a specific group) and to use the wide reach of this service to drive behavioural change.

3.4.2 People-centred solutions

Recommendation - How energy is used 35: The new fuel poverty strategy should have the household's energy needs, and how they access and use fuel at the centre. Any interventions should be based around their particular needs.

Fuel poverty alleviation and related programmes need to ensure that there is a focus on the householder alongside the property. In so doing, how people use energy in their homes will be considered from the very outset (along with financial advice related to fuel bills, income etc.) and not as mere 'add-ons' once physical measures have been introduced. In short, people need to be at the centre of a programme, rather than properties.

This person-centred approach represents a shift of emphasis from current energy efficiency and fuel poverty programmes which have primarily focused on improving the energy efficiency of the housing stock through fabric improvements. For example, the current area-based schemes focus on improving poor housing stock (in terms of energy efficiency) in relatively deprived areas; and key reporting metrics are focused on the number of measures installed and not the behaviours of the occupants.

Similarly, although the Warmer Homes Scotland scheme takes a more householder-focused approach (as eligibility is based on the householder and the property), the scheme is primarily focused on installing energy efficiency measures and not behavioural advice. Given this context those involved in the delivery of these schemes will necessarily divert their resources towards infrastructure (i.e. the properties) and not behaviours (i.e. the householders and how they use energy).

We believe there is significant scope to build on existing practice by Home Energy Scotland ( HES) and other energy advice providers to develop routes to support fuel poor households to effectively manage the energy used in their homes, along with scope to develop government schemes to better foster efficient home energy behaviours. For example, Warmer Homes Scotland does provide a follow-up visit to homes after the energy efficiency upgrade as part of its quality assurance and this visit could be enhanced to inform behaviours and support fuel cost reduction with the improvements in place.

This approach also responds to concerns from Shelter Scotland and other stakeholders whose money advisers and fuel debt advisers find the management of fuel debt and a lack of understanding on how to effectively use prepayment meters are common drivers for being in fuel poverty.

Shifting to this approach will require an equal focus on:

• Behaviour change in terms of energy use
• Increasing energy efficiency of properties
• Income maximisation
• Debt / money advice

This re-framing of the fuel poverty strategy is further discussed in section 4 on collaborative approaches. It should result in monitoring and evaluation methods that collect data on (and give significant weight to) householder engagement, lived experience, behaviour change and financial impacts, thus driving innovation in terms of behavioural support and a transformation of the way fuel poverty programmes are delivered (see section 5.5 on monitoring and evaluation).

Behavioural science and insights are advancing in this area and Scottish Government best practice ^[82] in behaviour change highlights that change solutions need to work across multiple contexts (the individual, social and material - ISM Tool ^[83] ), involve multiple stakeholders in fostering behaviour change, and combine or consider a package of interventions and routes to change that are mutually reinforcing, rather than operating separately.

Such an approach could offer support for all households in a target area or target group, regardless of their property type (and suitability for install). Programmes would become something that fosters ongoing engagement with households through a wider community-based focus and would facilitate a movement towards energy efficiency becoming a norm in communities and across Scotland.

Recommendation - How energy is used 36: The new fuel poverty strategy should include the participation of local, trusted organisations which provide wider support to householders on the use and management of heating systems.

There are a large number of agencies across Scotland funded via a range of sources (e.g. public sector, social landlords, community groups, charitable trusts) and operating through different business models (charities, community groups, social enterprise, local authorities/ housing association etc.) that offer home energy behaviour support and fuel poverty alleviation advice. Some of these organisations work with the Home Energy Scotland ( HES) network in terms of referrals, training, and data. This can result in a variety of services across Scotland, though HES provides an overarching national advice service with full geographic coverage across Scotland.

There is significant evidence that the locally-based services offer additional benefits beyond fuel poverty alleviation, including mental and physical health, confidence, peace of mind, employment, and social cohesion ^[84] . This may be important when we consider that there may be links between social vulnerability and the risk of fuel poverty. On the last occasion that it was studied in the UK, it was found that on average people spent 70% of their time at home. But certain groups, such as unemployed, inactive and retired males had more unstructured time than others. ^[85]

We also know from research in Scotland that around one-in-six adults in deprived communities experience frequent loneliness. ^[86] The possibility that certain vulnerable social groups may spend relatively high proportions of their time at home on their own, with consequences for their domestic fuel use and experience of fuel poverty is something that should be explored further, and borne in mind when providing person-centred support to vulnerable households who may benefit from social integration advice and encouragement.

There is also evidence that local, trusted providers are often best placed to offer behavioural advice. The demand for these services demonstrates the need for wider support to help householders to manage heating systems in homes and alleviate debt.

While additional advice and support will mean higher upfront costs, we believe it will lead to better outcomes in fuel bill savings. In addition, cost savings could arise from more efficient client management (via a central contact point) and referral and householder identification could become more efficient.

The new SEEP programme, the smart meter roll out and the rise of remote (internet based) heating and home appliance controls could facilitate appropriate behaviour change. They present a major opportunity to engage with householders to support change through an easy and quick to navigate advice landscape.