Committee for Enterprise,
Trade and Investment
Tuesday 30 April 2002
MINUTES OF EVIDENCE
The Office for the Regulation of Electricity & Gas
Consultation Paper on the Energy Efficiency Levy
Members present:
Mr Neeson (Deputy Chairperson)
Mr Clyde
Ms Courtney
Mr McClarty
Dr McDonnell
Ms Morrice
Dr O'Hagan
Mr Wells
Witnesses:
Mr Douglas McIldoon)
Ms Nessa McArdle)Office for the Regulation of Electricity & Gas (OFREG)
Mr Gerry Donnelly)
The Deputy Chairperson:
The Committee welcomes Douglas McIldoon, Nessa McArdle and Gerry Donnelly from the Office for the Regulation of Electricity & Gas.
Mr McIldoon:
Thank you, Deputy Chairperson. It is a pleasure to see you fully restored to health. I will read a short statement and go through a short presentation. Thank you for giving me the opportunity to discuss the energy efficiency levy with the Committee. As always, I am indebted to the Committee for the time that it has recently devoted to energy policy issues. I feel a degree of inhibition in seeking more of the Committee's time.
There is more at stake here than just energy policy, important though that is. In one way or another, the serious deficiencies of an inappropriate energy policy that was imposed in Northern Ireland are matters that have been analysed over a longer period of time than the other deficiencies that the devolved Administration inherited.
In that respect, energy policy becomes a critical test of Northern Ireland's ability to devise solutions to its problems and of its political will to implement those solutions. The present situation was not created by people acting malevolently. On the contrary, it was created by people of integrity acting with the best of intentions. However, their prescriptions were not appropriate to our circumstances. The failure was one of policy-making.
We are, again, at a critical and dangerous stage of a new policy departure. We must have the humility to recognise that we could get it wrong again. Policies that are customised to our circumstances will give lower-cost, cleaner energy. Inappropriate, off-the-peg policies bought from elsewhere could compound our problems. That leads me straight into today's topic - the energy efficiency levy and the eradication of fuel poverty.
Apart from its undeniable environmental benefit through reduced pollution, the efficient consumption of energy is a rational response to high energy costs: the higher the cost of electricity, the larger the saving from its efficient use. A consultation paper published by the Office for the Regulation of Electricity & Gas (OFREG) in June 1999 stated that, at the time, a low-energy light bulb would save £50 in Northern Ireland over its lifetime, whereas it would only save £38 in England. The benefit of energy efficiency in Northern Ireland has increased in the intervening period.
First, energy efficiency started as an economic measure, with environmental benefits. Secondly, a social dimension was added. About two years ago, the emerging consensus was that most of the money saved should aid the fuel poor. That meant improving the situation; it did not mean relieving people from fuel poverty.
The policy agenda has moved on. The new consensus is that the money should be used to relieve households completely of fuel poverty. Therefore, the context is one of policy evolution as both delivery capabilities improve and the understanding of the problem's scale and health and social implications have increased. The evolving policy context is one in which we can all take some legitimate pride. Policy makers, lobby groups and bodies such as NIE, Phoenix Gas, the Housing Executive and voluntary bodies have proved that eradicating fuel poverty is possible - as they have demonstrated in hundreds of households.
Fuel poverty can only be cured if households live in adequately insulated dwellings that can both retain heat and be heated at modest cost. Electricity is not often directly relevant to the fuel proofing of dwellings. Expenditure on energy efficiency by electricity customers is subject to a costs benefits test: does it save customers more than it costs? As long as it does, it represents a sensible use of resources. Though, with an investment, it is several years before the annual benefits exceed the annual costs. As long as the benefits exceed the costs, I have no difficulty in increasing the levy. To take an extreme case, if the levy were used in its entirety to tackle fuel poverty by installing oil-fired heating systems and did nothing to reduce the Northern Ireland electricity bill, imposing a levy of that sort would be beyond my current powers, and would require legislation to give the Minister the power to direct me to impose the levy.
However, there is a way forward that I would be happy to implement, provided that it meets with the support of the Assembly. When funding sources with different operating rules and constraints - in particular, the energy efficiency levy and the Department for Social Development's warm homes scheme - operate together, they are potentially more effective. There are places where the Department's scheme either cannot operate or cannot operate to 100% effectiveness. The energy efficiency levy must have a beneficial effect on total electricity costs. The Department's scheme has about £8 million per annum at its disposal, and the energy efficiency levy could raise over £3 million.
Our objective must be to ensure that two targets are met. First, the savings in electricity bills must be the amount that a £5 per customer levy would produce. Pro rata that would amount to 300 gWh of lifetime savings. Secondly, the number of people taken out of fuel poverty must be greater than that which the Department's measures alone would take out of fuel poverty. As some energy efficiency levy money would be spent on social housing, in which fuel poverty is tackled by other measures, it is not possible to be categorical about how much greater that number should be but, indicatively, it must be in the range of 20% to 30%.
It should be possible to meet both those targets, because the Department for Social Development's measures involve electricity savings that would not be achievable otherwise, and certain types of fuel poverty proofing, such as insulation in electrically heated homes, have the effect of reducing electricity demand.
The document shows how OFREG believes that the two funding mechanisms can work together to combat fuel poverty and to reduce electricity costs on a larger scale than in the past. The first page shows the stages that OFREG has gone through. It is fascinating to see the way in which the policy agenda has evolved. Five or six years ago, the view was that fuel poverty and energy efficiency were almost incompatible. It was felt that if fuel poverty were tackled, it would result in increased greenhouse gas emissions. It is to everyone's credit that we have turned that corner. We have made the policy objectives converge, and we have gone increasingly from merely wanting to tackle fuel poverty to solving the problem.
The next few pages show the issue that we face on the electricity side. The graph on the next page, titled 'Average Domestic Electricity (Standard Rate) Consumption - Northern Ireland' shows that the average amount of electricity used in each household in Northern Ireland has increased considerably since 1982. It has increased considerably since 1945, for that matter. However, we are concerned with more recent history. Although there are year on year fluctuations, the trend line shows a marked increase from about 3,430 kWh per household to over 3,900 kWh last year.
Increasing electricity consumption is a function of rising incomes, and possibly also of a fall in real electricity prices. However, rising income seems to be established as the most effective driver. People are better off, and they are buying more appliances. Even though those appliances are becoming more efficient, the net effect is that people consume more. That is despite the fact that average household sizes are falling. By that I mean per household, not the total number of households consuming electricity.
The next graph is titled 'Effect of Levy on Average Domestic Bill and Consumption'. It has two lines, identified as Series 1 and Series 2, which is not very helpful. The Series 2 line shows figures for electricity consumption, which have been taken from the previous graph. It shows what has happened to electricity consumption since 1996/97 to the present day. The Series 1 line, which is more erratic, is the price that customers have paid for that amount of electricity. The price fell in 1997/98, rose and fell again, and increased in 2000-01, when fuel prices increased dramatically.
Dr McDonnell:
Does the Series 2 line show consumption?
Mr McIldoon:
Yes. That is read against the left hand vertical axis, and is measured in kWh per customer. The right hand vertical axis measures pounds sterling per customer. This is the only way that we could present this information. We tried other devices, but they were even more confusing.
What we show around 2002-03 is what would happen if we stopped consumption rising because of energy efficiency measures. Consumption will go on rising because of rising incomes and the introduction of new appliances on the market. We can only stop it rising if we can persuade people to consume electricity more efficiently. If we can do that, and held the rise in total demand to 3,900 kWh per household, then we would be able to prevent the bill from rising. That would be good news.
The Deputy Chairperson:
How would natural gas impact on this?
Mr McIldoon:
In so far as natural gas stops people using electrical appliances, it would help to reduce demand for electricity. If people move from electric cooking to gas cooking they are using a cheaper fuel source and using less electricity. That would be a positive step, which we would support. It is clear that if enough was spent on energy efficiency so that demand actually fell, then the bill would be less as well.
On the next graph, titled 'Energy Efficiency Levy and Energy Savings', we show the relationship between spending money on energy efficiency and reducing the electricity bill. Energy efficiency is an investment. If you spend £1 this year, you get £4 of benefit over eight years. In the first year, if you spend £1 but only save 50p on electricity consumption, then your actual expenditure is worse. The line in this graph shows that it takes several years, especially if we continue to spend more on energy efficiency, before we experience a reduction in the amount of spending on electricity. That lack of investment in energy efficiency is the reason why we have not seen a reduction on the electricity bill. We will see that, but it will take several years before the annual saving outpaces the annual expenditure. Ironically, the more we increase investment in energy efficiency, the longer we postpone a reduction in the annual energy bill, as this graph makes clear.
We see energy efficiency and fuel poverty as one issue, because the Department for Social Development has a target for taking people out of fuel poverty. I am not sure whether the Department, through its Two Fund, Two Target Approach intends to fuel poverty-proof 2,000 dwellings with £8 million, or whether it is a larger amount. It is reasonable to say that, if £8 million take 2,000 dwellings out of fuel poverty, and we add another £3 million, we should be able to include another 750 dwellings. More people will be taken completely out of fuel poverty by combining the two funds.
In taking those people out of fuel poverty, we want to ensure that we achieve the sort of electricity savings that we would achieve with the £3 million. For example, by adding the £8 million and £3 million, we will take 2,750, instead of 2,000, people out of fuel poverty and save the 300 gigawatt-hours of electricity that we would save if we were working only with the energy efficiency levy in the traditional way.
The list entitled 'Anti Fuel Poverty Energy Efficiency Measures' shows what we can spend the energy efficiency money on. Compact fluorescent light bulbs (CFL) are a good example of energy efficient lighting. Old, inefficient appliances, such as fridges, should be replaced. Insulation in electrically heated homes would reduce the amount of energy used, and replacing electric heating would reduce the demand for electricity.
Measures that increase gas demand are positive, not least because the more that gas customers contribute to the cost of the gas pipeline, the lower the electricity customers' share of that cost will be. People burn gas between 5.00 pm and 7.00 pm to cook their evening meals, thereby contributing to reduced demand for electricity at that time. That is critically important because it reduces the need for new network investment, especially in the winter. A gas tumble drier uses much less energy than an electric one, and gas use can also reduce the demand for electric heating and water heating.
Keypad is a pre-payment system that Northern Ireland Electricity (NIE) has introduced. It gives people greater knowledge and control of their electricity consumption and helps them to manage their budgets. Anything that replaces immersion heaters, or enables people to manage them better, is more efficient. There are devices, such as wind down timers, which automatically switch off the heater after a set time. They are essential for anyone who has an emersion heater and a family.
Domestic combined heat and power plants (DCHP) are not on the market yet, but they may be available soon. If individual households could produce heat and electricity using a gas boiler, they would reduce the demand for electricity. That seems to be just around the corner. Combined heat and power schemes would help to reduce the demand for electricity in social housing. All the measures I have outlined will reduce electricity consumption and help to combat fuel poverty.
OFREG has come to the conclusion that the two measures can be put together. There should be targets to reduce electricity consumption and the number of people in fuel poverty. As a result, we should have an enhanced fuel poverty programme, we should be able to achieve reduced electricity costs, and we must have programmes, which should be publicised in advance. I do not see why we should not start the programme in the autumn. It could be carefully monitored through annual reports sent to Ministers and Assembly Committees. I have described how it can be implemented, but it requires community support.
The Deputy Chairperson:
The difficulties in reducing fuel poverty in rural areas that you mentioned in your original consultation paper were striking. Do your proposals address those difficulties?
Mr McIldoon:
Undoubtedly, NIE's proposals will make it easier to deliver results in urban areas because of the gas relationship. However, there are aspects of the programme in rural areas in which the energy efficiency levy can effectively complement the Department of Social Development's scheme.
Rural areas are more likely to have larger houses, more external walls, and are likely to require additional measures to make them fuel poverty proofed. The flexibility of the energy efficiency levy enables NIE to do things in rural areas that go beyond the capabilities of the Department of Social Development's scheme. The Darkley/Aughnacloy Health Action Zone demonstrated that well because it was a mixture of funding. The flexibility provided by the energy efficiency levy enabled that scheme to deliver so effectively. I cannot see why that approach could not be replicated in other areas.
The Deputy Chairperson:
I will not go round the room unless members indicate to me that they want to ask a question. Mr Wells has already done so.
Mr Wells:
I want to ask a few slightly technical questions before I progress to the main thrust of what I want to talk about. The figure of £3 million is quoted in the document. However, NIE has indicated that an increase of £5 for each customer would amount to £3·6 million. Is there a reason for that disparity?
Mr McIldoon:
No. The figure of £3 million is merely illustrative, so I do not want to be held to it. Whatever the figure is, it will increase each year anyway because the number of customers increases by around 20,000 per annum.
Mr Wells:
NIE has to jump through several hoops to increase the levy. It has to consult the Assembly and ensure that the increase has widespread support. Is there any mechanism for index linking the levy to ensure that it automatically rises? NIE would not, therefore, have to return to the Assembly each time it wants to raise the levy, which it does so in big leaps rather than in gentle curls.
Mr McIldoon:
The existing levy of £2 is index linked to end of year 2000 prices. NIE could do that again. There would be no difficulty.
Mr Wells:
As you have rightly said, the Assembly debate was more an argument on how to tackle the problem of fuel poverty rather then on a problem with the levy. In its document NIE suggests a series of measures, such as new lighting, appliances, immersion heaters and so on. However, the biggest expenditure in alleviating fuel poverty is replacement of the central heating system. Is NIE confident that it can spend all the money that it is allocated on smaller measures without converting from oil to gas-fired central heating?
Mr McIldoon:
There is no problem replacing the central heating system in homes that are already electrically heated - of which there are currently around 100,000 - with gas, oil or another form of heating such as a district heating scheme. In that case, there is plenty of room to support NIE changing the central heating system.
If NIE was to spend the money on the oil-fired central heating system, thereby making no electricity savings, there would be difficulties from going beyond its powers. If the two schemes were combined, and the Department of Social Development scheme was achieving electricity savings, NIE could count those savings towards the savings it would make from the energy efficiency levy. It would not be a problem, therefore, if some energy efficiency levy money was going towards schemes for changing heating systems that would otherwise be difficult.
As long as the Department can achieve electricity savings of 300 - or whatever is the appropriate number - of giga-watt hours, through putting those two funds together, I cannot envisage a problem.
Mr Wells:
At this stage Dr McDonnell would usually jump in and say that I am hogging the discussion. If I am, Mr Chairman, stop me. However, I have just two more questions. NIE met with the Committee two weeks ago, and incurred some grief from us because the Committee was not convinced that there were proper measuring devices and criteria established to ensure that its goal was being achieved. Does NIE anticipate that its proposals will be allied to some sort of measurement to ensure that there are tangible benefits, so that at the end of the 10-year programme we will know that the number of people in fuel poverty will have been reduced from 170,000 to less than 80,000? Is NIE satisfied that that will be measurable under its proposals?
Mr McIldoon:
It is important to be clear about what we are trying to measure. To measure the number of people in fuel poverty is relatively easy - it is a statistical calculation. The numbers fluctuate with fuel price and income changes. However, people's circumstances may not change. Those who live in damp homes and, as a result, suffer from ill health may technically be able to maintain their standard of life for under 10% of their income, but that does not mean that they are out of fuel poverty, because they still have health problems. The important target in measuring fuel poverty is how many homes in Northern Ireland cannot maintain their household in comfort at a modest cost. The home has to be fuel-poverty proofed, not the inhabitants of that home. That is what we should be measuring. The house condition survey is good at measuring the condition of our homes and the facilities provided. I am leery of the statistical evidence produced in England, where it has been claimed that a million people have been taken out of fuel poverty. What they mean is that the price of electricity and gas has fallen slightly, and those people have statistically been taken out of fuel poverty. They are still living in dire circumstances. I do not want to be involved in something that is disingenuous, to put it politely - or dishonest to put it more robustly.
We should have a programme to measure how many households are to be fuel-poverty proofed. How much electricity we are going to save and how many households are not living in fuel poverty should also be measured. That can be done.
Mr Wells:
We heard from the representatives of the Darkley/Aughnacloy initiative last week and it was extremely impressive. That system looks to be a useful role model for the whole Province. Does your suggestion enable funding to be provided to other community groups to tackle the problem at the level of intensity that has already been so successful?
Mr McIldoon:
If the two funds are put together in a collaborative way, it will be possible.
Dr O'Hagan:
Mr Wells covered some of my questions. Will you provide some more information on the domestic combined heat and power programme (CHP) and its installation costs for households?
Mr McIldoon:
The technology is simple. Instead of having a boiler to heat the central heating system and provide hot water, a system is installed which also produces 1·1 kw hours of electricity, which would keep the household appliances running during the night and provide some power at peak times. It would also come on when the boiler comes on, which tends to be at peak demand times for electricity. The CHP systems are being trialled in England at the moment, but are not yet commercially available. I have been told that they may be commercially available this or next year, but it may be two or three years away. If 100,000 CHP systems were installed in Northern Ireland it would take 100 mWh of demand off the electricity network and result in lower household bills for those with the system. We are just building up the gas industry, therefore, if the technology comes on stream and is economic, then it is coming at just the right time as it will enable Northern Ireland to make a quantum leap and overtake the rest of the British Isles in terms of how we manage electricity and gas in our households. It would also affect our household energy bills. In a few years' time we could be better off than our neighbours.
Dr O'Hagan:
A key issue is the monitoring and measurement of the effectiveness of a programme. There is no clarity on that point. A related point is the administration fee that NIE receives for the scheme. The NIE representative did not provide a clear answer when he appeared before the Committee. Do you have figures on the administration fee that NIE receives? Do you have a view on whether all the money should go to tackle fuel poverty, rather than an administration fee being taken out of it?
Mr McIldoon:
The energy saving trust (EST) manages the energy efficiency levy, for which there is a fee, and I envisage that that will continue. Although NIE collects the money it does not belong to NIE and, in theory, any electricity supply company, such as ESB, Scottish Power, Airtricity, can apply for money available under that levy. NIE, however, was the only company to operate that scheme and it has done very well.
The £150,000 arose from the price control NIE was given in 1997. The background is simple; at that time a levy of £1 was going to raise approximately £670,000. I wanted the largest possible amount of money to finance the NIE schemes, and £1 was the limit. Times have changed. There is more friendliness towards that approach than there was in 1997. To enable that £1 to be more effective, and because it would have been unrealistic to expect a commercial organisation to administer its part of the scheme for nothing, I included in NIE's price control an additional allowance to meet its costs. It was a means of increasing the size of the levy at the time, and that remains the case. It is there to provide for the costs of employing the people to administer the scheme in NIE.
Mr Donnelly:
The £150,000 for annual overheads, agreed with NIE in 1997, was allocated as follows: strategy, scheme development and management £50,000; research and marketing support £35,000; administration and reporting £35,000; technical support £35,000.
Dr O'Hagan:
Is that still the case?
Mr McIldoon:
The money was for that purpose, and we do not ask for accounts for that amount. We know that the money is used to develop the scheme. It is important to point out that NIE is overperforming. The target was to save 110 gWh. If I remember correctly, 187 gWh were saved. NIE was rightly rewarded for that. Northern Ireland as a whole is better off, because NIE made the money given to it work much better than it was required to do.
Mr Donnelly:
With regard to auditing, the last report by Deloitte & Touche on the Northern Ireland energy efficiency programme is positive. The statement of expenditure properly represents the payments of Northern Ireland Electricity's energy efficiency programme for the year ended 31 March 2001, and is prepared in accordance with the instructions laid down by the recommendations on a sustainable energy framework for Northern Ireland Electricity 2000-2005 supply price control. The scheme is audited and given a clean bill of health by Deloitte & Touche.
Mr McIldoon:
And they have shredded none of the relevant papers.
Dr O'Hagan:
There has always been confusion about the actual figures, concerning monitoring and accountability, but no-one suggests anything untoward on the scale of Enron.
Mr Donnelly:
I have dealt with that aspect for many years, and I confess that I am happy with what comes my way from NIE and EST.
Ms Morrice:
I have a few quick questions. What does DSD think? Who will run the new funds? How will they operate? However, there is a very interesting description of the evolution of the policy in your submission, and I will start with that. Energy efficiency was mentioned, then the coming together of that with fuel poverty and the recognition which justified the move. However, I would add another arrow at the bottom of that slide, which is renewable energy. Combined heat and power is part of that, but the third pillar that is missing is solar and photovoltaic (pv) energy. Perhaps you are doing that because there are funds available that can be linked here, but it would be wonderful to have renewable energy as that third pillar. It is not about changing electric central heating to oil or gas, but changing it to solar power. The Department of Enterprise, Trade and Investment could provide additional funds to achieve that objective.
Mr McIldoon:
I agree entirely. I recently presented a paper to a fuel poverty conference in Enniskillen on that subject.
Ms Morrice:
I did not read it, but great minds think alike.
Mr McIldoon:
I have the presentation with me, and I would be happy to show it to you. It contained ideas that are particularly relevant to rural fuel poverty and renewable energy. There is no good reason why we could not use levy money to buy a block of generating capacity in a wind farm. That could then provide very low cost electricity to pensioners, and £200 could be knocked off the pensioner household electricity bill. The money could be invested upstream at the point of production rather than giving the money directly to the household, and households that suffer from fuel poverty could benefit from it. That is very relevant in rural areas. District heating schemes based on biomass could run in rural communities. There are many things that we could do in rural areas, and I am keen to begin tackling some of those issues. However, they would be new and imaginative schemes that would not be done elsewhere.
Ms Morrice:
Why is that not part and parcel of this proposal? Given that the Committee is going in the direction of renewable energy, we would have been prepared to look very sympathetically at such ideas.
Mr Donnelly:
In 1997 when we started to look at how the money should be spent, we allocated so much for draught proofing and lighting. However, we were prepared to permit 20% of the allocation for flexible initiatives and that would have included good renewable energy projects. However, no one has come up with any ideas that we felt that we could run with, but if anyone would like to come up with any good projects the iron is still hot.
Mr McIldoon:
The more fundamental reason is that making your house fuel poverty proof is a combination of insulation and an efficient heating system. You can alleviate the problem of fuel poverty households by getting lower cost electricity through a renewable subsidy such as installing solar water heating systems. However, that does not deal with the fundamental problem of heating the house through electricity and renewable measures unless, for example, you have a rural community heating scheme in which you would use biomass to produce electricity and pipe heat to houses. That could be done in a village. I would love OFREG to try that. It would require a regulatory framework to make it work. We could use the levy to do it, but there has not been a strong expression of interest up to now. When I get the interest, I will run with it.
Ms Morrice:
The problem is the chicken and the egg scenario. Is it up to the Committee or OFREG to be more proactive in its marketing strategy? Perhaps it is something that NIE could be using. You described a marketing element of the fee. Perhaps people should be made more aware of what is available, such as the 20% flexibility.
Mr McIldoon:
NIE could do that if it had the mind to do so. I have hinted, in documents relating to transmission and distribution, that the price control option is available to NIE if it wants to take it and develop new kinds of businesses. However, NIE is not the only party that could do that. I would also like other parties to do it. I am digressing slightly, but unless a regulatory framework for community heating schemes is created, that will not happen.
Ms Morrice:
How do we do that?
Mr McIldoon:
The energy Bill ought to create that framework. I raised that with Department of Enterprise, Trade and Investment (DETI), and I understand that there is an issue as to who should be responsible. Is it the Department for Regional Development, the Department of Social Development or the DETI? Interdepartmental issues are involved. It happens often in Scandinavia. However, there is a danger that it will never happen in Northern Ireland, because nobody is clear where the responsibility lies.
Ms Morrice:
This Committee has the power to introduce legislation. Is it possible that it can do something?
Mr McIldoon:
The DETI is putting together its legislation on the energy Bill, and this Committee will have an enormous input in that. I do not see why the energy Bill should not impose on OFREG, or its successor organisation, a responsibility for creating a regulatory framework for renewable community heating projects, in the same way as a regulatory framework has been created for gas.
Ms Morrice:
It might be useful if you could give us some advice on how that could be done, and we could carry it forward.
Mr McIldoon:
I would welcome that. I have raised it with the Department, and I am concerned that it will fall between several departmental stools unless somebody grapples with it.
Ms Morrice:
I had other questions, but that was the most important. I will leave it there.
Dr McDonnell:
Thank you for all your efforts Mr McIldoon. It is a tribute to you and your staff that this Committee is looking at energy. We set out on this crusade only as a result of queries you posed on various aspects of energy. I hope that we can sustain our efforts and carry them forward. If we do not, the community will be the poorer, and the energy issue will be left in oblivion.
I want to over-simplify, and ask about matters that may not be in your remit. Are there any figures to show that gas is cheaper than electricity?
Mr McIldoon:
Yes.
Dr McDonnell:
Figures from those with a vested interest, such as Phoenix Gas, may not be comparing like with like, and can be used as marketing tools and ploys, rather than facts. Are figures available to show the comparison between running a gas oven at 200 degrees for an hour and an electric oven at 200 degrees for an hour, or the cost of using an electric plate?
One of the major obstacles to progress is people's inhibition. They have a system in place, albeit flawed, and capital cost is the major challenge. I was in that dilemma three years ago when I moved into a relative barn of a house, rather than a modern house, and heating was a big issue. I spent about three months debating whether to use oil or gas. At that time the information available suggested that gas was about 20% to 25% dearer than oil, so I decided on oil, and I have been regretting it ever since.
For the Committee to move this forward, it will all boil down to the pounds, shillings and pence in people's pockets. They must have some guidelines on how to act. I would like to change to gas, but I would have to dump some expensive equipment, and I am not sure that I would want to do that. Thousands of other people are in the same situation
Mr McIldoon:
Yes, that is right. At one level the price of gas and electricity are easy to compare. If you were using a kilowatt-hour of gas or electricity, gas would be cheaper. It is possible to produce figures for the cost of running electric ovens and gas ovens, and we can get those figures for the Committee, although they change from time to time.
Phoenix Natural Gas Ltd looked at the possibility of producing conversion kits for changing oil-heating systems to gas-heating systems. They must change the jet. I do not know whether that was done. When I changed, it was from an old liquid petroleum gas (LPG) to a natural gas system, and it was a matter of starting all over again.
Some systems have had virtuous feedback. If you go for gas, you can also have gas cooking, which is cheaper than electric cooking. You can also have gas tumble-dryers. You cannot do those things with oil. You can get efficient thermostats, insulation measures and so on. They all run together in the same direction. At the same time, you reduce electricity costs by using the gas pipeline. If you no longer use electric cooking, you take demand of the electricity network at peak times and, thus, you reduce the need for network reinforcement.
Gas and electricity work well together. The more people who use gas, the cheaper the electricity system should be. We should be able to get that message across. Other fuels tend to be disconnected; they do not have that virtuous relationship between them. We can certainly provide you with information about prices.
Dr McDonnell:
That is the cost-benefit side of things. I also want to raise a point that you probably referred to earlier. I am excited about the domestic combined heat and power plant. Provided you have a reasonable-sized household, that capital investment could work well. How much electricity and how much heat are emerging from these? Are they 10% electricity and 90% heat, are they 30%/70%, or what is the combination?
Mr McIldoon:
Gerry Donnelly may know more about it than I do, but the one that I am most aware of would be sized to produce the amount of heat that the house wanted, just as a boiler currently does. I understand that they are ideal for doctors' houses.
Dr McDonnell:
Why is that?
Mr McIldoon:
They would not produce as much electricity as you would need. They produce one kW of electricity, which provides background electricity much of the time. It would probably provide much during the day, but not at night. It would not be producing any electricity when it is switched off. So, if you switch your boiler off at night, you would not then be producing any electricity. Your fridge would still run on mains electricity.
Dr McDonnell:
Is there much benefit in having a dribble of electricity when it is least needed?
Mr McIldoon:
If you run your boiler for 2000 hours a year - perhaps that it too much - but say you run it for 2000 of the 8760 hours of the year, you would get 2000 kWh of electricity from it. That is potentially half of the average domestic load, and thus would save you half your electricity bill.
Dr McDonnell:
How does that integrate with the mains?
Mr McIldoon:
It would produce your electricity when it is running; the mains electricity would come in when it is not.
Dr McDonnell:
Do you get a voltage dip in between? As many households have a computer, that would be a concern.
Mr McIldoon:
No, I assume that it would be a seamless transfer between the two systems.
Mr Donnelly:
Yes, it would be.
Dr McDonnell:
These may sound trivial, but they are the sorts of questions that people are going to ask. People may save £1,000, but they are not going to face up to that challenge if they are going to have dips in their electricity supply.
Mr Donnelly:
Those are technical issues, which the trials are currently concerned with. I have no doubt that the technical problems will be overcome quickly because there is a huge market for this. Whoever is first there will make a fortune. In the next five years, I imagine that it will be all domestic combined heat and power units that go into houses.
Mr McIldoon:
When this is slightly further on, the Committee may want to invite the people who produce these things to come and talk to you or give a demonstration.
Ms Morrice:
Yes.
Dr McDonnell:
It is an interesting concept. Cooking would be perceived as a heavy demand. If you use gas and get cooking out of the system, your electricity demand might drop to relatively zero. You will not have the 5 pm to 7 pm peak.
Mr McIldoon:
Exactly.
Dr McDonnell:
Your electricity running should be roughly reflective of the time that you are going to need the boiler. Many of the punters at street level are going to query these trivial aspects rather than the big picture.
The Deputy Chairperson:
This issue is clearly going to require a cross-departmental approach. I welcome it. You made a welcome presentation here; what is the next step?
Mr McIldoon:
I am looking for a blessing. If the Committee had serious reservations about the approach that I have taken, I would have to think again. There was a meeting of the fuel poverty working group today at 11 am, but we were unable to attend. The next meeting has been arranged for 14 May. If the Committee does not have serious reservations, we will be able to present a way of proceeding to that group, which would be similar to what I have outlined today.
The Deputy Chairperson:
I will put this on the agenda tomorrow, when we are meeting again. We hope to have a response to you before the end of the week.
Mr McIldoon:
OK.
Dr McDonnell:
I am broadly supportive of all that I have heard. However, are you asking us to make a change in the energy efficiency levy?
Mr McIldoon:
No, you have already asked me to increase the energy efficiency levy to £5. I have said that I am constrained to taking action that will provide electricity savings. I can work within that constraint and increase the contribution to fuel poverty.
Dr McDonnell:
OK.
Ms Morrice:
You are asking about joined-up government.
Dr McDonnell:
I am happy with that. That is my only query on the matter.
The Deputy Chairperson:
We will deal with the issue formally tomorrow. I thank you and your colleagues for your presentation. Our next big challenge will be the energy Bill. We look forward to working with you on what will be a considerable issue, but it shows the Committee's interest in energy-related issues.
20 March 2002 / Menu / 19 June 2002 (part i)