Green energy plan inefficient and expensive, says Centrica chief

19th August, 2013

Centrica, the UK’s biggest energy retailer, has launched an attack on a flagship government policy aimed at making houses more energy efficient, saying it is far more costly than ministers anticipated.

Sam Laidlaw, Centrica’s chief executive, called for an overhaul of the initiative – which requires power suppliers to fund energy efficient home improvements – saying it was more expensive and less effective than the scheme it replaced.

“We want to sit down with the government and see whether this is actually the most cost effective way of reducing customers’ carbon emissions [and] whether it can be changed to bring down costs,” he told the Financial Times.
In one of the first public attacks by a senior energy executive on government green policies, Mr Laidlaw said the Energy Company Obligation (Eco) was “complicated” and “expensive to administer”.

The cost of carbon abatement under the scheme was £100-£120 per tonne, compared with £25-£30 for an earlier programme, known as Cert, increasing Centrica’s environmental costs by £100m this year, he said.

Mr Laidlaw’s comments chime with similar criticism from RWE npower, another of the Big Six energy suppliers, which has warned that the high cost of Eco would lead to higher household bills.

Eco was designed to address the notorious inefficiency of Britain’s ageing housing stock. Centrica estimates that £1 of every £4 spent on heating bills in Britain is wasted because of poor insulation, and about 12m homes do not have adequate loft or cavity wall insulation.

Power companies have consistently said the scheme would cost much more than the government’s estimate of £1.3bn a year. Npower puts the price tag at £1.8bn.

The Department of Energy and Climate Change said it had seen “no hard evidence to suggest we should change our estimate”.

It added that comparing the cost of Eco with the previous Cert scheme was “simply nonsensical”.
“The schemes are completely different in design, and the carbon opportunities in the real world have changed hugely over recent years,” the department said.

Mr Laidlaw’s intervention came as the Big Six face intense scrutiny over rising energy charges.

Labour said last week that profits for the group – Centrica-owned British Gas, npower, Eon, EDF Energy, Scottish Power and SSE – rose 73 per cent to £3.7bn in the three years to 2012. Meanwhile, the typical dual fuel bill has risen more than £300 since 2010 to £1,420 a year.

Mr Laidlaw said part of the problem with Eco was that much of the “low-hanging fruit” of efficiency improvements had already been picked under Cert and other initiatives, which have seen energy companies carry out thousands of loft and cavity wall insulations across the UK.

Simon Stacey, managing director of energy services at npower, said one of the challenges of Eco was finding enough properties that qualify. It obliges companies to insulate houses in deprived areas of the country, replace boilers in low-income homes and carry out solid wall or cavity wall insulation. Solid wall insulation – which involves putting a thermal layer over the front of a property – can cost £6,000 per house, Mr Stacey said.

Another problem is that Eco was supposed to run alongside the government’s Green Deal, where consumers can take out a loan for home improvement measures such as getting rid of an old boiler and pay it back through a surcharge on their electricity bills.

But take-up of the Green Deal has been disappointingly low. “Because of that, energy suppliers are having to take up the slack, by implementing more Eco measures,” Mr Stacey said.

He added that npower was lobbying the government to cap the cost of the scheme.

Mr Laidlaw said Centrica was seeking to broaden Eco’s scope. “A more broadly-based efficiency target would ensure we’d do the most cost effective forms of carbon abatement first,” he said.

The Eco project
The Energy Company Obligation programme, launched in January, obliges the big six energy suppliers to improve insulation in homes and install better heating, especially in low income households.
It is aimed at tackling fuel poverty, where people struggle to afford adequate energy – a growing concern as prices rise. But critics say it could make the problem worse because companies can pass on the costs to customers. Ministers say Eco will add £53 to a typical dual fuel bill: npower says it will add £88.


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