Ofgem’s Administration Consultation: Great British Insulation Scheme and ECO4 Amendment

Draft Energy Strategy and Just Transition Plan (www.gov.scot)

Closing Date: 16 June 2023

Response submitted by: National Insulation Association

For more information, please contact: info@nia-uk.org

About the National Insulation Association

The National Insulation Association (NIA) represents the insulation industry in the UK with a member base comprised of installers, system certificate holders, and manufacturers who provide a wide range of insulation solutions for homes and buildings. The NIA and its members are fully committed to maintaining and raising standards within the insulation industry.

Yes, the NIA agrees with the proposed approach for annual phase targets, which require suppliers to deliver a minimum number of measures in the first two years and reach at least 90% of the target within the relevant phase year. Ambitious targets are important to drive activity and to ensure that as many insulation measures as possible are delivered to those who need it. The minimum delivery requirement of 90% also provides clarity to suppliers on their obligations and encourages them to pursue a high level of annual delivery throughout the scheme.

The NIA agree that measures delivered on or after 30th March 2023 but before the ECO4A Order has commenced, should be classed as early delivery measures, and still contribute to annual minimum requirements and caps under the scheme, provided they are eligible measures. We recommend that the targets are reviewed on a regular basis to ensure that they are at an appropriate level, and that suppliers are adhering to them. Consequences for not achieving the targets should also be made clear.

We support the proposal to allow unlimited carry-over between annual targets for the first two years of the Great British Insulation Scheme as this could accelerate the delivery of energy efficiency measures. If suppliers have the capacity to overspend on their annual targets, then this should be encouraged as much possible. The NIA are supportive of anything that results in energy efficiency measures being installed at a faster rate.

However, if suppliers have exceeded their targets in Phases A and B of the scheme and are therefore ahead of their overall targets going into Year 3, it is important that there is still an incentive for suppliers to meet their Year 3 targets. Wherever possible, suppliers should be encouraged to exceed their targets, and this includes their whole scheme targets due at the end of Year 3. This could potentially be linked to an extension of the scheme, whereby suppliers that have exceeded their targets over the course of the scheme are allowed to carry over surplus measures into any future phases.

Yes, we agree that some level of carry-under is important to aid with the overall flexibility of the scheme. We believe the carry-under mechanism should be used in exceptional circumstances whereby suppliers must have a valid reason for failing to meet their annual targets.

We recognise that suppliers may experience some difficulties in meeting their Phase A targets due to the significantly delayed start to the scheme. Therefore, we would support a higher level of permitted carry-under between Years 1 and 2 of the scheme to account this delay, and any other issues that may arise during the early stages of the scheme. Under the current proposals, there is a risk that suppliers will be unable to meet their Phase A targets. This situation would not just be detrimental for suppliers, who may face penalties as a result, but it would also be negative for everyone else involved in the scheme. If Phase A targets are missed and not carried over, households will miss out on the opportunity of much-needed insulation measures to improve the thermal comfort of their homes. This will also have damaging consequences for the whole retrofit supply chain who will be prevented from accessing crucial funding to deliver insulation measures.

Therefore, we would urge the Government to allow more flexibility in the level of permitted carry-under between Years 1 and 2 of the scheme, so that suppliers, insulation businesses and consumers are not disadvantaged as a result of targets being missed due to factors out of the industry’s control. Greater flexibility is needed for these initial phases in the context of the current energy crisis and the ongoing climate crisis, as it is imperative that insulation measures are delivered to as many households as possible, as soon as possible.

Our members understand the intention behind using Council Tax bands to verify the eligibility of the general group to focus funding support on those households that need it most. However, they raise concerns over relying on Council Tax bands as they are largely out of data having been first valued in 1991 and again in 2003. Though it is possible to request a review of an individual Council Tax band, our members want to raise their concerns in basing eligibility on this when the Government can’t guarantee they are up to date. This could result in unfair exclusion from GBIS funding.

Our members also highlight the potential for delays in the scheme if suppliers are to be involved in collecting evidence on the resident’s Council Tax band for eligibility purposes, as the consultation suggests. This will involve them collecting a council tax bill from residents to prove their banding level. There is a concern that residents won’t keep the annual letter they receive on their council tax and that collecting this information could cause delay in scheme compliance. Our members see this as a potential barrier to delivery.

It was suggested by some members that the use of the Government’s online Council Tax band checker could be useful in facilitating this approach if it is pursued.

We would like to see low-cost measures, like loft and cavity wall insulation (CWI) offered alongside higher-cost insulation measures, such as solid wall insulation (SWI), being offered to private rented households, and as to this degree do not agree with the proposal. According to the English Housing Survey 2021-2022, homes in the private rented sector (PRS) have lower rates of cavity wall insulation (61%) than other tenures of home (71% of owner-occupied homes and 77% of social rented homes),1 and therefore excluding loft and cavity wall insulation for PRS households would restrict the number of eligible insulation measures for this group. Being able to offer both types of measures will mean that homes receive the most suitable measure for that property. Under the current proposals, households in the PRS with uninsulated lofts and cavity walls would be excluded from support. The NIA does not agree with excluding this group of households from accessing crucial energy efficiency upgrades. According to the latest Household Energy Efficiency data from DESNZ, 29% of cavity walls and 33% of lofts in the UK were still uninsulated. Thus, there is still a sizable volume of households that require CWI and insulation to improve their energy efficiency.

The consultation states that landlords are more likely to pass on the cost of installations to their tenants, citing this as a reason not to include lower cost measures in the general group. However, the lower cost options represent a reduced financial burden for both landlords and tenants, and have the potential to deliver significant benefits for both, therefore there is no reason not to include them as eligible measures.

The NIA and our members would like to highlight that landlords in the PRS have varying abilities to invest in their properties through the scheme, as they may be charities or housing associations dealing with multiple landlords in one building. There will also be situations where landlords are not investing in their properties and local authorities are not adequately enforcing this, it is the view of our members that these tenants should not be left without support and should be eligible for GBIS funding. There is also a portion of tenants in the general group that are experiencing fuel poverty but are not classified as fuel poor under the official definition and therefore do not benefit from additional support. This includes tenants living in LSO areas, receiving mid-market rent, and relying on electric heaters for warmth, pointing to the wider issues in the PRS regarding high rates of fuel poverty and a gap in support for energy efficiency improvements2. Until the government respond to the 2019/2020 consultation on Minimum Energy Efficiency Standards, which would mandate landlord investment in their properties, tenants in the PRS need more support to improve the properties they rent.

The private rented sector experiences significantly higher rates of fuel poverty than other tenure types, with 24.1% of PRS households estimated to be in fuel poverty, according to the latest available data.3 As this data is from 2021-22, prior to the steep rise in the energy price cap, it is highly likely that there are now many more PRS households either in fuel poverty or at risk of falling into fuel poverty as a result of the ongoing energy crisis.

Consequently, the NIA believe it is crucial that loft and CWI insulation are included as options for the general eligibility group in the PRS as part of GBIS funding. This would offer an avenue through which fuel poor households can access additional support to cut their energy bills and improve their thermal comfort. Since the PRS suffers from the lowest rates of energy efficiency and highest rates of fuel poverty, it is vital that households in the sector are eligible for all available measures, including loft and cavity wall insulation.

The NIA has concerns about the current proposals for the Great British Insulation Scheme and their implications for the scheme’s interaction with the Home Upgrade Grant (HUG).

The scheme includes a 20% uplift for rural off-gas properties. However, under the current proposals, this uplift will apply to Scotland and Wales only, not England. The reason given for excluding England from the uplift is because of the ‘overlap in rural areas with the HUG 2 scheme’.4 However, the markedly different eligibility criteria between HUG 2 and GBIS means that, in practice, the overlap between the two schemes will be limited. While HUG 2 is targeted at low-income households, up to 80% of households targeted by the GBIS are set to come from the general eligibility group, not the low-income group. Therefore, a substantial majority of GBIS households will fall outside of the HUG 2 support framework. A 20% uplift is needed for these properties that cannot access HUG 2 funding because of the scheme’s low-income eligibility criteria.

With the current proposals to only apply an uplift to properties in Scotland and Wales, it is likely that installers may target households in Scotland and Wales at the expense of properties in England. This could result in rural off gas properties in England missing out on essential energy efficiency upgrades. This risks creating geographical inequality in energy efficiency and fuel poverty rates between different nations of the UK.

The NIA suggests that the uplift is extended to apply to England, Scotland and Wales rather than not being provided at all. If the Government does not include a 20% uplift, it risks unfairly penalising rural, off grid homes in the general eligibility group. As well as being more remote, these properties are often hard to treat, meaning installers generally face higher installation costs. If there is no uplift to account for these increased costs, then it might not be viable for installers to deliver insulation measures to rural off gas properties, therefore these homes could miss out on much-needed energy efficiency upgrades. The Government’s annual fuel poverty statistics show that off gas properties suffer from much lower energy efficiency and much higher rates of fuel poverty than on gas properties. Only one-third of off gas properties are EPC band A-C and 20.1% are fuel poor.5 By not applying an uplift to off-gas properties in England, this policy risks excluding some of the most vulnerable people and the least energy efficiency properties from support. Therefore, it is critical that the scheme includes a 20% rural uplift to help cover the additional costs of dealing with rural off gas properties.

With the scheme in its current proposed format – as a scheme delivering primarily single insulation measures – it is reasonable to only have one notification template for measures. Having separate templates for measures and projects is not necessary for a single measure scheme and would add unnecessary administrative complexity.

However, we would reiterate that we do not agree with the proposals to limit households to single insulation measures. We understand why the limit of a single insulation measure applies to low-income households eligible for ECO4 funding, as they can receive a deeper, multi-measure retrofit through the ECO4 scheme. However, for the general eligibility group that cannot access multi-measure funding in other schemes, this encourages a piecemeal approach to retrofitting, which isnot as effective as a multi-measure whole house approach. This is widely recognised as best practice across industry and within the PAS 2035/2030 framework. Insulation measures are far more effective at reducing bills and carbon emissions when installed as part of the same whole house package, rather than individually. For instance, in a draughty property, the energy efficiency benefits of installing cavity wall insulation (CWI) are limited if there is no draught proofing to accompany it because the property will still lose high levels of heat through the doors and windows. Hence, the NIA would like to see a package of multiple measures offered under the scheme, as in many cases, different measures can interact to significantly improve a property’s energy efficiency.

We would urge the Government to consider committing more funding to the GBIS to enable homes to receive a deeper, multi-measure retrofit. As a result of recent price increases, many households, even in the general eligibility group, are struggling to afford high energy costs. Annual fuel poverty statistics in England for 2023 show that the number of households that spend over 10% of their income on energy costs is projected to double in 2023 to 8.83 million households.6 This suggests that there is a need to extend the support offered for households to install energy efficiency measures to prevent further people falling into fuel poverty.

Moreover, investment in home insulation has long-lasting financial benefits not just for consumers, but for government as well. Research by the Energy and Climate Intelligence Unit has shown that, had the Government maintained its support for home insulation instead of cutting it in 2013, it could have saved £18 billion spent on subsidising energy bills over the course of the Energy Price Guarantee.7 In this way, more government investment in insulation in the short-term delivers excellent value for money for the taxpayer in the long-term, as well as safeguarding against the economic and social impacts of future energy price spikes. Therefore, we would like to see the Government provide more funding for the GBIS to facilitate a multi-measure, whole-house retrofit that will see individual households benefit from a much greater reduction in their energy costs.

If the Government decides not to increase the current level of funding for the scheme, then we recognise that some properties will be restricted to single measures due to the limited amount of funding available per household. However, in certain situations, it will still be possible to deliver multiple low-cost measures within the scheme’s current funding constraints. For example, in the case of an easy-to-treat cavity wall property with an uninsulated loft and draughty windows, we believe it should be possible to combine CWI, loft insulation and potentially draught proofing. These are all low-cost measures, and a package that combined them all would still be significantly cheaper than installing a single higher-cost measure. Therefore, we do not agree with only offering single insulation measures in situations where multiple low-cost measures could still be delivered at a low combined cost.

The NIA does not agree with imposing a cap on innovation measures, as it is important to encourage innovation within the industry, which can drive improved outcomes for businesses and consumers. If the retrofit sector is to meet its deliver on its ambitious net zero targets, then it must continue to evolve and grow. Innovation is key to this.

There are many households that still require insultation as discussed in our response to Question 5 but retrofit businesses can face various barriers when trying to introduce innovative new materials and installation techniques. For our members and other innovators in the sector, innovation measures, via schemes such as GBIS and ECO4, offer a vital route by which they can bring exciting new products to market. If an innovation measure is shown to deliver improved outcomes compared to its standard counterparts, then there should be no cap on the percentage of a supplier’s obligation it can make up.

Innovation is vital to the future growth of the retrofit sector and for addressing the needs of many households in accessing this work; therefore, it is vital that the Government fosters innovation and ingenuity within the industry.

The NIA agree with this. Our members call for Ofgem to reduce complexity in the scheme and therefore minimise delay by keeping forms similar to those used for ECO. They also point out the importance of allowing the submission of tenures and completed instalments of eligible measures in bulk so that where they are fitting instalments into a high rise block of flats suppliers can submit compliance in bulk rather than individually.

Our members bring up the need for more specific guidance on work carried out on blocks of flats as currently individual leaseholders must all agree to have it carried out. Often, leaseholders live abroad and rent out their properties making it more difficult to consult with them. A suggestion from our members is the use of a Property Management Company or Committee that could facilitate this rather than relying on individual leaseholders.

We believe that draught proofing is missing from the list of eligible insulation measures.

The effectiveness of other insulation and energy efficiency measures is drastically reduced if a property does not have adequate draught proofing. The primary aim of the ECO+ scheme is to save a large number of households money on their energy bills through the installation of insulation measures. However, there is little point in cavity wall and loft insulation if all the property’s heat escapes through draughty windows and doors. Draught proofing is often the first area of concern for many of the vulnerable households our members engage with on the ground.

For a significant number of UK properties, building regulations mean they are not able to benefit from many energy efficiency improvements. This is particularly true for leasehold flats and listed homes. For many of these properties, draught proofing is one of the only options available to them if they want to lower their energy bills and make their home warmer.

Therefore, we would like to see draught proofing included as a low-cost, high impact measure that can be installed alongside other low-cost measures, as without adequate draught proofing, the financial and environmental benefits of these other measures is greatly reduced.