June 27th, 2011

Unpacking Fuel Poverty

Government Policy -

There are around 3,750,000 households in England alone that are classed as ‘fuel poor’ – spending 10% or more of their total income on energy. It is estimated that 50% of the most severe cases of fuel poverty are located in rural area with 1 in 4 rural households struggling to keep their homes warm. Volatile oil and gas prices, and a commitment to reduce CO2 emissions by 2050 is leading to rising energy costs; which are forecast to increase by 60% by 2016. The Feed-in Tariff (FiT) and imminent Renewable Heat Incentive (RHI) policies are anticipated to transform the domestic energy market by enabling a greater number of households the possibility to generate their own heat and power. These also present an opportunity for those in fuel poverty to improve the standards of their homes whilst reducing vulnerability to wider market forces.

The FiT is limited in its ability to tackle fuel poverty, with its key attribute enabling reduced energy prices. On the other hand the RHI tackles household income, building stock upgrades and managing energy prices, and is therefore the more effective of the two policies in improving fuel poverty. Primarily, this is due to it (RHI) addressing heat and rather than electricity. More pressing an issue in low income households is an ability to remain warm, rather than being able to ‘keep the lights on’. In many fuel poor households this is an essential consideration, especially where the more vulnerable, children, elderly and sick are concerned.

The move to incentivise micro-generation via the FiT and RHI is a step in the right direction for tackling not only climate change and energy security, but the ability for individual households to move out of fuel poverty. However, as with many schemes, it is cost that places the most vulnerable at a disadvantage. In the long term the UK’s existing system requires many infrastructures (and other) changes but in the short term, greater assistance is required for those in fuel poverty. With wider circles of advice, government must develop a cohesive and cross-party strategy that sets a path for reducing the number households in fuel poverty.

As part of this strategy there may be an opportunity to create more pronounced links between the FiT, RHI and the Green Deal (GD), which aims to improve fuel efficiency in households and small businesses. Coordination between these policies to develop a clear and decisive strategy could be the key to making real inroads into fuel poverty over coming years. Issues to address are high upfront costs, long payback times, the ‘hassle factor’, and general lack of awareness.

The FiT was intended to provide certainty to the micogen electricity market, however commercial certainty is in danger of being undermined by political uncertainty with the recently announced early review. The RHI will add value to the microgen market by enabling more points to be addressed, over and above energy pricing. Changes to the GD to wrap up energy efficiency through making it more accessible are also a vital factor in dealing with fuel poverty. However, a coordinated strategy between these policies is surely to involve the Green Investment Bank as a way to show support for, and lead to greater uptake of microgen technologies (both heat and electricity) and energy efficiency solutions. Fuel poverty is a multifaceted issue which requires a combined and coordinated solution.

See the National Right to Fuel Campaign for more information.

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George Phillips

About George Phillips

George is a cleantech analyst and distributed energy campaigner. George launched the consulting venture IndREcon in 2010, reviewing cleantech innovation business plans before joining Orion Innovations, a London based specialist strategy consultancy firm focusing on innovations in emergent sectors, primarily Smartclean industries. George is originally from London, but lived in North America and Europe for almost 10 years. He is currently developing GLD in London UK. @gphillipsUK @GLD_UK *Views expressed are my own *