National Energy Services's CESP Consultation Response

8/14/2019 National Energy Services's CESP Consultation Response

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NATIONAL ENERGY SERVICES

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NATIONALENERGYSERVICESRESPONSETOTHE

COMMUNITYENERGYSAVINGPROGRAMMECONSULTATION

ABOUTNATIONALENERGYSERVICESLTD

National Energy Services (NES) owns and operates both the NHER

AccreditationSchemeandtheSAVACertificationScheme.

TheNHERistheUKsfirstandlargestenergyratingscheme,establishedin1990.Weprovidesoftware,training,accreditation,researchandconsultancy

for organisations and individuals involved with improving the energy

efficiency of buildings, particularly dwellings. The NHER AccreditationSchemecurrentlyhasover3,000membersaccreditedtoissuevarioustypes

of Energy Performance Certificates (EPC) and Display Energy Certificates

(DEC).

SAVAprovidessoftware,trainingandaccreditationforHomeInspectorsand

allaspectsofHomeConditionReportsandhasoperatedsince2000.SAVAwas the first approved Certification Scheme for Home Inspectors and

currentlyhasover400members.

STATUTORYINSTRUMENT

Q1. DoyouhaveanycommentsonthedraftStatutoryInstrument?

No.

IMPACTASSESSMENT

Q2. DoyouhaveanycommentsonthepartialImpactAssessment?Doyoubelieve

there are other sources of evidence that could be used to help refine the

assessment?Inparticular:

The justification for choosing the preferred option is weak given the

additional1 billionin the TotalBenefit ofOption4. Surelytheremustbe

scope for an option under which the additional investment is targetedtowards lowincome communities,butwhich deliversa better total benefit

thantheapproachcurrentlyproposed?

Reducing the emphasis on measures with the poorest cost effectiveness

(such as solid wall insulation) would significantly improve the overall

benefits, in terms of reducedrunning costs, reducedcarbon emissions andincreased social equity byspreading the benefitsof the programme over a

greaternumberoflowincomehouseholds.

Theexpenditureof substantial CERT funds on the installation of measures

that enhance the assetvalueofanowneroccupied home whilst deliveringonlylimitedreductionsinenergyandcarbonemissionsissociallyiniquitous.


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Q3. Doyouagreewiththeidentifiedcostsandthemaingroupsonwhichtheyfall?If

not, please explainwhy and suggest other costswhichmay exist and groups

whichmaybeaffected.

It is reasonable to anticipate that all costs will be passed through toconsumersintheirenergybills.Sinceenergycostsareasignificantlyhigher

percentage of income for lowincome households, the impact isfundamentallyregressive.

Thetargetingoftheprogrammeexclusivelyonlowincomecommunitiesiswelcome, but the preoccupation with wholehouse solutions and the

incentives given to promote the installation of measures which have poor

costeffectiveness, results in too few households benefitting from theprogramme. Fundamentally, the number of households benefitting is too

smallgiventhenumber,includinglowincomehouseholds,whoarefundingtheprogramme.

DISTRIBUTIONBETWEENSUPPLIERSANDGENERATORS

Q4. DoyouagreethattheCESPobligationshouldbesplitequallybetweensupplier

andgenerationcompanies?Ifyoudonotagree,pleaseprovideanalternative

approachandexplainwhyyoubelievethisispreferable.

Itisnotselfevidentthatextendingtheobligationtogeneratorsservesanypurpose.Itwouldmakeseemtomakemoresensetostickwiththeexisting

modelwherebytheobligationrestssolelywiththesuppliers,allocatedpro

ratatothenumberofcustomerhouseholdstheyhave.

Youranalysisrecognisesthatgeneratorswillhavepassonthecosttotheir

customers, primarily theenergy supply companies. Thesupply companieswillinturnpasstheadditionalcostontotheircustomers,togetherwiththeir

owncostsfordeliveringtheirelementoftheprogramme.

Sincethe generators have not previously had such an obligation, they willinevitably incur higher mobilisation costs gearing up to deliver the

programme.Thiswillincreasetheoverallcostandreducetheoverallcost

effectivenessoftheprogramme.

Furthermore,since thegenerators will generally nothave anyrelationshipwith the target households, there is little if any reputational or othercommercialbenefitarisingfromtheirinvolvement.


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LIMITSFOREXEMPTIONOFSMALLCOMPANIES

Q5. Doyouagreewithourproposedapproachtoprovidinganexemptionfromthe

CESP obligation to small companies? If you do not agree, please provide an

alternativeapproachandexplainwhyyoubelievethisispreferable.

Allowingexemptionscreatescomplexityandanincreasedoversightburden.It may be preferable for the obligation to apply to all relevant companies.

Two options to avoid this becoming an excessive burden for smaller

companieswouldbe:

Allow companies to contractouttheir obligation through a commercialagreementwithoneofthelargersuppliers(orindeedathirdparty);or

Allow companies to contribute to an obligation buyout fund run by

Ofgemandpricedatarateslightlyhigherthanthenotionalratepertonne

CO2assumedintheprogrammedesign.Largersuppliersorthirdpartyorganisations able to deliver community level programmes within the

targetcommunitiescouldthenbidforfundsonthebasisofthecarbonsavings they will achieve. This approach may enable a wider range of

projecttypestobedevelopedandevaluatedthanmightotherwiseoccur.

DISTRIBUTIONOFTHEOBLIGATIONBETWEENCOMPANIES

Q6. DoyouagreethattheCESPobligationshouldbedistributedbetweencompanies

inproportiontotheirannualelectricitygeneration? Ifyoudonotagree,please

provideanalternativeapproachandexplainwhyyoubelievethisispreferable.

Wearenotconvincedthattheinclusionofthegeneratorsisasensiblemove;

continuing to exclude these companies would obviate the requirement for

rulesonburdensharing.

However,ifgeneratorsareincluded,thencarbonemissionsmaybe abetter

basis for allocating the burden than electricity generation. This wouldprovideanadditionalincentiveforgeneratorstoreduceCO2emissions.

THEREGULATORYAPPROACH

Q7. Doyouagreethattheschemeshouldbeflexibletoallowforthedevelopmentof

differentformsofcommunitypartnershipworking?Ifnot,whynot?

Yes.


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Q8. Do youagree that it is reasonable to envisage that thenatural incentives are

strongenoughtoensureaneffectivepartnershipapproachforCESP?Ifnot,why

not?

Nobutnotbecauseofthenatureorsizeoftheincentives.Thefundamentalnature and scale of the operation creates its own barriers to effective

partnershipworkingandthevarietyofpartnershipstructureslikelytoarise.

In some previous projects, including Warm Zones, Local Authorities have

beenreluctanttobetoodirectlyassociatedwithaprojectoutofconcernthattoo close an association with the energy supplier would be perceived as

compromisingtheirindependence.Asisacknowledgedintheconsultation

document, obligation holders are likely to seek to enhance their brandreputationthroughthisactivity,exacerbatingthispotentialtension.

Theconsultationalsoidentifiesthatdemandislikelytoexceedtheavailable

funding. This will result indownwardpressureonthe amount offundingavailabletoachieveasetlevelofsavings.Thisprovidestheobligationholder

withasignificantdegreeofpurchasingpowerinanynegotiationwithlocalpartners.

Asa result,thevarietyofpossiblepartnershiparrangementsisconstrained.

InorderthatLocalAuthoritiesorcommunitygroupscouldleadonaproject,it is likely that they will need direct control over funding. This could be

enabledbyencouragingorrequiringtheobligationholderstosatisfysomeproportionoftheir obligationthroughpaymentinto anobligationbuyout

fund.LocalAuthoritiesandotherbodiescouldthenproposeprojectstothe

fundmanager(Ofgem).

Q9. Doyouagreethatthereshouldbearequirementforsomeformofevidenceof

LocalAuthorityendorsement,suchasaletterofsupport?

Yes.

Lettersofsupportanddetailsoftherolesandresponsibilitiesofeachofthe

partnersshouldbeincludedintheoriginalprojectsubmissiontoOfgem.

CREATINGINCENTIVES

Q10. DoyouagreethatCESPshouldtargetfewerhomesbutprovidegreaterCO2and

fuelbill savings for homestargeted? Ifyoudonotagree,pleaseexplainyour

reasonsandofferanalternativeapproach.

Recognising the broader objectives of CESP, it isreasonable that a greater

priority should be given to ensuring that properties receive a range ofmeasures sufficient to producesignificant reductions in energy waste, fuel

billsandCO2emissions. Thiswillinevitablymeanthatfewerpropertiesaretreated.However,therehastobeabalancestruckbetweenmaximisingthe

savingsinanindividualpropertyandoptimisingthetotalsavingsachieved.


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A minimumacceptable costbenefit threshold should be used to determine

whichmeasuresitisreasonabletoinclude,giventheobjectivesoftacklingfuelpovertyandreducingCO2emissions.

HIGHEFFICIENCYBOILERS

Q11. EnglishbuildingregulationsrequirereplacementboilerstobeBratedorbetter.

CanCESPthereforeaddanythingtothereplacementofboilersmandatedbythe

buildingregulations?

TheBuildingRegulationsonlyrequirethatifaboilerisreplaced,thenitmustbeBratedorbetter.Asisacknowledgedintheconsultationdocument,the

problemformanylowincomehouseholdsisalackofcapitaltocarryoutareplacement.Assuch,oldboilerswillonlybereplacedasalastresortandin

theeventthatrepairisabsolutelyimpossible.

An efficient and effective heating system with good controls should beconsideredasfundamentalrequirementsforanenergyefficienthome.Itis

boththemosttangibleenergyuseinthehomeandissignificantintermsofwiderimpactssuchasairqualityandgeneralcomfort.

WebelievethatthereisastrongargumentthattheCESPprogrammeshould

not only be supporting the replacement of Grated boilers, but F, E andpossibly Drated boilers too particularly those (generally older) models

that are likely to be repaired rather than replaced in the event that they

breakdown.

Q12. Is there a need for amechanism that would protect households who have a

boilerreplacedunderCESPfromanypotentialearlyfailureofthenewboiler?If

so,howmightthatprotectionbeprovided?

As a minimum, there should be a twelvemonth full warranty on the full

system, including any elements of the existing system that are retained.

However,ifthereisevidencethatconcernoverthisissueisabarriertothetakeupofthemeasure,thenitmustbepossibletoincludeafiveyearfull

systemmaintenance/serviceagreementasanintegralpartofthemeasure.

CENTRALHEATING

Q13. TheGovernmentrequestsstakeholderstoexplainwhetherornottheysupport

theinclusionofinstallinggascentralheatinginnoncentrallyheatedhomesand

provideevidenceinsupportoftheircomments.

Yeswestronglysupporttheinclusionoftheprovisionofgascentralheating

(or an alternative efficient, wholehouse, controllable heating system) forhomescurrentlywithoutcentralheating.


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The running cost benefits of a modern heating system can be easily

demonstrated by a SAP assessment, whilst the wider health and socialbenefitsofanadequatelyheatedhomearewidelyrecognised.

Ensuring all homes treated have an efficient and effective heating systemwithgoodcontrolsshouldbeacoregoaloftheprogramme.Withoutthis,any

claimtohaveprovidedawholehousesolutionwouldbeopentochallenge.

Homeswithonlypartialheatingoftenexpensivetooperateandthereforeunusedcannotbeconsideredtobeenergyefficient.

SOLIDWALLINSULATION

Q14. WhattypesofSolidWallInsulationareavailableandwhataretheirrelativecosts

andCO2savings?

TheEnergyEfficiencyPartnershipforHomesrecentlypublishedareviewoftheSolidWallInsulationindustrysupplychain.Thecostsinthatreportare

generallyhigherthanthoseshownintheCESPconsultationdocument. ThereportisavailablefromEST.

SCORING

Q15. DoyouagreewiththeproposedlistofmeasuresavailableunderCESP?

Given the objectives of the programme, the widest possible range ofmeasures should be available to meet the needs of the widest variety of

propertiesinthetargetareas.Specificsuggestionsforadditionalmeasuresinclude:

Additional space andwater heatingmeasuresto ensure that alltreatedhomes have safe, efficient and effective means of providing space andwaterheating.Thismayincludereplacementroomheatersandinstant

waterheaters,aswellasthewholehousesystemscurrentlyproposed.

Insulationsuitableforfittingatrafterlevelinloftspacesandforflatroofs.

TheHomeEnergyAuditproposalsneedsignificantfurtherdevelopment.We

recommend that the audit form the basis for both the determination of

suitable physical measures and the delivery of behavioural measures. Aswell as the initial audit, a followup visit should be undertaken after all

measuresareinstalledtoreinforcethebehaviouralmeasuresandtoensurethattherecipientisabletousethecontrolsonanyactivesystemsinstalled.

We would recommend the formal lodgement ofall HEA reports (including

both the initial audit and the postinstallation audit) on the national EPCregister. This will provide a comprehensive audit trail for all measures

installedinpropertyandsupportafarmorecomprehensiveassessmentofeffectivenessoftheCESPprogrammeanditslinkintothewiderprogramme

of improving energy efficiency in existing homes than would otherwise be

possible.


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DISTRICTHEATINGCRITERIA

Q16. Should district heating projects be included within the list of potential CESP

measures?Pleaseincludeanexplanationofyouranswer.

Yes.

Webelievethatdistrictheatingschemesofferapotentialmeansofreducing

carbonemissionsfromexistinghomesinselectedsituations,primarilytowerblocks and, potentially, terraced housing. However, their effectiveness

depends on near universal takeup, severely limiting the number of

situationswheretheycanbeeffectivelydeployed.

Q17. Arethereanyparticulartypesofschemewhichmeritinclusionmorethanothers

orwhichitwouldbeeasiertoinclude?

OnlyschemesbasedonbiomassandCHP(oratleastwiththepotentialtobeconverted to biomass and CHP at some point in the future) should be

supported.

Only schemes for tower blocks or equivalent should be supported and

preferenceshouldbegivenschemeslinkedwithaschooland/orotherpublic

buildingtoprovidesuitablespaceandsystemload.

Q18. Isitpossibletoattributeanybaselinescores toparticulartypesofscheme,or

wouldthisneedtobeonacasebycasebasis?

Schemesshouldbeassessedonacasebycasebasis.Thesoftwareusedforthe assessment should be freely available to all interested parties and the

underpinningalgorithms used by thesoftwareshould bepublished sothatthirdparty software providers can implement software to support

developersinidentifyingandassessingpotentialschemes.

CREATINGINCENTIVESFORAWHOLEHOUSEAPPROACH

Q19. Doyouthinkourproposedbonusesforscoringmeasuresencouragethedelivery

ofawholehouseapproach? Ifnot,pleaseexplainwhyandofferanalternative

setofincentives.

Clearly the proposed bonus arrangement encourages the installation of

multiple measures within each dwelling. However, given the savings inmarketing costs and theclaimedoperational benefitsof installing multiple

measures where possible a single household, it is unclear that additional

incentivesareactuallyrequired.

Furthermore,thebonusarrangementsaddsignificantlytothecomplexityof

theoverallprogramme.Thisincreasestheriskofunintendedconsequences

and,potentially,suboptimaloutcomes.


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Q22. Doyouthinkanyofthedescribedoptionswilldeliverintensiveactioninspecific

areas?Ifso,whichoptiondoyoufavour?Ifnot,pleaseexplainyourreasonsand

offeranalternative.

Alloftheoptionsareexcessivelycomplexandwewouldnotsupportanyofthem since much simpler options are possible. For example, since only

measures installed under projects within specific areas and approved byOfgem count towards the CESP target, it is a simple matter to control the

number of projects approved for a company. This will ensure that aminimumactivitydensityisachieved,whilststillprovidingcompanieswitha

highlevelofoperationalflexibilityandconfidenceinthescorepermeasure.

Ifcompaniesstruggletoachieveadequatelevelsofactivityintheirapprovedprojectareas,itwouldbesimpletosetareducingmultiplier(startingatone

and declining) that would be applied to the carbon score for measuresinstalledundereachadditionalproject.Thiswouldcreateastrongincentive

toavoidhavingtoaddadditionalprojectareas.

Fundamentally, an underpinning premise of CESP is that there areoperational (and therefore cost) advantages in focusing activity in specific

areas;ifthisistrue,thenthereshouldnotbeanyrequirementtoexplicitly

incentivisesuchanapproach.

LOWINCOMEHOUSING

Q23. Do you agree CESP should use the income domain of the Index of Multiple

Deprivationastheasthemeasureofincomedeprivation?Ifnot,whatshouldbeusedandwhy?

Yes.However,sincetheproposedareasincludemorethan2.5mhouseholdsanditisanticipatedthattheprogrammewillonlyhelp90,000homes,there

isastrongargumentforapplyingamorestringentcriteriaforselectingthe

target areas. This would ensure that the programme targets the mostdeprivedcommunities.

TARGETINGLOWINCOMEHOUSEHOLDS

Q24. Doyouagreewiththeproposalnottoprescribeinlegislationwhatsuppliersand

generatorscanchargeformeasures?

Yes.

Q25. Istheassumptionthatsuppliersandgeneratorswillthemselveshavetobearthe

wholecost,ortheverygreatmajorityofthecost,ofthemeasureswhichthey

deliverareasonableone?Ifnot,pleasestatewhy.

Yes,itisareasonableassumption.Evenifitprovestobefalseandoneor

more companies aresuccessful in leveraging in additional funding(e.g. EU


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regional development funding), it is difficult to see that this would be

anythingotherthanbeneficial.

WORKINGWITHOTHERINITIATIVES

Q26. Doyouagreethataflexibleapproach,allowingcommunitiestoidentifyhowbest

tointegratetherangeofinitiativesintheirareas,shouldbefollowed?

Yes,butitisunrealistictoexpecteffectiveintegrationgiventhecomplexityofthe currently proposed scoring arrangements. Simpler rules will make it

easier for companies to commit to levels of activity and financial support,

whichwillinturnmakeiteasiertoimplementcoordinatedprogrammes.

Q27. Orshouldtherebeanattempttodevelopamoreprescriptiveapproach? Ifso,

howwouldtheconcernsexpressedinparagraph5.10beovercome?

No.Itisunlikelythatthisisevenachievablegiventhedesirethatindividualcommunitiesdevelopsolutionsthatmeettheirspecificneeds.

Q28. Are there any other initiatives we should consider when thinking about the

designandinteractionofanewCESPobligation?

TherearepotentialoverlapswithHIPs,landlordincentiveschemesandthe

lowcarbon buildings grants (especially if microgen of district heatingschemesareproposed),aswellaspossibleimpactsfromrenewableheatand

othernewprogrammes.

Thediversityofpotentiallyoverlappingprogrammesisanotherargumentinfavour of a dramatic simplification of the scheme rules and the scoring

arrangements.

PROGRAMMETIMING

Q29. DoyouagreethatCESPshouldrunfromautumn2009untilDecember2012?If

not,whatotheroptiondoyoupreferandwhy?

The HESS consultation document refers to CESP as acting as a pilot forpossiblepostCERTapproachtoimprovingtheenergyefficiencyofexistinghomes.Ifthisisthecase,itisessentialthatCESPprojectsbecompletedin

goodtimetoenabletheeffectivenessoftheapproachtobeevaluatedpriortoanydetailedconsiderationoffutureoptions.

We therefore recommend that companies be required to complete

installationofallCESPprojects bytheend ofSeptember2011 and tohavecompletedallreportingbytheendofDecember2011.Thiswillfeedintothe

considerationofpossiblepostCERToptions,whichwillneedtobeconsulted

oninspring2012toavoidanygapbetweentheendofCERTinDecember2012andthestartofwhateverreplacementprogrammeisdecidedupon.


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TRANSFERRINGOFCREDITSANDTRADINGOFOBLIGATION

Q30. Doyouagreethatobligatedpartiesshould beallowedto transfercreditsthat

theyhaveachievedwithotherobligatedparties?

Yes.

Howeverweareconcernedabouttheimpactoftransfersofcreditsfromone

programmetothenextandabouttheproblemsofforecastingfutureactivitylevelsbecauseofalackofinformationabouttotalactivitiesundertaken.We

thereforestronglyrecommendthattheRegulationsforbothCESPandCERT

be amended to require obligated parties to notify Ofgem of all measuresinstalled on an address specific basis within 30 days of their physical

installation. Measures not notified within that period will be subject to a

reducing multiplier factor, effectively reducing their value of the measure

prorata with the length of the delay in notification, so that measuresinstalled90dayspriortonotificationattractzerocredit.

Q31. Doyouagreeinprinciplethattradingoftheobligationitselfshouldbeallowed?

Ifsowhatlevel?

The consultation does not describe the potential risks associated withallowing this and we have not identified any. As such, we support the

proposal.

Iftradingisallowed,wecannotseeanyreasonwhyitwouldbelimited.Theorganisationsmostlikelytowanttotakeadvantageofthisoptionarelikely

tobe thosewith low CERT and/or CESPobligations and lack the expertiseandresourcestomanageprogrammesinhouse.Insuchasituation,limiting

theleveloftradingallowedwouldstillrequireobligatedpartiestorunCESP

programmes,negatingthebenefitoftrading.

Q32. ShouldOfgemberequiredtoapproveanytradingarrangements?

OfgemmustbesatisfiedthatthelegaldutytosatisfytheCESPobligationlies

with an organisation competent to satisfy that obligation, otherwise an

obligatedcompanycouldsimplytradetheobligationtoacompanythatcould

thenbewoundup.However,thereisnoobviousreasonwhyOfgemwouldneedtobepartytothecommercialtermsofthetrade.

Documents

National Energy Services's CESP Consultation Response