Net Zero, Energy and Transport Committee
We face an energy bills crisis this winter. Factors beyond the control of any one government or organisation are causing high energy prices forcing citizens into decisions which could put their lives at risk, and this is happening within the context of rising general costs of living that are already putting households under pressure. The Net Zero, Energy and Transport Committee undertook a short inquiry to explore the issues which have led to this crisis: one which, the Committee was warned, could lead to "a catastrophic loss of life"i in the coming months unless swift action is taken.
There have been developments at governmental level during the lifetime even of this short "snapshot" inquiry, launched to address a crisis unfolding in real time. These actions part-address some of the criticisms we heard in evidence. However, much of that criticism still stands as autumn and winter grow nearer, and more action is needed. Additional support announced so far has been of a quite blanket nature. We believe that future support must be carefully targeted at those in most need.
The clear messages from this inquiry are there is a need for a pandemic-level response to the crisis, with the Scottish and UK Governments working separately and together to—
provide more immediate, targeted financial support to those struggling with increasing fuel bills; and
accelerate medium and long-term plans and strategies which will not only reduce future exposure to volatile energy prices but may also help meet net zero targets.
Practical steps the Scottish Government can take to mitigate the crisis include ensuring that consumers - especially those in fuel poverty - have access to the information and advice they need about the reliefs available to them, and about energy-saving measures that will cut bills. This requires a two-pronged approach of a national publicity campaign - akin to those used during the pandemic - and increased support for those providing advice and advocacy at a local and individual level. With some of the oldest housing stock in the developed world, we also need to recover lost momentum in insulating homes. The Scottish Government must lead on this.
A crisis also presents an opportunity for reappraisal: the global spike in oil and gas prices was beyond the control of the UK and Scottish Governments, but other factors were not. Our report touches on some possible lessons for the longer term. Many of these are also key to meeting our net zero commitments. The goal must be inoculation against the effects of high prices and fluctuations in global commodities markets by reducing our exposure to oil and gas over the longer term.
Competence in energy policy is shared between the Scottish and UK Governments and there is discussion below of both reserved and devolved aspects of the policy. Fuel poverty is a devolved responsibility, as are aspects of social security policy. In this report directed to the Scottish Government we call on it to demonstrate an emergency response to this crisis on a par with action during the pandemic, to ensure the least well off are not vulnerable to death or serious ill-health due to rising energy costs and associated cost of living expenses. We are writing separately to the UK Government, calling for similar urgent action in relation to matters for which it is responsible.
On 15 March 2022, the Net Zero, Energy and Transport Committee agreed to undertake an inquiry into energy price rises and their contribution to the cost of living crisisi. We agreed that, given the urgency of this issue, this needed to be a sharp and focussed inquiry, with a tight reporting date. We subsequently agreed this remit—
"A short “snapshot” inquiry, focussed on short and medium-term solutions to high energy prices and the role of the Scottish Government in implementing those solutions."
At meetings in April and May, we heard from witnesses specialising in energy and consumer issues from industry, academia and the third sector. We also heard from the Office of Gas and Electricity Generation Markets (Ofgem) and Greg Hands MP, UK Minister of State (Energy, Clean Growth and Climate Change) at the UK Government Department of Business, Energy and Industrial Strategy. We took concluding evidence from the Cabinet Secretary for Net Zero, Energy and Transport, Michael Matheson MSP. We are grateful to all those who gave evidence or provided written submissions to the inquiry (available at Annexe B).
Key aspects of energy policy are reserved to Westminster. This report focusses on areas where the Scottish Government has powers. However, aspects of the current crisis relating to reserved matters came up during our scrutiny and had to be addressed. In parallel with agreeing this report, we agreed to write to UK Minister of State, Greg Hands MP.
The current crisis is fundamentally one of high wholesale oil and gas prices. As is well known, a number of UK energy suppliers have gone out of business in recent months largely because they were selling at an unsustainable loss, and were insufficiently hedged to survive this. We noted evidence during the inquiry that retail companies who have survived had done so either through drawing on reserves or being able to offset losses in this part of their business with profits elsewherei.
We were keen to understand why wholesale prices are so high. A number of factors were put forward in evidence including—
The UK's continuing high exposure to international commodity markets in oil and gas, during a volatile period in international relations, causing various supply shocks, particularly as a result of Russia's invasion of Ukrainei;
Increased demand caused by the recovery from Covidi;
European gas storage entering winter 2021-22 at historically low levels due to cold temperatures persisting into May 2021iv; and
Investment signals in energy production are insufficiently strongi.
The Committee also notes views that closure of the Rough gas storage facility in 2017 has contributed to the UK's increased fuel insecurity, and increased price volatilityvi.
We also noted cases of standing charges as much as doubling. This and other changes in billing are clearly a "cause" of rising costs in an immediate sense, but it is more fundamentally a symptom of rising wholesale pricesvii.
The context for this inquiry was not only that energy prices were high, but perceptions that they would remain so. Witnesses correctly predictedi that Ofgem would inevitably raise the price cap in autumnix. These much higher fuel prices also occur in the general context of a cost of living crisis that had already left many struggling. While this report focuses on energy prices, it is important to highlight they form part of a range of pressures on household income.
The UK energy supplier market is partly a free market, as seen in the large number of firms that were until recently trading in it, and in part regulated by Ofgem. Market regulation can have an impact on fuel prices, and indeed this is often the intention.
Since 2019, Ofgem have applied an energy price cap: a backstop protection to stop anyone on a default energy tariff from paying unfairly high bills. Formerly reviewed every six months, Ofgem now proposes to review it quarterlyi. The cap was introduced as a temporary measure to protect consumers until 2023, but during this inquiry the UK Government announced measures to prolong itii.
Ofgem's last two reviews of the cap caused rises higher than any previously seen. A consequence of the general rise in energy bills combined with the recent operation of the cap is that there is now abnormally low variability in the tariffs people are paying.
Regulation of the energy market is a reserved matter and was not a key theme of this inquiry. However, it forms a crucial backdrop to this inquiry and was raised in evidence. We heard views on whether recent events had in effect "broken" the price cap, with a new approach to price regulation needed, or whether it had a continuing role. Some believed it continued to protect consumersii. Others said it was no more than a short-term brake, which merely postponed risesii. We note the view that the cap was not designed as a social support and that its purpose is only to ensure all consumers pay a fair price in the current marketii.
We also heard views about the collapse of many suppliers in the last year and Ofgem's "supplier of last resort" process for dealing with thisvi. Ofgem themselves considered that the process had worked as it should, offering a relatively swift remedy for stranded consumers. But there was understandable criticism of how we had ended up here, with poorly hedged companies who, in the Cabinet Secretary's words, had taken a "gamble"ii in the energy market when wholesale gas prices were low but then fell out of it when prices went up. We heard viewsii that Ofgem had lessons to learn about how they managed risk in the market, which Ofgem partly acknowledged in their evidenceii.
Under the supplier of last resort process, the cost of rescuing customers of failed companies falls on other households. As of April this year, 29 companies had left the market, affecting 4.3 million domestic customersx. This is another cost added to energy bills at the worst possible time.
We briefly touch on another key aspect of UK energy prices regulation: the effect of gas prices on electricity prices, in the discussion on longer-term energy security near the end of this report.
It should be noted that regulation by Ofgem does not include those who are off the gas grid, who tend to use oil, liquefied petroleum gas or biomass to heat their homes. The Cabinet Secretary told us that 17% of Scottish consumers are not on the gas gridi. This is higher than the UK average, and tends to include those living in remote areas, especially islands. The Cabinet Secretary and others expressed views that this lack of regulation left off-grid customers at a disadvantagei.
Witnesses spoke in stark and shocking terms about the impact rising energy prices are having at a time of a general rise in living costs. They said the impact would be hardest on the poorest and most vulnerable. We were told that for some this is no longer a choice between heating and eating "...because they simply cannot afford to do enough of either."i A number of stakeholders told us that they feared lives would be lost without timely and effective actioni. Frazer Scott of Energy Action Scotland said—
"We have inadequate information at this time, but I think that we could be looking at a catastrophic loss of life. We can only do the best that we can at this time in order to save the most lives."i
The Food and Drink Federation Scotland also drew attention to the impact of rising prices on business, particularly in the food and drink industryiv.
The Cabinet Secretary for Net Zero, Energy and Transport agreed that the current situation could be described as "a crisis"i. Inevitably it is a crisis impacting on levels of fuel poverty in Scotland, a devolved matter, as discussed further below.
The main focus in this report reflects the need for immediate action: steps that could be taken now to protect the most vulnerable as winter approaches. We also discuss evidence on how exposure to volatility in the energy market can be reduced in the longer term.
Proposals for short-term government action or support mainly fell into three categories—
Help for households through financial support;
Providing energy education and advice services; and
An urgent programme of retrofitting insulation in homes to reduce energy need.
Witnesses also raised the role of energy companies themselves in the crisis, particularly in relation to households with prepayment meters.
Before, during and after our evidence-taking, both the UK and Scottish Governments have announced measures to offer financial help to households. In February 2022 and in the March 2022 Spring Statementi, the previous Chancellor of the Exchequer set out measures to help those struggling with high energy bills as part of a £9.1 billion packageii of support. This included—
An Energy Bills Support Schemeiii which offered a £200 rebate on energy bills repayable over 4 years through bills. This package was first announcedi on 3 February 2022, the day Ofgem announced a £708 price cap rise;
Increasing the Household Support Fund to be delivered through local authorities in England from April 2022. The fund was launched in September 2021 and initially covered winter 2021/22v. In the statement it was announced it would run until September 2022.
The UK Government also announced in February a £150 council tax rebate for people in England living in properties A-Di.
At the time, witnesses agreed that this support was insufficiently targeted and would not be adequate, particularly in view of the likely lifting of the price cap in October, since confirmedvii. There were calls for further taxation on energy company profits to fund support measures. The UK Minister of State, Greg Hands, told us such a tax "would likely kill off investment and cost jobs, particularly in Scotland and particularly at a time when we need our gas production."ii
On 26 May, after we had taken evidence from the UK Government, the previous Chancellor announced further measures to help householdsi. The Energy Bills Support Scheme will now provide a £400 grant to domestic electricity customers which does not have to be repaidiii. This is to be funded in part by a "temporary targeted energy profits levy". He also announced—
A one off payment of £650 to around 8 million homes identified through the welfare systemi, with the first payment to be offered in July 2022;
8 million pensioner households that receive the winter fuel payment an extra one-off pensioner cost of living payment of £300; and
An extra one-off disability cost of living payment worth £150.
The previous Chancellor also confirmed an extension of the household support fund delivered by local authorities in England by £0.5 billion from Octoberi. He confirmed Barnett funding for devolved Governments arising from this, of which the Scottish Government will receive £41 millionxiii.
The previous Chancellor said the effect of measures would be that the most vulnerable would receive support equivalent to the expected rise in the energy price cap in October, which Ofgem confirmed at the time of the Chancellor's announcementvii.
Included among the package of measures announced by the previous Chancellor in February was removal of VAT in relation to energy efficiency measures and renewable installations in homesi. Some witnesses told us that removing or reducing VAT on fuel should be amongst the steps taken in response to the crisis. The Cabinet Secretary told us he would support temporary removal of VAT on fuelii. The UK Minister of State, Greg Hands, told us the UK Government had no plans to do so. He said it would be untargetedii and would "disproportionately benefit the wealthier households."ii
Keith Anderson of Scottish Power proposed creating a "deficit fund," which he envisaged as a £1000 annual reduction in energy bills targeted at "those on warm home discount, in fuel poverty or vulnerable". He said this could cost around £10bn: an amount the industry itself could not support. He said the cost should therefore be underwritten by the UK Government, and could be paid back over about 10 years. He said this would "put their bills back roughly to where they were before the gas crisis."i
UK Minister of State, Greg Hands, said that much of the support the UK Government had put in place was similar to Mr Anderson's proposal, which would have to be paid for by other energy consumersi. The Cabinet Secretary for Net Zero, Energy and Transport said the proposal could be considered as part of a package of measuresi.
Measures taken by the Scottish Government in response to the crisis have includedi—
Additional investment in the Warmer Homes Scotland programme plus additional £1.8 billion investment in the Heat in Buildings Programme over 5 yearsi;
Changing the trigger mechanism for the Cold Weather Payment scheme, now the Low Income Winter Heating Assistanceiii, which will provide funding for all eligible households without the need for a temperature threshold to be met; and
£770 million worth of funding to help tackle the cost of living crisis including "...a £150 cost of living award to support households with higher energy costs"i.
In February, the Scottish Government also followed the UK Government in announcing a council tax rebate of £150 for all properties in bands A-Dv. The Cabinet Secretary confirmed to us that this measure was a response to higher energy costsi.
Scottish Government ministers said the time that, on their own, these measures would not sufficiently protect people from the worst effects of the crisis and that more action would be needed at a UK levelv. The Cabinet Secretary told us on 17 May that priorities for further spending, if additional funding became available, would be—
"a targeted programme to support the most vulnerable households with their energy costs, whether it be through the welfare mechanisms or some other mechanism.";
Improved energy efficiency measure roll out; and
Increased funding and provision for advice servicesi.
Many stakeholders, especially those working in fuel poverty and in advice to consumers told us that measures announced so far were not adequate to address the scale of the challenge and that more help was needed. Measures called for included—
Expansion of the Warmer Homes Scotland programmei;
Increase the Fuel Insecurity Fundi, in addition to the announcedv £10 million additional funding. Citizens Advice Scotland notedi the previous round of funding of £10 million had lasted 3 months; and
Aligning winter and heating related benefits with inflationxiii.
Chris Birt of the Joseph Rowntree Foundation called the Scottish Government's decision to follow the UK Government's lead on the £150 council tax rebate a "missed opportunity." He said it spread support too thinly and called for a more focussed approach through the social security systemi.
In a 15 June letter, following up on his Committee appearance, the Cabinet Secretary told the Committee—
"We have committed £10m to continue our Fuel Insecurity Fund from 2021/2022, to help households at risk of self-disconnection, or self-rationing energy use. This includes direct support for households using any tariff or fuel type, and is delivered via trusted third sector partners – namely, the Fuel Bank Foundation, Advice Direct Scotland and the Scottish Federation of Housing Associations.
We are currently considering all possibilities within our devolved powers to support vulnerable consumers. I am happy to commit to keeping the Committee updated on this important work and its delivery."xv
A number of stakeholders argued that financial support could be better targeted through the existing, part-devolved social security systemi. For instance, the Scottish Trades Union Congress called for various cost of living support measures connected with other household expenses to maximise incomesi.
Some witnesses suggested the UK's social security system is inadequate. Chris Birt of the Joseph Rowntree Foundation proposedi directing support to the most in need via child payments, winter fuel benefits, and the council tax reduction scheme to support families and deliver much needed cashi. There were also calls for specific support for social or private sector rentersi. We also heard views that social security should align with inflationi.
The Cabinet Secretary called for the UK Government to restore the £20 uplift in universal credit introduced during the pandemic. He said—
"... We have sought to use the welfare powers that we have to help to manage the cost of living crisis that households face. For example, we have doubled the child payment and increased it by a further £5, and we have increased the eight benefits that we are responsible for by 6 per cent. We are trying to uplift them in line with the rise in the cost of living."i
Addressing fuel poverty is a devolved responsibility, although the Cabinet Secretary told us that the Scottish Government lacks some of the "levers", such as reserved elements of the benefits systemi. Scotland's first Fuel Poverty Strategy sets out an overarching target—
"... that in the year 2040, as far as reasonably practicable, no household in Scotland is in fuel poverty and, in any event, no more than 5% of households are fuel poor, no more than 1% are in extreme fuel poverty."ii
The rest of the strategy mainly sets out the measures the Scottish Government proposes to take to achieve these outcomes. These include several issues discussed elsewhere in this report, such as making homes warmer and cheaper to heat, partnership working between key stakeholders, and the availability of advice.
The Strategy only dates from December 2021 but when we took evidence in April and May we heard views it had already been partially overtaken by events. It was concerning to hear evidence about steep rises in fuel poverty in Scotland. Energy Action Scotland said fuel poverty has risen by 43%i, from one in four households pre-pandemic to one in threei and that, as of their evidence in April, there were 600,000 households in the extreme fuel poverty category.
The Committee heard doubts as to whether the strategy was adequate in the face of current challenges and was capable of delivering fuel poverty and net zero targetsi. Another issue concerns data gathering on fuel poverty, especially if being in fuel poverty were to be used in the coming months to determine entitlement to benefits and reliefs in response to the crisis. In this connection, we noted evidence women tend to be disproportionately affected by problems with household billsv. The UK and Scottish Government both confirmed they do not collate fuel poverty statistics by gender. UK Minister of State, Greg Hands, said—
"...some characteristics of vulnerable customers are more likely to be true of women than of men. For example, lone parents with dependent children are 26.5 per cent in fuel poverty, compared to 13.2 per cent of the population as a whole. Those people are not defined as being women, but that figure is much more likely to include women at twice the rate of fuel poverty."i
The Scottish Government told us—
"As fuel poverty is measured at a household level, it is not possible to disaggregate available data by gender. The Fuel Poverty Strategy does contain analysis of head of house/highest income householder by gender, but this analysis does not give an overview of fuel poverty figures by gender. Other poverty statistics could not be used to extrapolate fuel poverty impacts by gender either as there is no combination of indicators in available data that accurately predicts fuel poverty with a high degree of accuracy or coverage."viii
The Committee recognises that the Scottish Government was under pressure earlier this year to come up with quick responses to fast-rising energy bills. Some of these measures (such as council tax relief for some) were not particularly targeted, raising questions as to whether resources always went to the households most in need.
Whilst the situation remains urgent, the Scottish Government should take the opportunity to apply more considered analysis about targeting further resources over the coming months. We agree with the Scottish Government on the need to take action through the welfare provisions that are available, and call on the Scottish Government to set out how social security and other assistance over the coming months will be targeted at those likely to be in most need: lower-paid families with young children, those with disabilities and health conditions, older people, and those identified as experiencing or at risk of experiencing fuel poverty.
The Committee also asks the Scottish Government to clarify what action it is taking this winter to support those using other fuels, who are not on the gas grid. In addition, longer term energy solutions will be required for such households.
We also ask the Scottish Government whether it has been able to identify funding for further support measures within current spending and additional funding made available as a result of the UK Government announcement on Household Support Fund on 26 May 2022.
It is important to note that some people in fuel poverty may not be eligible to benefits or otherwise be "visible" as in need of targeted assistance. This points to the importance of having accurate and timely data on fuel poverty and other indicators, which the Committee recognises is challenging in a crisis situation. The Committee requests an update from the Scottish Government as to how it is monitoring fuel poverty rates and other relevant indicators of potential need.
In addition the Committee recognises the difficulties of breaking down fuel poverty data by gender. However we ask the Scottish Government whether it would be possible to disaggregate data to include the gender of the main householder if they are a lone parent or carer.
The Committee notes that the Fuel Poverty Strategy is intended to be the main coordinating document in relation to a number of key issues discussed in this report that might mitigate the current crisis (e.g. advice and assistance; home insulation, effective partnership working). The Committee asks the Scottish Government for an update on the Strategy and for its views on whether it is satisfied that the Strategy remains fit-for-purpose in this changed landscape.
The Warm Home Discount Scheme, also known as the 'energy bill rebate scheme'i, is an annual one-off discount on electricity bills paid by energy companies between September and Marchii. The scheme is available to those on low incomes or to certain recipients of pension credit. The rebate is currently set at £140. In October the discount will increase to £150iii and coverage will be extended to an estimated 3 million peopleiii. A portion of the scheme is dedicated to "industry initiatives", such as the provision of advice to consumersi.
The Scheme is administered by the UK Government, which recently consulted on its operation Scotlandiii. The Cabinet Secretary said he had been seeking to discuss the devolution of the Scheme to the Scottish Government, and was disappointed this no longer appeared to be being proposed. He outlined future plans to amalgamate the Warm Homes Discount Scheme and the Energy Company Obligation into a single poti.
Stakeholders working in advice and support for consumers told us that uncertainty over the future of the Scheme in Scotland was making their work harderi. It had led to—
Delays in responding to requests for advice and support;
Inability to retain staff in services relying on funding from the scheme; and
Running on reserves (with an example provided by the Wise Group)vi or having to shut altogether.
Alastair Wilcox of Citizens Advice Scotland told the Committee that while the current scheme was not perfect, he had concerns that the Scottish Government's proposals for a devolved scheme would lead to less support for industry initiatives, with the risk of there being "significantly less money" for advice and crisis support for energy consumersi.
The Committee is concerned by evidence that uncertainty over the future of the Warms Homes Discount Scheme (including whether it will be devolved) has sometimes caused messaging and delivery problems for advice providers at the front line. We ask the Scottish Government, for now, to look for now past any differences they have with the UK Government about the Scheme's future, so as to help provide clear messaging about its availability to advisors and consumers. (Our letter to the UK Government contains a similar message.)
The Committee heard about practical measures to save energy in the home, including—
Turning the temperature down by a degree which could "cut heat consumption by around 10%"i;
Optimising boiler flow temperaturesi to save around 8% on a fuel billi; and
Education on energy consumption within a home and potential for reductioni.
We also heard that information such as this, or how to act on it, is not widely known and that better sharing of information is key if consumers are to make informed choicesi.
The Cabinet Secretary indicatedi a programme of work was underway, looking at sharing public information on energy saving, but did not set out specific timescales for this work.
The Committee also heard about the importance of people in financial difficulty having access to independent, clearly signposted advice, delivered locally. Stakeholders called for assistance to be simple, accessible, joined up, and provided at places customers were accustomed to accessing information. They also said there needed to be better coordination between those providing the help or advicei. It was concerning to hear evidence that advice services for people on low incomes were "incredibly difficult for people to navigate."i
We heard that the demand for local advice services has greatly increasedix and that resources are badly stretchedi. A number of stakeholders described a lack of certainty about funding arrangements as a serious obstacle to providing effective services and planning ahead. They called for a move away from annual funding cycles to provide assurance and enable forward planningi.
The Cabinet Secretary said there was potential to look at different ways of providing advice, including through services people already accessed or "touch points"i. He said the Home Energy Scotland programme was not designed to cope with the current situation and that "We can look at bringing in a broader programme, part of which might involve providing people with advice and information on measures that can be taken."i
The Cabinet Secretary acknowledged that annual funding rounds created uncertainty for service providers. He said Home Energy Scotland was the principal means of delivering advice on energy efficiency and energy issues and said resources had been increased for the programme by 20%, including doubling the resources for the elements of the programme directed at the most vulnerable. The Cabinet Secretary said the Scottish Government was considering whether to provide additional support for third sector organisations providing advice and administering fundingi.
The Committee recommends the Scottish Government should run a high-profile national public information campaign on saving energy in the home this autumn. In so doing, we ask the Scottish Government to note expert evidence collected during this inquiry about practical measures people can take.
Over this coming autumn and winter the Scottish Government must also ensure that fuel poverty support and advice services are properly funded, so that everyone in Scotland looking for help can find it. Home Energy Scotland in particular needs to partner with older peoples' organisations and target older people to increase awareness and uptake. Provision of advice to those on prepayment meters about energy efficiency and support available should also be prioritised given their additional vulnerability as discussed below.
The Committee recommends that, as a matter of urgency, the Scottish Government work with agencies and experts to review how avenues of funding and support are communicated to consumers, in order to make this as simple and joined-up as possible. We recommend that this includes examining how advice on this could be provided at points in the system where there is already established local public engagement.
The Committee questions whether the scale, shape and pace of services providing advice are adequate to meet the size of the challenge and would welcome the view of the Scottish Government on this.
A number of stakeholders said the current crisis called for an urgent or "turbocharged"i programme of home insulation, targeted at those most in need and starting now. Frazer Scott of Energy Action Scotland calledi on the Scottish and UK Governments to work together on "an emergency response", targeted at the most vulnerable, saying the army could, if necessary, be mobilised to helpi.
Dr Matthew Hannon of the University of Strathclyde said rates of insulation had slowed and called for a change in ambitioni. Dr Hannon said—
"If we were serious about this, we could be insulating hundreds of thousands of homes UK-wide before the October price cap rise, because we were already doing that 10 years ago."i
The Food and Drink Federation Scotland said businesses were reporting problems accessing loans to install renewable energy generation systems and low carbon heatingvi.
Other evidence, whilst strongly supportive in principle of better home insulation, and of more funding for it, expressed doubts about whether a mass programme was a practical short-term aim. We heard about challenges beyond political will, such as a lack of skilled labour and expertise at scale, supply chain issues, and ensuring that interventions actually worked and delivered lower costs. This pertained both to retrofitting and to installing new heating systemsi. Issues such as these have been among the main themes of our inquiry into the role of local government and its cross-sectoral partners in financing and delivering a net-zero Scotland.
Retrofitting has long-term benefits but outlays are high, by comparison with direct financial assistance for high bills. One estimate for the average cost per home was about £20,000i. Proposals for funding the work, or for bringing costs down, included—
expansion of the Energy Company Obligationi;
area-based schemes with bulk procurement processes to produce economies of scale and attract investmenti; and
using the credit union networki to provide loans for such work guaranteed by the Scottish Government.
The Cabinet Secretary saidi £1.8 billion would be invested in heating and insulation in homes over the next 5 years. He gave no indication of how much of this would go into funding a crisis response this summer.
The Committee welcomes the Scottish Government's £1.8bn investment in home heating and insulation services but is concerned this is not being accelerated in response to the crisis. We request an update from the Scottish Government on aspects of the programme that could be prioritised over the rest of this year.
Following on from our discussion on the importance of expert advice for householders, we note that consumer engagement with agencies or third sector experts advice on energy consumption and funding support is an opportunity to provide further advice on home insulation or home energy decarbonisation, and any support available for these. These are both key energy security goals and net zero goals for this decade. Evidence to our current inquiry into the role of local government and its cross-sectoral partners in financing and delivering a net-zero Scotland has made clear that householders are looking for authoritative and clear public signalling on decarbonisation and other net-zero measures.
The Committee also asks the Scottish Government what role its proposed National Public Energy Agency could play in this work.
Ofgemi and Scottish Poweri urged consumers always to contact their energy provider in the first instance if they were struggling to pay bills. Keith Anderson of Scottish Power told the Committee "we will find a way of helping"i. He detailed the other support offered including a new phone line which had been deluged in its first week, and processes to offer emergency assistance to people with prepayment meters to avoid self disconnectioni.
Other evidence outlined problems and concerns that had arisen when consumers in difficulties had contacted their provider. The Scottish Federation of Housing Associationsv reported issues with representations on behalf of tenants, while THAW Orkney (a fuel poverty charity) gave examples of how energy companies' bureaucracy and procedures had put up barriers for vulnerable peoplev. Frazer Scott of Energy Action Scotland calledi for suppliers to provide more support for customers to understand different payment options available to them.
A key aspect of Ofgem's role as regulator is protecting consumers from unfair behaviour by providers. Ofgem's Neil Lawrence told us—
"Through the market compliance reviews in this area, we will have the information and data that enable us to understand which suppliers are treating customers fairly and which ones are not. Where we find that they are not adhering to the rules, we will take action to protect consumers."i
However, he went on to say that Ofgem would benefit from a change in the law that would enable them to "step into that organisation and take over and do the right thing"i. The Committee notes that legislating on Ofgem's core powers is a reserved matter.
The Cabinet Secretary saidi it was important for Ofgem to ensure energy companies were providing good advice as well as directing customers towards independent sources to verify this.
Prepayment, or "pay-as-you-go" meters are installed by suppliers and ordinarily can only be removed by them. Householders with a prepayment meter may have to pay to remove them depending on the supplieri. Around 4 million energy consumers in the UK are on prepayment metersii. The Committee heard a disproportionate number of prepayment meters are in Scotlandiii.
Users of prepayment meters are likely to pay more for their energy than those with conventional meters, and evidence to the Committee also highlighted other hidden costs, such as travel costs for top-upsiii. People using prepayment meters are also at higher risk of disconnection from energy use during times of crisis, as they will simply stop paying rather than running into arrears with their supplier. The Cabinet Secretary said funding was made available through the Fuel Bank Foundation to provide people with emergency funding to help prevent disconnectionv. Energy Action Scotlandv noted emergency credits for prepayment meters had not risen in line with energy prices. The Scottish Federation of Housing Associationsiii and Energy Action Scotlandvii called for accelerated smart meter roll out for those with prepayment meters.
UK Minister of State, Greg Hands, told us it was important those using prepayment meters received a "fair deal"v. The Minister noted "forcible installations"v had been banned in 2017 and new licensing conditions obligating suppliers to identify self-disconnectors had been introduced in 2020.
Ofgem said they were working with suppliers to ensure they were supporting pre-payers, including as part of compliance reviewsv. We asked Ofgem whether there should be a legal right to have a prepayment meter replaced. Neil Lawrence, Director of Retail, Ofgem, said a balance had to be struck and if there was debt to be recovered, a prepayment meter was the best way to do thisv. In follow up correspondence, he indicated it could be replaced if this was "safe", stating this was usually if there was no debt involvedxiii. He said Ofgem was committed to discussing issues around prepayment meters further with stakeholders.
The Cabinet Secretary agreed that those on prepayment meters were often amongst the most vulnerable, and that he was concerned by the possibility of mass disconnections, but did not express a specific view on whether there should be measures or interventions to take households off prepayment metersv.
The Committee is concerned many users of prepayment meters will have been left especially vulnerable by recent events, as they already tend to pay more for their energy bills, with little power to change this if they wish to. There is a real risk of significant numbers disconnecting, and going without heating this autumn and winter, with untold consequences. Some will already have done so.
The Committee asks the Scottish Government what steps it is taking to monitor how the crisis is affecting households with prepayment meters specifically, and to track how many are disconnecting.
We also ask the Scottish Government if it has considered making representations to power companies, to Ofgem and to the UK Government about creating a right, under appropriate circumstances, to have a prepayment meter removed free of charge, in response to the current crisis and on grounds of general fairness.
The Committee recommends that if making such representations, the Scottish Government should suggest that where meters are being removed and replaced, smart meters should be installed as standard.
A crisis presents opportunities to reflect on doing things differently, and during this inquiry the Committee took the opportunity to seek views on achieving better national energy security - and lower bills for households - in the longer term.
It is important to stress that this theme was not the major element of an intentionally short inquiry, in which a limited number of witnesses were asked mainly about how to address the consequences of high fuel bills over the coming months. Energy policy is complex, globally interlinked, and currently in a state of flux as the world looks to shift to net zero, with expert debate over which technologies, or energy sources (some still in development) are best placed to take us there, and under what circumstances.
There were also those who argued that a publicly-owned energy company would reduce prices for consumers in the long term, with energy being treated as a service and not a commodityi. The Committee notes that the Scottish Government's current plans do not include setting up a public energy company, with the focus instead on a new national energy agencyii.
In the context of a report addressed to the Scottish Government, there are further complexities in the way in which any discussion of our future energy balance crosses in and out of reserved matters. Energy market regulation is a matter almost entirely reserved to Westminster.
The unit price of gas is significantly cheaper than that for electricity, and households that use electricity for heating may pay up to three or four times more than gas users.
Reasons include the way the retail electricity price is set (by reference to the gas price) and Ofgem placing more "environmental and social levies" on electricity bills than on gas bills. There is also a direct correlation between higher gas prices and higher electricity prices, as some gas will be used to generate electricity, so in times of gas scarcity both become more expensivei.
Questions have increasingly been raised, including during this inquiry, about whether the current approach to electricity pricing is fair to consumers or consistent with net zero ambitions. When the Committee had its first evidence session with the UK Climate Change Committee last August, its chair Lord Deben told us—
"It is not sensible or fair for the whole of the green cost to be on the electricity bill and not on the gas bill. Quite a lot of the people who have only electricity are poorer than those who have a dual tariff. Therefore, it would not seem sensible to make more expensive the thing that you want people to use and less expensive the thing that you want people to stop using. That is not logical and, therefore, we think that it is necessary to change the way in which that is done."ii
We heard similar views to this during the inquiryii.
The UK Government earlier this year announced "a comprehensive Review of Electricity Market Arrangements in Great Britain, with high-level options for reform to be set out in the summeriv. Witnesses welcomed this as an opportunity for a comprehensive discussion about the issue, and the possibility of major reform, although witnesses noted the complexities involved, and that changes would mean winners and losersii. Dan Alchin of Energy UK said the reach of reforms should be carefully considered, including how they could impact on retail market arrangements, "consumer pricing, the just transition and fairness across the piece"ii. Dr Richard Lowes of the Regulatory Assistance Project said it was time to consider introducing two energy markets, one wholly in renewables and operating at lower costs for consumersii.
Dr Matthew Hannon of Strathclyde University also suggested that long-term energy market reform should include enabling local energy use using locally generated powerii. The UK currently operates a national energy market with nationally set prices.
The Committee asked UK Minister of State, Greg Hands, if gas should continue to set the price or was it now time for wholesale reform of the market, in order to bring down prices. Mr Hands did not provide a direct response on whether electricity and gas pricing should be decoupled but said the key was to "try to change our energy supply mix" and reduce gas dependencyii.
The Committee asks the Scottish Government what representations it proposes to make in the UK Government's Review of Electricity Market Arrangements in Great Britain. The Committee considers there is now a principled case to be made for decoupling electricity and gas prices and allowing electricity to settle at a lower market rate. In the long term we believe this will be fairer for consumers and for net zero outcomes.
Stakeholders used their evidence to reinforce key messages about the importance of reducing fossil fuel dependency and of making renewables an ever-larger component of the future energy mix, to increase energy security and reduce market volatilityi. Scottish Power Chief Executive, Keith Anderson, told the Committee—
"Wind is the cheapest form of generation in the system. The more that we invest as a country in the future of wind, whether onshore or offshore, and in solar power, the more we will bring down the cost of energy and the better and stronger we will make the energy source and security."i
UK Minister of State Greg Hands MP told us the UK has "Europe’s largest capacity in offshore wind" which the UK Government aimed to quadruple over the coming decadei.
There was some discussion about hydrogen's potential as a major source of "clean" fuel in future. The Committee notes that aspects of this technology remain developmental, with questions over how clean it is, the situations where it can best be deployed and whether its role may be mainly transitionali.
The recent UK Government energy security strategyi commits to further increasing renewables' share of UK energy generation, in order to accelerate the transition from oil and gas.
On nuclear power, the strategy signals that the UK Government undertakes to invest "massively" in it, raising nuclear to 25% of electricity output by 2050ii.
On oil and gas (and the still developmental carbon capture and storage engineering), the strategy delivers this signal to markets and stakeholders—
"In meeting net zero by 2050 we may still use a quarter of the gas that we use now. So to reduce our reliance on imported fossil fuels, we must fully utilise our great North Sea reserve, use the empty caverns for CO2 storage, bring through hydrogen to use as an alternative to natural gas and use our offshore expertise to support our offshore wind sector. As a result of our plans, the North Sea will still be a foundation of our energy security but we will have reduced our gas consumption by over 40% by 2030."
It also describes UK gas an "an important transition fuel".
UK Minister of State Greg Hands told us that growing nuclear capacity was necessary to reduce fossil fuel dependence and called on the Scottish Government to drop its "ideological" objection to nuclearii. Nuclear powers' role in securing better UK energy security, alongside a bigger renewables sector, had some backing from witnessesii although questions were also raised about costs and timescalesv.
The Cabinet Secretary told us he did not support more nuclear power. He said it should not be necessary with an expansion of renewables and that increased reliance on nuclear would keep prices highii.
As expected, stakeholders' views on oil and gas's future role varied, with Offshore Energies UK, for example, saying it would welcome positive governmental signalling on the basis that the industry retained an important transitional roleii. Richard Lowes of the Regulatory Assistance Project said accelerating extraction in existing fields could exacerbate problems with price by exposing the UK to the volatile import market for longerii. Witnesses tended to agree increased investment in North Sea oil and gas will not make a difference this winter and is part of long term energy policyii.
Mr Hands told us—
"We in the UK benefit from producing gas to meet 50 per cent of our needs, which is a position that a lot of other European countries do not have. We are not dependent on the importation of gas from Russia, for example. Thanks to North Sea gas, we are in a really fortuitous position. We need to ensure that we do not kill off investment, particularly at a time when we are dealing with huge and heightened energy security issues."ii
The Committee notes the previous Chancellor's announcement of a "new ‘super-deduction’ style relief" on investment in oil and gas extraction. This 80% allowance means businesses will "get a 91p tax saving for every £1 they invest"i.
The Cabinet Secretary was asked on 17 May for his view on the proposed (and now authorised) "Jackdaw" field in waters east of Scotland. He answered—
"... our position on Jackdaw is the same as our position on Cambo, and that position has been reinforced by the Scottish and UK Governments’ independent adviser on climate change, the Climate Change Committee, which said that there should be a compatibility checkpoint not just for new projects but for consented developments that are not yet in production."ii
Witnesses touched on the barriers and possible solutions to growing the renewables sector, raising issues already familiar to the Committee through other work; for instance, our ongoing inquiry into the role of local government and its cross-sectoral partners in financing and delivering a net-zero Scotland and our consideration of the draft fourth National Planning Framework (NPF4) earlier this yeari.
In our formal response on NPF4 we noted the "frustration many stakeholders feel at a planning system that enables delay, churn and repetition", and said that depleted staffing in council planning departments risked being a major obstacle to achieving net zero. We also called on NPF4 to be "bolder" in order to help drive progress towards net zero. We heard similar sentiments in this inquiry; in particular for the planning system to demonstrate more favour towards renewables projects, and provide momentum rather than delayii.
Another issue raised was transmission charging. We heard views that current charging system is a "barrier"ii to growing renewables, creating counterproductive disincentivesii. Current transmission charges incentivise generation in centres of demand and vary across the countryii. Access to the National Grid in the first place is a potential barrier to expanding renewables, especially in more remote areas, as Committee Members heard on their visit to Orkney in June, as part of the ongoing inquiry into role of local government and its cross-sectoral partners in financing and delivering a net-zero Scotland. Members heard that renewables in Orkney had in effect reached saturation point, and that this could only be addressed by expanding Grid connections.
Dr Matthew Hannon of Strathclyde University suggested more locally generated energy consumption was one way to protect against wider market fluctuations. He noted the Local Electricity Bill currently being considered at Westminstervi which would allow for small electricity generators to become local suppliers.
Witnesses also underlined the key role the private sector must play in any energy transition. We note the Association of British Insurers' estimate that meeting the UK's net zero commitments will require £2.7 trillion in investment by 2035i.
The Heat in Buildings Strategyii estimates the cost of upgrading homes and buildings in Scotland will be £33 billion by 2045, with £1.8 billion being provided in this Parliament by the Scottish Government. The strategy states public funding and individual householder spending will not meet the costs of this and the majority will come from private investment.
Industry stakeholders called for governments to signal clarity about the future direction of energy policy to give industry and investors confidencei. The Committee notes that such calls are inextricably linked to the ongoing debate about our future energy mix and, for example, the future role of UK oil and gas in energy policy. In evidence to us as part of the ongoing inquiry into the role of local government and its cross-sectoral partners in financing and delivering a net-zero Scotland, the Association of British Insurers said its members would be looking for long term, low risk investment opportunitiesi. Stakeholders also mentioned the importance of energy consumers feeling well-informed about future choices (for instance on new technologies for heating the home), to give the industry confidencei.
Tim Lord of the Phoenix Group and Tony Blair Institute for Global Change called for targeted Government funding to "pump-prime private investors to be able to come in at scale" and to create "investment vehicles". He praised the "project pipeline" established through Scottish Government leasing rounds and the investment framework established by the Contracts for Difference schemevi. He called this a "virtuous circle" which could be replicated in "other sectors such as CCS, hydrogen and electricity networks."i Ross Dornan of Offshore Energies UK similarly called for frameworks for investment across a "diverse" range of energy generationi.
The Committee considers that the crisis underlines the need for an acceleration towards increased usage of domestic renewable energy and more efficient energy use generally, in order to escape dependence on volatile international fossil fuel markets.
Thanks to its geography and established skills base in green energy, Scotland is exceptionally well placed to grow its renewables sector further, provided the right conditions are in place.
Factors holding the sector back include a sometimes sclerotic planning system and a decrease in the number of planners. There is also a need to rapidly grow skilled jobs in areas such as installing decarbonised heat in the home and retrofitting and to roll out assistance to householders in these areas at pace. These have been key themes arising during our ongoing inquiry on the role of local government and its cross-sectoral partners in financing and delivering a net-zero Scotland, as well as in this inquiry.
The Committee accepts that there are differences of views on the role other sources of energy such as nuclear power, hydrogen and North Sea oil and gas can play, alongside renewables, in delivering future energy security, and more affordable bills for consumers. We expect to revisit these matters in more detail over the course of this session, in the context of our ongoing work monitoring Scotland's net zero targets.
Net Zero, Energy and Transport Committee - Meeting Minutes, 11th Meeting, 2022 - Tuesday 29 March 2022
1. Decision on taking business in private: The Committee agreed to take items 4, 5, 6 and 7 in private.
7. Work programme (in private): The Committee agreed a remit and witnesses for an inquiry into energy price rises.
The Committee agreed proposed visits in connection with its inquiry into the role of local government and its cross-sectoral partners in financing and delivering a net-zero Scotland.
1. Decision on taking business in private: The Committee agreed to take items 3 and 4 in private.
2. Energy price rises: The Committee took evidence from—
Dr Matthew Hannon, Reader in Sustainable Energy Policy and Business Models, Hunter Centre for Entrepreneurship, University of Strathclyde;
Tim Lord, Head of Climate Change, Phoenix Group and Associate Senior Fellow for Net Zero, the Tony Blair Institute for Global Change;
Dr Richard Lowes, Senior Associate, The Regulatory Assistance Project (RAP).
3. Energy price rises (in private): The Committee considered the evidence it heard earlier under agenda item 2.
1. Decision on taking business in private: The Committee agreed to take items 5 and 6 in private.
4. Energy price rises: The Committee took evidence from—
Chris Birt, Associate Director for Scotland, Joseph Rowntree Foundation;
Frazer Scott, Chief Executive Officer, Energy Action Scotland;
Alastair Wilcox, Senior Policy Officer, Citizens Advice Scotland; and then from—
Dan Alchin, Director of Regulation, Energy UK;
Ross Dornan, Market Intelligence Manager, Offshore Energies UK (OEUK);
Keith Anderson, Chief Executive Officer, ScottishPower.
5. Energy price rises (in private): The consideration of evidence for this item was deferred to a later meeting.
1. Declaration of interests: The Convener welcomed Elena Whitham to the Committee as a substitute for Natalie Don (Scottish National Party) and invited her to declare any relevant interests.
Elena Whitham said she had no relevant interests to declare.
2. Decision on taking business in private: The Committee agreed to take item 4 in private.
3. Energy price rises: The Committee took evidence from—Neil Kenward, Director of Strategy and Decarbonisation and Neil Lawrence, Director of Retail, Office of Gas and Electricity Markets (Ofgem).
4. Energy price rises (in private): The Committee considered the evidence it heard earlier under agenda item 3 and at previous meetings.
1. Decision on taking business in private: The Committee agreed to take item 3 in private.
2. Energy price rises: The Committee took evidence from—Rt Hon. Greg Hands MP, Minister for Energy, Clean Growth and Climate Change, UK Government.
3. Energy price rises (in private): The Committee considered the evidence it heard earlier under agenda item 2.
1. Decision on taking business in private: The Committee agreed to take items 6 and 7 in private.
3. Energy price rises: The Committee took evidence from—Michael Matheson, Cabinet Secretary for Net Zero, Energy and Transport, Scottish Government.
7. Energy price rises (in private): The consideration of evidence for this item was deferred to a later meeting.
1. Decision on taking business in private: The Committee agreed to take items 7, 8 and 9 in private.
9. Energy price rises (in private): The Committee considered the evidence it heard at previous meetings.
1. Decision on taking business in private: The Committee agreed to take items 3 and 4 in private.
4 Energy price rises (in private): The Committee considered a draft report. Various changes were agreed to and the Committee agreed to consider a revised draft at its next meeting.
1. Decision on taking business in private: The Committee agreed to take items 4, 5, 6, 7 and 8 in private.
4. Energy price rises (in private): The Committee considered a draft report. Various changes were agreed to and the Committee delegated to the Convener responsibility for finalising the draft report for publication.
Oral Evidence
Written Evidence
Letter from the Cabinet Secretary for Net Zero, Energy and Transport to the Convener of the Committee, 15 June 2022
Energy price rises follow up letter from Ofgem - 19 May 2022
Friends of the Earth Scotland - 12 May 2022
THAW Orkney - 10 May 2022
STUC - 10 May 2022
Liquid Gas UK - 10 May 2022
Scottish Federation of Housing Associations - 9 May 2022
Age Scotland - 26 April 2022
Energy Action Scotland - 22 April 2022
The Wise Group - 21 April 2022
Food and Drink Federation Scotland - 13 April 2022
Bruce Wilson - 10 March 2022