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Peter Hain - Former Minister for Energy and Competitiveness in Europe (Jan 2001 - Jun 2001)
Electricity Association Annual Dinner
This is an important moment for energy policy where we face a number of crucial challenges, including the urgent need to tackle fuel poverty, climate change and the introduction of NETA. As the new Energy Minister, I want to work in partnership with you all to take this forward.
One of the key areas we must address together is fuel poverty. Two weeks ago Michael Meacher and I launched the Government's consultation document on its Fuel Poverty Strategy. No civilised society should tolerate senior citizens or young families huddled in freezing homes. We are determined to wage a war on fuel poverty and you are part of our army.
Liberalisation of energy markets has brought great benefits to a lot of people. For consumers, it has brought greater choice of products, lower prices, and a general improvement in the quality of service. For companies it has meant the freedom to develop new ideas, to build their business and to reap the rewards of success.
But we should never forget that not everyone is able to participate fully in these benefits. Despite the significant reduction in energy prices in recent years, there remain millions of households that are cold in winter because they cannot afford the energy to keep adequately warm. This is unacceptable - both for us as a Government and also for you as a socially responsible industry.
Clearly, energy prices are only a part of that equation. We all accept that the most important factor in fuel poverty is poor housing, since even people with no income but state benefits can keep warm if they are in a modern, well-insulated and appropriately sized home. Ensuring that everyone has a warm and comfortable home actually benefits us all, because warm people are healthier people, and healthier people make fewer demands on the National Health Service, especially in winter when cold-related illness claim tens of thousands of lives.
Housing improvement is therefore a major element of our fuel poverty strategy over the next decade, to provide a permanent solution to the problem. But, with millions of homes to be treated, it will take time: and the fuel poor need as much help as they can get right now, to keep their bills down and to pay for their energy in ways which suit their circumstances.
Many of you are already providing innovative help to the fuel poor, via lower or special tariffs, a variety of payment arrangements, and help with energy efficiency.
Now, it may also be that there are some companies which have deliberately taken a decision not to get involved with the fuel poverty agenda, perhaps because these are the sort of customers they don't want, it isn't worth the hassle or 'it isn't really our job'. This is a short sighted attitude. On present estimates, the fuel poor amount to around 20% of all households. They may not be the most profitable market segment, but they are by no means all small users of energy, and if you can secure their loyalty through good treatment, then they are likely to stay with you. And if you believe, as many do, that the number of energy suppliers will shrink in the next few years, then maintaining and cherishing your customer base makes commercial sense: the fuel poor, properly treated, are a business opportunity, not a threat.
As our consultation document makes clear, we have embarked on a 10-year programme to take all vulnerable households out of fuel poverty. It is a big task, and we will need all the help we can get.
For instance, you can all work through your Association's Fuel Poverty Task Force to see what the industry can do together to tackle fuel poverty, and you can look sympathetically on the ideas from Ofgem, such as removal of the veto on indebted customers to cheaper suppliers. To those of you who have already developed helpful company initiatives, I say carry on with the good work, and I thank you for your positive outlook. To those of you who have not, I ask that you do so.
There is plenty of opportunity. The doubling of the Energy Efficiency Standards of Performance scheme when it was extended to gas required you to put a lot more effort into finding sensible ways of spending that money. And the expected further tripling in size of the scheme when it becomes the Energy Efficiency Commitment next year will make it even more important that you become even more proactive in finding useful routes for the resources it creates: for example through social housing providers contemplating refurbishment, or, as some of you have already done, topping up HEES [Home Energy Efficiency Scheme] funding so that HEES can tackle more homes.
Some companies have taken a lead in helping with the development of Warm Zones, to try out a new all-embracing approach to wiping out fuel poverty in specific areas. If this idea works, I hope that more of you will join in the next wave of Warm Zones. You have a big part to play in delivery, in Warm Zones or elsewhere - you are close to the customer, you have project management skills; and we need those attributes to help us get all those with an interest in solving this problem working together.
Of course tackling fuel poverty is a huge job. It will take a long time. The Government will play the main role in providing the long-term solution. But your industry can make a significant difference both in the short and long term.
Another challenge we all face together is climate change. It is a worldwide environmental threat with both global and local implications. Temperatures are rising - of that there is no doubt. The devastating floods, droughts and storms we have seen in the UK and across the world in recent years show how vulnerable we are to climate extremes and we are told that we can expect more of these in the future - still more if we do not tackle emissions worldwide.
The actions we propose to take in the UK are described in Climate Change - the UK Programme which was published last November. Key elements in this programme include promoting renewables and action by business to cut out energy waste across industry
A major achievement of this Government has been its commitment to and decisions on a new policy for renewable energy. We have listened carefully to the industry, to the public and to the various interest groups before reaching decisions. After weighing up all the options, we decided last year to adopt a supplier Obligation that will mean licensed electricity suppliers will provide a specified proportion of their power from renewable energy sources in future. We have set a target of 10% renewables electricity by 2010, subject to the cost to consumers being acceptable.
We recently announced in the Enterprise, Skills and Innovation White Paper a major new UK Solar photovoltaic demonstration programme. It should enable the establishment of a high tech industry of the future with the potential to challenge our main competitors, Japan, Germany and the US. Social housing refurbishments will be one of the key target groups for this programme. And yesterday the Prime Minister threw his weight behind renewables by pledging an extra £100Million.
Government is also working closely with business to reduce industry's impact on the environment. One example is the Carbon Trust, being funded from the Climate Change Levy. It will come into place in April and it should act as a major stimulus for the development and take-up of low carbon technologies. The recent appointment of Ian McAllister as chairman will ensure that its work has a clear business focus, and I would urge you to play an active part where possible.
Given recent developments in gas prices and the long awaited liberalisation process in Europe, it is now clear that we can no longer consider the UK energy market in isolation. The influence of continental energy markets on us is increasing all the time and the development of a single, open market is a key objective for UK policy. Recently we have seen the doubling of wholesale gas prices. This is a phenomenon which cannot be explained by our highly competitive domestic gas market. Instead we seem to have imported high European gas prices.
The most important reason for these high gas prices has been arbitrage through the interconnector with high oil related gas prices. This has been made worse by the lack of liberalisation and competition in the Continental market and the consequent absence of real competition between gas suppliers.
This makes it all the more important to work towards a liberal and competitive market in Europe. This is the first part of our strategy to address high gas prices and although this is may be a long term goal it is one which is definitely worth working towards.
The second part of the strategy is to seek improvements in the UK market. This involves increasing the amount of information available to the market both across the onshore-offshore interface and from the interconnector to achieve full transparency. A well informed market is an efficient market.
The third part is to act against anti-competitive behaviour. That is why we asked the Commission to open an inquiry into the operation of the interconnector. I am very pleased that the Commission agreed to our request and we await the outcome.
The benefits of competitive energy markets are now widely accepted in the rest of the EU and there is widespread support for the creation of a policy framework to underpin the establishment of a functioning internal energy market. Last year's Lisbon Summit tasked the Commission with coming up with proposals to speed up liberalisation and harmonise cross-border tariffs.
The Commission has been working on proposals and we expect them to publish a Directive within the next few days with a date for complete opening of the gas and electricity markets. 2005 has been mooted, though Britain wants this earlier.
The Commission is also expected to publish a regulation establishing a committee to determine common pricing mechanisms for cross-border trade in electricity. We will be working hard to ensure early and fair market opening.
Once the new measures are in place, there will be even greater opportunities for our companies to use the experience they have of operating in a competitive market to seek out business opportunities on the continent.
Finally, can I give you the latest position on NETA. As you know, Ofgem confirmed 27 March as the target implementation date at the end of January and I know many of you in the industry have been working flat out since then to ensure that we stay on course.
The regulatory framework is virtually all in place and the final phase of IT systems testing, (Unified Pre-Production), is nearly complete. Assuming, as I hope, that we do go-live on time, it will have been an enormous achievement by all those concerned.
And on this, as on other energy policies, I look forward to an active and close partnership with all of you.
Other speeches by Peter Hain - Former Minister for Energy and Competitiveness in Europe (Jan 2001 - Jun 2001)
(the following are available from the archive)