Tuesday, October 03, 2006

First Draft Defra EEC3 Report

Hello There,

As promised in the previous post today, I am writing to outline the Defra report that was published on 29 Sept 06 - The First Draft Illustrative Mix Of Measures for EEC 2008 - 2011.

For those of you who dont wish to wade through 22 pages I have endeavoured to save your 20% by summarising key points here:

Key Outcomes: Target saving of 1.2MtC/y (approx double EEC2)

Costs increased between 2 & 2.5 times those of EEC2

Scheme still highly cost effective - net benefits of over £300/tC

Key Measures are cavity wall and loft insulation - over 3m cavities to be installed

Scenario with Priority Group (ie householders in receipt of specific welfare benefits) receiving 25% of the target score reduces overall costs by approx 20% (an alternative has also been explored with the maximum of 47% PG share)

4 scoring systems - no major variations in relative cost-effectiveness scores between suppliers

Impact of key variables such as the share of the PG and CWI industry sector - something I have posted about before as my regular visitors my recognise?

EEC3 likely to target 3 million CWI installations. Report confirms that a major assumption is that there will be very little or no social housing CWI measures left to be installed after EEC2 plus there is a slight decrease in the energy savings calculation attributed to this measure. Report also states that Defra commissioned ESD to conduct a review of the insulation industry and they concluded that the maximum capacity for the EEC3 period was 3.4 million installations. However, as Defra so tactfully put it in their report, the CWI market has not expanded recently as previously projected with approx 400,000 installations last year. Defra have therefore taken this into account by delaying the market expansion by one year which reduces the suggested maximum capacity for the EEC3 period to 3 million CWI installs.

May I just take a moment here to mention something that the report doesnt. Do Defra or the ESD take into account that by delaying market expansion by a year it will cause potentially even more meltdown in the insulation industry? One reason that we havent seen the expansion recently "as previously projected" is that the installers have been reluctant to commit to more financial risk in such a volatile environment. With no stability for their future with the energy suppliers all pulling funding and moving the goal posts so regularly, obviously monitoring their own financial commitments and understandably so, then what, pray tell, do Defra expect please?

There has to be some stability handed down from the Government to the energy suppliers and the supply chain in order to establish and generate the required resources to deliver on the EEC commitment. The other major concern is that such a delay may also put hundreds of skilled jobs at risk, jeopardising the very lifeline for EEC in the insulation industry with all the contractors already disillusioned and some under the threat of financial ruin? Will there be enough quality approved contractors left to deliver the new targets and Im sure the energy suppliers are equally concerned as they risk hefty penalty fines if they dont achieve the numbers? (If they dont meet the target scores set, they risk fines of up to 10% of their turn over).

The other issue I take with this draft report is that the installation costs Defra have used in their calculations are based on current EEC2 rates with an increase of 5% to take into account inflation. Every contractor in the land has faced increases in fuel and raw material costs - eg metals for boilers, mineral wool and fibre for insulation. Where is this reflected in the cost projections? Moreover particularly considering that such a large proportion of EEC3 appears to be centred around the insulation industry, why hasnt someone taken into account the effective industry cartel that has been allowed to operate where only two main UK domestic insulation manufacturers supply the majority of the market. And its these suppliers that have increased raw material costs by more than 30% in the last 18 months and more increases are likely within a supply chain that is also drip feeding deliveries to the contractors. Perhaps someone at Defra and the DTI could review this too? After all we know how much this Government loves its consultation processes ...

EEC3 likely to target just under 2 million loft installations with the projected breakdown of 20% virgin lofts, 15% for 250mm top up (25mm existing so not a virgin unless its 0mm existing), 35% 200mm top ups, 15% 195mm top ups (report states 75mm existing but you cant fit 195mm so you could add this into the 200mm category) and 15% 150mm top ups (nowt for 100mm top ups listed).

No supplier funding for B-A rated boilers - with approved exceptions only.

CFL funding - project around 56 million CFLs will be targeted for EEC3 (Great news for Phillips, B&Q, etc and fulfilment centres).

Projected 100% funding for fuel switches in PG sector - based on install costs average figure.

Solid wall insulation features with 60% assumed external and 40% internal.

There is an assumption made in the Defra draft report that at the end of EEC2 there will be little or no social housing PG CWI work left to be installed. Therefore the focus will be very much on the private sector and we all know that finding private sector PG customers can be an issue with more marketing cost and more canvassing resources needed. Furthermore finding eligible householders who are willing to have the measures installed - even if they are free - can be very difficult too. The report does mention that the involvement of "new ways", for example working in partnership with third party organisations may be developed to help target PG customers.

I throw my hat in the ring to be one of those "third parties" now. Hope you have found this summary interesting and if you have any comments or questions please by all means get in touch.

From Your Friend The Energy Angel

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