Cost, efficiency or income? The main drivers of fuel poverty

NII_icons_RGB-01This week is “Cold Homes Week”, the biggest public campaign to raise awareness of fuel poverty in the UK. So we thought it would be worth sharing some of our views and concerns around fuel poverty, one of Nesta Impact Investment’s priority areas of investment under our Sustainable Communities theme.  

It’s clear that fuel poverty is one of the UK’s biggest social issues. Recent government statistics estimate that it affects 4.5m households in the UK including vulnerable children, old people and those with long term illnesses or disabilities.

Research suggests that fuel poverty is caused by 3 main drivers:

1) The cost of energy – which has doubled over the last 10 years
2) Poor thermal efficiency of building stock and the consequent inefficient use of domestic energy
3) Low disposable incomes.

How much each of these factors affects the fuel poor is one of our questions, but our main question is to what extent these drivers can be influenced to make a lasting difference for the fuel poor? The Government’s announcement this week that they will ban the letting of the draughtiest homes is a welcome example of the levers available to the state in fighting fuel poverty, but what about options for businesses, charities or social enterprises?

1)      Cost of Energy

About 50% of an energy bill is dependent on commodity (“wholesale”) prices and 20-25% is dependent on distribution costs like the national grid that can’t be easily changed. That basically leaves 25% of the bill, of which 10% is VAT and government obligations, and the remaining 15% is what energy suppliers charge to manage accounts.

If 85% of the cost of energy is dependent on global market prices and delivery costs that keep going upwards, would a reduction in the remaining 15% make a huge difference to those in fuel poverty? Or would a better solution be transitioning to other cheaper and renewable sources of energy?

2)      Efficiency vs waste4270845019_2aea518dcc_z

Our main question here is whether improving the stock of houses will be enough to drive people out of fuel poverty. We believe something much bigger comes into play: habits and behaviours. We certainly believe that behavioural change needs to be a big part of the process to end fuel poverty; people don’t only need insulation and secondary glazing but they need to get into the habit of closing windows and turning off heaters.

3)      Low disposable incomes

There are several social initiatives trying to reduce poverty levels in general around access to education and employment. However, it might be too short sighted to just wait until poverty is reduced considering that 20-30,000 people die from cold each year.

Some of the roots to fuel poverty are highly related to other social issues like financial exclusion. There are peculiarities to the energy market which mean that those deemed to be the highest credit risk are made to pay upfront at a higher tariff level than those who pay in arrears through direct debit.

So, what are we looking for?

At Nesta Impact Investments, we have been looking at a variety of interventions that aim to tackle fuel poverty from different angles; from the emergence of new Energy Supply Companies to switching and group buying platforms, through to energy informatics companies, housing retrofit programmes and in-home device businesses aiming to influence occupier/user behaviour.

Each intervention has the potential to create savings in energy bills for people in fuel poverty; yet, some of them are arguably only short term solutions, particularly when behavioural issues are not considered or when switching becomes counterproductive as soon as suppliers raise tariffs on the second year.

What kind of interventions will bring the biggest benefits to individuals in fuel poverty – not just in short term savings but in a long term sustainable way? We continue to seek an answer to this question and we invite you to share your insights with us.

By Mireya Alvarez – Nesta Impact Investments



So…what exactly do we mean by sustainable communities?

housingIn November 2014, Nesta Impact Investments celebrated its second anniversary, with almost half of our fund’s money invested into a portfolio of seven social investments that all fall within our three thematic areas: Children and Young People, the Ageing Population and Sustainable Communities.

Throughout our 2 years of existence, NII has attracted and proactively found hundreds of opportunities that fall within our thematic areas. Under our Sustainable Communities theme, however, people continue to ask us: “What do you really mean by Sustainable Communities?” Given the ambiguity in both the word “sustainable” and the word “communities” we believe it is about time for us to give more clarity to the question.

On one hand, people refer to sustainability as growing without depleting the natural resources in which we depend. But isn’t it also about the development of the local economy, the empowerment of its members and their reliance on each other to prosper?

Communities, on the other hand, can be simply defined as a unified body of individuals in a similar geography or location. But what about virtual communities, ethnic or migrant communities?

Unsustainable Communities

At NII, we define Sustainable Communities as those that enable the well-being and quality of life of ALL their residents, through providing access to resources and services that meet their diverse set of needs.

For us, “Sustainability” is about being able to persist and thrive socially and economically, through “enabling inclusion” of those most excluded and vulnerable members of communities who are suffering from some of the UK’s most pressing social issues.

Communities with the highest number of people that face some form of exclusion are usually those with the highest levels of unemployment, illness and crime. For us, these are unsustainable communities, communities that are not able to thrive economically, socially or in any other aspect.

Ok, so it is about fair access to resources and services, and it is about reducing exclusion. But, it can still be anything, right? Well, technically it can, and we have seen innovative approaches to tackle several social issues that unsustainable communities face. But here at NII we have decided to focus on supporting organisations working in the areas of food poverty, fuel poverty, health inequalities, financial exclusion and social exclusion.

So, why are we focusing on these areas? 

After having researched 12 of the biggest social issues that unsustainable communities face, we have analysed various examples of organisations in the UK that are trying to solve these issues and we have assessed them according to our fund’s investment criteria: how innovative, scalable, commercially viable, inclusive and evidence-based they are. From this, we have chosen 5 priority areas where we think technology and innovation can play a big role in delivering and scaling significant impact. NII’s particular focus in social innovation and technology, places us in a good position to play an active role in supporting organisations that work in these areas. 

If you want to know more about what we mean by sustainable communities and our priority areas of investment, take a look at our recent publication.  Or if you are working in this area or know someone that is, don’t hesitate to get in touch!

By Mireya Alvarez – Nesta Impact Investments


Guest blog: Fuel poverty – time for a new approach?

NII_icons_RGB-01Fuel poverty continues to grow as energy prices increase and it brings with it massive economic and social costs.  Age UK estimate that fuel poverty costs the NHS more than £1.3 billion a year and around 30% of the 30,000 excess winter deaths can be ascribed to fuel poverty.  This is a massive social and economic problem that we need to address for economic as well as social and moral reasons.

Fuel poverty results from two factors – high fuel and electricity prices and the low energy performance of the UK housing stock.  We cannot control energy prices which are fundamentally driven by global markets.  There are improvements that could be made to the way the energy markets work but at the end of the day the effect of these on prices an only ever be marginal. What we can sensibly affect is the level of energy performance or energy efficiency of the housing stock – it is a choice we make either explicitly or implicitly.  The energy performance of new housing is essentially controlled by Building Regulations and although these have got stronger, and continue to improve, there is still a long way to go.  The evidence is that we can design and build extremely low energy houses at little or no extra cost.  The real problem of course is the existing stock of buildings, the rate of new building won’t even begin to solve the problem in any of our lifetimes. 

Improving energy efficiency brings with it a layer cake of benefits at many levels – including improved health, job creation, reduced need to spend on energy supply infrastructure and improved energy security.  Reducing fuel poverty through improving the efficiency of the building stock would bring all these benefits and more – at a national level we need to ensure that all the benefits are valued and counted in a cost benefit analysis.  Typically when looking at energy efficiency the focus is just on the value of the energy savings and these important co-benefits are not valued.   

At the operational and business level we need to move away from the idea that fixing fuel poverty is in the arena of big, publicly funded and centrally run programmes.  Instead of specifying methods and processes in great detail we need a system in which we pay for the results we want – numbers of households removed from fuel poverty and units of energy saved.  Delivery of the results should be left to a market responding to a price which would be determined by the holistic benefit analysis. Technical and business model innovation should be encouraged.  Given that many (most if not all) households in fuel poverty pay a higher unit price for their energy than “normal” customers, there is potential and the margin currently being made by the energy suppliers that can be diverted into funding efficiency measures.  This requires energy suppliers with new business models that offer a full energy services, energy supply and efficiency measures – suppliers that could be small new entrants (entering the energy supply market has become easier in recent years), large corporates not currently in the energy supply business but looking to disrupt the energy market, (think mobile phone companies and other companies with good brands and lots of touch points with customers), or the emerging municipal energy companies which will have social as well as financial objectives.      

There are encouraging signs of technical innovation which new entrants into the energy market, (as well as the incumbents), need to incorporate into their thinking.  WHISCERS, developed by the Sustainable Energy Academy and the National Energy Foundation, which uses laser scanning and factory cutting greatly reduces the time, disruption and mess of installing internal insulation. Technologies such as micro-Combined Heat and Power are entering the market, some wrapped into new energy supply models such as offered by Flow Energy.  Other emerging innovations include the use of virtual electricity meters to supply electricity to specific devices including heaters at times of low wholesale prices – a technology that has been developed by Ubitricity in Germany for electric vehicle charging.  Although whole house retrofits are always going to be the ideal there is much that can be done by using a range of single measures such as Zenex’s boiler heat recovery system, voltage regulation and LED lighting.  We need to encourage innovation in technology and business model to solve the fuel poverty problem once and for all.

By Dr Steven FawkeNII_overlays

Steven Fawkes has over 30 years experience in energy efficiency and has several roles in the sector including being on the Investment Committee of the London Energy Efficiency Fund and a Non-Executive Director of Bglobal plc – a smart meter and energy software business.  He has published widely on energy efficiency including two books and his blog –