MD1606 London Boiler Cashback Scheme

1.1 The Mayor’s Climate Change Mitigation and Energy Strategy (CCMES) sets out a plan to reduce London’s emissions by 60 per cent by 2025 compared to 1990 levels. Emissions from homes account for 36 per cent and the CCMES enshrines ambitious reduction targets from the domestic sector.
1.2 Delivering energy efficiency measures in London has historically been difficult due to multiple challenges. These include the age and fabric of the housing stock, conservation areas, and the high proportion of privately rented homes (26 per cent – 10 per cent of which have the lowest energy efficiency rating), where there are split incentives.
1.3 In addition, a raft of Government policy changes and proposals within a relatively short period of time have led to challenges to the delivery of domestic retrofit in London at scale, including through the RE:NEW programme, in the short to medium term. In respect of energy policy, these are changes to the Energy Company Obligation, the scrapping of Green Deal and Zero Carbon Homes Standard (and Allowable Solutions), and Government’s recent decision to cut the domestic Solar Feed-In-Tariff by 64 per cent. Recent and proposed housing policy changes may also mean that energy efficiency will, at least in the short term, be less of a focus within the social housing sector.
1.4 It is necessary therefore, to explore programmes and initiatives that can rapidly boost domestic retrofit delivery in the capital, in order to realise additional carbon savings to help achieve the Mayor’s targets.
1.5 In addition, last winter there were over 4,000 excess winter deaths, compared to 1,700 in 2013/14 levels. While the reasons for the increase are not entirely clear, poorly heated homes are likely to have contributed (due to fuel poverty caused by inefficient heating systems).
1.6 There is strong case for a GLA boiler scrappage scheme:
• Old inefficient boilers, which are still working after many years, are not necessarily a priority to replace for homeowners. This has two costs associated with it. First, the homeowner (or tenant) will be paying higher bills to operate the boilers compared to new efficient ones. Second, in environmental terms older boilers generate far higher emissions (both CO2 and NOx).
• Installing an efficient boiler can be a cost-effective way to cut household energy bills, CO2 and NOx emissions. Domestic heating accounts for around three quarters of household energy consumption and boilers, in particular, for around 55 per cent of household energy spend each year. Gas boilers also account for approximately 12 per cent of London’s NOx emissions. Replacing a 70 per cent or below efficient boiler with a boiler which is 90 per cent or above efficient can save over 1.5tCO2 and around £340 a year off a household’s fuel bills.
• Gas boilers, have delivered the biggest CO2 savings of all energy efficiency measures in London’s homes since 2005 (over 0.6MtCO2), and the scope to do more is considerable. Replacing 6,500 inefficient boilers with highly efficient ones could save in the order of 9,750 tCO2 and around 10 tonnes of NOx per year. Since legislation was introduced in 2005 mandating the installation of condensing gas boilers in all but special applications, installation rates in London have increased to over 200,000 every year. However, it is estimated that up to 212,000 homes currently have old inefficient boilers across the capital, the overwhelming majority of which are in the private sector – so there is clearly scope to achieve far more.
• A strong precedent already exists – boiler scrappage schemes in particular have been some of the most successful Government energy efficiency interventions and have secured excellent consumer satisfaction ratings (~96 per cent), assuring rapid carbon reduction and energy savings. DECC’s 2010 Boiler Scrappage Scheme in England (launched by the Prime Minister), which was set up at one week’s notice, offered a voucher contributing £400 towards replacing old inefficient boilers with new efficient models. The scheme opened on 5 January 2010, and the demand was such that, the majority of vouchers were allocated for the scheme within weeks of opening. This resulted in the scheme having fully allocated all available vouchers by 18 March 2010. The assumed CO2 savings for the Government scheme also exceeded the estimates stated at the beginning of the scheme by 71 per cent. However, the Government currently has no plans for a further scheme. (Further background on Government’s 2010 scheme is set out at Appendix 2).
• There is sufficient demand for boiler scrappage schemes in London, as proven by DECC’s previous scrappage scheme. In 2010 over 9,700 households in over 20 London boroughs received vouchers, equating to £3.88m (significantly more than would be delivered through the proposed GLA boiler scrappage scheme).
Scheme design: eligibility and requirements
1.7 The eligibility criteria and requirements for the scheme would be as follows:
1. properties must be homes in London
2. applicants must be homeowners or, accredited private landlords (the landlord or the agent managing their property, must be accredited with the Mayor’s London Rental Standard)
3. boilers being replaced must be a 70 per cent or below efficient gas, oil, LPG or solid fuel (typically 15+ years old), in working order and the main boiler used to heat the home
4. replacement boilers must be at least 90 per cent efficient or a renewable heating technology (further details of proposed eligible technologies are at Appendix 3)
5. installations must be undertaken by a Gas Safe (formally CORGI) accredited installer (in line with the legislative requirement to do so), for oil a member of the competent person’s scheme (such as OFTEC or HETAS), or for renewable heat technologies (e.g. heat pumps or solar thermal), a Microgeneration Certification Scheme (MSC) accredited installer or equivalent (see section 8 below on fraud and quality assurance).
6. to avoid issues of additionality, the boiler scrappage voucher must not be used in conjunction with any central government scheme.
1.8 It is central to our climate and energy strategy to make this scheme applicable to renewables. However, due to higher installation costs, we do not expect many renewable heat technologies to be installed under the scheme. For example, Government’s 2010 scheme resulted in only 75 renewable heat installations out of 118,600 installations in total.
Scheme design: level of cashback
1.9 Similar to previous successful schemes, a GLA scrappage scheme would provide £400 scrappage vouchers to around 6,500 households across the capital this winter. The GLA would stipulate that the scheme closes once the money is spent and successful applicants have up to 12 weeks after receiving their voucher to have the work done and claim the money off the cost of installation. We would plan to issue vouchers equal to the overall capital budget (£2.6m) plus ~5 per cent, recognising that there will be at least a ten per cent drop out. Previous schemes have resulted in around 10-20 per cent drop out (either as a result of failing to meet eligibility criteria or applications either being withdrawn or reaching expiry).
1.10 £400 is considered the right level of grant to provide to consumers and there is a clear precedent. Both UK and Scottish governments have provided £400 vouchers through previous scrappage schemes, which have received 100 per cent take-up. This amount of grant would also represent approximately 20 per cent of the overall installation cost (assuming an average boiler replacement is around £2,000). According to DECC this level was also based on a consumer perception of what value of voucher was worth the aggravation of applying. Offering less than £400 may also discourage householders on lower disposable incomes (e.g. those who are fuel poor).
1.11 The cost of a new energy efficient gas boiler varies greatly, from £1,500 to around £3,000, and is estimated by the Energy Savings Trust at an average nationally of around £2,300 including installation. The average in London is expected to be lower than this, given the high proportion of flat. It is proposed that vouchers are provided at the same rate to all homes regardless of total outlay.
Scheme design: application and claim process
1.12 The application and claim process includes six key steps. These are set out in Appendix 1. A flowchart giving an overview of the process can be found in Appendix 4.
1.13 Similar to previous government schemes, to minimise administration and delays to customers, there would be no facility to submit paper applications for the scheme.
Regulation and quality assurance
1.14 The installation of gas heating systems is highly regulated through Gas Safe, which is primarily a health and safety regulatory regime where installers have to be accredited. Installers risk losing their jobs and can be subject to criminal proceedings if they do not carry out their duties in accordance to the law. The Gas Safe Register contains details of all certified gas installers in the UK. In addition, the Microgeneration Certification Scheme for renewable heating systems is a nationally recognised quality assurance scheme, supported by the Department of Energy and Climate Change. In practice, however, as stated above, we do not expect many renewable heat technologies to be installed under such a scheme.
Fraud prevention
1.15 In order to provide assurance that funds under the scheme would not be acquired or used fraudulently, a Fraud Reduction Framework will be put in place, comprising eligibility checks, and pre-installation and post-installation audit visits. A percentage of installations would be verified through regular data checks, with some physical visits at four different stages of the installation process:
1. visits to up to two per cent of a random sample of those who have applied for a voucher to verify if their boiler is indeed a 70 per cent or below efficient boiler eligible for replacement under this scheme. (The Government’s BSS in 2010 did this and found that 93 per cent of applications were valid and 7 per cent either failed or withdrew. However, this was only at the self certification stage and prior to any thorough system checks being carried out by the Energy Saving Trust, and prior to boiler installation by an accredited installer). This element will be administered by Capita.
2. visits to up to two per cent of a random sample of householders who have completed installation to check that an eligible replacement heating system has been installed. (The Government’s BSS also did this with a 99.7 per cent pass rate with only 6 installations which failed). This element will be administered by Capita.
3. checks of all claims against work notified to Gas Safe. Any claims for works that have not been notified to Gas Safe, which is currently a requirement, would be investigated. This element will be administered by EST.
4. daily checks (using an integrated database) to ensure that no more than one voucher per property is given. This would be done by monitoring postcode data. Any multiple applications would be investigated. This element will be administered by EST.
Targeting specific groups
1.16 In terms of demography, the scheme would be designed to attract all social groups. However, by encouraging lower installation costs (e.g. by encouraging consumers to shop around and obtain up to three quotes from accredited installers, e.g. GasSafe) we may broaden the social reach of the scheme by making boiler replacement even more affordable. In addition, we would expect the scheme to trigger some energy companies and installers to complement and, in some cases, match the GLA offer, offering even better value for the consumer, particularly people on low incomes. Offers made by energy companies and installers may also increase the number of installations, increasing carbon savings as a consequence.
1.17 We plan to work through boroughs to ensure that existing referral mechanisms (i.e. fuel poverty and seasonal health networks) are used to communicate the scrappage scheme. We would intend the Mayor to write to boroughs when the scheme is launched inviting their engagement and highlighting the need to ensure households that are fuel poor are assisted, where possible.
1.18 We are also mindful that this scheme would come ahead of the new private rented sector (PRS) regulations which will come into force in April 2016, empowering private domestic tenants to request consent for energy efficiency measures that may not unreasonably be refused by their landlord. Marketing material will be specifically targeted at London Rental Standard (LRS) accredited landlords through the LRS accrediting organisations, all of which will be asked to disseminate information about the scheme direct to their members.
1.19 Marketing material will also be targeted at other groups in the private sector, such as first time buyers.
Alternative options
1.20 Consideration was given to using the same level of capital funding for other retrofit measures, such as solid wall insulation or solar PV. However, there is currently a far stronger cost benefit for gas boiler replacement compared to other measures, in terms of levels of carbon savings and consequent fuel bill savings, reductions in fuel poverty and health benefits to households. The table below shows CO2 and bill savings for at least 90 per cent efficient condensing gas boilers compared with solar PV and solid wall insulation.

1.21 The implementation of other measures would also be far more complex, present numerous physical challenges and take far longer (and be more costly) to implement:
• solar PV: while average carbon savings are slightly higher than a typical gas boiler installation, the average domestic solar PV system costs between £5,000 - 8,000 (including VAT at five per cent) – nearly three times the cost of a boiler, on average. Solar PV will also not deliver air quality benefits in London (given it is replacing electricity from the grid which is predominantly generated outside of London), or help alleviate fuel poverty
• solid wall insulation: given up-front costs range between £8,000 – 22,000, the GLA would be required to spend considerably more money to entice householders to install solid wall insulation. Grants would therefore have to be far larger than £400 and therefore fewer homes would be supported. Planning permission may also be required in Conservation Areas (if external wall insulation is installed).
1.22 The reason for focusing the scheme on the private rather than social housing sector is that, first, due to Decent Homes and other asset maintenance programmes implemented by social landlords, there is a very low incidence of energy inefficient boilers in that sector. 85 per cent of social housing stock is between EPC C and D compared to the owner occupied and private rented sector where over 30 per cent are between EPC E and G. Second, the RE: NEW Support Team is already working closely with the social housing sector to support them to retrofit their stock, with support plans in place with 58 organisations. Third, there are lower rates of fuel poverty in social housing.
1.23 It would be possible to have a more targeted approach, focusing specifically on fuel poor households or those at risk of or experiencing cold-related illness. However, in the absence of available data to enable very specific groups of households to be targeted, a more blanket approach tackling the most inefficient boilers/heating systems is one way to deal with the least efficient homes (where fuel poverty may be acute). Moreover, the less targeted a scheme is, the higher the take up – and therefore the CO2 savings – will be.
1.24 Consideration was given to whether the GLA should make individual grants direct to householders, who would then arrange for their own installations, or whether grants – and potentially installations – should be administered through London boroughs. The former option is considered preferable due to economies of scale, the need to efficiently accommodate accredited private landlords operating across more than one borough, and the need to implement the scheme quickly.
Communications and marketing
1.25 It is envisaged that the offer, combined with a Mayoral launch and tactical communications campaign, will be quickly picked up by the media and awareness will spread. Previous Government schemes have involved very little marketing, and – following high profile launches - awareness has spread effectively and widely.
1.26 A tactical marketing campaign would include:
• Mayoral launch on or around 2 February 2016 (potentially to coincide with the annual ‘Cold Homes Week’ which is scheduled for 1 – 5 February 2015 and receives significant press coverage)
• webpages on London.gov.uk promoting and explaining the scheme with links to the London Boiler Cashback Scheme micro site which will hold the transaction pages
• letter from Mayor to boroughs inviting their engagement
• email marketing to and through industry bodies (e.g. Heating and Hot Water Industry Council), and associated London Rental Standard accreditation organisations
• encouraging the Government to communicate the scheme on gov.uk
• appropriate social media at launch and to communicate progress.
Proposed next steps
1.27 We plan to appoint EST to manage and administer the boiler scrappage scheme, including project management and monitoring.
Officers acknowledge that section 4.1 of the GLA’s Contracts and Funding Code requires, where the expected value of a contract is between £10,000 and £150,000, the services required should be tendered or called off from an accessible framework. Section 5 provides however, that an exemption from this requirement may be approved where a service provider has had previous involvement in a specific current project or its continuation of existing work cannot be separated from the new project/work. In this instance, EST have been involved previously in putting in place IT and technical systems for and administering identical schemes for both the UK Government and Scottish Government which will be utilised for the GLA scheme.

1.28 Given the nature of the systems, expertise and experience held by EST as a consequence , coupled with the need to mobilise the scheme on or around 2 February 2016, the GLA considers therefore, that the award of contract to EST without further competition may be justified on the basis of its previous involvement in a specific current project and are, in practical terms, the only organisation likely to be able to confidently mobilise and deliver a boiler scrappage scheme within the timescale proposed. A Single Source Request is attached at Appendix 5.
1.29 Therefore, the approval of an exemption from the requirement to procure the services in question by conducting a tender exercise or called those services off from an accessible framework is sought.
1.30 Fraud prevention activity will be undertaken by both EST and Capita (which will undertake physical pre and post installation audit visits as part of the RE:NEW Programme). In addition to the proposed award of contract to EST, the variation of the GLA’s current contract with Capita for services for the administration of the RE:NEW Support Team therefore, is proposed to accommodate such audit services.
1.31 Capita was contracted in 2014 by the GLA through the TfL’s EPM Framework, to provide the services of the RE:NEW Support Team. The services required for the London Boiler Cashback Scheme are within the scope of their current RE:NEW administration services. A variation of the GLA’s RE:NEW contract with Capita (for administration of the RE: NEW Support Team) would be necessary to undertake a programme of fraud prevention for the scheme, with a value of up to £50,000.
1.32 Before the scheme commences, the GLA would convene trade bodies, manufacturers (which directly communicate with suppliers/installers) and NGOs, to brief them on the scheme and gain their agreement to promote the scheme and generate complementary offers.
1.33 However, the GLA will not give preference to any particular manufacturer, supplier or installer. To avoid any distortion of the relevant market, the GLA will interact with eligible homeowners throughout the scheme to whom the benefit of the £400 cash back will accrue, albeit for efficiency of delivery and management of the scheme will be administered by EST.
1.34 Around the time of the launch, we would contact boroughs inviting their support and assistance, to ensure the scheme is directed at appropriate demographic groups.
1.35 To ensure robust management of the contractors - EST and Capita - throughout the process, an Internal Review Group will be established and will meet fortnightly. It will include senior representatives from Finance, Governance and the Services, Commissioning and Retrofit team in the Housing and Land Directorate. The Group will ensure robust management through the review of:
• scheme progress – notably voucher disbursement and payments
• pre and post installation auditing
• operational arrangements and issues (as necessary)
• scheme timetable.
1.36 Given the priority to address carbon savings in the domestic sector, and short-term challenges with the RE:NEW strategy of targeting social landlords, it is proposed to move £2.6m from the Housing Zones budget to a boiler scrappage scheme for winter 2015/16. This will still leave an overall increased budget of £410m to support the original 20 Housing Zones (plus the additional £200m proposed elsewhere on this agenda).

1.37 Revenue funding of up to £200,000 will be come from the RE:FIT and the RE:NEW 2015/16 budgets. The RE:FIT funding was earmarked as contingency for the procurement of the new RE:FIT framework, but will not now be required for that purpose, and the RE:NEW funding is for programme activity (so will be used for its intended purpose).

1.38 The GLA will transfer to EST sufficient capital funds in tranches, to ensure they have a working float so they can issue payments when necessary. The team in Housing & Land will audit the sample of about dozen of successful applications, that have been awarded the cash payments, prior to releasing each tranche of funding, to extend the due diligence checks and safeguard against system mismanagement.

2.1 The purpose of the London Boiler Scrappage Scheme is to rapidly boost domestic retrofit activity and the level of carbon savings in the capital, to help progress against Mayoral carbon reduction targets for homes contributing to the achievement of the Mayor’s target to reduce carbon emissions by 60 per cent by 2025 and both RE:NEW programme KPIs and ELENA targets. The scheme would, in addition, cut household fuel bills, have air quality benefits and would in many cases address fuel poverty and reduce cold-related ill health, as well as excess winter deaths, as set out below.

2.2 The scheme outlined above will drive significant savings in carbon, energy and financial savings across London by:
a. saving carbon. Replacing 6,500 inefficient boilers should save in the region of 9,750tCO2 per year, increasing our total domestic CO2 reduction from 32,000 tCO2 to around 42,000tCO2 (an increase of nearly a third).
b. saving over £2.2m per year off Londoners’ fuel bills. An individual household's energy bill will be cut by around £340 a year, (depending on the size of the property)
c. improving air quality, reducing NOx emissions by 10 tonnes per year
d. a reduced risk of carbon monoxide poisoning
e. helping tackle fuel poverty and prevent excess winter deaths
f. acting as a catalyst to spur on additional energy efficiency improvements to the home (e.g. heating controls and insulation)
g. driving investment of £15m or more in new boilers/renewable heating systems helping to sustain work for the low carbon and heating sectors across the capital.

3.1 The GLA will take appropriate steps to ensure that there are no potential negative impacts expected on those with protected characteristics. Those with protected characteristics will gain from the positive benefits of this scheme in equal measure should their properties be selected, and there will be equality of access to participate in the delivery and benefit from the scheme, without discrimination.

4.1 The key risks and issues for delivery of these projects are set out in the table below:

5.1 The report proposes for GLA to fund and implement a pan-London boiler scrappage scheme for winter 2015/16 to help progress Mayoral carbon reduction targets for homes.

5.2 The anticipated capital expenditure for the scheme is expected to be £2.6m, which is based on 6,500 successful applicants at a rebate of £400 per applicant. It is proposed that this will be funded from existing GLA capital budget.

5.3 It is estimated that revenue expenditure will not exceed £200,000 and it is proposed that the costs will be covered by RE:FIT contingency (£90,000) and RE:NEW (£110,000) budgets. All of the funding is expected to be spent in 2015/16 financial year. The proposed spend will be contained within the agreed budget terms and any overspend must be accompanied by a separate decision.

5.4 The scheme will be administered and managed by Energy Saving Trust (EST), who is warded £148k and Capita receiving £50k for managing a fraud prevention aspect of the contract, including audit visits to homes, as part of the RE:NEW programme.

5.5 EST will be paid in two instalments, one as soon as possible to cover set up and running costs, the second to be made when the project is complete. Capita, on the other hand, will be paid upon completion of visits.

5.6 EST will be allocated with £2.6m capital funding to distribute to successful applicants in 4 separate tranches of £500k and the final tranche of £600k. The team in Housing & Land will audit the sample of about dozen of successful applications, that have been awarded the cash payments, prior to releasing each tranche of funding, to extend the due diligence checks and safeguard against system mismanagement.

5.7 The total budget of £2.8m which is being proposed for this scheme could have been used to fund other projects within the GLA.

6.1 The foregoing sections of this report indicate that:

6.1.1 the decisions requested of the Mayor fall within the powers of the GLA, to do anything which maybe considered to be facilitative of or conducive or incidental to the exercise of its functions in a way which promote the improvement of the environment in Greater London; and

6.1.2 in formulating the proposals in respect of which a decision is sought officers have complied with the GLA’s related statutory duties to:

(a) pay due regard to the principle that there should be equality of opportunity for all people;
(b) consider how the proposals will promote the health of persons, health inequalities between
persons and to contribute to the achievement of sustainable development in the United
Kingdom; and
(c) consult with appropriate bodies.

6.2 Section 4.1 of the GLA’s Contracts and Funding Code (“Code”) requires that a tender exercise be conducted for services with values of that proposed or that they be called off from and accessible framework. However, section 5 of the Code provides that exemptions from that requirement maybe approved where previous involvement in a specific current project or continuation of existing work which cannot be separated from the new project/work. Officers have indicated, at section 1 of this report, that this is the case here. Therefore, if the Mayor is satisfied with the content of this report they may approve the exemption sought. If so approved officers must ensure that appropriate contract documentation is put in place between and executed by the GLA and EST before any commitment is made to the scheme or commencement of such services.

6.3 It is understood from officers that the GLA’s current contract with Capita for RENEW Support Team administration enables variation of the services covered to enable the proposed Boiler Scrappage Scheme to be incorporated. Should the variation proposed be approved officers must ensure that the GLA’s contract with Capita is varied in accordance with its terms and this is documented formally before any commitment is made to the scheme or commencement of such services.

6.4 Officers must also ensure that the proposed award of grant funding to end recipients of the Boiler Scrappage Scheme (here as part of the proposed voucher scheme to be administered by EST) is administered fairly, transparently, and in a manner which is considered to afford value for money and appropriate funding terms are incorporated before any commitment is made to the scheme or such funding.

6.5 To the extent that the proposed programme and expenditure period may extend beyond the current mayoral term officers must also observe the principle that an incumbent administration should not unreasonably fetter the discretion of any future administration, ensuring that its and all relevant documentation are structured so as to enable the GLA to terminate funding and supporting contractual arrangements at any point for convenience and milestones and payments should be structured so as to minimise the impact of the exercise of such termination rights.

Appendices - see signed decision form

Appendix 1 The London Boiler Cashback Scheme – six step application and claim process
Appendix 2 Application and claim process flow chart
Appendix 3 DECC’s boiler scrappage scheme
Appendix 4 Proposed eligible technologies
Appendix 5 Single Source Request