Two energy generators fined £39 million for energy efficiency failures

1st December 2014

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Drax Power and Intergen have been fined by Ofgem for failing to meet targets under the Community Energy Saving Programme (CESP).

Under the CESP, energy generators and suppliers had to reduce carbon emissions through delivering energy-saving measures to households in low-income areas by the end of December 2012.

Drax Power delivered just of 37% its CO2 reduction, cutting emissions by 332,312 tonnes of carbon dioxide (tCO2) against a target of 895,138 tCO2.

Ofgem says that senior management at Drax were aware of the serious risk of not achieving the emissions target 18 months before the end of the scheme, and made no attempt to mitigate its shortfall even after the deadline passed.

The regulator said that it had taken into account Drax’s inexperience in delivering energy efficiency measures to consumers and its lack of a customer base, which Drax had claimed put it at a disadvantage compared to energy supply companies. The company could have taken more timely action to reduce the risk of not delivering, Ofgem said.

Sarah Harrison, senior partner in charge of enforcement at Ofgem, said: “Drax missed its target by a clear margin, disadvantaging several thousand households in some of the most deprived areas in Britain.”

It has fined Drax £28 million, which reflects the seriousness of the failings for consumers, she added.

At least £20 million of the fine will cover extra energy efficiency work for householders, and Drax is working on this with fuel poverty charity National Energy Action. The remaining money will either be paid as a fine or will cover further energy efficiency projects.

A spokesman for Drax said the company had voiced its concerns over the inclusion of energy generators at the outset of the scheme, given their lack of experience in delivering energy efficiency schemes, and the lack of direct relationship with domestic electricity consumers.

Drax outsourced delivery of the CESP to a company from the energy efficiency sector. Drax has reached a legal settlement with this company for its part in the failure to meet the target, the terms of which are confidential, he said.

Dorothy Thompson, chief executive at Drax, commented: “We take our statutory obligations very seriously and in the case of the CESP we always sought to maintain a compliant position. We believe the design of the CESP was flawed and significant problems were encountered with scheme delivery, the CESP market and the complex arrangements.

“We are deeply disappointed with the magnitude of the fine. However, we believe it is in our shareholders' interests to settle this matter and, as the nation's single largest power provider, focus on delivering a reliable supply of electricity this winter,” she said.

Drax’s plans to burn biomass instead of coal will save around 12 million tCO2 each year compared with savings of less than one million tCO2 over the lifetime of the CESP scheme, she said.

Ofgem also fined independent generator Intergen £11 million for delivering only 6.4% of its CESP programme on time. Ofgem allowed the company to continue delivering energy efficiency measures beyond the deadline, and this enabled it to achieve 61.2% of its target.

Intergen did not put energy efficiency schemes in place on time and this meant that it gained financially, Ofgem said.

No-one from Intergen was available to comment on the fine.

Overall, suppliers met 92.4% of their CESP target, while generators achieved 36%, Ofgem reported. Independent research by Decc, following completion of the scheme, questioned the appropriateness of including independent generators in the scheme. The successor scheme to CESP, the Energy Company Obligation (ECO) only applies to suppliers, not generators, the spokesman for Drax pointed out.

The CESP targets applied to 10 companies in total. Npower, EDF and E.ON met their targets, while British Gas, Scottish Power, SSE and GDF remain under investigation for failing to meet their targets.

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