Cornwall Together is the first locally-based collective switching scheme in the UK, and last Friday along with their partners uSwitch, they were kind enough to travel all the way up from their base at the inspirational Eden Project to share with us the first steps they have taken on their exciting journey to transform the way energy is bought and sold. A lively debate took place in the meeting organised by Birmingham City Council at the Council House, as the delicious aroma of Jamaican food and the irresistible vibe of Reggae filtered through the windows of Committee Rooms 3 & 4, opened to alleviate the long-awaited effects of Olympian summer heat. The discussions have been repeated online in the Green Deal Birmingham LinkedIn group.

There are a number of reasons why collective energy switching is now the right thing to do, and has the potential to achieve savings that are greater than those that can be achieved through individual switching. The competitive energy market, lauded by the regulator Ofgem and by right-wing economists, is a spectacular example of market failure. What has emerged is a Confusopoly, where a small number of multinational suppliers, the Big Six, have produced a range of over 300 tariffs which make it impossible for consumers to make an informed decision. Most consumers have never switched their fuel supplier at all; many more only switch occasionally; others are unable to switch because of debt. These 'sticky' consumers are on the worst tariffs. The fuel poor are most likely to be sticky. There are people in Birmingham paying 50% more for a unit of fuel than me because they don't have the right credit rating and knowledge of how the market works. The most lucrative tariffs that you will see in TV adverts or on the front pages of suppliers' websites, are restricted to only a lucky few consumers who understand the market.

Those who argued that a free market in energy supply would lead to a competitive market led by consumer choice, have been proved wrong. They were wrong because their monetarist dogma meant that they ignored an important aspect of behavioural economics, which I have written about elsewhere, and which the energy suppliers did understand, and have used to their advantage - this is the tendency of people to go with the default option when making financial decisions (2). This explains the inertia (not the same as apathy - which suggests that people don't care) in the energy market. Suppliers are fully aware of this inertia, and use it to their benefit to take advantage of sticky consumers. Of course, the suppliers didn't bother to tell Ofgem that they were using this inertia to manipulate the market, and Ofgem were so besotted with their own propaganda that they didn't cotton on to the fact that this was happening.

Most importantly, social media is changing the relationship between buyer and seller. Consumer power on Twitter can make or break a brand, as the News Of The World found to its cost. Smart corporations are now preparing themselves for the fact that their brand could be next. It is no longer a question of if social media power will affect your brand, but when and how, and whether it will be constructive or destructive. This means that a transformation in the energy market by collective consumer power, driven by social media, is inevitable. The question for us in Birmingham, is, who benefits? Is it the savvy, affluent consumers of the type who benefitted from the Which? Magazine 'Big Switch' campaign, or is the fuel poor households whose lives are literally at risk because they cannot afford to heat their homes in winter?

Why are fuel poor homes less likely to shop around for energy supplies? Research cited by Consumer Focus (3) shows us two important things:

1. There is a relationship between payment method and willingness to change tariff or change supplier.
2. certain groups are least willing to change tariff or change supplier - these are younger people; older people; and people on low incomes.

What this says to me is that there are two inter-dependent types of barrier to the fuel poor switching supplier - institutional and cultural. Clearly the main institutional barrier to switching is payment method, and in particular, the tendency of the fuel poor to pay for their fuel through pre-payment meters (PPMs) either because they feel it is the only way they can budget, or because they are forced to have one by their supplier to recover debt, or most inequitably, because despite having no debt they have failed a credit check and cannot afford a security deposit.

We should also note that the barriers to switching are different for the fuel rich and the fuel poor. For the fuel rich, it is lack of belief that the financial savings are worthwhile that is the most important barrier to them switching. For the fuel poor, by contrast, it is unwillingness or inability to change payment methods that is the most important barrier (the fuel poor also don't believe it is financially worthwhile to switch but this is less important than payment method).

The three groups least willing to switch - younger people, older people, and people on low incomes - also happen to be the three groups in society who are most prone to what we call financial exclusion. (4) According to the European Commission:

"Financial exclusion refers to a process whereby people encounter difficulties accessing
and/or using financial services and products in the mainstream market that are
appropriate to their needs and enable them to lead a normal social life in the society in
which they belong."

In energy terms, some of these difficulties are institutional, such as payment method as we have seen, and some are cultural, such as the lack of capacity among the financially excluded to manage money properly, and some are economic, quite simply the fact that the incomes of the poorest people are actually decreasing as a direct result of the short-termist austerity policies of the current Government.

The Big Switch has been criticised by Ebico for explicitly excluding PPM users. At the moment, nobody has found and proven a model of collective energy buying of which I am aware, that we can guarantee will be suitable for the fuel poor. (5) This is mainly because they have not understood that financial exclusion is the way fuel poverty mediates with energy market behaviour for people on low incomes. In order to find a model that works, we may need to think backwards.

In 2002 Pat Conaty of the New Economics Foundation outlined a Factor Four approach to ending fuel poverty. The causes of fuel poverty are complex. The energy performance of a home and its appliances are the first and most important cause. The habits or behaviour of the occupants are the next cause. What was pathbreaking about Pat Conaty's work is that he recognised that financial exclusion as the third cause of fuel poverty.

The conclusion to be drawn from the fact that fuel poverty has multiple causes is that it needs multiple solutions. These solutions are:

1. improved energy efficiency of homes and appliances (and increasingly, the ability for a home to produce its own renewable energy through micro-generation)
2. tailor-made behavioural advice on energy use to the occupants
3. income maximisation, through benefit entitlement checks for example
4. bill payment services, including advice on the best tariff, the best payment method, and offering a social bill payment service (where an organisation such as a credit union assists with allocating funds to different household budget headings - a 'jamjar' account).

How are we performing in Birmingham against these four factors?

1. Birmingham City Council's carbon monitoring reports demonstrate substantial investment in energy efficiency in homes in recent years. (6) Birmingham City Council is about to commission the third phase of Birmingham Energy Savers, which will be the second largest energy efficient retrofit scheme in the world. This is something to be proud of. It is no wonder that Birmingham Energy Savers was recognised as a global leader in South Africa earlier this year.
2. Birmingham has a track record on providing home based and personalised energy advice in Birmingham and the Stay Warm Stay Well project, aimed at the fuel poor, is the latest example. Such programmes are unfortunately subject to the vagaries of short-term funding programmes but it is to be hoped that under phase 3 of Birmingham Energy Savers, this approach will become mainstream.
3. Increasingly, we have been able to deliver income maximisation activities alongside fuel poverty programmes, such as on recent Warm Zone programmes and on Stay Warm Stay Well. Once again our ability to deliver this work is compromised by the short-term nature of funding programmes, and whoever wins the commission for Birmingham Energy Savers faces a challenge in making this happen, although a collective energy switch could offer us some hope as I outline below.
4. On the real financial inclusion activities such as tariff optimisation and bill payment services, unfortunately we have not been able to tackle these in any significant way. Birmingham's credit unions are offering jamjar accounts and a collective switching scheme needs to join up with these as Universal Credit approaches.

In fact, it could be argued that on the issues of tariff optimisation and bill payment services, the situation has deteriorated for the fuel poor in the ten years since the publication of the Factor Four report. The population of pre-payment meters is higher than ever, leaving the fuel poor with less and less choice about payment methods; and the gap between sticky consumers and savvy consumers has grown wider, as evidenced by the fact that rates of tariff switching are in a spiral of decline.

The institutional and cultural barriers that prevent the fuel poor from switching to better tariffs are inseparably tied to the wider problem of financial exclusion. This means that there is no solution to the problem of low switching rates among the fuel poor unless it is part of a holistic package of measures to tackle financial exclusion.

This is what collective energy buying schemes need to think about if they are really to solve this problem. Consumer Focus have published a paper making the case for collective switching schemes which, disappointingly, does not recognise the specific institutional and cultural financial exclusion barriers that the fuel poor face.

Meena Bharadwa of Birmingham Settlement told me recently that she felt that Government ministers and utility companies imagined that organisations like hers had a pool of 'magic community engagement fairies' who could persuade people on low income to change behaviours around health, energy efficiency, and so forth. Localise West Midlands has argued elsewhere that there are some community organisations, but not all, who have the qualities needed to nudge people into more energy efficient behaviour. Consumer Focus may be mistaken in their belief that the endorsement of community leaders for collective energy switching is sufficient to get the fuel poor to switch. Such endorsement is desirable but in itself cannot overcome the institutional and cultural barriers of financial exclusion.

The reality of financial exclusion also means that better access to information is not sufficient to enable the financially excluded to fully participate in normal life. This is where we reach the limits of Nudge economics. Making an 0800 number available to people on low incomes is not going to be enough (in fact it is erroneous to assume that people on low incomes don't have access to the internet or social media. They do have these things, increasingly through smart phones, but they pay more for the privilege - a good example of financial exclusion in action. The problem is that 0800 numbers are not always free from a mobile phone and the poorest people don't have landlines).

So what is the way forward? We need to continue to engage with our friends from Cornwall in what will hopefully be a shared journey of learning how this can work for the fuel poor. Key tasks include:

1. Widening our own local evidence base about what triggers and barriers exist for the fuel poor to change tariffs or suppliers, building on the work of Hannah Mummery at Consumer Focus, and explicitly making the connection with the institutional and cultural incarnations of financial exclusion.
2. Ensuring that financial inclusion activity is a mainstream part of any collective energy switch in Birmingham. This will include income maximisation; money advice; capacity building and social bill payment services.
3. Finding out if DECC's welcome support for collective energy switching extends to giving guidance to energy suppliers on how to dismantle some of the institutional barriers to the fuel poor switching. This process could be backed up by risk-sharing e.g. a collective energy switch under-writing a security deposit (like the bond schemes that local authorities like Birmingham run to help homeless people establish private sector tenancies) to help get a fuel poor household off pre-payment, onto a social bill payment service as a stepping stone to direct debit. It may be in the best interests of the utility companies themselves to consider social bill payment as a debt prevention measure, as the chaos that will ensue under Universal Credit will make the 'eat or heat' dilemma only too real for the poorest households.
4. Develop a business model for a collective energy switch in Birmingham that embraces the fuel poor including PPM users, is able to pay for financial inclusion activity, and can be delivered by local organisations. Such a model will build on the pioneering work done by Cornwall Together and could be a social franchise, which recognises their contribution in an equitable and sustainable way.

In this way, we can begin to put together a collective energy switch that meets the outcomes that matter to Birmingham - alleviating fuel poverty through a Factor Four approach; stopping the leakage of energy spend out of the City's economy; increasing the energy resilience of Birmingham in the long-term; and creating local jobs.

Footnotes

(1) Apologies that this article is longer than I would normally write on a blog, but the complexity of the subject matter dictates the content.
(2) Cabinet Office/Institute for Government, MINDSPACE - Influencing behaviour through public policy, http://www.instituteforgovernment.org.uk/images/files/MINDSPACE-full.pdf; and Richard H. Thaler/Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth and Happiness
(3) Hannah Mummery and Gillian Cooper, Consumer Focus, Missing the mark; Consumers, Energy Bills, Annual Statements and Behaviour Change.
(4) Birmingham City Council, Financial Inclusion Strategy, Counting the Cost 2010-2012
(5) The excellent and successful Energy Extra scheme, which is aimed at social housing tenants, is a partial exception to this
(6) See http://www.sustainabilitywestmidlands.org.uk/resources/presentations/?/Birmingham%27s+Carbon+Savings+Annual+Report+2010%2F11%3A+Review+of+progress+2008-2011/1670 and http://www.bebirmingham.org.uk/documents/Birmingham_s_Carbon_Savings_2009-10.pdf

Successful low-carbon retrofit projects and businesses don't just need hard engineering skills but 'soft' skills. Soft skills have come in for a battering recently after the absurd statement by Iain Duncan-Smith that people were unemployed because they didn't have soft skills. The manipulation of soft skills by a failing government desperate to shift blame for its policies onto its victims, shouldn't blind us to the fact that soft skills are nevertheless good things to have. What kind of soft skills might we need for Green Deal? Here are some suggestions.

1. Advocacy skills. Energy efficiency marketing has, for the most part, been based on giving information or advice to consumers and assuming that information and advice will lead to the desire to act (what marketing people call AIDA - Attention/Interest/Desire/Action). For the most part this doesn't seem to be working, even if the information or advice is of good quality and is presented skillfully. So in the recent LEAF projects in Birmingham, an independent evaluation found that the Energy Performance Certificates given to householders were 'a blunt instrument' and didn't enable householders to make a decision on what to do. What happened next in the projects, particularly among householders in Kings Heath, was that the householders were give an additional package of advice, and peer-to-peer discussions took place in people's homes. This provision seemed to be more effective than the provision of information alone.

Advocacy can be defined as providing a person with a voice to ensure that her needs and wishes are made known, her views are respected and her rights protected. This is quite different to the provision of information and advice as currently delivered in the energy efficiency world. The human brain uses mental shortcuts to interpret information. People need to think more reflectively to make the correct choices about energy efficiency, otherwise they are at risk of making the wrong choice when they are asked to interpret information that they don't understand. An effective advocate can help them think reflectively in a way that the provision of information or advice alone cannot.

Stuart Bowles of Northfield Ecocentre is an example of an energy efficiency advisor who is also a good advocate. (1) Stuart is a good advocate despite the fact that the qualifications that he and other energy efficiency advisors hold, are based on the provision of advice and do not teach advocacy skills. Some people perhaps born advocates, others are made advocates and others have advocacy skills thrust upon them. We may not need to train many more energy advisors but we do need to improve the advocacy skills within the existing body of advisors, and to find people with advocacy skills who can become advisors.

Energy efficiency advocates need not only to advocate the best technical solutions for the householder but to help them understand the finances of Green Deal. They also need to help people shop around for the best energy tariff and payment method for their needs.

2. Management skills are important in all sectors but in particular in the third sector as organisations make the transition from a voluntary or charitable way of operating to a social enterprise approach based on winning contracts and trading, as is happening within the environmental third sector. Contract and investment readiness will make the difference between organisations surviving in the new climate or going under. Third sector organisations could easily scale up to deliver ten per cent or more of the expected £100m value of Birmingham Energy Savers in the next three years. We need to build upon the work that i-SE and Localise West Midlands have done recently on getting social enterprises ready to bid for Green Deal contracts.

3. Birmingham already has a good contingent of Green Leaders. They are mostly male, white and over 40. They benefitted from a decade or more of full employment during which their employers were able to invest in their leadership skills to the benefit of Birmingham's emerging green economy. There is an emerging layer of new Green Leaders in Birmingham who are younger, more female and more diverse. But they are attempting to carve out careers for themselves during a period where the misguided and short-termist policy of austerity means that many younger people lack job security and career progression prospects. I would like to see this emerging layer of Green Leaders benefit from the type of leadership programmes run by the like of Fircroft College and Common Purpose that the older generation of Green Leaders have benefitted from.

Most of the training budget available to Birmingham Energy Savers will go on making sure we have the plumbers, electricians, plasterers, renderers and many other trades we need to install energy efficiency measures. A small amount of this budget should be ringfenced to ensure that we have the advocacy, management and leadership skills that we need for a localised approach to the delivery of Green Deal. As always, we should be looking to local organisations to deliver this training.

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Thanks to Becky Ince for helping to clarify my thinking on this
(1) Stuart is one of many good energy efficiency advocates in Birmingham, I've chosen him merely because of the existence of a Youtube video featuring him (1:06)