Ofgem secures £28m from Drax Power for failing to meet environmental obligations

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  • Drax Power delivered 37.1% of its Community Energy Saving Programme (CESP) obligations.
  • Several thousand homes have missed out on free energy efficiency measures.
  • Drax has not taken action to mitigate this harm.
  • Today’s payment reflects Drax’s willingness to settle this case, but it also ensures Drax does not benefit from its non-compliance.

Ofgem has today secured a £28 million payment from the generator Drax Power for failing to meet environmental targets under the government’s Community Energy Saving Programme (CESP). Drax Power was one of the six companies under investigation about compliance with obligations under CESP.

Drax is working with National Energy Action to develop a package of consumer redress proposals which would see up to £20 million benefit the consumers for whom the scheme was designed. The remainder would be paid as a fine or delivered as consumer redress measures.

Under CESP, generators as well as energy suppliers had to deliver energy saving measures to households in low-income areas by the end of December 2012. Drax Power delivered 37.1% of its carbon emissions reduction target. This led to several thousand households in some of the most deprived areas in Britain missing out on energy saving measures which would have helped lower bills and keep homes warm.

Ofgem found that senior management at Drax were aware of the serious risk of non-compliance with CESP 18 months before the end of the scheme. While Ofgem has taken into account Drax’s inexperience in delivering energy efficiency measures to consumers and its lack of a customer base, the company could have taken more timely action to reduce the risk of not delivering its obligation. In addition, after the deadline passed, Drax made no attempt to mitigate the carbon saving shortfall. This was a significant factor in Ofgem’s decision.

Today’s payment reflects the fact that consumers have lost out significantly from Drax’s failure to deliver and ensures the generator has gained no benefit from not delivering its obligations in full and on time. It also takes into account Drax’s agreement to settle the investigation, without which the fine would have been higher.

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. Not only are these consumers missing out on energy efficiency measures that would help keep their homes warm, they also face higher energy bills as a result. Today’s agreement to pay £28 million reflects the seriousness of the consequences of these failings for consumers.”

 

Notes to editors

1. CESP Investigation

You can find the penalty notice here.

Ofgem has secured a £28 million payment from Drax in relation to the CESP investigation. Drax is working with National Energy Action to develop a package of consumer redress proposals. We are considering the company’s proposals as to how the payment can benefit the consumers for whom the scheme was intended. This will be decided during the consultation period, which runs until 5 January. The decision will be confirmed when the final penalty notice is issued in early January.

In May 2013, Ofgem launched investigations into six energy companies who failed to deliver their obligations under the Government’s Community Energy Savings Programme (CESP) scheme on time. The obligation to meet the CESP target arose under Article 14(1) of the Electricity and Gas (Community Energy Saving Programme) Order 2009 (SI 2009/1905).

Drax failed to meet, by 31 December 2012, its carbon emissions reduction obligation. It delivered 332, 312 tCO2 and had a shortfall of 562,826 CO2 against its overall target of 895,138 tCO2. Following that, Drax didn’t take action to address its shortfall.

 

2. About CESP

The Community Energy Saving Programe (CESP) was designed to lower carbon emissions through the delivery of energy saving measures, such as loft and cavity wall insulation free of charge, to households in low income areas. The government required generators as well as energy suppliers to deliver against individually set targets by the end of December 2012.

The CESP overall targets were set by the Department of Energy and Climate Change (DECC). Ofgem administered the two schemes while DECC was responsible for the policy. Ofgem’s role included calculating the individual targets of qualifying energy companies, reporting to the Secretary of State and initiating enforcement action where appropriate. More information is available on Ofgem’s website.

The overall CESP target was 19.25 million lifetime tonnes of carbon dioxide (Mt CO2). By the end of the programme (31 December 2012) energy companies had achieved 16.31 Mt CO2 (84.7%) against the overall target.  Suppliers met 92.4% and generators met 36.0% of their respective targets. Source: The final report of the Community Energy Saving Programme (CESP) 2009-2012.

You can find more information on CESP here

Ofgem issued a press release and open letter on the 21 September 2012 that warned energy companies that they risked enforcement action if they failed to meet their CESP targets. We encouraged energy companies to continue to install energy efficient measures after 31 December 2012. These mitigation actions were not a substitute for compliance but ensured the original benefits envisaged under the CESP were realised. Without this approach, thousands of households in low income areas would have lost out. These mitigation actions were taken into account as part of our investigation.

For further press information contact:

Claudia Cimino: 020 3263 2722

Dafydd Wyn: 020 3263 9943

Out of hours media contact number: 07766 511470