June 2014: The government announced a review of its ECO (Energy Company Obligation) programme in December 2013, against a backdrop of considerable media coverage, across many months, on the rising costs of consumers’ energy bills – all of which culminated in the Prime Minister’s alleged ‘cut the Green Crap‘ quote .
The ECO sets a legal obligation on energy suppliers to provide a reduction in carbon emissions through supporting the uptake of energy efficiency measures in the domestic sector. Each supplier (effectively the ‘Big 6’) has a specific target assigned to it by government depending on the number of domestic gas and electricity customers they supply. The ECO is paid for through a charge on all household energy bills – which is then collected by suppliers and is in turn used by them to help subsidise energy efficiency programmes – such as reduced cost insulation measures. Each household is estimated to pay around £50 a year to pay for ECO (approximately – it depends on the level of charge passed on by the supplier to their customer to meet the costs of their ECO target), which amounts to around £1.3bn a year total ECO spend. The proposals put forward in ECO consultation, with reductions in supplier target levels, and ‘stretching out’ of the targets to March 2017 (see below), are thought to reduce the cost of ECO to households by £30-35 ie a small reduction in energy bills (around 2% against an average energy bill of £1,300) – but also an overall reduction in the amount of money going to fund the government’s main efficiency programme. It should be noted that predecessor ‘supplier obligation’ programmes have operated in the UK since the mid-90s (EESoP, EEC, CERT, CESP) and have contributed significantly to helping improve the energy efficiency of UK homes (see section 6.13 of latest DCLG English Housing Survey report here).
Following the December press release, a consultation paper – the ‘Future of the ECO‘ – was released on 5 March, which closed for comments on April 16th. The consultation set out a wide number of proposals – of which the major ones were to:
- Extend the operation of ECO beyond the current March 2015 deadline to March 2017
- Set new targets for the three sub-obligation targets (CERO, CSCO and HHCRO)
- Reduce the major sub-target of the ECO – the Carbon Emissions Reduction Obligation (CERO) – target by 33 per cent.
The Mayor has posted his response to the government’s proposals highlighting a number of key concerns including that:
- “…the lack of funding likely to be available for social housing and solid walled properties in London, and the potential for missing significant opportunities to match fund. With significant funding available for easy to treat cavities and walls under CERO and CSCO, the Mayor recommends that Government increases the target for solid wall insulation under the CERO from 100,000 to 200,000 installs by 2017.”
- “… London is estimated to have 10 per cent of Great Britain’s fuel poor, yet only 3.9 per cent of the HHCRO has been delivered in London. With the cost of ECO being spread across all energy bills the Mayor recommends that Government urgently investigate London’s continued low share of HHCRO and provide a safeguard for London’s fuel poor through a regional target, uplifts for delivery in smaller properties, or in the short-term, additional funding for London.“
- “…over the transparency of the cost information provided by energy companies on which the reduced target has been based, and encourages Government to take steps to increase transparency and scrutiny of energy company cost data from now onwards.”
- “The Mayor has significant concerns over the design and delivery of HHCRO. Initial indications suggest that HHCRO is being focussed on installing the lowest cost measures in the largest properties. This runs a significant risk that those households in the deepest fuel poverty and those most vulnerable to health risks may not be accessing HHCRO support. ECO figures to December 2013 show less than 5 per cent of HHCRO measures were delivered in flats. In London, 50 per cent of homes are flats. This is having a significant impact in London with the assumed ‘cherry picking’ of fuel poor homes meaning that by December 2013, only 3.9 per cent of HHCRO measures were delivered in London, compared to the capital’s 10 per cent share of Great Britain’s fuel poor. With the cost of ECO being spread across all energy bills, the Mayor recommends that Government urgently investigates this issue, and provides a safeguard for London’s fuel poor through a regional target, uplifts for delivery in smaller properties, or in the short-term, additional funding for London. As the majority of the HHCRO 2015 target has already been delivered,mitigating measures should be introduced from 2015 onwards.”
The Mayor had previously lobbied the government in 2013, during the passage of the Energy Bill, to secure a specific London regional ECO target – but without success. It’s not clear as to when government will be making their final decisions on ECO but, as can be seen from responses to this DECC blog on the consultation, uncertainty across the sector is causing major energy efficiency retrofit schemes in London and elsewhere to stall (see here and here).