Customers, Policy & regulation

Claudia Jaksch breaks down the recent changes to the Energy Company Obligation

You may have noticed that on 30 January the Department for Business, Energy and Industrial Strategy announced that changes to the Energy Company Obligation (Eco) will make sure energy companies provide necessary support to people struggling to meet their heating bills.” Plans to extend the scheme from April 2017 to September 2018 were also published.

In April 2016 the Westminster Sustainable Business Forum (WSBF) published its report entitled Warmer & Greener: A guide to the future of domestic energy efficiency policy.  On 12 July 2016 the WSBF ran a roundtable in Parliament entitled “Supplier Obligation Schemes & the Future of ECO”, chaired by Peter Aldous MP. It covered introducing a more simplified Eco scheme, better targeting of fuel poor and poorly insulated homes without burdening the billpayers, and reaching these homes which are often rural and off the gas grid.

Following the WSBF report, and the Eco scheme consultation and report, several policy changes have been announced, due to start taking effect as of April 2017.

But what does this really mean?

Struggling households to get free energy efficiency measures

The government plans to introduce a more simplified and targeted scheme. The Affordable Warmth Group will be increased to around 4.7m rather than 4m (in consultation) households. This will include more households who are in fuel poverty, and those on lower incomes, who may be struggling to meet heating and other bills.

The consultation report also says that: “the requirement to deliver a minimum level of solid wall insulation will be increased from the proposed equivalent (in consultation) of 17,000 measures per year to 21,000 per year.”

For energy suppliers, this means that the Eco scheme is evolving and will be more targeted in future. Expect to see regulations that will call on energy suppliers to target fuel-poor homes and work with local authorities in order to do so, hopefully making the whole process much less laborious than previously, which the Warmer & Greener report called for in 2016.

Reaching these homes

As reported by the WSBF, homes which are more expensive and difficult to reach and treat will often be the ones with the largest fuel poverty gap. The WSBF noted that if the next phase of Eco is focused on fuel poverty and it is the predominant instrument for delivering efficiency improvements to fuel poor homes it should include safeguards to ensure energy companies deliver improvements to properties which are more expensive and difficult to reach and treat.

The January announcement says “rural delivery will be protected as 15 per cent of Carbon Emission Reduction Obligation will be delivered in rural areas”. Ultimately, this means that rural delivery of carbon emission reduction measures will be expected and is likely to be measured by government through the Eco scheme.

The Eco consultation report announced that “Local authorities will have a role in determining eligible homes, following the introduction of the ‘flexible eligibility’ mechanism, which suppliers can use for up to 10 per cent of their Affordable Warmth obligation.”

Measures to ensure this is implemented include:

  • Eligibility for Affordable Warmth will be simplified and better targeted. Sub-criteria will be removed for recipients of some means-tested benefits. The income thresholds for Tax Credit and Universal Credit recipients will be amended to better reflect disposable household income.
  • Eligibility for certain measures under Affordable Warmth will be extended to social housing in EPC Bands E, F or G.
  • the method of assessing bill and carbon savings will be simplified. ‘Deemed scores’ will be introduced in place of the current Standard Assessment Procedure (SAP) methodology.
  • Local authorities will be able to determine eligible homes under the new “flexible eligibility” mechanism. Suppliers will be able to use this voluntarily for up to 10 per cent of their Affordable Warmth obligation.

For energy suppliers, it is clear that the Eco scheme for 2017 onwards is now structured to meet the needs of the fuel-poor and the just-about-managing households. These policy changes reflect the evidence-based work by the Westminster Sustainable Business Forum and other policy experts in the field.

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