BLOG: Extended Eco must be cost-effective

Keith Armstrong is the Director of Energy Services at SSE. Below is a blog he recently penned for Utility Week around the changes to the ECO scheme.

At SSE, we are committed to playing an active role in delivering the UK’s fuel poverty and energy efficiency objectives. Under the Energy Company Obligation (ECO), we provide funding towards energy efficiency measures in consumers’ homes, to help them save money, live more comfortably and to reduce carbon emissions. Last week, the Government published its response to the ‘ECO: Help to Heat’ consultation, providing welcome detail on the next phase of the scheme (running from April 2017) and allowing us to put plans in place to deliver energy efficiency measures to customers’ homes in a cost-effective manner.

We appreciate the Government’s commitment to targeting ECO more effectively at those living in fuel poverty or on a low income. At SSE, we have long advocated for an energy efficiency scheme focused on helping those most in need. The challenge with this approach is in balancing greater targeting with the need for the scheme to be cost-effective; something we emphasised in our response to the Government’s consultation. Since the initial proposals were published, Government has increased the pool of eligible customers from 4 million to 4.7 million, hopefully including more households on lower incomes who have often fallen through the gaps in schemes like this.

We’re pleased to see that Government has committed to extending ECO for eighteen months, instead of the initial twelve months suggested. The proposed changes will rebalance the scheme towards the fuel poor, focus more on insulation measures and reduce the administrative burden.  A longer scheme will provide industry with much needed time to adapt.

Over time, the energy efficiency measures delivered under schemes like ECO will need to change. Certain measures, such as low cost cavity wall insulation, have been delivered at scale under ECO and its predecessors. The installation of other measures, such as solid wall insulation, have not been so prolific - only 8% of solid wall properties have been insulated compared to 69% of cavity wall properties according to Government statistics.  Even with an eighteen month obligation, there may be difficulties delivering cost-effective insulation measures to the targeted group; a risk already acknowledged by Ofgem, the scheme administrator. If this becomes an issue, we’re hoping the Government provides a carry-under mechanism, so any measures not delivered by the end of September 2018 can still be delivered to consumers without creating an unrealistically high cost due to the short term nature of the scheme.

As insulation is one of the most effective ways of increasing a building’s energy efficiency and  two thirds of existing properties are estimated to still be standing in 2050, we need to start looking at property types which have so far been unable to benefit from low cost insulation under ECO. The requirement for about 32,000 solid wall properties to be insulated during the eighteen month scheme is a step in the right direction.

Finally we, like many in the industry, were pleased to see confirmation deemed scores will be reintroduced for the extension, replacing the complex RdSAP system for calculating savings from measures. Clearly it’s important to assess and qualify measures effectively, but there’s a balance to be struck and we think deemed scores will enable us to reduce the overall administrative costs associated with the scheme without any detriment to customers, allowing more ECO funding to be spent on improving homes. We would like to see these scores reflect regional variations and further incentivise rural delivery in future.

With the ECO extension due to start on 1 April 2017, it’s paramount Government can now pass legislation before the end of March to enable the smooth delivery of energy efficiency measures to consumers’ homes to continue. Looking further ahead, it will be important to see the implementation of the recommendations from the ‘Each Home Counts Review’ improve consumer protection and industry standards, to help make sure that the energy efficiency improvements recommended to consumers are appropriate for their homes. We will also seek early clarity about the direction ECO will take from 2018, so we can engage constructively with Government and feed into the design of a new obligation.