The costs of ‘free’ insulation are spiralling out of control: the case for a different approach

Blog by Ian Preston, CSE’s Head of Household Energy Services

31 January 2020

We work a lot with schemes designed to provide vulnerable households with free cavity wall insulation. We are seeing signs that the costs of delivering this ‘free’ home energy upgrade are spiralling out of control. Changes are needed in how these schemes are funded and run.

Let me explain..

Cavity wall insulation is a relatively low cost measure with a payback of less than five years. Typically it costs around £600 and saves the household around £200 per year. It can both cut carbon and tackle fuel poverty depending on the householder and how much energy they use.

It is estimated that at the end of December 20181 there were 28.4m homes in Britain. Of these, 19.9m had cavity walls and 24.5m had a loft. Of the homes with cavity walls, 5.3m do not have cavity wall insulation (of which 1.3m are hard to treat)2.

There are two key policy drivers for insulating these cavity walls:

  • There’s a climate emergency and a government commitment to reach net-zero emissions by 2050. Many local authorities are declaring 2030 targets.
  • There’s a fuel poverty target of upgrading as many fuel poor households as possible to EPC Band C by 2030.

Currently, a household in fuel poverty can get its cavity walls upgraded for free via the Energy Company Obligation (ECO) Help to Heat or Local Authority (LA) Flexibility mechanism. However, this isn’t free. The costs of the upgrades are paid for from a hidden levy on all of our energy bills - and, from CSE’s experience of helping households access these schemes, we’re seeing the costs spiralling out of control.

ECO madness

I’ve broken down my estimation of the cost of cavity wall installed via the ECO below. There are a number of hidden costs like lead generation and compliance that impact on the measure’s cost-effectiveness.

Under the ECO scheme, lead generation has become a business in its own right; companies now generate leads and sell them on to installers as ‘ready-to-go’ measures. This is in part due to the eligibility rules and the challenges associated with finding people.

Here’s a quote from an installer on Linked-in looking to buy leads:

“We are looking for a minimum lifetime saving of £20,000 per lead but pay high rates. The lead will include benefit evidence, land registration, EPC, ECO score and boiler information (either GC Number with efficiency rating or boiler survey). Rates: we are looking at starting at £300 (plus vat if registered).”

My summary of ECO costs based on discussions with installers:

  • Lead generation – costs may range from £150 to £300.
  • Current Help to Heat ECO compliance costs – based on discussions with people I’d estimate a range of £150 to £200.
  • Current ECO LA Flexibility compliance costs – £100 (with application costs increasing to £250 in some areas).
  • Survey costs – £75 to £100.
  • Cavity wall insulation cost, estimate for a three bedroom semi-detached property – £500.
  • Costs of compliance with CIGA and further monitoring – £100.

Once the PAS 2035 quality standard has been implemented, the compliance costs are likely to increase by a further £150 to £200. So that gives a range of costs for a single measure of £1,075 to £1,300 (which could be as high as £1,500 for one measure).

These costs are nearly treble the cost of the actual measure.

In a world where we need to tackle fuel poverty and cut carbon as quickly as possible, this is utter lunacy and represents a major policy failure.

So far, under the third phase of the ECO, energy suppliers have done around 30,000 cavities3 (many of these as a secondary measure to avoid the ‘broken boiler cap’). By offering the measure for free, we could have done three times the amount!

But that still means another 60 years to insulate all the cavity walls… something tells me this isn’t quite fast enough given the urgency of the problem i.e. the climate emergency!

The argument against giving it away for free is one of freeloading. Wealthy householders receiving free measures when they could pay for it themselves. The simplest solution could be to make it free to people who live in properties with three bedrooms or fewer. For example, in Somerset that would make it free for 80% of the remaining unfilled cavities.

For homes with an unfilled cavity walls with three or fewer bedrooms, the average household income is £34k, compared to over £50k for those with four or more bedrooms4. However, we know that the wealthiest emit the most… with the richest 10% of households in the UK being responsible for three times more than the poorest 10% (16% of all emissions)5. So to make the biggest emissions reductions we want to insulate the biggest houses now.

But simply giving it away won’t remove all of the costs. There will still be some search costs associated with finding people, even if you are offering it for free.

It seems to me that the least cost to society would be to offer a nationwide scheme of promoting free cavity wall insulation to all households where the property isn’t in an area which has high exposure to wind driven rain (which can’t then be rectified through the use of a suitable insulation product). To increase take up, the scheme could be delivered via a trusted local authority and accompanied by a mandatory process whereby a house with unfilled cavities cannot be marketed until they are filled.


Sources

[1] BEIS2018 , Household Energy Efficiency National Statistics Detailed Report

[2] including standard cavity wall property with issues such as structural faults or presence of a conservatory, creating access issues and some unfillable cavity walls

[3] www.ofgem.gov.uk/environmental-programmes/eco/contacts-guidance-and-resources/eco-public-reports-and-data/measures

[4] Analysis based on Experian data on incomes and the latest EPC data release

[5] CSE 2013, Distribution of carbon emissions in the UK, report for JRF

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