Evaluating the Energy Company Obligation
Is ECO meeting its targets and providing value for money?
Project duration: January 2014 to April 2014
CSE has completed an independent evaluation of the first year of the Energy Company Obligation, including its interactions with the Green Deal. Funded by Energy UK (the trade association for the energy industry), the study worked with a Stakeholder Advisory Group consisting of consumer advocates, energy suppliers and government officials to review and challenge the evaluation methodology and the resulting findings.
What is the Energy Company Obligation?
The Energy Company Obligation (ECO) launched at the beginning of 2013 following the passing of the Energy Act, which mandates that energy suppliers provide funds to lower income and vulnerable households to install energy efficiency improvements. The scheme has two main targets: vulnerable people on low incomes and ‘hard-to-treat’ properties. It is intrinsically linked to the Green Deal, where measures that cannot be fully paid for though Green Deal finance are supplemented by the ECO. These two schemes replaced the CERT commitment and Warm Front scheme as the Government’s flagship energy efficiency initiatives.
The two complementary aims of the scheme are reducing carbon emissions and tackling fuel poverty. The government is currently reassessing the ECO so target carbon reductions have been deliberately omitted. The scheme is conducted under three strands:
- CERO – The Carbon Emissions Reduction Obligation targets hard-to-treat properties which are usually more expensive to insulate. CERO is designed to work alongside Green Deal finance, as such measures are unlikely to meet the golden rule without additional capital.
- CSCo – The Carbon Saving Community Obligation provides insulation more generally to vulnerable households or those on a low income with two provisos: a focus on providing connection to local district heating networks and a 15% sub-target of the total to be fulfilled in rural areas.
- HHCRO – The Home Heating Cost Reduction Obligation (aka Affordable Warmth) is specifically aimed at helping vulnerable or low income households heat their home and is not limited to insulation measures.
We evaluated how well ECO was meeting its targets after one year by conducting a full assessment including data analysis and interviews with suppliers, Green Deal providers and installers.
The evaluation shows the ECO as a new scheme beginning to pick up speed after a slow start. After one year it was being delivered within the original estimated costs. But it was not meeting one of its core aims, which was to develop a market for solid wall insulation. This was mainly due to a design flaw in the policy which allowed energy suppliers to prioritise cheaper, easier measures. There was also very little activity in rural areas (only 7.5% of all properties receiving measures were rural), despite the 'rural safeguard' element of CSCo which was meant to avoid this problem.
Our evaluation makes the following key short-term recommendations:
- Ofgem/DECC should set ‘deemed savings’ for each measure to reduce risk and simplify the proposition for customers
- Show cross-government support for the initiative, to increase confidence within the supply chain
- For solid wall insulation, introduce a minimum installations target into the ECO and increase Government cashback to customers
- There should be ongoing collaboration between suppliers, Ofgem, DECC and installers to streamline the reporting requirements
- Support the development of brokerage further though improved clarity of offers, separate CSCo rural lots and appropriate reporting to Ofgem
- Pre-verify householders’ eligibility for HHCRO grants via the Department for Work and Pensions, to reduce the burden of paperwork and minimise data protection risks
CSE's Ian Preston, who headed up the evaluation, said: "One of the main findings from our analysis and interviews with the supply chain was that the ECO's reporting requirements are very complex, time-consuming and bureaucratic compared to previous schemes. This has increased delivery costs, slowed down activity and hindered customer take-up. We strongly recommend setting 'deemed savings' for each measure, which would greatly reduce all these issues. Unfortunately this possibility was not addressed in the recent 'Future of the ECO' consultation."