ECO 3 consultation response is released!

The Energy Company Obligation – ECO – is one of several key policies the government instigated to deliver the Clean Growth Strategy. This states that the government will consider “the best form of support for home energy efficiency beyond 2022, recognising the need to save carbon and upgrade all fuel poor homes to Band C by 2030. There will be support for home energy efficiency to 2028 at least at the current level of ECO funding”. The scheme is administered by Ofgem on behalf of the Department for Energy Business & Industrial Strategy (BEIS).Act on Energy can advise you on whether you are eligible and how to access funding.The last change to the scheme occurred in 2017 and was known as ECO2t. The Government Response to the ECO3 consultation, governing the future of ECO from October 2018 to March 2022, is now published:

KEY OUTCOMES:

  • ECO3 Target: The overall target for ECO3 has been increased by 7% to £8.253bn lifetime bill savings within the £640m “spending cap”. There will be no “interim targets” – a supplier will comply with ECO3 as long as they have met their total obligation by March 2022.
  • Affordable Warmth Only: ECO3 will now be 100% focused on the “Affordable Warmth” (AW) sector, and no ECO funding will be available for measures delivered to “able to pay” households, with the exception of in-fill rules for solid wall insulation and district heating projects. The eligibility criteria for AW will be relaxed (including the removal of almost all income caps) such that 6.6m households will be eligible.
  • LA Flex Extended: In addition, 25% of the obligation will be available through the Local Authority Flexible Eligibility (LA Flex) mechanism, which is good news for our local council partners across Warwickshire, Worcestershire and Solihull. Note that there will be a (to be defined) uplift to ECO3 scores for F and G rated (owner occupied) properties funded through LA Flex. Note also that BEIS will issue new guidance on LA Flex before October.
  • Smaller Suppliers: The “supplier threshold” will reduce from 250,000 energy accounts to 200,000 accounts in April 2019 and 150,000 in April 2020. This means a number of smaller suppliers that are currently below the obligation threshold, will become obligated. However, a new, slightly modified “taper mechanism” will also be introduced, the effect of which will be a decrease in the share of ECO3 borne by smaller suppliers.
  • Solid Wall Insulation Minimum: The SWI Minimum remains at a very low 17,000 homes. Moreover, a combination of other insulation and renewable heating measures that delivers equivalent savings can be used instead of insulation.
  • F&G Rated Private Rented Sector (PRS): ECO will not now be available for measures installed into F or G rated PRS properties (other than expensive measures such as SWI). This is on the grounds that the landlord will separately be required to reach the minimum energy efficiency standard (MEES) which require the landlord to make improvements to reach at least band E. However, this does create a “circular argument”, as a PRS landlord will be able to get an exemption from the MEES where a measure isn’t available at zero cost to them (and Green Deal would be prohibitively expensive for a cheap measure like loft or cavity insulation). It is hoped that this will be solved by a swift conclusion to the consultation on the removal of the “no cost to the landlord” principle and implementation of the proposed requirement on landlords to make improvements up to a cost of £2,500.

OTHER THINGS TO NOTE:

  • Child Benefit: This has been included as a qualifying benefit, but alongside income thresholds, with “self-declaration” by the household of the income level being considered sufficient. Government has asked Ofgem to adopt a system that, “to the fullest extent possible, minimises any potential for abuse and/or fraud”.
  • Rural Sub-Obligation: The rural safeguard will be maintained, such that 15% of all measures must be installed in rural areas.
  • Ground Source Heat Pumps: RHI and ECO can now both can be claimed, for GSHP only, but this will not be allowed on any other renewable measures attracting RHI.
  • Oil Boilers: oil boilers will retain a foothold in ECO3. However, as they will only be eligible within the “Broken Boiler Cap”, the number of oil boilers installed in practice is likely to be very few as broken gas boilers can typically be replaced at a lower ECO funding rate than oil.
  • Inefficient Heating Systems: The proposed inclusion of (relatively low) funding for inefficient heating systems (outside of the Broken Boiler Cap) alongside an insulation measure remains. However, loft insulation will no longer qualify as an accompanying insulation measure.
  • In-fill Mechanism Extended: This mechanism, which enables a certain number of non-AW households to receive SWI measures as part of an area-based scheme will be extended to District Heating. This is available for private tenure households only.
  • Customer Contributions: despite some calls for an outright prohibition of customer contributions under ECO, this has been rejected by Government on the basis that it is a matter between an installer and a householder.

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