Energy suppliers will make significant savings from the government’s new energy company obligation (ECO) according to the final response published earlier this week.
Proposals for the new Help to Heat scheme as it will now also be called were published in June last year and revealed the scale of the government’s plans to reduce the size of the scheme and refocus it towards the fuel poor.
The plans included a 12 month extension of the current scheme which would allow time for a transitional period into the Help to Heat. The Department of Business, Energy and Industrial Strategy (BEIS) has now turned this into 18 months to allow the supply chain to adapt to new requirements, such as delivering insulation instead of boilers, which have been limited under the new scheme.
As well as allowing greater time for the supply chain to deliver the new demands of the extension period, BEIS undertook a survey with energy suppliers subject to ECO’s obligations to determine if the new scheme would reduce their administrative costs.
It found that suppliers are expected to make savings of £5 million per year during the extension, taking these administrative costs down to £80 million.
This is due to a range of new measures to be included in the scheme, such as flexible eligibility which will place a responsibility on local authorities to identify a proportion of the homes to be treated under ECO.
Suppliers will be able to achieve up to 10% of their Affordable Warmth target for the extension period in households identified under the flexible eligibility mechanism. Councils will be accountable for the accuracy of these selections.
Further simplifications to administration will come from the removal of a requirement for measures to be recommended on either a Green Deal Advice Report (GDAR) or a Chartered Surveyor’s Report (CSR).
In addition, from 1 April 2017 the Government will allow 5% of each supplier’s measures to be granted an automatic extension for up to three months, providing flexibility within the one-month reporting requirement. Several respondents felt this would simplify administration for energy suppliers and the supply chain as well as reduce the risk of otherwise compliant measures being rejected.
Obligated suppliers will also now be permitted to trade all or part of their obligations between one another. While this will provide greater flexibility in meeting obligations, BEIS says it may also help to reduce delivery costs by simplifying scheme administration through the consolidation of obligations onto single licences.
However, Ofgem will be able to reject the trade if it considers there is a significant risk that the supplier taking on the obligation will be unable to achieve it.
Finally, deemed scoring will be used to calculate all savings under ECO in place of the RdSAP or SAP based property by property assessments. This will use deemed carbon savings expected from different measures in different properties, based on inputs, such as property type, number of bedrooms and heating type.
BEIS argues this will simplify the scheme and reduce delivery costs, enabling more homes to be treated within an obligation period, despite concerns raised during the consultation period that calculated savings may be less accurate across the scheme.