Since the Spending Review, we’ve all had time to pour over the detail of George Osborne’s raft of policy decisions and scrutinise just what the chancellor had up his sleeve for the coming years. From a home energy efficiency perspective, the Energy Company Obligation (ECO) remains the last scheme standing after the Green Deal and zero carbon homes standard due for 2016 both fell by the wayside as the austerity train ploughed on.
For George, in some ways ECO was untouchable (it being the last signpost of any government efforts to improve UK housing stock) and considering it isn’t directly funded by central government, it doesn’t cost him much either. However, that’s not to say that it doesn’t cost taxpayers, who shell out extra on their energy bills to pay for suppliers to fulfil their obligations, and it is this issue that has sparked change.
It was announced that an ECO replacement scheme would be introduced after the current period comes to an end in March 2017. Buoyed by claims that he would be saving us all over £30 on our annual energy bill, the Chancellor unveiled a leaner (and meaner) scheme costing just £640 million. Considering the current ECO cost close to £1.4 billion to deliver in its first year, this marks quite a reduction. Or it would, if ECO had continued to cost that much.
Last month we spoke to the Association for the Conservation of Energy (ACE) immediately after the Chancellor took to the dispatch box to find out what the numbers meant to them. According to head of research Pedro Guertler, the cost of ECO had dropped to around £1 billion in its second year (2014) and had cost as little as just £300 million in 2015 up to June. This means that if we estimate a spend of around £600 million for 2015, which is unlikely as energy suppliers get closer to meeting their obligations and activity begins to wind down, and divide it by the UK’s 25 million households, ECO is expected to add around £24 to household bills in 2015. How then can a £640 million scheme save £30 when the current estimated £600 million is adding less than that? The answer is it can’t.
So that leaves the question of where does this £30 saving come from? Guertler believes the Treasury must have used the cost of ECO in its first year to calculate the savings it has announced. This has all but been confirmed by the Department of Energy and Climate Change (DECC), who told Clean Energy News: “The saving on costs expected from the new scheme are based on the last published projections of ECO costs, which is with the scenario set out in the 2014 Impact assessment.”
Paragraph 263 of the assessment, which was published in October 2014, states: “For the purpose of modelling, we have assumed that ECO reverts to an ambition associated with cost to suppliers of around £1.3 billion on average p.a. (in 2011 prices) from 1 April 2017.” The exact figure given of £1.347 billion, which once again divided by the number of UK households, equals around £54 more for bills. By taking the budget down to £640 million the £30 saving is made, which is all very well and good if not for the fact that ECO no longer costs suppliers nearly as much.
Guertler points out: “It’s not actually a new saving; they’ve already made the saving of £30. The new scheme is going to cost about the same every year for five years as the current scheme is costing this year, so they’ve dressed up the figures.”
The same impact assessment places the current ECO spend at around £820 million which may not be accurate but is at least closer to the truth. Giving evidence to the Energy and Climate Change select committee earlier this week, Jan Rosenow of the Centre on Innovation and Energy Demand, University of Sussex, speculated as to what the actual savings would be to bill payers. He claimed if the figure was around £800 million, the saving between ECO as it is now and the new scheme totals just a £6.40 annual saving for each of the UK’s homes. Only when multiplied by the five years the new scheme will operate in does it add up to £30. This calculation goes against the savings proposed in HM Treasury’s documents, which project £32 in 2017-18 alone.
All of this means that it is really quite difficult to judge just how much of reduction people will see on their bills, but what does seem clear is the government is continuing to shift away from energy efficiency for cost-saving purposes. This may not be surprising but another interesting figure in the 2014 impact assessment is that ECO adds £900 million to the economy so in some ways, Osborne is missing a trick by reducing the ambition of the scheme further. Considering the new 2017 programme will only help 200,000 homes a year (the current scheme treated well over a million in its first two years), less homeowners will have extra cash to spend and it has even been argued that the new ECO could push more people in to fuel poverty. Simon Roberts, chief executive of the Centre for Sustainable Energy (CSE), told the ECC select committee that with less cash in the pot, “fewer and fewer people get the benefits and everyone else pays the cost, and that puts more people in fuel poverty.”
Each home will be eligible for an average of £3,200 per year, which many solid wall insulation installers will tell you, doesn’t buy much. The cheaper cavity wall option, which has been the most common measure installed under ECO, is significantly cheaper which is why many of the homes in need of this have been treated. The hard to treat solid wall homes have been left precisely because they are more expensive, and it is these homes that the replacement ECO will have to target, but with less money. As with so many policy announcements from DECC and the Treasury since May, the replacement ECO programme boils down to this issue and considering the government’s fast and loose approach to projected savings for the scheme, it may not take long come 2017 for people to release that the so called savings on their bills may not be as pronounced as they have been led to believe.