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Last edited 19 Jan 2022
Energy companies obligation ECO
On 4 December 2012 Parliament passed the Electricity and Gas (Energy Companies Obligation) Order 2012. The energy companies obligation (ECO) then came into effect in January 2013. It ran until March 2015 when a new obligation period (ECO2) was introduced, running from 1 April 2015 to 31 March 2017 and extending the lifetime of the original scheme.
The energy companies obligation provides support for the installation of energy efficiency measures to reduce energy consumption in the UK and to help people living in fuel poverty and in properties that are hard to treat. This is part of the UK government’s strategy to achieve its legally binding commitment to cut emissions of greenhouse gasses by at least 34% by 2020 and by 80% by 2050 compared with 1990 levels. This commitment is set out in the Climate Change Act.
The energy companies obligation includes:
- The Carbon Saving Community Obligation, providing insulation for households in areas of low income.
- The Affordable Warmth Obligation, providing heating and insulation for low-income consumers vulnerable to the impact of living in cold homes, such as the elderly, people with disabilities and families.
- The Carbon Saving Obligation, for measures such as solid wall insulation and hard-to-treat cavity wall insulation, which can’t be financed purely through the Green Deal.
The ECO is worth approximately £1.3 billion a year and is funded by the big six energy suppliers. It is intended to run alongside the green deal and can be provided directly to customers, or through pre-approved arrangements, such as green deal providers.
ECO is administered and monitored by the Office for Gas and Electricity Markets (Ofgem). Energy suppliers report on delivery against their obligation, to demonstrate that they will meet their target by 2015.
NB On 14 April 2016, the National Audit Office (NAO) published Green Deal and Energy Company Obligation, in which it found that the design of the ECO to support the Green Deal added to energy suppliers’ costs of meeting their obligations. This reduced the value for money of the ECO, but it was not able to determine by how much.
In January 2017, it as announced that the scheme would be extended to September 2018 and that there would an increased focus on low income and vulnerable homes. The new measures, which were introduced on 1 April 2017 included:
- Reforms to simplify the scheme, with energy companies required to provide struggling households with energy efficiency measures to make their homes warmer and bring their bills down. There are three ways to qualify under the Affordable Warmth element of the scheme: i) those in receipt of certain means tested benefits ii) those living in social housing with an EPC of E,F or G and iii) those referred to suppliers by local authorities under the newly-introduced flexible eligibility. Suppliers can also refer households who are in or at risk of fuel poverty or vulnerable to living in a cold home.
- Suppliers will be required to install a minimum 21,000 solid wall insulations per year, up from the earlier proposal of 17,000.
- Continuing protection for the delivery of energy efficiency measures in rural areas, with a requirement that 15% of suppliers’ Carbon Emissions Reduction Obligation be delivered in these areas.
Consumer Minister, Margot James said: “The big energy firms already have to help households save gas and electricity bills, by improving homes so they are easier and cheaper to keep warm. We’re strengthening this obligation today and making sure they prioritise low income households as part of our plan to insulate 1 million homes by 2020.”
On 30 March 2018, the government launched a consultation into the scheme, which was due to end in September 2018. Proposals include; focussing the scheme entirely on low income households, and allowing suppliers to allocate up to 20% of their delivery target to supporting innovative measures. For more information see: Energy Company Obligation consultation.
In July 2018 the Government confirmed that the third ECO scheme (ECO3) would be a 100% Affordable Warmth scheme. The Electricity and Gas (Energy Company Obligation) Order 2018 (“the ECO Order”) brings into force ECO3, which supports low income, vulnerable and fuel poor households meaning that all measures should be delivered to these groups. The scheme will run until 31 March 2022.
- Carbon emissions reduction target.
- Energy Act.
- Energy certificates.
- Energy Company Obligation consultation.
- Feed in tariff.
- Fuel poverty.
- Green Deal.
- Green Deal Home Improvement Fund.
- Greenhouse gases.
- IHBC responds to Energy Company Obligation ECO4 and PAS 2035.
- NAO report into the Green Deal and Energy Company Obligation.
- Renewable heat incentive.
- Renewable obligation.
- Solid wall insulation.
- Zero carbon homes.
- Zero carbon non domestic buildings.
 External references
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