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ECO Consultation Summary

Yesterday the long awaited Government ECO consultation was released alongside its financial impact assessment.  As the new name indicates,  “ECO – Help To Heat” is transitioning the scheme into what will be a 100% fuel poor grant scheme by 2018.

Responses to the consultation need to be in by the 17th August and DECC are urging people to use their electronic response service as per the link below to ensure they can review all responses quickly to get any changes implemented to minimise disruption to the industry.

https://econsultation.decc.gov.uk/decc-policy/eco-help-to-heat-consultation

Full consultation is here 

Overview

ECO 2 runs from 1st April 2015 to 31st March 2017, this consultation proposes extending the current round of ECO to the end of March 2018 (ECO 2.1), to allow a 1 year transition between the old ECO and the new ECO which will run until 2022 (ECO 3).  As part of the Spending Review, the allowable ECO budget was reduced from £820m to £640m, a cut of over 20%.  At the same time, the Government wish to reduce funding for Able to Pay customers and put more emphasis onto fuel poor households which will naturally require a larger financial contribution.

Affordable Warmth

70% of the transition funding will be allocated for Affordable Warmth (AW) customers.  This additional target adds £1.84bn of lifetime savings to the energy suppliers’ targets.  Carry over from the current ECO into the transition year will only allowable for AW works installed after the 1st July.  Carry over for AW will also be subject to certain conditions as explained below.

Qualifying Gas Boiler Cap

As anticipated, there has been a cap placed on qualifying gas boilers, these being replacement gas boilers installed in Affordable Warmth homes where the boiler is broken down (in the loose sense of the word) or running inefficiently (allegedly).  These boilers benefited from what I believe has always been a perverse uplift by scoring the savings based on an assumption that the home was being heated by portable electric heaters. This has led to the lion’s share of HHCRO savings being delivered through gas boilers at the expense of those homes which have the more expensive LPG, oil and electric heating.

Under the proposal, any carry over of AW work into the extension year will need to have no more than 23% of its lifetime savings made up from qualifying gas boilers.  This will be a reduction from an approximate annual run rate of 120,000 boilers a year under ECO to date down to 25,000 a year.  Gas boilers themselves are not capped, but only if they are replaced using the actual previous gas heating system as the baseline rather than the portable electric heaters, presumably these would then be scored as non qualifying boilers?

ECO measure mixInterestingly, although the consultation champions replacements of LPG and oil qualifying boilers, page 50 of the financial impact assessment only shows 23,000 boiler installs in the measure mix during the extension, 2,000 less than the anticipated gas boiler volumes.  More than half of the AW measures are anticipated to be insulation.

Whilst this is a major blow for gas boiler installers, it does now open up a major opportunity for AW savings to be generated from insulation and other heating measures.  From a fuel poverty perspective this is good news and although there will be some pain while the industry weans itself off the gas boiler drip, I believe it is the right thing to do and actually I think it is a shame it wasn’t done at the start of ECO 2.

Change to Affordable Warmth Eligibility

The Government wishes to better target the AW funding to those most in need and are consulting on a number of changes to the AW eligibility.  These will not come into force until April but the proposals are as follows.

  • All social housing properties with an EPC band of E, F or G to become eligible for AW insulation measures even if the tenant is not on benefit. Normal AW heating measures will not be eligible in social housing but first time heating, district heating and potentially renewable heating will be eligible.  This opens up an opportunity for a renewable energy district heating system in social housing which can benefit from both ECO and the RHI
  • For Child Tax Credit, Working Tax Credit and Universal Credit, a new income threshold will be introduced which will offer a higher threshold the more occupants the home has. A single adult would see their earnings threshold cut to 67% of the current level (£10,720) but a couple with 4 children would have their threshold raised to £28,800
  • Income Support, Income Based JSA and Income Related ESA will no longer require the secondary requirements like children, a disability or a third nipple
  • Pension Savings Credit is no longer an eligible benefit on its own without Pension Credit Guarantee Credit
  • Energy suppliers are to be given the option to allocate either 10% or 20% (to be determined through the consultation) of their AW budget to be spent on householders that have had their AW eligibility approved by local authorities. The households need not be on the approved list of benefits, but could instead be deemed to be fuel poor or vulnerable to the effects of living in a cold home.  In these cases, the local authority could simply provide a declaration of why they believe the householder meets these criteria.  Other intermediaries such as charities could also be included in making these referrals.

Solid Wall Insulation

A solid wall minimum requirement will be retained in the ECO extension with the equivalent of an extra 17,000 homes added to the target, or 740,000 tonnes of CO2.  This is down from the 25,000 homes in ECO2 which is necessary to help balance the books and ensure that the Government meets its target of 1 million homes insulated by 2020.  Suppliers may still continue to take advantage of matched funding from the Governments of Wales and Scotland meaning a large part of this target could be delivered outside of England.

Party Wall Insulation

Party wall insulation gets a slight boost, having its in-use factor reduced from 35% to 15% which effectively increases the savings by 20%.  It also becomes a primary measure, meaning that homes having party wall insulation can also have secondary measures such as under floor insulation.

No More EPC, GDAR or CSRs

Sorry DEAs, GDAs and Chartered Surveyors, but as widely predicted, the Government are suggesting that the requirement for an EPC, GDAR or Chartered Surveyor Report be dropped in favour of a set of deemed scores.  It didn’t take a rocket scientist to work out that this was on the cards as DECC have been open about this potential change for some time and Ofgem have already released their consultation on what the scores might look like.

Relaxation of 1 Month Reporting Rule

From April, energy suppliers will be able to submit up to 5% of their work up to 3 months later than the normal deadline of having to submit the work by the end of the month following the month in which the work was completed.  Also, currently if work is submitted late due to an administration error, the energy supplier cannot request an extension from Ofgem.  Under the new rules, in addition to the 5% flexibility, suppliers can request to exceed the 5% for a variety of reasons including an administration error, although Ofgem don’t have to allow the extension.

Don’t get all excited though, if an installer or managing agent makes a mistake, or if work is rejected or funding is pulled leaving you with work which is more than a month old, there is no obligation on the energy supplier to use part of their 5% flex to assist you to sell your work.  If this makes you seethe, why not air your views in question 32 of the consultation and suggest ideas which could possibly help all those across the supply chain benefit from this change?

Scotland

The consultation makes reference to the fact that Scotland is likely to develop its own version of ECO from April 2018.  This could be interesting as it will create a different set of rules from the scheme in England and Wales.  That said, Scotland already has a number of different (and better) initiatives to England, so the likelihood is that installers in Scotland will fair better from 2018 onwards.

Up Sum

So what do we think about the proposed changes? Some will be very unhappy, namely DEAs, GDAs, Chartered Surveyors, Gas engineers (although they can switch to LPG) and some lead gen companies.  On the plus side the insulation industry has received a bit of a boost and the changes have seen some positive moves for local authorities and social housing providers.  If you are very happy about the changes, very unhappy, or somewhere in the middle, please make sure you fill in the consultation response here, remember, if you don’t vote (or in this case send in your consultation response), you don’t get what you want, as the old people are saying to the young people as we wave ta ta to the EU. ooh touchy, maybe I should have left the EU alone :-/

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Posted by Adrian Wright – Happy Energy CEO

 

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