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ECO Update 29 April 2018

ECO3, Time to Submit

As you will now know, ECO2t comes to an end at the end of September and ECO3 will start in October and run for three and a half years until 2022.  A few weeks ago, BEIS and Ofgem issued consultation papers, which outlined what the world of ECO3 might look like.  You may have read this and/or attended one of the roadshow events that were held recently, but it is essential that you now have your say, and submit a response to the consultations.  The deadline for the BEIS consultationis 11.45pm this Sunday the 29thand the Ofgem deemed score consultationis the 16thMay.

Here are some headlines from both consultations in case you have missed them:

  • CERO targets will be dropped altogether, the scheme will be 100% Affordable Warmth
  • Benefit eligibility will be widened, income thresholds will be dropped from tax credits and additional benefits will be added including disability and child benefit (with an income threshold)
  • Qualifying Boilers are now renamed “Broken Boilers”
  • Broken boilers of all fuels (apart from renewables) will be capped at 35,000 per annum
  • All deemed scores will drop by at least 30%
  • Non gas qualifying boilers will lose their 45% uplift, so will reduce even further, but gas boilers lose their 20% deflation and get a boost in the revised deemed score calculations, so go up
  • Oil and solid fuel boilers will be banned from being installed
  • Non condensing gas and LPG boilers can be upgraded on an uncapped basis if an insulation measure is installed alongside
  • Homes upgrading to a new district heating or renewable heating system do not have to have an insulation measure installed and do not need to be inefficient
  • First time central heating, which includes homes with old/broken storage heaters, can be upgraded without insulation alongside
  • POPT is being all but removed (at last!), as long as you install the measure to at least 67% of the property, scores are being reduced slightly as a trade off
  • Energy suppliers may receive an unlimited carry over from ECO2t to ECO3 and a small “carry under” of around 10% of the last 18 months’ target
  • LA Flex is proposed to be increased to 25% of the target, up from 10%
  • A new Innovation element of 10-20% may be introduced
  • RHI and ECO will no longer be able to be combined (boo)
  • 15% Rural target will remain but will now obviously be based on Affordable Warmth
  • 17,000 home solid wall target will remain, but it looks like this may not actually be ring fenced for solid wall insulation (see Q:20 below)

Here is an excellent magic trick.  I will give you £1,000, in return all I want is you to give me is 100 £10 notes.  Rubbish trick eh?  BEIS have announced that qualifying boilers, sorry, I mean Broken Boilers, totally different thing, will get a whopping 400% uplift.  Wow! But before you run off and see how much money you will make from this, we should tell you about another change.  Qualifying Boilers had a lifetime of 12 years, but in ECO3, Broken Boilers will have a lifetime of 3 years, so the score is reduced by a factor of 4.  So basically, you are back where you started, but I suppose at least that is better than just having the decrease without the uplift?

BEIS Consultation

The BEIS consultation contains 42 questions, some of which are of interest to energy suppliers, such as how ECO targets are calculated, others will be industry specific such as those affecting insulation or heating companies and various other interested parties in between. The following comments are based on elements that I believe could have the biggest impact, and also which could hold the biggest opportunities.  There are however a lot more that you should review in case they impact directly on you and your business.

Q4 Carry Over:BEIS are proposing that energy suppliers have an unlimited carry over of ECO2t works into ECO 3, but excluding oil or solid fuel boilers.  Given that all deemed scores will drop by 30%, with many dropping by as much as 50%, if I was an energy supplier, I would be filling my boots between now and the end of September, as costs are clearly going to have to increase significantly for delivery to continue.  The unlimited carry over is in my opinion a positive move, which should be supported by the industry, as it will prevent a hiatus over the summer as suppliers meet their targets over the coming months.

Q15 LA Flex:BEIS are consulting on an increase of LA Flex from 10% of the current Affordable Warmth target, to 25%.  This could potentially have been higher, but because it doesn’t look like the 10% will be spent this time round, BEIS may have struggled to convince ministers that a higher level was warranted.  In my view, LA Flex represents one of the biggest opportunities under ECO3, and many local authorities have only recently become involved or have taken time to find their feet, to find Flex eligibility that works in their area and which local installers are able to work with.  We would prefer to see LA Flex left uncapped, or, if a cap has to be put in place, a level of 40% rather than 25%.

If you agree that LA Flex is a major opportunity, please respond to question 15 requesting an uncapped level of LA Flex, or a 40% cap if this is not able to be agreed.

Q16 Oil Boilers:For years, homes heated by oil were shunned by ECO, in favour of the dash to gas boilers.  I recall having to turn customers with oil heated homes away less than 2 years ago, only to find ourselves trawling back through the database to find them again when ECO2t started.  The surge of oil boiler installations, albeit only around 11,500, has eaten up a large part of the ECO funding budgets, and with the Government’s Clean Growth Strategy stating a desire to move people off of oil, BEIS are proposing a complete ban on oil boilers alongside solid fuel boilers which were minimal in any case.  There is a hope that doing this will also enable more homes to be upgraded due to the lower costs of gas boilers and that more insulation measures will be targeted. However, I believe that this will leave people in rural areas and who do not have access to mains gas, those with some of the highest fuel bills, with no help whatsoever.

But wait, it is okay, the consultation allows for uncapped renewable heating upgrades! Let’s jump to that holy grail of deemed scores, the 6 bed detached solid wall house, and see what funding we can receive.

Fantastic, so at, let’s say 20p per LTS, you could receive £7,318 for installing a heat pump.  Hmmm.  A heat pump in a big 6 bed house.  Solid walls. Upgrade all the radiators?  New hot water cylinder?  All those heat loss calcs and MCS kerfuffle?  Hold on!  Look at that LPG boiler score, that is over £6k and all I have to do is chuck in a couple of gas bottles, a cheap combi and Bob’s your uncle!  Shame the customer will see their energy bills go up by 300%, but that is ok, BEIS have taught me an excellent magic trick that I can use to cover this up :-).

So, what can be done for oil heated homes?  We believe that BEIS should consider allowing oil boilers to be included if they are fuelled by a biofuel.  Whilst the distribution for this is not yet well established, it is something that could be looked at and could help drive a wider move for customers to switch from traditional oil to a fuel which has much lower CO2 emissions.  And that RHI be allowed to be claimed alongside ECO to make it financially viable to install heat pumps in replacement of oil.

Q17 First Time Central Heating (FTCH): Initially it was believed that there would be a minimum target for FTCH, but this appeared to have been dropped at the last minute.  FTCH does however benefit from being outside of any heating caps and also there is no requirement to install an insulation measure alongside.  Really though, in terms of a deemed score, this is just the same as a non-qualifying boiler upgrade in the current ECO.  One area of concern however, is that by widening the definition of FTCH to include homes with storage heaters, social housing providers will now, for the first time, be able to replace their storage heater properties with full central heating, as long as the home is EPC E, F or G.  This runs the risk of draining large sums of ECO money away from the private sector, and, if it is cross subsidised by the devolved governments with their generous grant funding schemes, it has the potential to drive down heating rates to an unsustainable level, as has happened already with solid wall insulation, which is now delivered predominantly in Scotland at significantly below the rate set in the financial impact assessment.

So we believe that FTCH should be excluded from social housing, where storage heaters are being replaced.

Q20 SWI:If you are a solid wall insulation installer, you need to take notice of this question.  There is a shift by BEIS away from a solid wall insulation target, which is seen to be an expensive measure, towards a target which is aimed at solid wall homes, but is not necessarily for solid wall insulation.  Instead, suppliers can install a bundle of measures which would generate the same savings as SWI, for example, loft, a boiler and hot water tank jacket.  If suppliers can still obtain SWI measures at a competitive rate, perhaps through cross subsidisation in Scotland and Wales, then they are still likely to buy it, however, with this proposed change, the target could be deliverable through other groups of measures.

Q27 RHI:BEIS are proposing to ban the claiming of RHI when ECO has also been claimed.  We believe that it is essential that the RHI and ECO continue to be allowed together, because ECO and RHI alone do not provide enough funding to allow renewables to be installed as a zero cost installation for fuel poor households. Allowing the combination of RHI and ECO will help achieve the Clean Growth Strategy, by moving people away from oil and over to heat pumps and biomass, it could also help to drive down costs, through increased volumes and through the development of a larger installer network.

Q28 Deemed score changes:  When deemed scores were introduced, it was identified that there was a difference between the typical score achieved through an EPC, and the new deemed scores.  A 30% uplift was applied to all deemed scores at this time, but this is now to be removed.  This will have the effect of reducing all scores across the board by at least 30%, therefore necessarily pushing up the market cost for ECO funding rates. Other reductions are also being made, the 45% uplift currently applied to off gas heating upgrades is being removed. This has a bigger impact on some measures than others, for example, a broken oil boiler heated 3 bed semi home having an air source heat pump installed, will see a reduction of 43% in its score, whereas an LPG broken boiler swap in the same house only drops 13% overall.

Please do click hereto complete the consultation before 11.45pm this Sunday, you need to have your say, or risk the impacts of changes that will be introduced in ECO 3.

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