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Changes ahead for the Green Deal and ECO

The recent Autumn statement confirmed DECC's previous announcement, earlier this month, that changes are to be made to the Green Deal and ECO. 

In relation to ECO, the proposed changes will be consulted on early in 2014 and are part of a package aimed at assisting consumers with their energy bills. As obligated suppliers effectively pass on the cost of complying with ECO to consumers through energy bills, the intention is to reduce this element as part of a wider review of the cost of green levies. It is proposed that this will be achieved through a range of measures that DECC estimates will result in a reduction of £30-35 off average bills next year. DECC has also stated that it will help reduce household energy bills by streamlining the Green Deal, making it quicker and easier for householders to use the scheme and for the industry to provide it.

In this update we give a brief overview of the package of proposals and look at their potential impact.

ECO
 
As a reminder, the three strands of ECO are :

  • the Carbon Emissions Reduction Obligation (CERO) - focusing on hard-to-treat homes (including hard to treat cavity wall insulation and solid wall insulation).

• the Carbon Saving Communities Obligation (CSCO) - focusing on insulation measures and district heating systems for households within areas of low income and rural areas.

• the Home Heating Cost Reduction target (HHCR) - focusing on low income and vulnerable households (the "affordable warmth (AW) group") to reduce the cost of home heating.

The proposed changes to ECO that DECC intends to consult on in the new year include:

• Reducing the CERO target by 33%. The 2015 CSCO and AW targets will remain the same.

• Extending the ECO scheme to March 2017 with new targets for CERO, CSCO and AW at 2015 levels.

• Enabling energy suppliers to carry forward any over delivery against 2015 targets to count towards their 2017 targets.

• Enabling energy suppliers to carry forward over-performance from the predecessor schemes (CERT/CESP) and count it towards their ECO targets.

• Allowing suppliers which have delivered substantial early progress against their current CERO target to benefit from an uplift in scores for the measures delivered.

• Extending the CSCO element of ECO from the 15% to the 25% lowest areas on the Index of Multiple Deprivation and simplifying the qualifying criteria.

• Including District Heating as an allowable primary measure under CERO.

• Including loft and easy to treat cavity walls as an allowable primary measure under CERO.

• Introducing and standardising measures to prevent fraud, particularly around loft and easy to treat cavity wall insulation.

• Introducing a solid wall minima set at 100,000 measures to be delivered by 2017 across all companies and all elements of ECO.

Green Deal 

With a view to improving the Green Deal, the government has stated that in early 2014 it will make changes to:

• Make the Green Deal more accessible to consumers through the provision of better information and signposting.

• Adjust the golden rule.

• Extend the list of energy efficiency measures available under the Green Deal.

• Make it easier for firms to operate in the market.

• Work with the Green Deal Finance Company to make sure the Green Deal finance offer gives customers what they need.

• Ensure stronger integration of ECO and Green Deal finance.

The government has previously committed to introducing minimum energy efficiency standards in the private rental sector by 2018. The Autumn statement also revealed that it will provide funding through the Green Deal over the next few years to help landlords bring their properties up to standard ahead of 2018. The government also committed to increase the funds available to local authorities this year through the Green Deal Communities scheme from £20 to £80 million. 

Comment 

The proposed changes to ECO are likely to have an impact on workstreams for those involved in the supply chain which was gaining momentum up to this point. We are hearing already of energy efficiency programmes that were being planned being put on hold by customers and energy suppliers reassessing the extent of works that they will now need to support to meet the reduced ECO targets. Existing commitments will be delivered and there is some impetus to achieve these before any changes to ECO taking effect. While there may be a hiatus after this, the reduced target and longer timeframes for hitting the target should allow suppliers to obtain better value for money for the programmes that they support. This should further reduce the costs of ECO which suppliers were concerned was proving to be significantly more than originally anticipated.

In addition to extending the deadline for energy suppliers to achieve the targets, the CERO element is under particular review. As well as the CERO target being cut, it is anticipated that the inclusion of loft insulation and easy to treat cavity wall insulation will introduce an easier way to achieve the target and that energy suppliers may now be less likely to discharge their obligation by addressing 'hard to treat' homes. This may be disappointing for local authorities and social landlords with hard to treat housing stock and for those involved in the supply chain for solid wall and cavity wall insulation. We shall see.

Intentions to streamline and simplify the Green Deal will be welcomed, although the detail is still awaited. Over 100,000 Green Deal assessments have been carried out since January and survey research, published by DECC yesterday, indicates that over 80% of households who have had their property assessed either have taken or will take steps to implement energy efficiency measures.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at December 2013. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

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