The Energy Company Obligation (ECO) started on 1 January 2013 (although energy companies have been able to count against their targets measures delivered since 1 October 2012) and runs to 31 March 2015. It broadly takes over from two previous schemes (Carbon Emissions Reduction Target – CERT – and Community Energy Saving Programme – CESP) and focuses on providing energy efficiency measures to low income and vulnerable consumers and those living in ‘hard-to-treat’ properties.
There are three main ECO obligations:
Carbon Saving Target – (CERO)
This covers the installation of measures like solid wall and hard-to-treat cavity wall insulation, which ordinarily can’t be financed solely through the Green Deal.
Carbon Saving Communities Obligation – (CSCO)
This provides insulation measures to households in specified areas of low income. It also makes sure that 15 per cent of each supplier’s obligation is used to upgrade more hard-to-reach low-income households in rural areas.
Affordable Warmth Obligation – (HHCRO)
This provides heating and insulation measures to consumers living in private tenure properties who receive particular means-tested benefits. This obligation supports low-income consumers who are vulnerable to the impact of living in cold homes, including the elderly, disabled and families.
The Government has recently announced proposals for a set of changes to ECO. These include: extending through to 2017, with new targets; reducing the ambition of the Carbon Saving Target element; and allowing new measures (loft and standard cavity wall insulation, and district heating) to be eligible under that element. The Government plans to consult on these proposals early in 2014, and intends that changes should take effect as from 1 April 2014.
The ECO Brokerage system operates as a fortnightly anonymous auction where GD Providers can sell ‘lots’ of future measures of ECO Carbon Saving Target, ECO Carbon Saving Communities and ECO Affordable Warmth, to energy companies in return for ECO subsidy.
This market-based mechanism has been introduced to support an open and competitive market for the delivery of the ECO. Brokerage allows a range of Green Deal providers to fairly compete on price to attract ECO support and enables energy suppliers to deliver their obligations at the lowest possible cost, thereby reducing the impact on customer energy bills.
Sellers (Green Deal Providers) can make a competitive offer on brokerage by leveraging additional sources of finance, such as part funding measures through Green Deal Finance, partnerships with local authorities, or driving down costs by economies of scale.
How do the Green Deal and ECO interact?
Following a Green Deal Assessment there will be a range of measures which could improve the energy efficiency of the property. Some of these could be paid for through Green Deal finance, up to the point where the expected annual cost will not exceed what a typical household should save in energy costs. However, depending on the measure or the property, other sources of finance may also be required. ECO funding could be one of these sources, for example for measures such as Solid Wall Insulation and hard-to-treat Cavity Wall insulation.