BEIS rules out passing on failed suppliers’ ECO costs

Failed suppliers’ energy efficiency obligations will not be passed onto the rest of the market in order to protect cash-strapped retailers from fresh cost burdens, the government has ruled.

Outlining its response to consultation on the design of the latest phase of the ECO (Energy Company Obligation), which was published last Friday, the Department for Business, Energy and Industrial Strategy (BEIS) says 11 obligated suppliers have exited the market during the last four years that the scheme has been running.

However, the failure of these suppliers has translated into less than 2% of obligations during the 2018 to 2022 period covered by ECO3.

The response says the government has decided not to amend the current approach for handling the unmet obligations of exiting suppliers in ECO4, which will cover the next four years, given the potential administrative and financial headaches such a move would entail.

This would involve redistributing obligations across the market or transferring them to new suppliers as part of the Supplier of Last Resort process.

“Whilst some changes to this process may be beneficial, in practice it could be complex for suppliers to be given an additional share of the obligation after annual obligations have been set,” says the response, adding that the additional administrative and financial resources required in transferring obligations would saddle customers with further ECO costs.

“Given the recent changes in the market, the government does not want to place additional unmet ECO obligations by suppliers, on remaining obligated suppliers, as that may impact their ability to continue operating or raise costs for their customers.”

The Special Administrative Regime, which was triggered following last year’s collapse of Bulb, will ensure that large suppliers’ ECO obligations are discharged, therefore protecting against the loss of their unmet obligations, it says.

The response also says that the government is continuing to explore the establishment of a “buy-out” mechanism for meeting ECO, which would enable smaller suppliers to discharge their obligations by paying a third-party supplier to do so on their behalf.

It says the government’s plan to reduce supplier thresholds will not be implemented until this buy-out mechanism has been worked up.