ECO: A recipe for Green Deal replacement success?

The Green Deal is dead. Last week, the Department of Energy and Climate Change drove the final nail into the coffin of what was once touted as the ‘the biggest home improvement programme since the Second World War’ by announcing it would not be providing any more funding to the Green Deal Financing company.

The scheme was ripe for the cut. Over two years in, there are only around 15,000 plans in progress. Sky high interest rates and excessive red tape led to widespread calls for a review. An outright scrap was not wholly expected, but now that it’s gone, most acknowledge that there wasn’t much left to salvage.

But this bold decision to recognise a failure and move on leaves the government without a flagship energy efficiency programme and with an election manifesto pledge to insulate one million homes by the end of the parliament. A review of all energy efficiency schemes is now underway, leaving many to wonder what the future of the UK’s energy efficiency sector will look like?

Energy secretary Amber Rudd has already indicated the government may look again at a pay as you save scheme, but repeating the formula could just lead to the same disappointing result.

In contrast the UK Green Building Council says the review “will provide a valuable opportunity to offer refreshing new ideas.”

One new idea could centre on the reworking of an exisiting success story, Royal Institute of Chartered Surveyors suggested. The group points to the Energy Company Obligation (ECO), saying the scheme could act as a blueprint for a Green Deal replacement.

It is clear to see why the success of ECO would wish to be emulated, it has after all produced 97 percent of home improvements in the last two years, but is this a bold statement without weight, or could it be considered?

Increased energy supplier involvement could help address one of the critical problems that hindered the Green Deal; of the lack of consumer engagement. Demand for energy efficiency measures has always been low, despite the ability to lower energy bills. The RICS says the traction ECO has, due to the involvement of suppliers, needs to be harnessed as it is unlikely that a consumer led scheme will make much of a dent in the million homes target without it.

But suppliers have proved themselves unwilling to provide more of a leading role in energy efficiency than they have to. Ex energy minister Greg Barker has already blamed the downfall of the Green Deal on energy suppliers not embracing it, back in February, saying he expected them to come forward with a package for consumers, but that the big six suppliers are “not interested.” Suppliers have embraced ECO because they have to, meaning further supplier involvement in energy efficiency will probably require a similar approach.

One of the critical reasons why ECO has been so effective is the measures are free on delivery, subsidised on bills rather than through loans. Consumers are unlikely to spend willing spend money on an area that generally un-interests them. But providing another free scheme seems an unlikely option, as it would presumably require more levies on already high consumer bills.

But the suggestion raises many practical issues: should suppliers be subject to more obligations as pressure to cut bills continues to mount? How would it be paid for? Who would the scheme be open to? But it is clear the ECO approach is working when the Green Deal has not. If a Green Deal replacement could just have a few elements of ECO, it could be vastly more successful.

The Energy and Utilities Alliance’s chief executive Mike Foster points out the levy method already places ECO at risk from a government desperate to be seen as cutting energy bills. ECO is classic “green crap” at target by the Conservatives, and is having a real knock-on effect on energy bills, “skewering” the cost of electricity compared to gas and “having an impact on market decisions.” Foster believes there is a chance ECO, despite its success, could get caught “in the cross-fire.”

But Foster says there is “another school of politicians who actually quite like the fact it is a levy and not a system of being paid through general taxation.” While Rudd claims her department’s main aim is to make “cost-effective” decisions for consumers, it is also cash-strapped, and will be keeping an eye out for what’s cost-effective for governmental coffers too.

Financing could be solved by addressing the red tape and bureaucracy which kept interest rates in the Green Deal high. Removing enough of both could lower the interest rates of a pay as you save scheme enough to make it workable. A stamp duty rebate, as the UKBC suggests could also incentivise, leaving already high energy bills alone.

A review of all energy efficiency policy means for the moment, rather than being emulated, even ECO could change. The lack of plan post 2017 certainly leaves the door open. The EUA says it is unlikely ECO will not continue in some form, it is after all successful, but it says ECO’s lifespan will be largely determined by how much it has contributed to the one million homes pledge.

The outcome is expected in the Autumn, and while Labour say “with more than two million households in fuel poverty, the government urgently needs to lay out what plans they have to replace the Green Deal,” it is important to remember the Conservative’s modest focus on insulation.

They have only committed to a million homes, and while Foster says this will be “set in stone,” if ECO has already made significant strides towards fulfilling it, a future scheme, in whichever form it takes is not likely to be terribly ambitious.