ECO review launched after warning of ‘unrealistic’ costs

The government is reviewing its Energy Company Obligation (ECO) scheme, energy minister Graham Stuart has revealed.

It comes following warnings from industry that the fourth iteration of the initiative (ECO4) could fail due to soaring costs associated with energy efficiency measures and overly-ambitious targets.

Responding to a string of written Parliamentary questions about the impact of rising costs on ECO4, Stuart said the government is currently investigating energy suppliers’ difficulties delivering the energy efficiency scheme.

“Officials are working with analysts and stakeholders to determine current installation costs and if the assumptions being used for the scheme require review,” he said.

He added that any that changes deemed necessary will require consultation before being formally implemented.

ECO4, which is worth £4bn over four years from April 2022, is focused on providing support to low-income and vulnerable households living in the least efficient properties and is due to deliver improvements to 450,000 homes.

However the scheme’s cost assumptions are based on 2021 prices, which do not reflect recent recent market conditions, according to a recent analysis published by the Energy Efficiency Infrastructure Group (EEIG).

Brian Tilley, head of external affairs at E.ON, told Utility Week that the ECO4 cost assumptions are “outdated and unrealistic”.

He pointed to cost hikes in loft, cavity wall and external wall insulation, which have seen increases of 430%, 372% and 147% respectively since the ECO4 cost assumptions were set in 2021.

Both the EEIG and E.ON have called for ECO4’s cost assumptions to be brought in line with the higher levels allowed for in the Great British Insulation scheme, which is due to be launched this summer.

Besides soaring costs, the industry has also warned that the minimum requirements for ECO4, stipulating that insulation upgrades must improve properties by at least two energy performance certificate (EPC) bands, are too exacting.

The EEIG has warned that a combination of these factors is putting off insulation installers from participating in ECO4 and they are instead focusing on other energy efficiency schemes or private work.

Opposition MPs have also warned that the combination of rising costs and overly exacting rules threaten to undermine delivery of ECO4.

Citing an EEIG estimate that 90% of fuel poor households do not qualify for the scheme, because the two band jump is unviable, shadow energy minister Alan Whitehead told Utility Week that the combination of problems is making delivery of the scheme “doubly unattainable”.

“Right now the scheme is likely to fail its entirety. It’s good that the government are supposed to be reviewing the cost base but it needs to be rather more than that,” he said, adding that the scheme’s “very unrealistic criteria” must be reviewed.

Whitehead added that more generous allowances for insulation materials will be insufficient to fully address the scheme’s “structural issues”.

He was backed up by Scottish National Party MP Alan Brown, who said: “Energy companies are finding it difficult to find homes that meet the criteria required for ECO4 upgrades. They are struggling to hit targets. It is clear that the government will have to revise costing proposals for the scheme, or ECO4 will collapse completely.”

Chris Friedler, policy manager (energy efficiency and industrial energy) at The Association for Decentralised Energy, added: “While addressing the impact of rising inflation for ECO4 is important, there’s a range of immediate issues in need of resolution for the current fourth iteration of the scheme.

“One of the most urgent is reviewing the minimum requirements of the scheme. Currently, this is designed in a way that is making it very hard to find eligible homes that fit these requirements to upgrade. Some relaxation of the criteria will allow more homes to benefits from ECO4. Ironing out delivery issues so that ECO can deliver at its intended level will need to a top priority to get the scheme firing on all four cylinders ahead of this winter.”