No backing down on energy efficiency, says Ed Davey, as ECO’s future hangs in the balance
“There will be no backing down on energy efficiency,” Ed Davey told the energy industry today. But confusion reigns as to the fate of the Energy Company Obligation (ECO), one of the government’s key schemes aimed at encouraging householders to insulate their homes.
ECO requires energy providers to actively seek out low-income households and provide subsidised home insulation. The policy is part of the government’s programme for tackling fuel poverty. But the costs are added to consumer energy bills, and energy companies say it is too expensive to run.
Government ministers have suggested that ECO could be reformed or delayed, or that it could be paid for out of general taxation. Davey’s speech may comfort those who are worried about what this means for the government’s commitment to energy efficiency. The details still remain rather unclear, however.
Are energy companies talking up the costs of ECO?
Energy suppliers suggest ECO could be adding up to £75 to bills – and blame it for driving up consumer energy bills.
The government says energy companies are over-egging the costs. The Department for Energy and Climate Change released data a few weeks ago suggesting ECO is adding about £50 to bills. If that’s right, then ECO shouldn’t be responsible for recent price rises, as it isn’t costing the consumer any more than the policies it replaced last year.
This is the government’s argument. At Energy UK’s annual conference today, Ed Davey said that ECO “shouldn’t be having any impact on bills”. He added that despite the government asking “lots of questions” of energy companies about the cost of ECO, they aren’t getting any good answers.
Andrew Warren of the Association for the Conservation of Energy, a lobby group for the energy efficiency industry, went a step further. He accused energy companies of using ECO as a “diversionary tactic” to distract attention away from rising profits. Company claims about the costs of ECO “just aren’t true”, he said.
Companies failing to deliver on ECO
New data suggests some of the big energy companies are also making slow progress in delivering on their targets under ECO. That’s according to data released by energy regulator Ofgem today.
The graph below shows the extent to which energy companies had delivered on one aspect of ECO, known as the Carbon Emissions Reduction Obligation (CERO), by the end of August this year. It refers to the extent to which the companies have delivered on their ‘phase one and two’ obligations under CERO. Phase one and two runs until March 2014, after which the companies will be given more obligations under ‘phase three’. They then have until March 2015 to deliver on all the obligations.
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Source: Ofgem data, released under a Freedom of Information request from thinktank IPPR.
Despite companies laying the blame for price rises on ECO, some of them are clearly not on target to have completed their obligations in four months time – or even sixteen months time. That presumably either means the scheme is flawed – it’s not designed well enough to achieve results – or the power companies haven’t done a good enough job of implementing it.
What will happen to ECO?
In a panel today, representatives from energy companies RWE Npower and SSE expressed support for the government’s energy efficiency programme – in theory.
But both companies have criticised the costs of ECO, and called for a ” debate” on its future.
Today, EDF announced a slightly smaller price rise than the other big six energy suppliers – but made the price rise contingent on policy reform. It said that it would raise prices further if the government doesn’t deliver its promise to “roll back” green levies on bills.
ECO is the main ‘green’ measure in line for a cut, according to media reports. It’s possible that paying for the scheme could be moved onto taxation. But observers of the energy market are confused as to what’s really going to happen, and what any changes might mean for the government’s suite of energy efficiency policies.
Davey said today that the government will make the announcement on the government’s review of levies – including the future of ECO – “on or before” the Chancellor’s Autumn statement on December 4.