ECO shouldnt be driving up bills, according to government data
Data released by the government earlier on this week about the costs of a much-maligned energy efficiency policy suggest that it’s less expensive than energy companies say it is.
The Energy Company Obligation (ECO) requires energy providers to seek out low-income households and consumers on benefits, and subsidise their home insulation. Energy companies have criticised the measure for being too expensive. And now, it may be reformed or delayed as a part of government plans to “roll back” green levies as part of an attempt to lessen energy bill rises, according to today’s Times.
Energy suppliers have announced price rises over the last few weeks. The companies – particularly British Gas – have highlighted the costs of carrying out the ECO programme as one of the reasons for this. But energy minister Ed Davey says British Gas is over-egging ECO’s cost to companies. This week, his department released data backing the claim up.
Costs in line with government predictions
Every month, energy suppliers has had to send a summary to government of how much it is costing them to deliver ECO.
The Department for Energy and Climate Change (DECC) has used data from the first eight months of the scheme (January to August 2013) to calculate how much it should cost suppliers to deliver the scheme for a year: Image - Screen Shot 2013-10-25 At 12.51.50 (note)
Table created by DECC. The second column shows costs reported to DECC so far. The third column shows how big the costs would be if scheme ran for a year, and the suppliers delivered on all their obligations under the scheme.
The scheme has three different elements – the Affordable Warmth Obligation, the Carbon Saving Obligation and the Carbon Saving Community Obligation. DECC’s calculations suggest it will cost suppliers £1.34 billion in total to successfully deliver all elements of ECO for a year.
This is roughly in line with the government’s prediction that ECO will cost £1.3 billion a year to deliver. In contrast, industry lobby group Energy-UK suggested last year it would cost £ 2.35 billion a year.
If the government’s right, then ECO shouldn’t be driving up consumer bills. This is because ECO replaced a raft of old energy efficiency measures, which also cost £1.3 billion.
Some suppliers more efficient than others
The data also suggests that some suppliers are more effective than others at delivering the scheme, according to DECC.
Its data suggests that some companies are able to deliver elements of the scheme two or even three times cheaper than others:
Image - Screen Shot 2013-10-25 At 13.03.53 (note)
DECC says that on this basis of these figures, if all the energy companies became as efficient as the ones who are doing best, the overall cost of the scheme would reduce to £1.1 billion per year. And if all of the companies were to implement ECO as inefficiently as the worst performers, the cost of the scheme would rise to £1.9 billion a year. So in theory, ECO could be cheaper than the government predicts – if the big six raised their game.
This also means some companies may have a greater interest in lobbying against ECO than others. Data crunched by left-leaning thinktank IPPR suggests British Gas was the least effective company at delivering previous energy efficiency schemes. This month, the company has attributed a £40 of the rise in its bills to ECO – in comparison to SSE’s prediction of a total rise in £15 from all the green levies put together.
This data comes with a lot of caveats. The companies have not been delivering the schemes for long – meaning that costs could rise in the future. Some suppliers may not have delivered much at all yet, meaning it’s hard to make strong interpretations. It may not be realistic to scale up the costs and assume they stay they stay the same as the companies deliver more.