Government consultation on proposed changes to the Energy Company Obligation

28 July 2021

The government is currently consulting on the structure of the forthcoming Energy Company Obligation (ECO4) scheme and the NHF will be responding on behalf of the sector before the closing date of 31 August.

What is the ECO?

ECO is one of the government’s primary schemes for improving the energy efficiency of housing. The scheme began in 2013 and there have been three iterations of the scheme:

  • ECO1 (2013-2015).
  • ECO2 (2015-March 2017).
  • ECO3, which will end on 31 March 2022.
  • ECO4, which will run from 1 April 2022 to 31 March 2026.

Since 2013, over 3.1m measures have been installed in more than 2.3m homes under the scheme. ECO is administered by energy companies, but funded through increased energy bills for consumers. The government is proposing to increase the value of ECO to £1bn per annum. Energy suppliers are obligated by ECO to install energy efficiency measures in eligible households - generally those at risk of fuel poverty due to low incomes, energy inefficient homes or a combination of the two. The scheme supports the government’s target of upgrading as many fuel poor homes as reasonably practicable to EPC band C by 2030 (with an interim milestone of band D by 2025).

Social Housing Eligibility

The government is proposing that eligible social housing residents will be able to access works completed under ECO if they are living in properties which have an EPC rating of E, F or G. Those eligible social housing residents living in EPC D properties will only be eligible for ECO ‘innovation’ measures.

The consultation is proposing a range of reforms including:

  • Proposals to 'obligate' more energy companies to engage with the scheme.
  • Changes to automatic resident eligibility, targeting measures at households on means-tested benefits and removing households on non-means tested disability benefits.
  • Reforming local authority ECO referral schemes to better target fuel-poor households who are not on means-tested benefits.
  • Aligning the scheme further with the decarbonisation agenda by prioritising fabric-first measures to homes, targeting solid wall insulation, excluding the installation of LPG/oil heating systems, providing further support for heat pumps and ensuring coherent packages of measures are installed which raise EPC ratings rather than singular measures.
  • Aligning ECO more effectively with other government decarbonisation schemes such as the Home Upgrade Grant, Local Authority Delivery Scheme, Clean Heat Grant and the Social Housing Decarbonisation Fund. These funds won’t be able to help fund ECO measures. However, the schemes can be used on the same properties (e.g. one scheme could install insulation and ECO could install a heat pump).
  • Reforms to better facilitate 'in-fill' where some ECO funding can be used to install holistic measures on entire blocks of flats or sets of houses regardless where tenures and EPC ratings may differ.
  • The consultation is also seeking thoughts on the current funding of ECO and whether it should be funded via higher costs on gas bills (currently mostly costs are passed onto electricity bills) and/or whether other funding mechanisms should be explored such as taxation.

The government is also currently consulting on the next iteration of the Warm Homes Discount. This scheme is aligned somewhat with ECO and obliges participating energy suppliers to provide rebates to their customers, to reduce energy bills for low income and vulnerable households and tackle fuel poverty.

Please contact us by 18 August with any thoughts you have on the proposed ECO4 scheme and Warm Homes Discount or your experience of either scheme.

Who to speak to

Rory Hughes