ECO, the Energy Company Obligation

This Commons Briefing paper sets out the details of the Government’s Energy Company Obligation (ECO) scheme that provides funding for energy efficiency measures for difficult to treat homes and the homes of ‘those most in need.’

Information on recent changes to the ECO scheme and current eligibility criteria can be found in the Library Briefing Paper Help with energy efficiency, heating and renewable energy in homes.

The Energy Company Obligation (ECO)

The Energy Company Obligation (ECO) provides funding to improve energy efficiency in difficult to treat housing and the homes of ‘those most in need’. The first ECO scheme (ECO 1) started on 1 January 2013 for Great Britain. 

The obligation took over from the former energy supplier obligations (Carbon Emissions Reduction Target (CERT) and Community Energy Savings Programme (CESP) both of which ended in 2012. It originally ran alongside the Green Deal (now ended) which provided loans for energy saving improvements.

The scheme currently has three elements, “Affordable Warmth”, the “Carbon Saving Obligation” and the “Carbon Saving Communities Obligation”.

The eligibility criteria for Affordable Warmth are detailed in Annexe 1.

ECO is currently in its second phase (ECO 2). ECO 1 ran from 2012 to March 2015.

ECO 2 will end on 31 March 2017. The third and transitory phase of ECO (ECO 3) will run from April 2017 to September 2018. The last and fourth phase of ECO (ECO 4) – on which the Government will consult – is scheduled to start in October 2018 and is expected to run until 2022.

The background and comments around the various ECO policies are detailed in Annexe 2.

Recent changes

In the Autumn Statement 2013 in December 2013, the Coalition Government announced that it would extend the time scale for ECO 1 (thus turning it into ECO 2) by 2 years to March 2017 and reduce the annual costs to consumer energy bills by £50. The implementing legalisation came into force on 4 December 2014.

In the Spending review and Autumn statement 2015 on 25 November 2015, the Government announced that it would bring forward proposals aimed at reducing the projected cost of green policies on the average annual household energy bill by £30 from 2017. It was also announced that the bulk of these savings would come from reforms to the ECO 2 scheme.

The Department of Energy and Climate Change (now The Department for Business, Energy and Industrial Strategy or ‘BEIS’) published a consultation in June 2016 on the future of ECO 2. It consulted on a one-year extension with a set of specific measures intended to simplify and better target the use of funds towards fuel-poor households. It proposed to replace ECO 2 from April 2017 onwards with a new domestic energy efficiency supplier obligation for 12 months (ECO 3) before rolling out a fourth ECO scheme (ECO 4).

In January 2017, the Department published its final decisions in response to the consultation. It decided to extend the proposed one-year transition scheme (ECO 3) to September 2018 (18 months in total); dedicate 70% of ECO funds during this period towards the Affordable Warmth Obligation group (as opposed to 36% currently); end the Carbon Saving Communities Obligation; amend the eligibility criteria to simplify the categories of benefits that qualify for help; and include funding for social housing in Energy Performance Certificate bands E, F and G. ECO 3 and 4 are to be aimed at improving energy efficiency measures amongst fuel-poor households. ^[1]

Once ECO 3 ends, a fourth ECO scheme (ECO 4) will follow and run from October 2018 until 2022 at £640 million per year rising with inflation aimed at further improving the targeting of support towards fuel poor households in greatest need. [2]

The new Scheme will apply to England and Wales as Scotland will start using new powers in the Scotland Act 2016 probably from 2018.[3] The main areas for change are: changing the threshold at which energy companies become obligated and are allocated targets under the scheme, currently only companies with over 250,000 customers are obligated to operate the scheme; and whether the scheme could better support innovation in energy efficiency technologies.[4]

[1]     BEIS Energy Company Obligation: Help to Heat April 2017 To September 2018 January 2017 and Impact assessment January 2017

[2]     DECC ECO: Help to Heat 29 June 2016 p.12

[3]     DECC ECO: Help to Heat 29 June 2016 p.45

[4]     DECC ECO: Help to Heat 29 June 2016 p.45