Green Deal and ECO reforms

4th December 2013

The Government has announced a series of measures designed to reduce consumers’ energy bills, following the Prime Minister’s statement that he would “roll back green charges” (or “get rid of all the green crap” according to one newspaper) which form part of energy bills. Part of these measures include streamlining the Green Deal and some important changes to ECO.

Introduction

On 24 October 2013 David Cameron surprised many, including his front bench colleagues, when he announced in Prime Minister’s Questions that he would look to “roll back green charges” in order to reduce the upward pressure on domestic energy bills. The Sun subsequently reported that the Prime Minister had instructed aides to “get rid of all the green crap” from energy bills – a statement that was denied by Number 10 officials.

Many of the so-called green levies are funded via consumers’ bills rather than from general taxation. With many of the large energy suppliers having announced 8 or 9 per cent. bill increases and blaming a proportion of the rise on Government policies and green levies, from a political point of view the Government were left with no option but to act.

The Changes

On 2 December 2013, the Government announced a series of measures that would take around £50 off the average annual energy bill. With a £12 rebate due to moving the funding of Warm Home Discount from bills to general taxation, the majority of the savings came from changes to the Energy Company Obligation (ECO) scheme (which is designed to improve energy efficiency in domestic properties across Great Britain) – see below for more details of these changes. At the same time, the Government announced a number of changes to the much maligned Green Deal, aimed at improving take up of the scheme as well as deflecting concern that the changes to ECO were undermining progress on energy efficiency.

The Government was at pains to stress that, with the changes, its overall approach is carbon neutral. It announced new measures aimed at boosting energy efficiency even further by introducing new schemes for home-movers, landlords and public sector buildings, worth £540 million over three years:

• home buyers will get up to £1000 from the Government to spend on important energy-saving measures (or up to £4000 for particularly expensive measures) via a stamp duty rebate;
• private landlords will be supported in improving the energy efficiency of their properties; and
• £90 million over three years will be available for a loans scheme, building on the existing Salix scheme, for improving the energy efficiency of schools, hospitals and other public sector buildings.

In addition, the Government announced an increase in the funds available to local authorities this year through Green Deal Communities from £20 million to £80 million, to help support ‘street-by-street’ programmes for hard-to-treat homes.

Changes to ECO

A range of changes to ECO were announced, including:

• reducing the Carbon Emissions Reduction Obligation element of ECO by 33 per cent. for the period to 2015, and setting a target for the period to 2017 reflecting this same level of activity;
• maintaining the level of ECO activity currently directed at low income and vulnerable households and extending the same activity out to 2017;
• including district heating schemes as a primary measure under the Carbon Obligation element of ECO, enabling whole communities to benefit from lower heating costs; and
• allowing energy suppliers to insulate easy-to-treat cavity walls and lofts as part of their ECO carbon targets (although suppliers would still need to provide a minimum of 100,000 homes with solid wall insulation).

In addition, further changes are to be consulted upon next year, including energy companies being able to ‘bank’ any over-delivery against previous schemes and the current round of ECO against their 2015 and 2017 targets, and incentives for quick delivery with energy companies that fall short of their new 2015 delivery targets having their 2017 target increased by the same multiple.

Changes to the Green Deal

The changes to the Green Deal announced by the Department of Energy and Climate Change (DECC) include:

• better information for consumers and a revised form of Green Deal Advice Report;
• opening up access to Energy Performance Certificate data, so that companies can more easily identify properties which will benefit most from energy efficiency improvements;
• adding more measures to the list of those that can be supported under the Green Deal, and allowing more flexibility over the exact specification to which companies install;
• working with industry to find ways to reduce the cost of insurance requirements attached to Green Deal measures;
• ensuring customers can, if they choose, move from quote to a Green Deal Plan in a single day;
• changing legislation to make it clearer that landlords and tenants can benefit from the Green Deal and encouraging industry to offer finance in the rented sector; and
• working towards increasing the range and availability of ‘top up loans’ that customers can put alongside Green Deal finance if they wish.

Some of these practical changes will happen in January 2014. Others are planned for the first half of 2014 as DECC seeks Parliamentary approval to amendments to legislation and works with industry to change the systems through which Green Deal operates.

DECC also announced that it is considering looking at how the ‘golden rule’ controls what can be borrowed under the Green Deal and what adjustments to the rule might make sense for consumers.

Comment

While many are concerned that the overall effect of the changes will reduce energy efficiency improvements in the UK, and others are sceptical as to whether all of the anticipated savings will actually be passed on to consumers, the changes do offer a number of opportunities.

Local authorities are potentially the biggest winners of the reforms to ECO, with an extra £60 million for the Green Deal Communities scheme and the possibility of having heat networks funded (at least in part) via ECO. With easy to treat cavity walls and lofts now being permitted under ECO, this also opens up the opportunity for local authorities to put together bigger ‘packages’ of work that will be attractive to energy suppliers to fund as part of ECO, delivering improvements in local housing stock and reducing fuel poverty, as well as kick-starting district heating projects that may otherwise have struggled to get off the ground.

Many see the changes to Green Deal as tinkering round the edges, and only time will tell if the scheme will see the level of uptake that was originally promised but has so far failed to materialise.

Further information

For more information on the Green Deal and ECO, please contact the team.