The Energy Company Obligation: a pittance that will worsen the finances of the most poor

 

A press release today (January 3rd 2011) from the Department of Energy and Climate Change makes the following assertion as part of the Department’s response to a campaign on child poverty.[1]

‘we’re also focusing on the causes of fuel poverty – in particular poor household energy efficiency. There’s free and cheap insulation available to low income households now from energy suppliers and the Warm Front scheme, and this will be also be a core feature of the new Green Deal from the end of the year.’

This statement isn’t true. The Green Deal proposals do not have ‘free and cheap insulation’ as a ‘core feature’. The Green Deal is a mechanism for allowing householders to improve the energy performance of their homes and pay back the cost slowly using a loan from electricity companies. Helping get people out of fuel poverty – one of the most important challenges facing the UK – is nothing to do with the Green Deal.

However DECC would be right to say that the alleviation of fuel poverty is indeed a feature of the proposed Energy Company Obligation (ECO) to be introduced in the spring of next year. This mechanism will force the energy companies to spend about £1.3bn a year for the next ten years on subsidising home energy improvements. But only about 25% of this amount, or something around £375m a year, will go towards those with the lowest incomes and greatest risk of fuel poverty.

This may sound a lot. Unfortunately it isn’t. Compare it with today’s position: the government obliges the energy companies to disburse £2.4bn a year through the CERT programme. Rising prices mean that the proposed £1.3bn will achieve less than half of the old figure. Of that £2.4bn, about 40% is spent on vulnerable homeowners, or about three times what will spent under the future ECO plan for helping the fuel poor.

Separately, the government also provides funds today for the Warm Front home insulation scheme. Even after the public expenditure cuts of 2010, Warm Front disburses £100m a year to the most needy for home improvements. This help will cease entirely at the end of the year. Despite what DECC asserts, the only scheme left for directly helping the less well-off improve their homes will be ECO, and it will be a shadow of existing schemes. However one looks at it, the government is reducing its efforts to cut fuel poverty.

The small scale of the new plan can be gauged by comparing the 5 million or so UK homes classed as in fuel poverty and spending 10% or more of their income on energy, with the size of ECO support for home improvements for vulnerable homes. The ECO scheme will be spending the equivalent of about £75 a year per fuel poor household on energy efficiency improvement. ECO is only expected to remove about 450,000 homes from fuel poverty by 2022m, or less than 10% of those classified as in this position. That’s it: a one percent reduction in fuel poverty per year, even under the Department’s own estimates.

It gets worse. On average, the poorest ten per cent of households will actually see a greater proportion of their income being spent on energy in 2020 than today as a result of the government’s new scheme. The Green Deal and ECO are highly regressive, with the bottom decile, excluding those small numbers who get help from ECO, spending a greater fraction of their cash on energy than if the Green Deal and ECO did not exist.  By contrast the top half of the income distribution is expected to see virtually no change.[2]  So even under the government’s own figures, ECO is expected to take more from the poor than it gives back in free or subsidised energy efficiency benefits.

I apologise for writing again about DECC’s Green Deal and ECO plans. I do so because these proposals will both substantially reduce the rate of home energy improvement and redistribute cash from the poor to the rich. DECC must be pushed back from these regressive policies.



[1] Save The Children’s ‘No Child Left in the Cold’.

[2] Please see Figure 27 on page 88 of DECC’s own Impact Assessment.

  1. Rick Morgan’s avatar

    Dear Chris,
    I think you raise another important question about Green Deal and ECO. If ECO would actually result in fewer households in fuel poverty being helped than under current schemes, that’s shocking.

    I wonder whether BBCs Panorama would be interested in helping publicise this. In a programme called “What’s Fuelling your Energy Bill ?” broadcast in November and still available at
    http://www.bbc.co.uk/programmes/b0177101

    reporter Tom Heap visited a Paula McCrudden of Coventry who was said to be in fuel poverty. Whether the Green Deal / ECO would actually help people in Paulas position was never tested by the producers. Given that you have done a lot of research in this area, they might be interested in talking to you. What do you think ?

  2. Chris Goodall’s avatar

    Dear Rick.

    Thank you very much for your note. The Green Deal replaces a raft of different (and often conflicting) schemes. It removes some reasonably effective policies that were producing good rates of insulation improvements at quite low cost with a highly complex product that probably will not be nearly as effective and may actually result in more money being spent, some of which will come from the least well-off.

    I’m sorry to be pessimistic – particularly in view of Zac Goldsmith’s comments today about eco-types being too hard on the Coalition – but the Green Deals looks like an obvious failure. However I’m afraid I don’t think the weaknesses and ambiguities in the policies are newsworthy. They involve a lot of quite complicated calculations and assumptions.

    I hope you are right that TV and press will eventually develop an interest in the impact of the proposals on the rate of change of fuel poverty levels but I’m personally far from sure that any media organisation will devote resources to what must seem like a fairly academic and unworldly issue. Many apologies for being a bit downbeat on this.

    Of course if anybody wanted me to do further background research on the issues I would be delighted to help in any way I could.

    Chris

  3. Rick Morgan’s avatar

    Dear Chris,
    Thanks for your offer of further background research* and, once again, for identifying these issues.

    On whether the media are likely to be interested. I think the basic message from your work is straightforward enough : Most Green Deal measures will not pay for themselves through energy bill savings at current prices and ECO will help fewer people in fuel poverty than current schemes. Demonstrating failure to meet the Golden Rule “on a blackboard” is not essential in something like a Panorama. DECCs own Impact Assessment shows this is the case for many of the measures anyway.

    DECC ministers are presenting Green Deal & ECO in a misleadingly way. This is similar to the basic message of the Panorama programme I referred to. In this case, DECC ministers diverting attention from the impact of their policies on energy bills. (Please do watch the Panorama programme – it may not be a comfortable watch but I think it is necessary to knowing where the debate is).

    Please could you summarise your ideas about how to improve the policy within the current financial climate ? At the end of the day, constructive criticism is more likely to be listened to when it comes to pressing DECC. I suspect suggestions for getting more bang for our buck (whether as tax payers or energy bill payers) are likely to make more head way.

    I have already spoken to my local Sheffield city councillor (who has a long track record on green matters) and will make an appointment to talk to my MP.

    Kind Regards

    * By the way, I should mention the following New Scientist feature article from 2010 in case you have not seen it because I think its very relevant and will interest you
    http://www.newscientist.com/article/mg20527532.600-insulation-nation-cutting-the-cost-of-cosy.html
    It appeared as “Wrap Up Warm” in print issue 2753 publication date 27 March 2010. If you cant get hold of an electronic or physical copy, please e-mail me.

    Here is a link to the University of Nottingham research that looks germaine to estimating the cost of Green Deal work http://www.nottingham.ac.uk/news/pressreleases/2008/april/1930ssemigoesgreen.aspx

    I have been round the Sheffield eco-house and was impressed.
    http://www.bbc.co.uk/news/uk-england-south-yorkshire-13526114
    They wanted to try out new stuff like Space Therm and so there might well be cheaper ways of achieving the energy performance improvement.

  4. Jenny Shepherd’s avatar

    This is really useful info.

  5. Robert Marchand’s avatar

    Dear Chris,

    This is a very interesting piece, and one that I find myself agreeing with, and wishing I didn’t!

    I am currently going through the Green Deal and ECO consultation and preparing a response before Wednesday’s deadline as part of my research, and the project it forms a proportion of.

    Given that the energy companies themselves state that the hardest homes to reach are those with high inhabitant turnover, particularly private rented properties that wouldn’t be identified through Social housing lists I find the Green Deal and ECO proposals very worrying indeed. There seems to be little provision for dealing with the intricacies of the rental market and an over reliance on the consumer choosing to engage with the Green Deal, in short it will fail to support or tackle the issues in the most needy homes as you have said.

    Green Deal is a highly publicised piece of policy, which engages with the eco-centric middle class but fails to reach out to those who often can’t afford to care about the environment. Unless significant alterations are made as a result of stakeholder responses to the consultation, I fear that this will become little more than an expensive waste of public money, that actually regresses the fuel poverty and low carbon issue, rather than seizes an opportunity to tackle the problem head on whilst creating jobs and improving the economy.

    Thank you for helping to publicise this issue and I hope it helps DECC and the government to understand the limitations of the proposals in their current form.

    * In the interest of openness I should mention that I am a Doctoral Researcher at the University of Sheffield, looking into the current measurement of Fuel Poverty, how this measure should be improved to pro-actively tackle the issue and how any new measure should not only lift households out of fuel poverty, but also improve health and create new jobs. I am a part of the ERDF funded Big Energy Upgrade project and am based in the Centre for Energy, Environment and Sustainability.

  6. Issi Lammas’s avatar

    Good points. The Green Deal is likely to be a missed opportunity. There is still more that can be done in terms of energy conservation and energy efficiency. Lots of research shows that high energy prices effect poorer households disproportionately. Saving energy if you’re rich may not be important to you. Like the FiT, the Green Deal will not be a fair deal, and as Chris points out, ECO will not be a great deal either. It’s disappointing that overall energy usage won’t be part of the picture, because of the Green Deal being tied to the property not the person. There are currently no plans for it to include household electrical appliances – so it would be possible for someone to have a well insulated house but be running a guzzling 15 year old freezer. see http://www.sust-it.net/ and still be wasting energy, therefore CO2, and cash.

  7. John Perry’s avatar

    Chris
    I am just looking into these issues myself for an official response from the Chartered Institute of Housing to the consultation paper on the GD, so your comments are very helpful. One small point though, in looking to corroborate your figures I note that DECC claims the cost of CERT is (as you say) £2.4bn but that this is for the period March 2011 – Dec 2012, ie. well over a year – see http://www.decc.gov.uk/en/content/cms/news/pn10_075/pn10_075.aspx
    This would give an annual cost of £1.37bn which is similar to ECO. Do you agree? – it doesn’t of course detract from your point that the obligation should be increasing, not remaining static, and will not do near enough to tackle fuel poverty.
    John

  8. Chris F Goodall’s avatar

    Thank you for these helpful and thoughtful comments. Sorry for the delay in reply.

    a) John Perry. Others have mentioned this mistake on my part. Apologies. The press release you mention does, however, help indicate the more regressive nature of the ECO than CERT. A greater share of a larger sum was directed to poorer households under the old schemes.

    b) Issi Lammas. Thank you for the point about old fridges. Replacement of fridges and freezers older than 2000 will generally meet the Green Deal criteria. They are not allowed into the Deal, we’re told, because they can be shifted when and if the household moves home. Nevertheless, a pre-2000 fridge ‘scrappage’ scheme, bringing in ultra efficient new appliances would reduce the average electricity bill by nearly 10%. A clear winner.

    c) Robert Marchand and Rick Morgan. Good points. I will read through the consultation responses and try to come up with a synthesis that offers a better route forward than the current proposals.

    Thank you again.

  9. Samantha Cordon’s avatar

    Hi Chris, I stumbled across the failings of the new Green Deal and the withdrawal of public funding for home insulation whilst writing an article on the campaign endorsed by celebrities to donate their Winter Fuel Payment to those less well off, and after reading what feels like a million reports and parliamentary debates I thought I may be missing a vital piece of information – how will the Green Deal help the government to achieve their 2016 target and, are they really placing the obligation to help the fuel poor on energy companies? I wish I’d have come across your blog sooner, as this really does seem to be the case.

    Getting to the point, I am confused about one of the big points you make – perhaps I am just bamboozled by all the government mumbo jumbo I have read on this, I can see that the Green Deal isn’t going to help those in fuel poverty, but I couldn’t see how ECO would take more from the poor it will give back. I’m not questioning your findings, I just wondered if you could explain it for me.

    As a result of these discoveries I will be writing a more in depth article on the lack of fuel poverty measures in the Green Deal.

    Kind Regards
    Samantha

  10. Chris F Goodall’s avatar

    Samantha,

    I won’t pretend to understand all the facets of the Green Deal and Energy Company Obligation. But the reason why ECO will typically add to fuel poverty is as follows.

    Point 1. All the costs of ECO are added to fuel bills.

    Point 2. Only about a quarter of the money spent by ECO will be spent on helping people in ‘fuel poverty’. Fuel poverty now affects about 20% of all UK households, or around 5m households

    Point 3. ECO will help, the government says, about 50,000 households a year out of this 5m fuel poor families. All the rest (4.95 million) will have to pay higher bills as a result of the costs of the ECO obligation. Even after the proposed ten years of ECO only 500,000 fuel poor homes will have benefited from the scheme, 4.5m will be suffering an higher cost of fuel as a result of ECO.

    Does this make sense? If not, please give me a call on 07767 386696 and I’ll see if I can be clearer. (By the way, the figures above are not contentious – they come from the government’s Impact Assessment.)

    Chris

  11. Samantha Cordon’s avatar

    Thanks Chris, that makes things a lot clearer for me, and thank you for the offer of further help.

    Kind Regards
    Sam

  12. Alex Edwards’s avatar

    There are a number of pilot studies that have been released experiencing mixed results. While the majority of them show potential, poor estimates regarding savings seems to be the biggest single issue although the pilots dealt with technologies such as Solar PV which are not covered under the Green Deal. I am currently writing my PhD on the Green Deal and was thus wandering if you could be more specific on where these figures surrounding the ECO and previous schemes were taken from? While I do not doubt what you are saying has at least a strong element of truth, I would wish to see for myself before drawing stronger conclusions.

    King Regards,
    Alex Edwards

  13. S Foreman’s avatar

    Jan 2013 and the launch of the Green Deal. I see that glazing is included, and for once, internal insulation for hard to heat properties with no cavity walls. Great! I live in a Victorian social housing flat with huge draughty old windows that leak heat and let in cold air and much sticky diesel pollution. We are in a conservation area so replacing the windows with the same awkward design would be prohibitively expensive. Double glazing would have to be installed to resolve the heat loss problem. We could do with internal insulation in one bedroom, which has one windowless external wall, always ice-cold and with a mould problem. The other wall is mostly window, but with wall below that is less thick than the rest of the walls – always cold. This bedroom and the living room are always hard to heat. Is the Green Deal a chance for us to get secondary glazing and internal insulation? Looking at it, probably not. Despite what is probably a huge amount of heat loss through walls and ancient gappy windows, savings on our heating bills would not be sufficient to pass the ‘Golden Rule’ test. It looks as if we are destined to carry on just putting on more and more extra layers of clothes during cold spells. We cannot afford to turn the thermostat up, and on the rare occasions when we do, the new efficient boiler does not make the rooms warm one temperatures get near zero. The heat goes out too fast.

  14. Ian Caton’s avatar

    Those on Job seekers allowance who live on their own are excluded from ECO.

    See:

    The Electricity and Gas (Energy Company Obligation) Order
    2012

Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>