Government consultation on changes to ECO

The Government published its consultation on changes to ECO on 5 March 2014. They say:

CHANGES TO THE CURRENT OBLIGATION (ENDING IN MARCH 2015)

We are proposing the following:

• Reducing the March 2015 Carbon Emissions Reduction Obligation (CERO) target by 33%, while the Carbon Saving Community Obligation (CSCO) and Affordable Warmth (also known as the Home Heating Cost Reduction Obligation (HHCRO)) remain the same.

• Enabling the obligated energy suppliers to carry forward a certain proportion of over delivery against their March 2015 targets to count towards their March 2017 targets.

• Enabling obligated energy suppliers to deliver less than their share of the new 2015 CERO target. In which case, an energy company would see the CERO obligation for March 2017 increased by 1.1% the shortfall in March 2015. This flexibility would not apply to the Affordable Warmth or CSCO targets- both will need to be delivered by 31 March 2015.

• Changes to the legislation to allow suppliers to reallocate the carry forward of over achievement from the previous obligations across their supply licences, in order to optimally realise the benefit of this excess delivery.

• Allowing those energy suppliers that have delivered more than 35% of the primary CERO measures for Phases 1 and 2 by the end of March 2014, to receive 1.75 times the carbon score for primary measures delivered to that date. Activity carried forward from CERT/CESP would be excluded from this uplift.

• To extend the CSCO element of ECO from the lowest 15% to the 25% lowest income areas. Further, simplifying the qualifying criteria for the CSCO rural sub obligation to allow suppliers to deliver against this sub-target to any domestic property located in the poorest quarter of rural areas, as well as to people living in rural areas who are members of the Affordable Warmth Group. These changes will only apply for measures installed from 1 April 2014.

• To allow District Heating connections made from 1 April 2014 to be included as a primary measure under CERO.

• To allow loft insulation and the easy to treat cavity wall insulation installed from 1 April 2014 to be included as primary measures under CERO.

• To require the delivery of a minimum level of solid wall insulation to be delivered by the end of March 2017 across all companies and both carbon elements of ECO.

EXTENDING THE LIFE OF ECO (TO MARCH 2017)

To provide the certainty that industry needs to invest, we are also proposing that the ECO scheme be extended to 2017, and new targets be set for each of the sub-obligations. These would need to be met in the period from April 2015 to March 2017. Proposals we are consulting on include:

• Extending the ECO scheme to March 2017 with new targets imposed for CERO, CSCO and Affordable Warmth at a pro rata of the March 2015 levels.

• Allowing an uplifted Affordable Warmth score for measures delivered to households whose main fuel type is not natural gas.

• To provide that broken or not functioning efficiently electric storage heaters which are repaired or replaced under Affordable Warmth are scored in the same way as a “qualifying boiler” and in doing so, receive a higher notional bill saving.

• Requiring all boiler replacements delivered under Affordable Warmth to include a minimum warranty.

• Safeguarding the Energy Saving Advice Service (ESAS) referrals service – for households likely to be eligible for support under Affordable Warmth.

• Improving the transparency and availability of cost information relating to delivery of the ECO scheme.

On the basis of these proposed changes, and changes to policies other than ECOobligated energy suppliers have confirmed that they expect to reduce consumer bills by around £50 per household next year, with between £30-£35 per household of the reduction due to the ECO proposals.

Overall, we believe these proposals will work to increase the flexibility of the scheme, make it easier to deliver and enable it to be delivered at lower cost.

TIMINGS

We are proposing that certain changes should have effect by reference to 1 April 2014 but recognise that the amending legislation will not be in place until later in 2014. Ofgem will continue to administer ECO in line with the current ECO Order, until the amendments are made and measures installed from 1 April 2014 onwards should be reported to Ofgem within one month of the change in legislation coming into effect we will include provisions within the amended legislation in order to facilitate this.

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