In at the deep end
What lessons must be learned from the past, as landlords take the plunge on ECO funding? Nick Duxbury and Madeleine Cuff report.
In just eight months’ time the housing sector will be diving into a £1.3 billion a year pool of energy company obligation funding to subsidise retrofit measures. The chances of the funding creating a big splash in the sector have increased massively thanks to a big win for Inside Housing’s Green Light campaign, which saw the government completely redesign the allocation of ECO. Landlords, which were previously excluded from the fuel poverty element of the subsidy, will now be able to access a £190 million-a-year pot to retrofit homes in the poorest communities in Britain. However, this good news is tempered by the fact that its predecessor, the £350 million community energy saving programme, is in crisis.
The big six energy companies are racing against the clock to spend the cash on retrofitting 90,000 homes for the poorest households in Britain by December or face multibillion-pound fines. So far they have barely got out of the shallow end. According to the latest government figures released in September 2011, just 12,703 houses have received works and energy companies, which have been lobbying for relaxed targets, warn they may not meet the deadline.
As a result, climate change minister Greg Barker has been forced to intervene to help the energy giants spend their CESP cash by hosting talks between council bosses and energy companies in an attempt to broker deals. This extraordinary move belies a growing concern: that if lessons are not learned from CESP, its failings could be repeated in the administration of ECO subsidy with disastrous consequences for the green deal.
‘There’s a large hole behind my desk where I’ve been banging my head against the wall,’ says Jo Brooks, energy efficiency officer at Arun Council. She is still experiencing first-hand the failings of CESP. Having proposed a £6 million CESP scheme to energy companies two years ago, which was rendered unviable due to energy companies asking for too much match-funding from the council, she is now overseeing a ‘massively reduced’ £1.85 million project.
‘I would take it on again but with so much new knowledge of how to go about it. There are an awful lot of lessons here that can be learned to put over to the green deal.’
According to Abigail Burridge, policy officer at the Local Government Association, Ms Brooks is by no means the only one to have been frustrated by energy companies’ use of CESP cash. When CESP launched in 2009, energy firms were asking for landlords to fund up to 80 per cent of the cost of delivering projects. Cash-strapped landlords backed away from these deals, so now, with the clock ticking, energy companies are offering 100 per cent of the funding as well as some staff to administer projects. ‘To minimise their own cost for the delivery of the obligation they were… demanding exorbitant levels of match-funding,’ Ms Brooks explains.
To avoid ECO cash also being spent in a way that will only serve energy company agendas, the government has said it will introduce a brokerage system that will see green deal providers - be they energy companies, contractors or landlords - bid for funding. However, the government has not yet decided how much of ECO will be administered through this mechanism or exactly how it will work.
Another key concern is that ECO will be as hard to access as CESP funding has been. Under the green deal, households will receive retrofit works at no upfront cost, with private sector companies - green deal providers - picking up the tab and recouping the costs through energy bill savings. ECO funding will be used to bridge the gap when the ‘golden rule’ - that the cost of the works must be less than the savings - is not met. Social homes are more energy efficient so this rule is harder to meet which makes ECO crucial to landlords’ ability to deliver green deal works. Would-be green deal providers warn they won’t be able to wait as long for ECO subsidy as they have for CESP funding.
‘CESP has been very complicated and hard to access,’ says Jeremy Kape, investment director at Affinity Sutton. ‘It hasn’t really worked for us. There needs to be a simpler process for getting schemes approved and we need to be able to access funding directly rather than through third parties.’
Andrew Eagles, managing director of consultancy Sustainable Homes, agrees, adding that many landlords have been put off by CESP. ‘People were saying this is too difficult and too stressful. There are too many forms and it’s too bureaucratic.’
According to a spokesperson for Energy UK, energy companies have struggled to find eligible households despite national campaigns offering cash incentives as well as insulation. ‘Identifying [eligible] customers continues to be an issue, and suppliers have been working with the government to target these customers.’
There are warning signs that lessons are not being learned, though. According to Nigel Banks, head of sustainability at contractor Keepmoat, there are questions about how CESP can be spent that are still only just starting to be answered.
‘There has been a lot of technical guidance developed by energy company regulator Ofgem for CESP that should be brought forward to ECO,’ he says. ‘We don’t want to be asking the same questions about what house types qualify for what measure again. It makes a huge difference to how you carry out a programme and could delay things for months if landlords don’t know what they are able to do.’
Energy company obligation funding is raised by energy companies from their customers’ fuel bills and is spent on carbon reduction measures.
ECO will subsidise the green deal by tackling fuel poverty and hard-to-treat properties, where the works would cost more than the savings made.
The government has divided £1.3 billion a year into three pots. One is the £760 million hard-to treat pot for solid wall insulation and costly measures; another is the £350 million affordable warmth pot to tackle fuel poverty, which landlords cannot access.
The remaining £190 million, which can be accessed by social landlords, will also be used to tackle fuel poverty. Like the community energy saving programme, this is to be targeted at the poorest 10 per cent of households and is to be rolled out on an area-by-area basis.