Friday, 28 April 2017

On the line

The future of the energy company obligation is in jeopardy as politicians come under pressure to curb rising energy bills. So is ECO worth saving? Inside Housing and Mears Energy surveyed social landlords to find out. Jess McCabe reports

The future of the energy company obligation - the main subsidy that social landlords use to pay for insulation and other energy-saving work on tenants’ homes - looks uncertain.

The government policy that started in January dictates that energy companies must spend about £1.3 billion a year on meeting a series of targets to reduce fuel poverty, insulate those homes that can’t be quickly warmed up with a squirt of insulation in the wall cavities, and reduce the UK housing stock’s carbon dioxide emissions.

However, while recent price hikes of about 10 per cent by the big energy companies could have made the case even stronger for spending money on home renovations that make it cheaper for recipients to heat their homes, it looks like it could signal the end for the policy.

As ECO funding is raised through an extra charge on everyone’s energy bills, it has become part of a government review of ‘green levies’ on household bills.

As the steam train that is the weight of public outcry over the rising energy prices comes hurtling towards the policy that was actually intended to help people reduce their fuel bills, Inside Housing and Mears Energy, part of the Mears Group, ran a joint survey to gather social landlords’ opinions.

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The survey, which ran online between 7 October and 5 November, looks at ECO from the point of view of those who have practical experience of the benefits and drawbacks of the initiative. Two hundred and thirty-three people responded, giving plenty of ideas on how ECO could be improved - if it survives.

ECO is a subsidy to pay for energy efficiency improvements to people’s homes. It is administered by energy companies, which must spend the money on measures that cut the cost of energy bills - specifically targeting private tenants in fuel poverty, and anybody living in ‘hard-to-treat’ homes. Many social landlords have already secured millions of pounds in funding to pay for energy efficiency improvements to their stock.

An easy target
Dr Alan Whitehead, a Labour MP and close reader of the UK’s energy policy, predicts ECO’s demise as a result of the government review. ‘Look out for the demise or downgrading of ECO shortly, as the only prisoner that it’s actually possible to round up and make walk the plank,’ he states, noting that contractual obligations and the benefits to Treasury make it unlikely any of the other levies on energy bills - such as the renewables obligation and carbon floor price - could be done away with or curtailed.

‘I just hope that common sense prevails and we can help the people this financing was designed for. My concern is there are 26,000 estimated cold-related deaths every year,’ says Matt Lucas, director of Mears Energy. ‘We need that subsidy to help reduce that. Our building stock is some of the worst in Europe.’

Uncertain as ECO’s future looks, there may still be a glimmer of opportunity presented by the review - that ECO will survive, and could be made easier for social landlords to access.

Social landlords are already in the midst of projects large and small that will use ECO funding to install insulation, replace boilers and otherwise install measures that promise to reduce their tenants’ fuel bills.

Just under half of the 233 respondents to the survey say they have already accessed or plan to access ECO funding. Fuel poverty among tenants is the dominant motivation for these social landlords. Asked for the main reason for addressing the energy performance of their homes, 79 per cent cited this as their main motivation.

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ECO was never meant to help pay for the low-hanging fruit, such as relatively easy insulation in cavity walls - walls built with two layers with a gap in the middle, the most common method of construction after the 1920s. Instead ECO is meant to provide a ladder up to those fruit tantalisingly out of reach. Our survey results seem to show this is happening, 64 per cent cited tackling hard-to-treat properties with solid walls as a motivation for their organisation accessing the funding, while 51 per cent answered that it helped insulate ‘awkward’ cavity walls. Improving window glazing was the least popular reason for pitching for ECO funding, but still racked up 20 per cent.

However, around 30 per cent of respondents’ organisations have no plans to tap the ‘big six’ energy companies for funding to improve the energy efficiency of their stock, and 23 per cent don’t know what they plan to do.
Of those that don’t intend to apply for ECO funding, almost a third (30 per cent) say this is because they have already carried out the sort of energy efficiency improvements to their homes that the subsidy can finance. But 36 per cent blame the process of applying, which they say is too complex or time-consuming.

Another 33 per cent state that they didn’t have the resources to apply - as one respondent put it: ‘It would cost money that we don’t have.’

Room for improvement
So what do landlords believe should change about ECO? As the review on green levies gets underway, the expectation is that ECO will have to be altered in some way. Social landlords have strong ideas about what that should look like.

Asked what improvements they would suggest to be made to the process of getting ECO funding, two answers stand out: reduce the complexity of ECO, and allow social landlords to access all three pots of funding - at the moment only private tenants can access the home heating cost reduction obligation, the pot of money that must be spent on addressing fuel poverty.

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Even among those social landlords that have already won ECO funding, two spent a long-winded 12 months or more on contract negotiations. ‘That’s just too long,’ notes Mr Lucas from Mears Energy.

A note of cynicism enters into some respondents’ suggestions. ‘The whole process is difficult and the main lesson is: “Don’t believe it when you are told an ECO figure at the beginning of a project. It soon reduces”,’ an asset manager working for a northern landlord concludes.

And one director of asset management at a housing association put across the view that energy companies, the ones which currently collect ECO through all of our bills, and then must spend the money to meet a series of mandatory targets, should be taken out of the equation.

‘Remove ECO from the “big six”, and possibly pass it to [energy regulator] Ofgem or another organisation to administer,’ he says. ‘Allow social landlords and local authorities direct access to carbon trading, rather than through third parties [currently the energy companies or contractors],’ he says.

But Andrew Eagles, managing director of consultancy Sustainable Homes, cautions against change. ‘If [ECO] is scrapped, [social landlords] will have nothing for three or four years. When the new system comes out, it’s not going to be simpler. The reason ECO is complex is that it’s targeted to the specific issues we need to address,’ he explains.

Our survey reveals that at least a handful of lucky social landlords have managed to get an energy company to pay for the whole of their projects, but beyond that, there is a massive difference in the terms of the ECO deals social landlords are signing with energy companies.

One survey respondent reveals that their organisation, a south-west housing association, has had to contribute 75 per cent of the costs of its ECO project. Other respondents explain how their organisations are splitting the costs of their ECO projects in a number of different ways, with no real pattern.

Other set-ups involve the social landlord paying 10 per cent of the cost, 60 per cent, 25 per cent, and, in more than one case, landlords report that breakdown varies from project to project. Three respondents reported that they had to increase their contribution against what they originally pitched in order to seal the deal.

Melin Homes, a 3,500-home association in Wales, has one ECO project already underway - although it is carrying out work on owner-occupied properties, not its own stock. It also has another project in the works.

Survey respondent David Bolton, Melin’s assistant director of asset management, describes efforts to address fuel poverty as ‘a vital component of social housing’. But, he adds, Melin had to make a choice between letting the energy company carry out the work, and receiving more funding, or doing it themselves, for a lower price.

Melin prefers to carry out the work itself in order to ensure quality, he explains. ‘You’ve got to be able to stand by that [work] for the next 20 years. That’s how long our name’s going to be on [the home].’

Put another way, social landlords report receiving anywhere from £180 for every tonne of carbon dioxide saved, at the high end, to just £45 per tonne at the low end from the energy company.

The largest single lump sum of funding reported by a respondent was £7.5 million, won by a housing association in the north west.

Although our survey respondents believe that ECO could be changed for the better, they certainly want it to survive.

Sustainable Homes’ Mr Eagles sums up their feelings. Speaking fresh from a fuel poverty workshop with social landlords, he says: ‘They’re all pretty distraught about the fact it could be scrapped. They’re gutted for their residents.’

To read more about fuel poverty click here.

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