A brokerage mechanism will create a fairer energy company obligation market, says partner at Trowers & Hamlins Chris Paul
The energy company obligation will be the main subsidy for energy efficiency home improvements, paid for from charges on everyone’s electricity bills. In June, we learnt some more about what ECO will look like when the Department of Energy and Climate Change published its response to the green deal consultation.
The big change was the addition of a new carbon saving communities obligation, a pot of funding drawn from a charge on everyone’s electricity bills, which social tenants will be eligible to receive, to help pay for insulation measures in low-income communities. It will sit alongside the existing affordable warmth and carbon savings obligations.
Energy providers with more than 250,000 customers will be obliged to meet targets by collecting ‘points’ awarded for how much carbon or money is saved by the measures installed. Based on the consultation response, DECC is planning a brokerage mechanism to allow third party green deal providers to access ECO funding in return for these points, which will encourage green deal providers to compete on price.
To date, DECC has released little detail on how brokerage will work in practice and is allowing the market to create a self-regulated solution. It is envisaged that energy providers and green deal providers will use an online portal to trade ECO subsidy for the points that energy providers require to meet their targets. Individual customers will not be involved in the brokering process and will be presented with a single package by the green deal provider.
Level playing field
Without such a system there is a risk that the big energy providers, who will collect ECO from bills and administer the funding pot, could focus their ECO funding on their own green deal activity, or restrict ECO funding to a select number of providers, for example. Instead, DECC wants to see fair and transparent access to the ECO subsidy.
At this stage DECC is seeking voluntary commitments from energy providers to use this brokerage mechanism from October, but is consulting on the need for further legislation this autumn. This could include an obligation for a percentage of ECO funding to be delivered through a brokerage mechanism, and potentially introducing ‘blind bidding’ procedures based purely on price, rather than the identity of the green deal provider, so as to ensure a fair approach.
The introduction of a brokerage mechanism should be beneficial for the green deal and ECO market, ensuring a level playing field. However, rather than relying on future brokerage, social landlords may still wish to develop relationships with energy providers to directly access ECO funding for their own programmes, as many have already done in order obtain carbon emissions reduction target and community energy saving programme funding.