Electricity and Gas (Energy Company Obligation) Order 2023
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Lord Callanan
That the Grand Committee do consider the Electricity and Gas (Energy Company Obligation) Order 2023.
Relevant document: 43rd Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)
My Lords, I beg to move that the draft order, which was laid before the House on 24 May, be approved. Since it was introduced in 2013, the energy company obligation—ECO—scheme has ensured that around 2.4 million predominantly low-income households have received much-needed support to improve the energy efficiency of their homes. The Government committed in the Growth Plan 2022 and the energy security plan to place a new obligation on energy suppliers to deliver vital energy efficiency upgrades, helping hundreds of thousands more households to take action to reduce their energy bills by making their homes cheaper to heat.
The order delivers on these commitments by introducing a new energy company obligation, the Great British insulation scheme, to run until March 2026. Alongside establishing the GBI scheme, the order introduces some small additions to the existing ECO4 scheme, providing heating support for certain households which are not currently eligible for these measures.
I turn to the detail of the order. The order establishes the GBI scheme in law as a complement to the existing ECO scheme—ECO4—in Great Britain. Its main provisions are: an additional energy company obligation to run from 2023 to 2026, boosting previously planned energy-efficiency investments by another £1 billion across this period; a focus on the rapid installation of the most cost-effective, single insulation measures; and the extension of support through the ECO schemes to a much wider group of households living in the least energy-efficient homes in the lower council tax bands, who are also now challenged by higher energy bills.
The Great British insulation scheme will boost further the support already available through ECO4 that targets low-income and vulnerable households, those most at risk of being in fuel poverty. Energy suppliers must deliver at least 20% of the new help available through the scheme to these households. This low-income group will include those on means-tested benefits as well as households in the least energy-efficient social housing. Fuel-poor homes in the private rented sector will also benefit, building on the provisions of existing regulations.
Working alongside this low-income minimum, the scheme’s flexible eligibility provisions will offer additional routes to reach those on low incomes or in other ways vulnerable, such as through ill health, but where households may not be in receipt of benefits. These flexible eligibility provisions will enable local authorities, energy suppliers, Citizens Advice and the NHS to work together to help those most vulnerable to the effects of living in a cold home.
As with previous ECO schemes, the obligation will be set based on annual bill savings. This incentivises energy suppliers to target those homes where the savings from energy-efficient measures will be greatest, also installing those measures that will have greatest impact. The scoring approach for this will mirror that used for ECO4, minimising complexity and any bureaucracy for industry.
Installation quality will be governed and assured under TrustMark’s compliance and certification framework. The quality of installations, alongside a whole assessment of the property, will continue to rely on independent industry standards—in this case, the publicly available specifications PAS 2030 and PAS 2035. The order also adds to the circumstances in which some heating measures, particularly solar PV and electric heating, can be available for households within the existing ECO4 scheme.
As a direct result of the boost provided by the GBI scheme, we estimate that around 376,000 measures will be installed in around an additional 315,000 homes. This is expected to save households, on average, £300 to £400 per year. To help to insulate as many homes as possible before next winter, the order permits measures installed since 30 March to count towards the suppliers’ obligation target. This provision was signalled to energy suppliers in the Government’s response to their earlier consultation on scheme design, which was published on that date.
I turn for a moment to that earlier government consultation, which was conducted towards the end of 2022. The scheme design encapsulated in the order we are now considering takes forward the main provisions set out within that consultation. The majority of consultation responses supported the proposals, including as central features the extension of energy efficiency help to the wider household group and a focus on the most cost-effective, single-insulation measures.
Lord Callanan (Con)
First, I thank the noble Baroness, Lady McIntosh, and the noble Lord, Lord Lennie, for their contributions. I thank the noble Lord for complimenting my efforts to recruit Sadio Mané—who is a lovely guy, by the way. It is an interesting correlation, thinking about the priorities of most of the population, that if I tweet something on energy efficiency or that I have met someone to do with hydrogen schemes or whatever, I am lucky if I get 700, 1,000 or 2,000 views, but if I bump into a footballer in a hotel and tweet a picture, I get 85,000 views all across Europe. What we need to do is link famous footballers with energy efficiency and then perhaps we will get the message through.
Anyway, I turn now to the subject of the day. Improving the energy efficiency of our homes is the best long-term solution to reducing energy bills—I do not think anybody disagrees with that—and the corollary of tackling fuel poverty. That is why the Government have set a new and ambitious target to reduce our final energy demand from buildings and industry by 15% by 2030. The Energy Efficiency Taskforce is meeting at the moment to try to put some policies behind that. We are also committed to making sure that homes are warmer and cheaper to heat by investing £12 billion in various Help to Heat schemes, such as the home upgrade grant and social housing decarbonisation fund.
The Government remain committed to helping low-income and vulnerable households to reduce their fuel bills and heat their homes, with the new Great British insulation scheme being a crucial element of that help for this winter and for years to come.
I start with the contribution from the noble Baroness, Lady McIntosh, who asked a question on the targeting of the scheme and consumer contributions. This scheme mirrors the eligibility of the ECO4 scheme; there is in fact no limit on how many low-income consumers can be treated through the scheme. There is no mandatory requirement for contributions, and we do not assume any contributions for low-income consumers as we recognise that they are most in need.
The new general group is designed to capture a broader pool of households. I am sure that even the noble Baroness will accept that not everyone in fuel poverty is necessarily on benefits. We have a number of other schemes targeting those on lower incomes. This is the first scheme we have done for a while that allows those in the so-called able to pay grouping in the lower council tax band to also be eligible for support. That is the new general group; it is designed to capture a broader pool of households which are more likely to be able to contribute. Encouraging contributions through the scheme makes the scheme more cost-effective and ultimately enables more homes to be treated and more measures to be delivered. I am sure that is something the noble Baroness would support.
Suppliers are encouraged to leverage higher contributions from wealthier households and for more expensive measures, which would possibly be in bigger homes, ensuring that low-income and vulnerable households receive the support they need. As a market-led scheme, it is ultimately down to the installer to negotiate any contribution that the consumer is willing and able to pay, taking account of any property issues and of the measures to be installed.
The noble Lord, Lord Lennie, asked a question about monitoring. As with the existing scheme, Ofgem will work with energy suppliers to monitor progress and ensure compliance—including, if necessary, considering enforcement action should that be judged appropriate. As the independent regulator, it is ultimately a matter for Ofgem to judge the form and extent of any compliance action appropriate to the circumstances; it is only right and proper that it should do that.
Annual targets will initially be tracked using notified measures alongside other information. For the benefit of noble Lords, all measures that are installed are notified and lodged with TrustMark. Once the Ofgem digital system is in place to support it, this is intended to minimise any additional costs and bureaucracy from annual targets while still managing to drive momentum.
We have allowed flexibility through the analysis to allow industry to decide how to gather contributions. There is no firm requirement on how suppliers must do that. To reiterate—I made this point to the noble Baroness, Lady McIntosh—there are no limits on the number of low-income homes that can be treated through the scheme. We have several schemes currently in operation, as I mentioned, which support low-income households. Of course, the original ECO scheme, ECO4—its latest iteration—the home upgrade grant and the social housing decarbonisation fund are all targeted at those on lower incomes. That is why we wanted this scheme to be open to a wider pool of households that are currently ineligible for any government support through existing schemes. As I said to the noble Baroness, suppliers are encouraged to leverage higher contributions from wealthier households for more expensive measures. Additionally, of course, there is no requirement for consumers to contribute, or to contribute a set amount through the scheme. It is market-led, and it is down to the installer to negotiate a contribution that the consumer is able and willing to pay.
For ease and pace of delivery, the GBIS aims to mirror as much of ECO4 as possible, keeping the same eligibility criteria for the low-income group that industry is currently very familiar with. That will help to ensure that the GBIS is able to deliver energy efficiency measures to those households as quickly as possible and provides energy suppliers with an incentive to deliver to that group, which they are already very familiar with.
The noble Lord, Lord Lennie, asked about innovation. We have a technical panel to determine and approve products as innovative through the scheme to ensure that consumers continue to be protected.
Once again, I thank both noble Lords for their contributions and the points they made during the debate. I also recognise the broad agreement that the scheme should continue at this time and should help to provide the critical support to an even greater pool of households that are currently challenged by higher energy bills. I commend this draft order to the Committee.