Draft Electricity and Gas (Energy Company Obligation) Order 2023
(Limited Text - Ministerial Extracts only)
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The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)
I beg to move,
That the Committee has considered the draft Electricity and Gas (Energy Company Obligation) Order 2023.
It is a pleasure to serve under your chairmanship this afternoon, Mr Dowd. The draft order was laid before the House on 24 May.
Since the energy company obligation scheme was introduced in 2013, it has ensured that about 2.4 million predominantly low-income households have received much-needed support to improve the energy efficiency of their home, with more than £19 billion-worth of savings for households over the lifetime of the measures installed. The Government committed, in the growth plan 2022 and the energy security plan, to placing 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 draft order will deliver on those commitments by introducing a new energy company obligation, the Great British insulation scheme, to run until March 2026. Alongside that, it will introduce small additions to the existing ECO4 scheme, providing heating support for certain households that are not currently eligible for these measures.
I turn to the detail of the order. It will establish the Great British insulation scheme in law as a complement to the existing energy company obligation 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, which 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 those households. That 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 benefit, too. That builds on the provisions of existing regulations.
Working alongside the low-income minimum, the scheme’s flexible eligibility provisions will offer additional routes to reach those who are on low incomes or in other ways vulnerable, such as through ill health, but where households may not be in receipt of benefits. The 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. That incentivises energy suppliers to target those homes where the savings from energy-efficient measures will be greatest; they will also be installing the measures that will have the greatest impact. The scoring approach for this will mirror the approach 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: PAS—publicly available specification—2030 and PAS 2035.
The draft order will also add to the circumstances in which some heating measures, in particular solar PV and electric heating, can be available for households in the existing ECO4 scheme.
We estimate that as a direct result of the boost provided by the Great British insulation scheme, about 376,000 measures will be installed in around an additional 315,000 homes. That 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 draft order will permit measures installed since 30 March to count towards the suppliers’ obligation target. This provision was signalled to energy suppliers in the Government response to their earlier consultation on scheme design; the response was published on that date. The Government consultation was conducted towards the end of 2022. The scheme design encapsulated in the draft order takes forward the main provisions set out in the 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.
The Government are therefore proceeding with the main proposals, with some key changes considering the responses received and the final impact assessment. We have expanded the eligible council tax bands in Wales from bands A to C to bands A to E, better aligning with the proportion of eligible households in England and Scotland. We are requiring all measures to be installed with the PAS 2035 requirements, given the complexity of defining low-risk measures that could use any alternative standards. We have not implemented the proposal consulted on that suppliers must provide evidence that low-income households cannot meet the ECO4 scheme minimum requirements, to simplify administration.
We have ensured that households supported under the Great British insulation scheme will not be excluded from receiving future help under the ECO4 scheme where the eligibility criteria for that scheme are met. We will uplift scores on measures delivered to low-income rural off-grid households in Scotland and Wales, given the additional challenges that those households are likely to face. Equivalent households in England will be supported via the home upgrade grant. Recognising the value of innovation, those innovative products offering the greatest improvements and delivered to the low-income group will be eligible for both at 25% and 45% uplifts, subject to a cap.
The Great British insulation scheme will continue building on the successful ECO approach that has delivered energy efficiency measures to millions of households for the past decade. The scheme will extend help to hundreds of thousands more households previously ineligible for Government energy efficiency support. It will build momentum towards the Government’s ambition to reduce total UK energy demand by 15% from 2021 levels by 2030, and it is estimated that it will save more than 5 million tonnes of CO2 emissions from the lifetime of the measures installed. It will empower thousands more people to insulate their homes, protecting the pounds in their pocket and supporting jobs across the country. I commend the draft order to the Committee.
Andrew Bowie
I thank both my counterparts. Obviously they have not spent enough time locked in a Committee Room over the past six weeks, so they wanted to come back for some more today. It is a pleasure to be back with them both this afternoon.
Improving the energy efficiency of our homes is the best long-term solution to reduce energy bills and therefore to tackle fuel poverty. That is why the Government have set a new and ambitious target to reduce final energy demand from buildings and industry by 15% by 2030, and are committed to ensuring that homes are warmer and cheaper to heat by investing £12 billion in Help to Heat schemes such as the home upgrade grant and the social housing decarbonisation fund. The Government remain committed to helping low-income and vulnerable households to reduce their fuel bills and heat their homes. The Great British insulation scheme will be a crucial element of that help over this winter and for years to come.
The hon. Member for Kilmarnock and Loudoun asked why a smaller number of all properties are projected to be insulated and why we are not focusing on solid wall insulation. The scheme will focus on the most cost-effective insulation measures to ensure that as many households as possible can receive support. Solid wall insulation remains eligible for the scheme, but as it is a high-cost measure, it is more likely to require a consumer contribution.
The Government are absolutely determined to reach our energy efficiency ambitions by 2030. We need to balance the ambition of the scheme with the impact of consumer bills and the ability for existing supply chains to deliver measures quickly. This Government are taking action now, led by the energy efficiency taskforce, and building on what has already been achieved through more efficient use of energy in the UK.
Let me address the points raised by the hon. Member for Southampton, Test. Why is the number of homes estimated to be upgraded through the insulation scheme lower than was originally estimated? Compared with the modelling undertaken for the consultation stage impact assessment, the final modelling has incorporated higher-measure cost assumptions. These updated cost assumptions were informed by independent surveys of installers and have been the primary factor in causing the estimated number of homes treated through the scheme to fall.
I accept the hon. Gentleman’s statement that ECO4A, ECO4+ and the GBIS are the same scheme. He asked whether a minimum of two standard assessment procedure band improvements would be required, which might create problems for the insulation scheme. The GB insulation scheme has no minimum improvement requirement; it will target the most cost-effective single measures to make the biggest difference to the most energy-inefficient properties.
Should we support fully those who are on the lowest incomes and are the most vulnerable? We want to extend support to a broader pool of households who are currently ineligible for support through existing schemes but are also likely to be struggling to pay higher energy bills. At least 20% of the obligation will focus on low- income households, targeting those on means-tested benefits, living in the least efficient social housing or referred by a participating local authority or energy supplier and considered to be on a low income or vulnerable. The remainder will be open to households in the lower council tax bands: A to D in England and A to E in Scotland and Wales, equivalent to EPC rating D to G.
Has a comparative assessment been made of the cost assumptions for the ECO4 scheme and of those set out in the Great British insulation scheme consultation? We are monitoring ECO4 delivery against the current cost assumptions and will consider changes if necessary. However, changing the cost assumptions may require either a change to the overall energy bill reduction target, the estimated funding scheme policy details or a combination of all three. Such changes would require public consultation, and possibly regulatory change.
Dr Whitehead
I think the Minister has just indicated, in his very last sentence, that another SI may be on its way. If so, what is the timescale?
Andrew Bowie
I would not want to commit either to another SI being on its way or to a timescale for that happening. However, as the hon. Gentleman has just heard me say, any changes would require possible regulatory change. He can take from that what he will.
I thank the hon. Members for Southampton, Test and for Kilmarnock and Loudoun for their contributions and for the points that they made, and I thank everybody else for turning up today. I recognise that there is agreement that the scheme should continue at this time, providing critical support to a greater pool of households challenged by higher energy bills. Once again, I commend the draft order to the Committee.
Question put and agreed to.