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Columnists: Eoin Lees, Eoin Lees Energy

Published on: 1 Oct 2013

UK Energy Efficiency Obligations and how not to manage a transition

The latest phase of the British EEOs terminated at the end of 2012 and for the first time, the total energy savings delivered by two of the six obligated energy retailers did not meet their targets (albeit one failed on a technicality).

The phase that just finished (Carbon Emissions Reduction Targets) was the largest to date, probably entailing expenditure of ~€1.3 billion per year by the energy companies focussed entirely on the residential sector.  It should be noted that this large amount still represented only around 4% of the final customers’ bills.  The energy savings were dominated by insulation (almost two thirds) and the next biggest activity was lighting (17%) where the excessive promotion of compact fluorescent light bulbs had to be banned.  The dominance of insulation in British EEOs is because that is where the greatest energy saving potential in the residential sector lies and due to our windy, damp climate, cavity wall insulation offers a cheap energy saving opportunity.

When CERT was extended from April 2011 to the end of 2012, a new target was introduced focussed on a sub-sector of low income households classified as the most vulnerable households in Britain.  There was also a new obligation which required that 68% of the energy savings during the extension period had to come from professionally installed insulation measures.  These new sub-targets were not met by 2 of the 6 obligated companies.

To what extent the changes and increased complexities that were introduced into CERT accounted for the difficulties that two of the energy retailers had in meeting their various obligations remains a topic for discussion.  This is of concern as the next phase of the energy company obligation (ECO) began in January this year has yet further complications as it now incorporates what was the Government’s fuel poverty programme and also another initiative known as the Community Energy Saving Programme  which struggled throughout its three year previous activity.  Coupled with the introduction of a new scheme called the Green Deal (see below), means that energy efficiency in the residential sector in Britain is entering a period of uncertainty.  This is particularly true for those organisations crucial to GB meeting its energy saving targets in the residential sector, i.e. the insulation industry.

However, what has really thrown the insulation industry in Britain into disarray is the decision to exclude cavity wall insulation and loft insulation top ups from most of the ECO activity.  For cavity walls, there are exceptions where the cavity walls in question are “hard to treat” e.g. narrow cavities.  There are more than 4 million cavities to be filled most of which are not hard to treat; similarly, there are over 8 million household which still have insufficient loft insulation.  As the industry had been delivering over 500,000 cavity wall and around 900,000 loft insulations a year, they were apprehensive that Green Deal might not pick up the likely drop in installation rates.  Green Deal is a loan scheme where energy saving from the energy efficiency measures exceeds the money paid back to cover the interest on the loan and loan capital – like a mortgage.  However, the loan interest rate (7% to KfW’s successful refurbishment programme in Germany with an interest rate of 1%) is not proving to be much of a consumer driver.

The Government intended the Green Deal to deal with conventional cavity wall insulation and loft insulation for non-low income households.  Their intention was for ECO’s activity to focus more on the more expensive solid wall insulation where most of the remaining insulation energy saving potential lies.  A worthy objective, but CERT in its final year had been running around 15,000 solid wall insulations per year.  Additionally, Green Deal was 5 months late in starting and there have been the usual teething problems for both ECO and Green Deal with administration details to be sorted out, legal issues with the private rented sector, how to certify a hard to treat cavity wall etc. etc.  - unsurprisingly, by the middle of July 2013, only 36 households had signed a Green Deal package!

The energy regulator Ofgem is responsible for the administration of ECO and in its recent report it said that they had approved installations to the end of July 2013 of 2,024 solid wall 10,230 cavity walls and 30,698 loft insulations.  Even though 6 month figures, it represents a marked change from previous annual rates.  Inevitably, redundancies have occurred in the insulation industry.

So what to make of it all?  I still believe that Green Deal and ECO are the correct way forward – what has been disastrous is the way the transition has been handled.  New energy efficiency schemes take time to run smoothly.  And they need consumer drivers in the forms of subsidies or regulatory requirements such as the UK Government will introduce for private rented from 2018 when it will be illegal to let properties with an E- or a F-rated energy performance certificate.  Finally, to have an overnight cliff face approach to cavity and loft insulation and to expect unrealistic growth rates in solid wall insulation is definitely not good practice design.  A transition in ECO over several years with an increasing requirement for solid wall activity and hard to treat cavity walls would have allowed time to sort out the many new teething problems with ECO and Green Deal, tackled many of the remaining simpler insulation measures, preserved installer jobs and allowed innovation in lowering solid wall installation costs in an analogous fashion to what happened with cavity wall insulation back in the 1990s when EEOs first started.

As to the future, the insulation industry remains committed to Green Deal and ECO - we can only hope the Government will help the industry survive till the promised land is reached.

Other columns by Eoin Lees