The government published its response to the Energy Company Obligation (ECO4) consultation on 1 April 2022, setting out the final design of the scheme for 2022 to 20261. Among the decisions is a 50 per cent reduction in the supplier allowance, the amount suppliers may retain to cover administration, and a decision not to implement carry-under from the current obligation period1. Obligations will be calculated per unit of supply on volumes in excess of 150GWh a year for electricity and 350GWh a year for gas1.
The scheme continues to apply in England, Scotland and Wales, and implementation is subject to Parliamentary approval of the Electricity and Gas (Energy Company Obligation) Order 2022, and in Scotland to approval by the Scottish Ministers1. The government estimates ECO4 will upgrade around 450,000 homes over four years, most of them to EPC band C, reduce household bills by around £290 on average, and by up to £1,600 for the least efficient homes, and support around 18,000 jobs across Great Britain1. The overall target is £224.3 million in notional annual bill savings by March 2026, with an eligible pool of at least 3.5 million homes1.
ECO4 remains focused on low income and vulnerable or fuel poor households in band D to G homes, and up to 50 per cent of the obligation target may be met under the reformed ECO4 Flex route, which is voluntary for local authorities, the devolved administrations and suppliers1. The government will implement a solid wall minimum target of 90,000 solid wall measures over the four-year scheme, alongside a minimum equivalent upgrade of 150,000 private tenure band E, F and G homes1. A broken boiler and electric storage heating replacement cap is retained at an equivalent of 5,000 homes a year for efficient heating, while inefficient heating systems upgraded with efficient heating are not subject to a cap1.
"Government has decided to reduce the supplier allowance by 50%"
Transitional arrangements allow up to 10 per cent of ECO3 delivery to be carried over into ECO4, subject to measure exclusions, and measures installed between 1 April 2022 and 30 June 2022 can be delivered to ECO3 rules, with the ECO3 scoring methodology applying for those three months1. Suppliers may deliver early to ECO4 scheme rules and be awarded ECO4 deemed scores from 1 April 2022, with early delivery measures lodged with TrustMark from 1 July 2022, and measures installed before 1 August 2022 may be notified by 30 September 20221.
| Item | Figure |
|---|---|
| Supplier allowance | Reduced by 50%1 |
| Obligation threshold | Above 150GWh/year electricity, 350GWh/year gas1 |
| Homes upgraded (estimate) | Around 450,000 over four years1 |
| Average bill reduction | Around £290, up to £1,600 for least efficient homes1 |
| Solid wall minimum | 90,000 measures1 |
| Private tenure E, F, G minimum | 150,000 homes1 |
| Overall target | £224.3 million notional annual bill savings by March 20261 |
Why it matters for households
ECO4 is funded through a levy on energy suppliers, and the cost of the obligation is ultimately met through household bills. The reduction in the supplier allowance changes how much of that money suppliers may retain for administration rather than spend on measures, and the decision to calculate obligations only on supply volumes above the thresholds shifts where the cost of the scheme falls across the supplier base. For households, the practical effect is on how much of the scheme's £1 billion a year is directed at installing measures in homes rather than at running the scheme.
The scheme's focus on band D to G homes, and the minimum targets for solid wall insulation and for private tenure band E, F and G properties, determine which homes are most likely to be offered funded upgrades. Households in the least efficient homes are those the government identifies as seeing the largest bill reductions, up to £1,600 a year in its estimate. The ECO4 Flex route allows up to half the obligation to be met through households on low incomes who are not in receipt of means tested benefits, referred by local authorities or the devolved administrations, which widens the pool beyond benefit recipients.
Because the obligation sits on energy suppliers, the scheme's design affects supplier costs and, in turn, the levy component of domestic bills. The government has not reported in this document how the reduced supplier allowance will be reflected in household bills.
What happens next
The ECO3 scoring methodology applies between 1 April 2022 and 30 June 20221. ECO4 early delivery measures can be lodged with TrustMark from 1 July 2022, and measures installed before 1 August 2022 may be notified by 30 September 20221. Implementation is subject to Parliamentary approval of the Electricity and Gas (Energy Company Obligation) Order 2022 and, in Scotland, to the approval of the Scottish Ministers1. The domestic Renewable Heat Incentive ended on 31 March 2022 and is replaced by the Boiler Upgrade Scheme1.
Sources1 cited
- ECO4: 2022 -2026: government response, assets.publishing.service.gov.uk