Environmental Change Institute

UK EEOS: Lessons learned and future challenges

Tina Fawcett

Brussels, 14 October 2016

Outline

• Description of UK EEO

• Lessons learned

• Future challenges

UK scheme overview

Began in 1992 on a very small scale – gradually built up to large

scale scheme in 2008-2012 (delivering annual savings of around

1% of residential energy use).

Scale – in terms of costs and energy savings – reduced in current

phase (2013-2017). From 2018, new ECO is expected to focus on

fuel poor only, which is likely to further reduce savings.

Apart from very early years, for residential sector only.

Obligation is on large energy retailers (with exception of part of the

scheme 2008-2012, obligation placed on large electricity

generators – an experiment which was not repeated).

There have generally been six obligated parties, all of whom are

large, sophisticated companies.

Energy savings targets

0

20

40

60

80

100

120

140

1994 -1998

1998 -2000

200 -2002

2002 -2005

2005 -2008

2008 -2012

2013 -2017Im

pli

cit

an

nu

al e

ne

rgy s

avin

gs

ta

rge

t (T

Wh

lif

eti

me

)

UK EEO - implicit annual energy savings targets, 1994 - 2017

Note: UK targets have not always been specified in TWh, most set as carbon targets, which is why these figures are

presented as ‘implicit’ targets.

Source: Rosenow 2012, Rosenow et al 2013 1994 - 2012, author estimate 2013-2017

Costs per customer

0

10

20

30

40

50

60

70

80

1994-2000 2000-02 2002-05 2005-08 2008-12 2013-15original

2013-15revised

UK EEO costs per gas plus electricity customer (€ per year)

Note: costs up to 2012 are actual, from 2013 onwards ex ante estimates (historically

higher than actual costs)

Energy prices can be a sensitive political issue: pressure to change policy in 2013/14

Measures installed 2008-2012, residential

This is the period which had greatest focus on mass installation of low cost measures. The main part of the scheme – CERT – installed the following: One in five GB households received a CERT measure. Source: Ofgem-eServe, 2013

Measure Numbers

Cavity wall insulation 2.6 million

Solid wall insulation 50,000

Professional loft insulation 3.9 million

CFLs 309 million

Heating controls 1.5 million

Efficient cold and wet appliances 4.4 million

Current scheme: Energy Company Obligation, 2013-17

This was designed to complement the Government’s other policy – Green Deal – a loans policy which has now been discontinued. Less of a focus only on energy saving, more on delivering affordable heat, and supporting high cost measures. Three separate sub-schemes. Savings target & focus on high cost measures reduced in 2014 due to concern about the costs EEO was adding to energy bills. Transition extension for 2017-18 – will be smaller in terms of energy company spend (26% reduction), with more of a focus on the fuel poor.

Future changes in scheme design

Low cost insulation (CERO)

Solid

Wall

Insulation to certain areas (CSCO + rural) Heating + insulation for the fuel poor (Affordable Warmth)

Low cost insulation

Solid

Wall

Heating + insulation for the fuel poor

Heating + insulation for the fuel poor

Solid

Wall?

Current ECO

(2015-2017)

Transition

(2017-2018)

Fuel poverty

obligation

(2018-2022)

Adapted from: DECC (2016) Eco: Help to heat. Department of Energy and Climate Change, UK.

* Not to scale!

Lessons learned (1)

EEOs have delivered very substantial improvements in energy efficiency in UK households, particularly in the period of high obligations 2002 – 2012.

Until the sudden and unsuccessful changes adopted in 2012 to accompany the Green Deal (a loans policy), EEOs had developed incrementally and grown steadily in scale,

Placing obligations on energy suppliers in a competitive market has been successful in that targets have, with rare exceptions, been delivered. However, energy suppliers have not moved to an ESCO business model.

The approach of requiring a strong focus on measures in low income groups has been characteristic of UK EEOs. This has enabled all income groups to benefit.

Lessons learned (2)

The UK is almost unique in restricting its EEO to the household sector. There is no convincing logic for this.

As in most countries, EEOs have been used primarily to deliver relatively low cost energy efficiency measures.

The 2012-13 experiment with ECO, ceasing support for low cost measures and focussing on a more expensive measure, solid wall insulation, has not been successful and was essentially abandoned from 2014.

Challenges for future policy: UK

The UK is using its EEOS to tackle fuel poverty – a policy formerly

paid for out of general taxation. Will this retain public support, and

is it a sensible way of addressing fuel poverty?

The UK is likely to continue to move away from EEOS as a major

delivery policy for energy efficiency, just as the policy is spreading

to more EU countries.

The UK currently has no policy to encourage uptake of residential

efficiency measures by the ‘able to pay’

How to develop policy to deliver savings from renovating the

existing housing stock?

Challenges for future policy: general

Balance of developing policies meeting a diversity of goals,

without the policy developing unmanageable complexity.

Are low cost intervention options are reducing in the residential

sector?

How can Article 7 policies support deep and complex

refurbishment, technical innovation or behavioural change?

Should EU policy specifically on renovation of existing buildings be

developed – or is it better to retain a flexible policy like Article 7?

Refurbishment delivers important comfort and health benefits as

well as energy savings – should these be valued?

Can energy efficiency policy be strengthened without losing public

and political support?

Do we need to put obligations on building owners?

References / further information

Ofgem E-Serve, 2013a. The final report of the Carbon Emission Reduction Target (CERT)

2008 - 2012. Ofgem, Available on the web: https://www.ofgem.gov.uk/ofgem-

publications/58425/certfinalreport2013300413.pdf.

Rosenow, J., 2012. Energy savings obligations in the UK—A history of change. Energy Policy

49, 373-382.

Rosenow, J., Platt, R., Flanagan, B., 2013. Fuel poverty and energy efficiency obligations – A

critical assessment of the supplier obligation in the UK. Energy Policy 62, 1194-1203.

Ipsos MORI, CAG Consultants, UCL, Energy Saving Trust, 2014a. Evaluation of the Carbon

Emissions Reduction Target and Community Energy Saving Programme. Defra, London.

ENSPOL reports – D2.1.1 & D3.1 – see http://enspol.eu

UK schemes in outline

Name of scheme Energy Efficiency

Standards of

Performance 1 - 3

Energy

Efficiency

Commitment 1

Energy

Efficiency

Commitment 2

Carbon

Emissions

Reduction Target

Community

Energy Savings

Programme

Energy Company

Obligation

Abbreviation EESoP 1 -

EESoP3 EEC 1 EEC 2 CERT CESP ECO

Period 1994 – 2002 2002 - 2005 2005-2008 2008 – 2012 2009-2012 2013-2017

Coverage

Domestic and

SME electricity

customers (plus

gas from 2000)

Domestic gas &

electricity

customers

Domestic

electricity & gas

customers

Domestic

electricity & gas

customers

Domestic

electricity & gas

customers

Domestic

electricity & gas

customers

Implicit annual

target 8.4 TWh (lifetime) 21 TWh (lifetime) 43 TWh (lifetime)

Approx. 104 TWh

(lifetime) Approx. 15 TWh

(lifetime)

Approx. 30 TWh

(lifetime) (prior to

redesign in 2014)

Annual

expenditure by

energy

companies

(actual figures)

£104 million £167 million £400 million £911 million £234million Figures not yet

available €130 million €209 million €500 million €1139 million €292 million