ECO is fundamentally flawed but we can build something better if we just stick to three simple rules

Matthew Rhodes

This week’s government announcement of a two year extension to the current round of the Energy Companies Obligation (ECO) hardly comes as a surprise and is a pretty lousy outcome for all parties.

The insulation industry will see a 50% cut in (theoretical) demand; householders will continue to get a poor deal; the environment will continue to suffer; and the utilities will continue to moan about unnecessary obligations while using the power ECO gives them to hold the sector and thousands of jobs in construction to ransom.

The government is only getting away with it because the reality of the energy efficiency industry is that the volume of work this year has already fallen way below the theoretical rate that should have been driven by the original ECO scheme. So a 50% cut (or two year delay) should actually drive an increase in demand and jobs on the ground.

All of which just goes to show what a fundamentally flawed scheme ECO is.

Good will only come out of this week’s announcement if we use the next couple of years to design and put in place a radically different and better scheme; one which delivers the desired outcomes efficiently and supports a competitive and stable market for construction companies.

I’d like to see a regulator or organisation responsible for optimising the energy performance of our built environment totally independent of the utilities and Ofgem

We can already see the outlines of such a scheme. I propose three key principles from which to start.

First, the utilities should not be involved at all. Whoever had the bright idea of using regulatory powers to force utilities to fund energy efficiency measures by adding the costs onto utility bills must surely be regretting it now. Once upon a time it was a clever way of generating extra public spending without this appearing in the government books, but that time is long gone, and now it’s clear the political, economic, environmental and social costs outweigh the short-term political benefits.

I’d like to see a regulator or organisation responsible for optimising the energy performance of our built environment totally independent of the utilities and Ofgem.

Second, we must put customers in control. This is the key to creating long-term sustainable demand for energy efficiency measures independent of government support.

A customer-centred approach provides the basis for a competitive market and a stable industry, because companies can innovate and compete to win more business from customers (rather than competing to control and align themselves with a single set of scheme rules, which tends to create artificial monopolies). There are more customers with more needs than can ever be replicated by a regulated scheme, so a customer-centred approach will support a diverse and resilient industry naturally.

What does this mean in practice? It means focusing incentives on individuals and buildings and not on technologies and measures. Any successor to ECO should reward energy efficiency or target particularly inefficient or fuel poor households rather than starting from centrally-decided flavour of the month technical solutions (solid wall insulation etc).

Finally, the market for energy efficiency must be localised. The test for this is that if Mrs Smith wants her loft insulated while her kitchen is being replaced by her local plumber, she should be able to ask him to do her loft at the same time and this should be seamless and easy, without requiring the additional and very visible intervention of national helplines, insurance and finance companies, utilities, construction contractors, advisers, regulators, IT systems and accreditation bodies.

We need to ask the question – what value do these organisations really add to the process, and how and why are they relevant to Mrs Smith at all?

Matthew Rhodes is managing director of Encraft