A new model for ECO

In previous blogs I’ve been critical of the way Energy Companies Obligation (ECO) distorts the building refurbishment market, and set out some principles which I believe should underpin reform. The real challenge, though, is turning principles into practice, and coming up with workable schemes and ideas to improve the situation on the ground.

So what would I do, if we were to start with a blank sheet of paper and take the opportunity to design a completely new ECO scheme?

The principles I proposed previously were:

• Remove utility control of this funding (to eliminate conflict of interest and damaging market distortions).
• Put customers in control (to provide the basis for competitive markets and in turn drive innovation and value for money)
• Localise this market, minimising bureaucracy and targeting regulation where it’s needed (to align energy efficiency activity with the grain of the wider building maintenance and refurbishment markets as well as cutting policy costs and overheads).

I also think technology-neutrality is important. We should focus on desired impact (improved actual whole house energy performance) and get rid of the costs of trying to regulate nationally for technologies designed to work more or less well in different local contexts.

I would allocate ECO funding on a pseudo-investment basis

My ECO scheme would start from a vision of a UK built environment, housing and energy market that is far more integrated and locally-responsive than it is today. I would make ECO investment funding available exclusively to community-owned and democratically-accountable local energy infrastructure companies. Let’s call these Community Energy Infrastructure Companies CEICs.

These organisations would be responsible for optimising the energy performance of their locality through providing efficient local infrastructure, supporting energy efficiency schemes for housing and reducing fuel poverty. Their remit would extend to new build as well as refurbishment (so that, for example, they could ensure efficient infrastructure such as district heating and smart grids are incorporated in new developments). They would be at least part-owned by local authorities, who are best placed to manage local infrastructure.

I would allocate ECO funding on a pseudo-investment basis (e.g., funding made available might be 3-5 times annual savings delivered) and performance against these promises would be audited and policed and reflected in subsequent rounds of award. I would measure these savings properly – no messing around with deemed savings by technology.

Regulatory effort would be focused on supporting the formation and efficient governance of these CEICs (a sensible and useful national regulatory role) and on monitoring investment performance (analogous to running investment funds and perfectly viable at the level of hundreds of CEICs as opposed to millions of individual property projects). This would replace the pointless investment in regulation, analysis, arguments and lobbying which currently goes on around the varying ECO credits for different technologies.

Some form of ECO should continue to exist (i.e., a nationally-generated fund to support investment in energy efficiency sourced directly or indirectly from the profits of the large utilities) because the history of our housing market and culture means energy efficiency investments are still seen largely as a social investment (i.e., for the benefit of everyone and over the long term) rather than a private benefit.

However, by moving the focus of energy efficiency policy onto localised investment through CEICs we would at least take a pragmatic first step towards individuals thinking of energy efficiency as a private investment (i.e., through their relationship to their community). This is probably a more realistic approach to the massive cultural and political change we need to make in this sector.

The alternative – leaping in one bound from an over-regulated, over-bureaucratic and complex system of central subsidy (called ECO) to an over-regulated, over-bureaucratic and complex system of private investment (called Green Deal) – has not yet shown much signs of success.

Matthew Rhodes is managing director of Encraft