The government’s Energy Company Obligation (ECO) programme could result in yearly household energy bills rising by £100, which is far more than the coalition initially predicted, one industry source has claimed.
When the ECO was launched by the government in January this year, it claimed that the cost of rolling out the scheme would amount to around £53 being added to each person’s yearly energy bills.
The scheme creates a legal obligation for the big six energy suppliers to improve the energy efficiency of households by carrying out measures such as installing insulation and heating systems, and places a particular focus on assisting those on low incomes.
The intention is to reduce the amount of heat being lost through people’s homes unnecessarily and help to bring down the rate of fuel poverty – which occurs when people spend more than ten per cent of their income on heating a property.
However, the projected costs of implementing the scheme and the reality are very different, according to one senior executive from a big six supplier, who told the Financial Times that household bills will bear a more significant impact than first thought.
He explained: “Early evidence confirms that ECO is going to cost far more than the government expected.
“Already we are seeing simple measures like loft insulation costing almost 400% of what they should do, and on that trajectory the scheme has potential to add more than £100 to a typical dual fuel bill; far more than the £53 the government predicts.”
His cost estimations were higher than those made in a recent study commissioned by the industry body Energy UK, which estimated that the ECO programme’s administration would cost around £1.7 billion a year.
This would equate to around £69 being added on to consumers’ energy bills – less than £100 but still significantly higher than the £53 that would be added if the government stuck to its predicted target of limiting the cost of running the ECO programme to £1.3 billion.
The unnamed source said that an urgent review of the scheme would make sure it is cost-effective for consumers “and does not inadvertently exacerbate the fuel poverty it aims to reduce”.
It was thought that the cost of the ECO would be tempered through the emergence of the Green Deal, which provides homeowners with an opportunity to boost the energy efficiency of their home through a government loan that is paid back through their energy bills.
However, energy providers feel that take-up of the Green Deal will be underwhelming, and Angela Knight, chief executive of Energy UK, told the FT that the ECO programme may need to be regularly reviewed to ensure that it is not counter-productive.
She concluded: “Energy suppliers are concerned that the costs will be higher than the policy makers expect and, if so, this will add more to all customers’ bills. We believe that the cost of the programme should be published regularly, to allow discussion on what is happening and early changes to be made if necessary.”
For now, the Department of Energy and Climate Change is convinced that administration of the ECO programme will remain under budget, and the coalition’s target of only adding £53 to yearly household energy bills will not be exceeded.