Open consultation

Consultation on amending the ECO4 Order to allow cost recovery via grant funding

Published 8 December 2025

Applies to England, Scotland and Wales

Introduction

Under the Energy Company Obligation (ECO4) around 949,800 measures have been installed in around 280,100 households to the end of September 2025. However, in delivering these measures obligated suppliers have spent more than was anticipated in the impact assessment (IA) for the scheme that was published before it was established. There have been a number of reasons for this, including:

• A more constrained supply chain than was expected, especially at the start of ECO4. This was exacerbated by the introduction of GBIS in 2023 which utilised very similar supply chains, adding pressure to the ECO4 supply chain.
• The scheme launching late in summer 2022 rather than 1 April 2022, meaning less than the full 4 years of the scheme were available to deliver the same target.
• International disruption to relevant supply chains e.g. the war in Ukraine, which pushed inflation in the market for insulation materials, in particular, many of which rely on fossil fuels for their production. Inflation in some materials markets exceeded 70%, in contrast to general inflation peaking at a much lower level.

The price cap includes a policy cost allowance for ECO4 costs, to enable suppliers to recover the efficient costs associated with delivering the scheme, from default (standard variable tariff) customers. To date, Ofgem has relied on DESNZ’s IA when setting the allowance, however outturn delivery costs have been materially higher than the costs assumed in the IA. The Domestic Gas and Electricity (Tariff Cap) Act 2018 sets out the legislative requirements on Ofgem in operating the price cap, including an objective to have regard to suppliers’ need to finance their efficient activities. It is therefore likely that absent any intervention via direct funding from DESNZ, Ofgem would consult on an upward adjustment to the price cap. Government aims to protect households as much as possible from bill increases. To prevent a potential bill increase, we plan to pay the suppliers through Exchequer funding. 

Current scheme rules state that measures cannot qualify for ECO4 support through any grant funding. This was done originally to prevent measures being paid for from grants being counted towards the ECO4 obligation. As the future grants that might be included were not known at the beginning of the scheme, the provision excluded all grants. This consultation proposes a small, technical change to the Electricity and Gas (Energy Company Obligation) Order 2022 (“the ECO4 Order”) to specify which government grants are the subject of this provision. This will allow money to be paid directly to suppliers and remove the risk of an increase to consumer bills.

General information

Why we are consulting

We are seeking views on making a small change to the ECO4 Order, to specify which government grants cannot fund the scheme.

Consultation details

Issued:          8 December 2025

Respond by: 5 January 2026

Enquiries to:

Energy Company Obligations Team
Department for Energy Security and Net Zero
3-8 Whitehall Place
London
SW1A 2EG

Email: ecoteam@energysecurity.gov.uk

Consultation reference: Consultation on amending the ECO4 Order to allow cost recovery via grant funding.

Audiences: Stakeholders with an interest in domestic energy efficiency and fuel poverty in Great Britain and domestic energy suppliers.

Territorial extent: England and Wales and Scotland.

How to respond

Respond online at: energygovuk.citizenspace.com/energy-security/amending-eco4-order-cost-recovery-grant-funding/

or

Email to: ecoteam@energysecurity.gov.uk  

When responding, please state whether you are responding as an individual or representing the views of an organisation.

Your response will be most useful if it is framed in direct response to the questions posed, though further comments and evidence are also welcome.

Confidentiality and data protection

Information you provide in response to this consultation, including personal information, may be disclosed in accordance with UK legislation (the Freedom of Information Act 2000, the Data Protection Act 2018 and the Environmental Information Regulations 2004).

If you want the information that you provide to be treated as confidential please tell us, but be aware that we cannot guarantee confidentiality in all circumstances. An automatic confidentiality disclaimer generated by your IT system will not be regarded by us as a confidentiality request.

We will process your personal data in accordance with all applicable data protection laws. See our privacy policy.

We will summarise all responses and publish this summary on GOV.UK. The summary will include a list of names or organisations that responded, but not people’s personal names, addresses or other contact details.

Quality assurance

This consultation has been carried out in accordance with the government’s consultation principles.

If you have any complaints about the way this consultation has been conducted, please email: bru@energysecurity.gov.uk.

The proposals

Article 12 of the ECO4 Order sets out the requirements for a “qualifying action” – the criteria that most measures must meet to be eligible under ECO4. Article 12(1)(e) sets out a requirement that the measure “is not funded by any grant from public funds”. The intention behind this provision is to prevent double-counting of measures under more than one government scheme. This would risk wasting money.  

This consultation proposes amending the regulations to specify the government grants from which money is not to be received. This would be made up of other extant home retrofit schemes that fund retrofits by a grant from public funds, including:

• the Social Housing Decarbonisation Fund (SHDF)
• the Boiler Upgrade Scheme (BUS)
• the Local Authority Delivery (LAD)
• the Home Upgrade Grant (HUG), the Green Homes Grant (GHG)
• Warm Homes: Local Grant (WH: LG)
• Warm Homes: Social Housing Fund (WH: SHF)
• Home Energy Scotland Grant and Loan
• Warmer Homes Scotland
• the Scottish Government’s Area Based Schemes
• the Social Housing Net Zero Heat Fund (SHNZHF)
• the Optimised Retrofit Programme (ORP)
• Arbed
• Nest

This would allow grants from public funds to be made by the government specifically for the purposes of funding ECO4 measures (rather than these other named schemes).

Question

1. Do you agree that the ECO4 Order should be amended to specify which government grants cannot be used to fund measures?