Supporting detail:

Energy Companies Obligation (ECO)

The ECO was introduced in January 2013 to reduce the UK’s energy consumption and support people living in fuel poverty. It does this by funding energy efficiency improvements worth around £1.3 billion every year.

Parliament passed the the Electricity and Gas (Energy Companies Obligation) Order 2012 on 4 December 2012 and it is now in effect. The ECO will run until March 2015, supporting the installation of energy efficiency measures in low-income households and areas, and in properties that are harder to treat. It works alongside the Green Deal to give consumers support and funding for energy efficiency improvements in their homes.

The Green Deal and the ECO will help reduce carbon emissions from the UK’s domestic building stock, which is an essential part of the UK’s plan to meet its statutory domestic carbon emission reduction targets by 2050.

Scope of the ECO

There are 3 obligations under the ECO.

Carbon Saving Community Obligation

This provides insulation measures to households in specified areas of low income. It also makes sure that 15% of each supplier’s obligation is used to upgrade more hard-to-reach low-income households in rural areas.

You will find a list of eligible low-income areas and a definition of rural areas for England, Scotland and Wales (as referred to in the ECO Order) in Energy Company Obligation Carbon Saving Community Obligation: rural and low-income areas. Please note: this document contains a correction slip added in October 2012. You can download a separate copy of the correction slip.

Read the guidance on how online tools can be used to identify the geographic boundaries of the specified areas and determine whether an area is classified as rural.

Affordable Warmth Obligation

This provides heating and insulation measures to consumers living in private tenure properties that receive particular means-tested benefits. This obligation supports low-income consumers that are vulnerable to the impact of living in cold homes, including the elderly, disabled and families.

Carbon Saving Obligation

This covers the installation of measures like solid wall and hard-to-treat cavity wall insulation, which ordinarily can’t be financed solely through the Green Deal.

How the ECO is funded

The ECO will be funded by energy suppliers.

Energy suppliers obligated under the scheme will determine how much subsidy they provide to each consumer. This may depend on consumers’ individual circumstances and the amount of Green Deal finance being used.

The ECO is worth around £1.3 billion every year. The ECO Affordable Warmth and Carbon Saving Community obligations will provide support worth around £540 million per year to low-income households.

The ECO Carbon Saving Obligation is worth around £760 million per year.

How the ECO will be delivered

Energy suppliers will provide the ECO directly to customers, or it will be provided by organisations working together through pre-approved arrangements, such as Green Deal providers.

ECO Brokerage is a market-based mechanism that supports open and competitive delivery of the ECO. Brokerage operates as fortnightly, anonymous auctions where ECO providers can sell ‘lots’ of ECO Carbon Saving Obligation, ECO Carbon Saving Communities and ECO Affordable Warmth.

Compliance and monitoring of the ECO

The Office for Gas and Electricity Markets (Ofgem) administrates the ECO and will monitor and enforce compliance under the obligations. Energy suppliers must report on their delivery against their obligation to make sure they are on track to meet their target by 2015.

Under the ECO Order energy suppliers will also need to report on their costs of delivery, to help us achieve greater transparency around any costs passed on to the consumer.

You can read the consultation on in-use factors and download the calculation of the ECO targets in the final impact assessment.

You can read the Ofgem consultation on proposed policies and procedures in relation to the administration of ECO and the Direction to Ofgem on technical monitoring (PDF, 530KB, 2 pages) .

Ofgem published their final ECO guidance for suppliers and a summary of consultation responses on 15 March. The guidance also provides information for others in the ECO supply chain and will be followed shortly by web pages tailored for installers, software developers and consumers. The guidance will come into effect on 1 May 2015 and will not operate retrospectively to override policies or processes set out in the November 2012 Open Letters. Ofgem sets out the requirements in relation to technical monitoring under the scheme, in line with the Secretary of State’s Direction on the measurement, control and verification of energy efficiency improvements:

Direction to Ofgem on technical monitoring

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How the ECO works with existing energy schemes

The ECO replaces the Carbon Emissions Reduction Target (CERT) and the Community Energy Saving Programme (CESP), which provided targeted energy efficency improvements. CERT and CESP ended on 31 December 2012.

The ECO Order clarifies how suppliers can carry forward any over achievement from CESP and CERT.

ECO and Green Deal statistics

The latest statistics on the Green Deal and Energy Company Obligation (ECO) have been published. These include summary figures on the number of GD assessments, as well as information on ECO brokerage and the GD supply chain.

ECO and Green Deal evaluation

All the research on the Green Deal and Energy Company Obligation (ECO) have been published. These include reports on the Green Deal and ECO customer journey, Green Deal assessments and the Green Deal and ECO supply chain.

Further information

The Energy Saving Advice Service provides free and impartial information about eligibility, access to the ECO and the other types of support available. Phone 0300 123 1234.

Read our ECO quick guide for further information.

Find out more about the Green Deal.