Costs of the ECO: the impact on fuel poverty

Date: 2011
Location:

Rationale

Historically, government initiatives to support the UK to move towards a low carbon environment have been resourced through levies on energy companies, which, in turn, have passed on the cost to consumers in the form of higher bills (referred to as ‘cost pass-through’). The introduction of the Energy Company Obligation (ECO), planned for 2013, is intended to provide the finance for the Green Deal and other core fuel poverty programmes. Like earlier schemes, the costs may be transferred to energy consumers, but the nature of such impact is unknown.





Key research Question

The study aimed to evaluate what sorts of impact the ECO was likely to have on domestic energy consumers, particularly with regard to increased financial burdens on households. As well as establishing an informed evidence base, the research sought to propose mechanisms to mitigate any negative impacts, particularly on the most vulnerable households.  



Summary of activity

Qualitative data was generated through interviews with stakeholders from energy charities, suppliers and regulators to assess possible alternatives to cost pass through.

The quantitative arm of the research used data from sources such as the English House Condition Survey and Living and Food Cost Survey, with variables of different charging models, scoping of possible impacts was undertaken. 





Findings

Through assessing the various scenarios, the report concludes that households would be better off if the costs of ECO were placed on the per unit charge of household bills, not the standing charge element. This should apply equally to each kWh of electricity and gas. Even with these measures, low income-high consumption households would continue to pay more. 



Recommendations

To enable the optimal outcome, a number of options are suggested. These include: 

  • Targeting the delivery of ECO and the Warm Homes Discount at low income-high consumption households to reduce their consumption.
  • Energy suppliers should be allowed to apply credit to vulnerable customer’s accounts.
  • The regulator (OFGEM) should include within their review of the retail energy market proposals that suppliers must calculate the costs of the ECO based on the volume of energy sold and include that within their unit rates.


Other themes



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