Costs of the ECO: The Impact on Low Income Households

Author:

Association for the Conservation of Energy (ACE)

Date: 2011
Location:

Rationale

Historically, government initiatives to support the UK to move towards low-carbon energy 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), which is planned for 2013, is intended to provide the finance for the Green Deal and other core fuel poverty programmes. As with earlier schemes, the costs may be transferred to energy consumers, but the impacts of this are under-researched.

Key research Question

The study aimed to determine 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 for mitigating any negative impacts, particularly on the most vulnerable households.

Summary of activity

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

The quantitative part of the research utilised data from sources such as the English House Condition Survey and Living and Food Cost Survey. Scoping of possible impacts was enabled by utilising variables in different charging models.

Methodologies

Expert and stakeholder interviews

Primary data

Secondary data

Findings

From the assessment of the various scenarios, the report concludes that households would be better off if the costs of the ECO were placed on the charge per unit component of household bills, rather than the standing charge element. This should apply equally to each kWh of electricity and gas. Even with these measures, however, 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 the ECO and the Warm Home Discount at low-income high-consumption households to reduce their consumption.
Energy suppliers should be allowed to apply credit to vulnerable customers’ accounts.
The regulator (Ofgem) should include within its review of the retail energy market proposals that suppliers must calculate the costs of the ECO on the basis of the amount of energy sold and include these costs within their unit rates.

Other themes