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03-02-2017 | 
ECO Transition - New Rules Confirmed

On Monday 30th January the Government released the long awaited consultation response detailing the new criteria for the next phase of the Energy Company Obligation (ECO) scheme.

Green Deal Installer HubThe next phase (being referred to in the industry as ECO Transition or ECO2T) is an interim programme bridging the gap between the current obligation period and a new four year Fuel Poverty focussed initiative which is set to launch in October 2018.

The new rules from ECO2T will take effect from April 2017 over an 18 month period, subject to parliamentary approval.

Most of the changes are as expected from the original consultation document, dotted with a few surprises.

Here are the headlines from the consultation response followed by more detailed analysis on some of the key areas:

Main Changes in ECO2T
  • The scheme will run for 18 months, starting on 1st April 2017 – 31st September 2018. (This has been extended from the 12 month programme originally proposed).
  • The HHCRO funding stream will become the scheme’s primary obligation and will account for 70% of all activity. Energy Companies must collectively achieve £2.76 Billion in Life Time Savings.
  • The CERO funding stream will account for the remaining 30% of activity. Energy Companies must collectively achieve savings of 7.3MtCO2.
  • The CSCO obligation will not be part of the new scheme and will terminate on 31st March 2017.
  • The new scheme will use a new Deemed Scoring system rather than bespoke assessments to determine funding allocations.
  • A 30% uplift will be given to the Deemed Scores to improve funding allocations. (This is a result of many in the industry questioning the gap between deemed scores and the old scoring methodology.)
  • There will be a ‘Solid Wall Minimum Requirement’ ensuring that around 32,000 solid wall properties will be insulated over the 18 month period (based on 21,000 per year).
  • A new ‘Rural’ requirement will be introduced to ensure that 15% of each Energy Company’s CERO obligation is delivered in rural areas.
  • Benefit eligibility for HHCRO will change slightly – all supplementary components for income related benefits will be axed which will potentially widen the net of eligible residents, a new income threshold system will be introduced for Tax Credits and Universal Credit which differs depending on how many children are living in the property, and ‘Pension Guarantee Credit’ will now be the only Pension Credit category to be accepted.
  • There will be a 23% qualifying gas boiler cap (boilers that are classed as broken down or inefficient which currently attract favourable funding allocations). This means that only around 37,000 qualifying gas boilers will be installed throughout the scheme (based on 25,000 per year).
  • Insulation and first time central heating can now be funded through HHCRO in Social Housing for properties with an EPC rating of E, F or G, regardless of benefits eligibility.
  • Local Authorities will be able to refer certain vulnerable residents for support under HHCRO regardless of their benefit entitlements through ‘Flexible Eligibility’.
  • For solid wall insulation projects, Local Authorities can also refer non vulnerable residents for support through HHCRO providing that at least two thirds of the project consist of vulnerable residents.
  • Energy Companies can only assign up to 10% of its HHCRO obligation to Local Authority 'flexible eligibility' referrals.
  • Installers must be PAS2030 accredited to the most recent version of PAS (PAS2030: 2017 Edition 1). Those that hold ‘PAS2030 2014 Edition 1’ can still submit work under the scheme up until 31st May 2017, from which they must upgrade to the latest version.
  • Party Walls will have their in use factor reduced from 35% to 15% which provides a greater funding allocation. They will also be categorised as Primary Measures and can be coupled with Secondary Measures such as underfloor insulation.
  • Energy Companies will have the flexibility to trade some or all of their obligations between themselves.
  • Energy Companies will be given a three month measure notification extension deadline for 5% of notifications per month.


Deemed Scores and 30% Uplift

Instead of carrying out EPCs or getting Charted Surveyor Reports to work out funding allocations, a new Deemed Scoring system will be introduced for ECO2T. Different property types will be given a deemed score (e.g. Carbon Tonnes Score or Life Time Savings Score) for each ECO measure.

District heating will not be included in Deemed Scores and will still need a SAP or RdSAP assessment.

After many in the industry highlighted the drastic difference between some of the Deemed Scores and what was currently being scored through bespoke assessments, the Government have confirmed that a 30% uplift will be provided for the duration of the 18 month ECO2T scheme.

This means that each Deemed Score will in effect be improved providing installers with a higher funding allocation.

Ofgem have published the Deemed Scores that will be implemented (please note that these do not include the 30% uplift):

Approved Deemed Scores



HHCRO Criteria Change

The criteria for HHCRO will change in April 2017 and could potentially support a larger group of residents. The Government have altered the current benefits eligibility to the following:

Pension Credit Change
Residents that only claim ‘Pension Savings Credit’ will no longer qualify for funding. Residents must now claim ‘Pension Guarantee Credit’ which is the element where the State tops up weekly income to a guaranteed level.

Simplifying income related benefits
Residents no longer need to claim the supplementary qualifying components (e.g. claim a disability premium or responsibility for a child) for the following benefits:
  • Income-related Employment and Support Allowance
  • Income-based Jobseeker’s Allowance
  • Income Support
Introducing income thresholds
Residents that claim Child Tax Credit, Working Tax Credit or Universal Credit must prove that their household income is below the relevant threshold for their living situation. E.g. the more residents a house has the higher the income threshold is.

Household Composition     
 
Tax Credit recipients
Gross income (annual)
Universal Credit recipients
Net earned income (monthly)
1 adult    £13,200    £1,100
and 1 child    £17,400    £1,450
and 2 children    £21,600    £1,800
and 3 children    £25,800    £2,150
and 4 or more children £30,000 £2,500
2 adults    £19,800    £1,650
and 1 child    £24,000   £2,000
and 2 children    £28,200    £2,350
and 3 children    £32,400    £2,700
and 4 or more children    £36,600 £3,050



Social Housing

For the first time, insulation and first time central heating systems can be funded through HHCRO in Social Housing properties with a pre (or post) EPC rating of E, F or G.

The residents don’t need to qualify under benefits eligibility.

The Social Landlord must sign a declaration to confirm that the property is Social Housing and that no changes were made after the EPC was issued and before the new measure was installed.

To enable first time central heating measures to be funded, there must be no evidence of previous central heating or electric storage heaters in the property.

What’s more, in the instances where more than one measure is being funded in the same property – the first measure must not bring the property above an EPC rating of E, as this will result in the second measure not being funded.



Flexible Eligibility

Local Authorities can now refer residents that do not qualify through benefits eligibility for support through HHCRO providing they are:
  • A homeowner or private renting tenant (not Social Housing)
  • Are living in fuel poverty or on a low income and vulnerable to the effects of a cold home.
Local Authorities will need to publish a ‘statement of intent’ detailing the methodology and criteria they intend to use to identify eligible residents. For every install, they will then need to make a declaration to confirm eligibility which includes a unique reference number (URN) and the resident’s name and property address.

Solid Wall Insulation Schemes
For solid wall insulation projects, Local Authorities can also qualify private householders for HHCRO funding even if they are not vulnerable, in fuel poverty or claiming benefits, providing:
  • The properties are either flats, maisonettes, terraces or detached houses next door to each other and are part of a project where at least two thirds of the households have been declared as fuel poor, or low income and vulnerable to the effects of living in a cold home by the Local Authority –  or:
  • In the case of a pair of semi-detached properties or a single building that contains two flats, residents from one of the pair must be declared as fuel poor, or low income and vulnerable to the effects of living in a cold home by the Local Authority.
Energy Companies can only assign up to 10% of its HHCRO allocation to flexible eligibility.

Local Authorities are then required to produce annual reports disclosing their use of Flexible Eligibility for Government to monitor.

Only Local Authorities will be able to confirm who qualifies for Flexible Eligibility and guidance will be given to Councils in the coming months.



Gas Boiler Cap

Qualifying gas boilers (e.g. classed as broken down / not working efficiently) will be capped at 23% of the annual HHCRO target. This equates to 37,000 installs over the full 18 month ECO2T programme.

The reason for this change is that the majority of HHCRO measures currently installed are gas qualifying boilers, as they give a better LTS score providing a higher funding allocation. RdSAP (the software currently used to calculate LTS scores) always uses the default of electric room heaters when a qualifying boiler is being scored (e.g. it suggests that the boiler is broken down and that the resident is using inefficient room heaters as their only heating source).

By introducing a cap, other measures can now be prioritised in HHCRO. Energy Companies will be set a ‘Regular Score Minimum Requirement (RSMR)’ which means that 77% of their HHCRO must be delivered through insulation measures, non-qualifying boilers (including oil, LPG) and first time central heating systems.

Installers can still submit the equivalent of a qualifying gas boiler outside of the 23% cap but they will need to change the way it is scored and turn it into a non-qualifying boiler. The score will be determined by the difference in efficiency from the old system to the new system (providing a much lower LTS cost score than before).

Energy Companies will also be able to carry over measures that were installed from the 1st July 2016. This suggests that many of them could have already achieved their 23% cap and therefore will not need to fund any new qualifying gas boilers throughout ECO2T.


Read the full Government Consultation Response and impact assessment.


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