ECO funding: So what happens now?

It all seemed so clear when the Energy Company Obligation (ECO) was launched back in January. The previous carbon-saving and energy-saving schemes (called CERT and CESP) were junked and replaced with shiny new obligations under the snappy ECO banner.

The concept was simple: large energy companies (i.e. those with more than 250,000 customers) would have targets for carbon saving and heating cost reduction (based on their number of customers), with the threat of fines if they failed to reach the targets. It was all part of the government’s plan to move away from grant-funded energy efficiency measures. Of course, ECO was supposed to provide top-up support to the government’s Green Deal financing structure - but things haven’t really worked out as planned.

The “cost of living” has become the latest political football, so it was inevitable that energy prices would come under the spotlight

I’m not going to comment on the Green Deal. Too much time has been spent looking at the opportunities, but the take-up figures speak for themselves. Green Deal is the mother of all slow-burners. If it was a firework, you’d be asking for your money back.

With Green Deal fizzing away on the launch pad, ECO has become the focus for landlords and contractors alike. It should be easy - landlords want to improve the energy efficiency of their stock, contractors want the work, and ECO-obligated energy companies want to fund works to generate savings. In practice, delivery has been frustrating. Getting over procurement hurdles and agreeing acceptable contracts with energy companies has proved challenging. Despite all the PR spin, energy companies still have a mountain to climb to hit their targets. With the initial phase of ECO running to 31 March 2015 and consultation on phase 2 about to commence, many of our clients were targeting a decent flow of work.

The “cost of living” has become the latest political football, so it was inevitable that energy prices would come under the spotlight. The Department of Energy and Climate Change (DECC) estimates that energy and climate change policies (including ECO) represent about 9% of the average bill - or £112. David Cameron’s proposal to “roll back the green charges” has caused concern and confusion. What does this mean for ECO, and what might happen to deals?

In practical terms, the lack of certainty might mean that landlords are reluctant to see ECO as a long-term opportunity. That might translate into a general reluctance to commit resources into procurements or negotiations, or even discounting ECO as playing a part in their works programme going forward. That could be a big mistake, as nothing has changed. ECO-obligated energy companies still have targets to meet and still want to avoid the fines. Unless the government consults on proposed changes to ECO, it should be business as usual.

That said, sensible clients and contractors will be looking at their contracts with fresh eyes - making sure that they are sufficiently protected against the potential for ECO funding to be withdrawn. Those about to sign up to new deals might want to examine ECO funding risks quite closely.

Stephanie Canham is national head of Projects and Construction at law firm Trowers & Hamlins