Flagship retrofit scheme may add 10% to energy bills

One of the government’s flagship schemes to boost the energy efficiency of buildings could add 10% to the cost of household energy bills, raising fears of a consumer backlash.

According to a detailed study by sustainability consultant Encraft, the Energy Company Obligation (ECO) - the sister programme to the Green Deal that requires energy companies to install energy efficiency measures - is set to cost more than double the original estimate, with the additional cost set to be picked up by consumers.

The revelation comes in a week when prime minister David Cameron made a speech reasserting the government’s commitment to the green agenda and underlining the importance of the Green Deal and the ECO in driving energy efficiency uptake.

The ECO was introduced to pick up from previous government energy efficiency subsidy schemes the Carbon Emissions Reduction Target (CERT) and the Community Energy Savings Programme (CESP). Under the obligation, energy companies must deliver 27.7 million tonnes of CO2 savings by 2015. The government has estimated that the firms will have to spend £80 per tonne of CO2, resulting in £1.3bn of spending each year.

But Encraft’s study found that the cost was more likely to be £180 per tonne of CO2, resulting in spending of £2.9bn each year - more than double the government’s estimate.

Matthew Rhodes, managing director at Encraft, said the Department of Energy and Climate Change’s (DECC) impact assessment ignored a lot of costs involved in delivering ECO.  

“These hidden costs might include refitting kitchens and moving services and even DECC admit this could easily amount to £5,000 per project. Our model used much more accurate cost estimates, particularly for internal wall insulation,” he said.

Rhodes said the additional cost to energy companies would likely be levied on consumers’ energy bills, with the spending increase equivalent to about a 10% uplift in the price of energy bills.

With energy bills at an all time high – and the government pitching its energy efficiency programmes as a means to reduce them – the revelation that the ECO could drive up their cost has sparked concern among industry leaders that the scheme could be hit by a consumer backlash.

Bolstering the government’s energy efficiency programmes is a key part of Building’s Green for Growth campaign.

Sustainability expert David Strong warned of a “back bench revolution against anything that would suggest a rise in consumer bills”, which could undermine the government’s commitment to energy efficiency.

Shadow energy minister Luciana Berger said more retrofit work would need to be carried out through the ECO due to the government’s failure properly to incentivise the Green Deal.

She added that it would be “wrong” for the public to have to pay more “because ministers can’t get their sums right”.

But a spokesperson for DECC said the government had greater powers to monitor costs and how they were passed onto consumers under the new scheme than ever before. “We are already seeing that ECO measures can be delivered cost effectively on the ground,” he added.