The Energy Company Obligation (ECO), launched in January, is the latest UK Government initiative (along with the Green Deal) through which the UK Government is requiring energy utilities to promote actions that will drive reductions in carbon emissions and energy consumption.  It is hoped it will help deliver enhanced security of supply and combat fuel poverty for more vulnerable consumers.

ECO is made up of three separate measures, all of which are assessed through the following outcomes:

  • Carbon Emissions Reduction Obligation targeting carbon savings
  • Carbon Savings Community Obligation also targeting carbon savings
  • Home Heating Cost Reduction Obligation which targets reductions in heating costs.

The government estimates that implementing the scheme will cost suppliers £1.3bn/year – this is one of the government environment schemes referred to by many utilities when explaining key drivers for price rises.

Although the scheme is arguably more complex than the previous CERT/CESP schemes, and the specific measures that will be taken differ, CERT/CESP nonetheless provides some useful context. Fundamentally both schemes boil down to the utility companies identifying and persuading suitable customers to install energy saving measures on a part or fully subsidised basis.

ECO is focussed primarily on deprived customers/areas and those measures that don't meet the Green Deal 'Golden Rule' and thus suppliers need to work out how to promote ECO, leading to increased levels of take-up.  They can take many learning points from suppliers to the CERT programme.

During CERT, the Department of Energy and Climate Change published research into its delivery and take-up.  They identified one ideal element for a successful delivery route as "active promotion of an offer within a small geographical area".  This, of course, poses the question of how to identify such areas.  I think there are three key considerations:

  • Customer – at the most basic level the customer needs to qualify under the ECO requirements. Attracting people to use the scheme is not necessarily dependant on suppliers targeting their own customers who are eligible; however, these are obviously the most easily identifiable targets.
  • Property – another important element is the information that is available on the different property characteristics for an area.  There are 27 separate measures available, but not all will be valid for a given property – a simple example being solid wall insulation, which of course requires solid wall construction!  Some housing stock data is directly available (e.g. the percentage of solid-wall houses) and further insights can be inferred from other data - for example, property age can be used to estimate the potential for boiler replacement based on typical boiler working lives. 
  • Impact – using information on energy consumption, either from the utility company's own data on customers or using publicly available statistics, an estimate can be made of the potential benefit of different measures when combined with other customer and property data.

Making some assumptions around typical installation costs and limits on installable measures due to workforce constraints, as well as the required obligations themselves – the savvy utility company can then use optimisation techniques to identify how many and which measures to target at individual areas.   This will provide a clear, data-driven plan to achieve obligations and good visibility both of how stretching that plan is and the likely associated costs.

Fundamentally the question utilities should be asking is not whether they can deliver ECO, but how can it be done efficiently?  I would argue that the answer lies, at least in part, in the power of analytics.  More on that next time.

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