Labour warns imminent decision on Green Deal’s Energy Company Obligation could spell bad news for low-carbon incentives
It’s claimed this could have major implications for the UK’s wider low-carbon energy policy.
Under the planned Green Deal scheme, which is due to come into effect from next autumn, energy firms have to pay into an Energy Company Obligation (ECO) that is designed to ensure households that are hard to treat or face fuel poverty receive additional funding to cover energy efficiency improvements.
As energy companies are likely to pass the cost of this ECO on to customers in the form of higher prices, the ONS is being asked to decide whether it qualifies as “non-discretionary spending” and should therefore be managed in the same way as the existing feed-in-tariff (FIT), renewables obligation (RO) and warm home discount (WH) schemes – all of which have to comply with a spending cap imposed by the Treasury.
Shadow climate change minister Luciana Berger warned the ONS decision could leave each of the government schemes short-changed.
“If the ONS deems it to be non-discretionary spending, then DECC [the Department of Energy and Climate Change] is going to have to convince the Treasury to raise the cap, or else find a way to divide the money between the ECO, FIT, WHD and the RO,” she said. “It is a really important decision for the future of all these schemes.
“The government has guaranteed that the ECO will provide funding of £1-2bn every year to support the Green Deal. It must keep that promise or the Green Deal will do nothing to tackle fuel poverty and could fail before it evens gets off the ground.”
David Frise, HVCA head of sustainability, said: “The big problem is the uncertainty this speculation creates,” said David Frise, Head of Sustainability at the HVCA. “Change or the threat of change is bad news because it puts investors off and harms the market. “There is damaging speculation about further possible cuts to the Feed-in Tariffs; we had an embarrassing delay over the Renewable Heat Incentive – we can’t afford any more changes. Investors need to be confident that whatever the Government puts in place will still be there in a year’s time – at least.”
DECC confirmed it would be up to the ONS to determine how the ECO scheme would be classified, but refused to be drawn on the potential funding implications of it being included under the Treasury spending cap.
One renewable energy insider said it was highly likely the ONS would classify the ECO as levy funded expenditure, and as such it would probably end up being subject to a spending cap.
But he expressed confidence the government would approve additional expenditure to support the ECO.
“These schemes [the FIT, RO and ECO] were in the coalition agreement and ministers knew they were coming when they were working on spending settlements,” he said. “I can’t see them shoehorning in another scheme that will need supporting without raising the cap.”
However, the opposition is warning there are no guarantees the Treasury will raise the cap, noting that Treasury documents suggest DECC will have to identify savings if it is likely to exceed the cap, as has been the case with the controversial decision to cut feed-in-tariff support for large solar projects.
The Treasury control framework states: “Where spend exceeds or is projected to exceed the range of acceptable headroom, DECC will rapidly agree with the Treasury a plan for bringing spending back down to the agreed profile. This plan will set out the adjustments that DECC proposes to make to its policies to reduce its spend and the impact by year of taking action.”