Energy security bill factsheet: energy company obligation buy-out mechanism

* Department for Energy Security & Net Zero * Department for Business, Energy & Industrial Strategy Guidance ENERGY SECURITY BILL FACTSHEET: ENERGY COMPANY OBLIGATION BUY-OUT

MECHANISM Updated 1 September 2023 CONTENTS * 1. Why are we legislating? * 2. How the Bill will achieve this * 3. Further information Print this page © Crown copyright 2023 This publication

is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or

write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: [email protected]. Where we have identified any third party copyright information you

will need to obtain permission from the copyright holders concerned. This publication is available at

https://www.gov.uk/government/publications/energy-security-bill-factsheets/energy-security-bill-factsheet-energy-company-obligation-buy-out-mechanism We estimate that ECO4 will help upgrade

an extra 450,000 homes, cutting on average £300 off their energy bills, preventing 15.08 megatons of carbon emissions over the total lifetime of the measures.    1. WHY ARE WE LEGISLATING?

ECO places an obligation on energy suppliers to install energy efficiency and heating measures in England, Scotland and Wales and is focused on providing support primarily to low income and

vulnerable households. Suppliers meet their obligation by contracting with a third party to find eligible households and install measures.   As committed to in the Energy White Paper, we are

legislating to enable the removal of obligation thresholds under the scheme without creating significant financial and administrative burden for small suppliers.  Currently, only suppliers

with over 150,000 customer accounts are obligated, which has led to market distortions. Smaller suppliers have been exempt from ECO as their size means the administrative costs of fulfilling

their obligations would be disproportionate compared to larger suppliers. However, these thresholds create market distortions as smaller suppliers are able to undercut other suppliers who

have to pay ECO costs and recoup these from customer bills.  This measure will therefore include smaller suppliers in the ECO scheme while ensuring they do not face disproportionate costs

through a ‘Buy-Out’ mechanism. This measure will achieve a more equal and fair energy market for suppliers and spread the cost of ECO amongst a greater number of domestic consumers.    We

are legislating to enable the removal of obligation thresholds under the scheme without creating significant financial and administrative burden for small suppliers.  This measure will

achieve a more equal and fair energy market for suppliers and spread the cost of ECO amongst a greater number of domestic consumers.    2. HOW THE BILL WILL ACHIEVE THIS The Bill will

provide powers to the Secretary of State to introduce a buy-out mechanism through secondary legislation under the Energy Company Obligation (ECO) scheme.  The powers from primary legislation

would enable the Secretary of State to:   * Enable suppliers to make a buy-out payment; * Set the buy-out price; * Make the criteria for approved third parties and purposes to which a

buy-out payment is made; * Set the procedure to be followed by suppliers to make buy-out payments. Secondary legislation will establish the details of the mechanism and will be preceded by a

separate consultation.   ## Background The Energy Company Obligation (ECO) scheme is a requirement that the Government has placed on energy suppliers to install energy efficiency and

heating measures to people’s homes. Energy suppliers are obligated to deliver the scheme and they recover the costs of delivering the scheme through customers’ energy bills. This scheme is

therefore not a grant scheme, but an obligation placed on energy suppliers. It has been in place since January 2013 and has delivered around 3.4 million measures in 2.4 million homes up to

the end of February 2022.     As per the Sustainable Warmth Strategy, Government has committed to a four-year, £4 billion successor scheme, to accelerate our efforts to improve homes to meet

fuel poverty targets. ECO4 will be focused on the least energy efficient homes occupied by low income and vulnerable households in Great Britain.  The ECO4 consultation was published last

summer, and the Government Response was published in April 2022.    3. FURTHER INFORMATION The following documents are relevant to the measures and can be read at the stated locations: *

ECO4 Consultation (July 2021) * ECO4 Government Response (April 2022) Back to top