Energy Security Bill factsheet: Energy Company Obligation buy-out mechanism - GOV.UK

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.   

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.   

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:  

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.   

The following documents are relevant to the measures and can be read at the stated locations: