New less ambitious energy efficiency obligation to save suppliers £800 million per year

The government’s plans cut household fuel bills, announced in the 2015 spending review, will largely be funded by cuts to to the current energy company obligation (ECO) scheme, according to a letter from the department of energy and climate change (Decc) to the energy and climate change committee.

The ECO scheme will be replaced by from April next year with a new cheaper domestic energy efficiency supplier obligation which will run for 5 years. This scheme, still in development, will aim to upgrade the energy efficiency of 200,000 homes per year. The government said the old scheme was set to cost suppliers around £1.5 billion on average per year by 2020-21, while preliminary figures for the new less ambitious supplier obligation suggest it would cost £700 million by 2020-21, equivalent to a nominal saving in 2020-21 of around £800 million.

The government said the reforms to the Renewables Obligation and the Feed in Tariff scheme would save around £600 million annually by 2020-21.

However, Decc also confirmed that these reductions in fuel bills would be offset by the extra cost of subsidising the intensive energy user exemption from Renewables Obligation and Feed in Tariffs costs. This will add around £5 to average household bills every year from 2017-2021, based on an annual cost of around £500 million, funded by all non-exempt billpayers.

Read the full letter: Follow up on energy and climate change committee evidence hearing

Read more about changes to the Feed in Tariff scheme: FIT review leaves PV focus on rooftop scale (subscribers only)

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