How will changes to the Energy Company Obligation improve retrofit?
Changes to the ECO scheme could transform how landlords track retrofitting. We spoke to Barry Lynham, managing director at building performance solutions provider Knauf Energy Solutions, to find out more
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A big change is coming to the government’s Energy Company Obligation (ECO) programme. The scheme, designed to tackle fuel poverty and help reduce carbon emissions, could have far-reaching benefits for social landlords, residents and even the UK’s entire energy eco-system, as Barry Lynham, managing director of Knauf Energy Systems, explains.
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What is the ECO programme?
We are currently in round 4 of ECO, which is an obligation on energy companies to make savings on their customers’ energy bills. The companies do this by installing energy efficiency measures in their customers’ homes – that could be roof or wall insulation, heat pumps or solar panels. Round 4 will run until March 2026. It has a big focus on fuel poverty. To be eligible, recipients must be claiming benefits.
What are the proposed changes to the programme?
In December, the government began a consultation on a ‘pay for performance’ programme within ECO, which would be the first major government scheme of its kind in the world that uses performance-based monitoring. The idea is that energy companies will be able to allocate up to 10% of their obligation on this programme.
The same energy efficiency measures will be installed in homes, but their performance will be measured by comparing data before and after installation using technology such as temperature and humidity sensors, as well as information gathered from heating systems and energy bills, to accurately measure the difference these interventions are making.
At the moment, energy companies have to make estimates based on the reported performance of a given measure – for example, this type of roof insulation should deliver this level of performance.
What sort of difference could this make?
For the market, it could be huge. We would be moving from a situation where energy companies have to hope that the measures they install are working properly, to one in which they can see with accuracy what improvements have actually been delivered. If the market can’t put an accurate value on quality, then it’s incredibly difficult for the market to deliver quality.
Quantifying the real-world performance of energy efficiency measures will encourage everyone to do a better job, because the bigger difference they make, the higher the reward for the energy companies. The value of doing good work and delivering significant change will rise. That will allow the market to do what it’s good at, which is figuring out the best way to deliver that change going forward.
Barry Lynham is managing director of Knauf Energy Solutions, focusing on the low-carbon transformation of building stock.
He was previously group director for strategy and communication at Knauf Insulation, where he led on public and regulatory affairs, sustainability, corporate communications and building science teams.
What kind of technology is needed to gather and analyse this performance data?
Most performance-monitoring systems have two aspects. We install small, discrete, Internet of Things-connected sensors inside the house and take readings of environmental factors such as temperature, humidity levels or carbon dioxide. We would also typically take some data from the heating system. The second aspect involves machine learning. We feed this data through an AI system, which strips out any human or weather-related interference.
So, even if people’s behaviour changes after the retrofit works have been carried out, or the weather is vastly different from one year to the next, the AI system removes all this noise to give you an accurate picture of a property’s true energy efficiency.
Are there other benefits in having a much more accurate picture of energy performance?
This data all feeds into the assessments for Energy Performance Certificates (EPCs), which are the basic rating system that underlies domestic decarbonisation programmes. But what we have seen in a lot of projects is that EPC ratings are often significantly different to a property’s real-world performance. We’ve seen homes that end up using far more energy than their EPC suggests – and that’s across an entire estate. We have seen houses which perform much better than their EPC rating, too. So for social housing providers, this performance-based monitoring can provide a useful starting point from which they can think about their decarbonisation programmes more cost-effectively.
As an example, we retrofitted 64 social housing units in Belgium, and we think we can reduce the cost of retrofitting the next batch of properties for that client by £16,000-£17,000 per home.
We saw, by measuring the homes’ performance before and after retrofit, that we could pull back on some of the high-cost measures because the cost/benefit ratio wasn’t good enough. But that’s just a starting point. Once aggregated, this data could help to inform decision-making on a much larger scale: as an example, having a clear idea of the actual space heating demand for homes would make it much easier to understand the investments we need to make to the electricity grid to move to heat pumps.
What challenges might this ‘pay for performance’ approach present?
The first is seasonal: you can’t measure a property’s energy efficiency if the heating isn’t being used. So usually there’s a six-month window every year when we can do this work. If you needed an EPC in June, for example, it might be difficult to provide that. There have also been some questions around accuracy – are these systems really so much more accurate than what’s already out there? We have done work with organisations like Energy Systems Catapult in the UK to test our systems, and we were typically accurate to within 4-5%.
It’s also worth pointing out that this technology has moved on a great deal. Even just a few years ago, the costs were higher and the sensors had to be connected with electrical cables. It wasn’t an easy process for ourselves or for residents. Today, sensors are wireless and battery operated, and it only takes around 20 minutes to kit out a house.
What happens next?
The consultation process is ongoing, but the expectation is that the government will bring pay for performance into the ECO programme as soon as possible. We believe this could be as soon as the 2025-26 winter season.
For social housing providers, it’s a great opportunity. They’ll get the benefit of ECO pay per performance programmes, but they’ll also start getting more data on the performance of their homes and understanding how those measures are delivering. So it’s something social landlords should look at, particularly if they already have large existing ECO partnerships with contractors to deliver projects over the next winter season. They may want to even start looking at pulling pay for performance into their existing programmes – because as long as the energy efficiency measures aren’t in place before winter, they can start pre-monitoring those homes and gather some high-quality data.
