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UTILITY Week 17th February 2017

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10 | 17TH - 23RD FEBRUARY 2017 | UTILITY WEEK Policy & Regulation Market view A t SSE, we are committed to playing an active role in delivering the UK's fuel poverty and energy efficiency objec- tives. Under the energy companies obligation (Eco), we fund energy efficiency measures in consumers' homes to help them save money, live more comfortably and cut carbon emis- sions. The government's recent response to its Help to Heat consultation provides wel- come detail on the next phase of the Eco scheme (running from April 2017) and allows us to put plans in place to deliver those measures cost-effectively. We appreciate the government's com- mitment to targeting Eco more effectively at those living in fuel poverty or on a low income. At SSE, we have long advocated a scheme for helping those most in need. The challenge lies in balancing targeting with cost-effectiveness. Since the initial proposals were published, government has increased the pool of eligible customers from 4 mil- lion to 4.7 million, hopefully including more households on lower incomes, who oen fall through the gaps in schemes like this. We are pleased to see that government has committed to extending Eco for 18 months instead of the 12 initially suggested. The pro- posed changes will rebalance the scheme towards the fuel-poor, focus more on insula- tion measures, and reduce the administrative burden. A longer scheme will provide indus- try with much needed time to adapt. Over time, the measures delivered under schemes like Eco will need to change. Some measures, such as low-cost cavity wall insu- lation, have been delivered at scale under Eco and its predecessors. The installation of other measures has not been so prolific – for example, only 8 per cent of solid wall prop- erties have been insulated compared with 69 per cent of cavity wall properties, according to government statistics. Even with an 18-month obligation, there may be difficulties delivering cost-effective insulation measures to the target group. It is a risk that has already been acknowledged by Ofgem, the scheme administrator. If this becomes an issue, we are hoping the govern- ment provides a carry-under mechanism, so that any measures not delivered by the end of September 2018 can still be delivered to consumers without creating an unrealisti- cally high cost due to the short-term nature of the scheme. As insulation is one of the most effective ways of increasing a building's energy effi- ciency and it is estimated that two-thirds of existing properties will still be standing in 2050, we need to start looking at property types that have so far been unable to ben- efit from low-cost insulation under Eco. The requirement for about 32,000 solid wall prop- erties to be insulated during the 18-month scheme is a step in the right direction. Finally, we, like many in the indus- try, were pleased to have it confirmed that deemed scores will be reintroduced for the extension, replacing the complex RdSAP system for calculating savings. Clearly, it is important to assess and qualify measures effectively, but there is a balance to be struck, and we think deemed scores will help reduce the overall admin costs associated with the scheme without any detriment to customers, allowing more Eco funding to be spent on improving homes. We would like to see these scores reflect regional variations and further incentivise rural delivery. With the Eco extension due to start on 1 April 2017, it is paramount that legislation is passed before the end of March so that the smooth delivery of energy efficiency meas- ures to consumers' homes can continue. Looking further ahead, it will be important to see the implementation of the recommen- dations from the Each Home Counts review improve consumer protection and industry standards; that will help make sure that the energy efficiency improvements recom- mended to consumers are appropriate for their homes. We will also seek early clarity about the direction that Eco will take from 2018, so we can engage constructively with government and feed into the design of a new obligation. Keith Armstrong, director of energy services, SSE Fine-tuning Eco Keith Armstrong welcomes the targeting of the fuel-poor in the next phase of the energy companies obligation, and its greater focus on insulation, but stresses that cost-effectiveness is key. PROGRESS TOWARDS OVERALL ECO2 OBLIGATIONS CERO (12.4 MTCO2) CSCO (6 MTCO2) CSCO RURAL (0.9 MTCO2) HHCRO (£3.7 BILLION) PSWMR (4 MTCO2) 0 20 40 60 80 100 120 140 160 PROGRESS TOWARDS OBLIGATION (%) APPROVED SURPLUS ACTION APPROVED NOTIFIED Source: Ofgem analysis of supplier data, as of 3 January 2017 The chart shows measures (with metric tons of CO2 (MTCO2) or sterling value targets) notified to the end of November 2016 and approved by the end of December 2016 as a percentage of phases 1 and 2 of Eco2. All surplus actions from Eco1 to Eco2 have been approved and are in the chart; PSWMR measures are from both phases. The measures listed are the Carbon Emissions Reduction Obligation (CERO), Carbon Savings Communities Obligation (CSCO), Home Heating Cost Reduction Obligation (HHCRO), and Provisional Solid Wall Minimum Requirement (PSWMR). 31.5% 55.9% 88.2% 20.3% 60.5% 42.1% 11.4% 74.9% 103.9% 7.1% 5.5% 44% 5.4% 4.9%

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