United Kingdom

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The UK opted for alternative policy measures in combination with an existing energy efficiency obligation scheme (EEO) to fulfil Article 7 of the Energy Efficiency Directive (EED).

The UK’s energy efficiency obligation scheme (EEO) has been in place for over 20 years. The history of the UK’s EEO has been described, along with the different design decisions adopted during various phases of the scheme, and reflections on its performance. The UK has not adopted any new policies solely in response to Article 7 requirements, but instead is largely relying on savings expected from its existing suite of efficiency, smart metering and taxation policies. The most significant ‘alternative’ policies are described within ENSPOL.

Design of Energy Efficiency Obligation scheme (EEO) in UK

The UK’s EEO has been in place since 1994. Since that time there have been a number of different phases of the EEO, with different design characteristics. The description here applies to the ‘Energy Company Obligation’, running 2013-2017. This policy has three different strands, each of which has different objectives and detailed rules. 

Type of measures: The UK EEO only covers the household sector. The main focus is on the insulation of buildings, although efficient heating, micro-generation and district heating are supported in some situations. 

Obligated parties: Licensed gas and electricity suppliers that, in any relevant year, have 250,000 domestic customers or more, and supply more than 400 gigawatt hours of electricity or 2,000 gigawatt hours of gas.

Target setting: Obligated suppliers are allocated a proportion of the overall targets, depending on each supplier’s relative share of the domestic gas and electricity market. For two strands of the EEO, targets are set in terms of lifetime CO2, amounting to 39.2 MTCO2 (Jan 2013-March 2017), plus £7.7 billion of savings in the ‘Affordable Warmth’ strand. 

Calculation method savings: Deemed savings figures are provided by the regulator, Ofgem, for most common measures. These take into account lifetime of the measure and an ‘in use factor’ - the percentage by which theoretical savings are reduced in order to reflect actual, in situ performance. For non-standard measures, obligated parties can suggest figures to the regulator. 

Additionality: At the programme level, the expected savings of the policy as a whole are reduced to take into account a modelled counterfactual, i.e the number of installations expected without the EEO. Only measures which exceed legal minimum standards are included (except for the Affordable Warmth strand). Measures where there would be high levels of ‘dead weight’ (e.g. double glazed windows) are excluded.

Monitoring & Verification: Suppliers are required to submit monthly totals of the number of measures installed to Ofgem. Ofgem has a system of checks to confirm that the information provided by suppliers is reliable. This system includes audits and technical monitoring. They conduct audits of a sample of notified measures. 

Control and Compliance: The EEOs are a licence condition for suppliers (above a certain size). In the event of a failure to deliver the obligation, suppliers face investigation and penalties from the scheme regulator.  The maximum penalty for breach of a licence condition is 5% of company turnover

Administrator - Institutional set up: Central government sets targets. The scheme is administered by Ofgem, the regulatory body for electricity and gas markets.

Flexibility: There is a ‘brokerage’ mechanism, in which potential providers of measures (largely insulation) can make them available to obligated suppliers in a periodic auction. There is also flexibility in carrying forward ‘excess’ savings made in one phase to the next phase of the scheme, and for transferring savings between suppliers, with regulator approval.

For the full Report on the UK EEO scheme click here.

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