The following article was written by Parity’s BusinessDevelopment Manager, Richard Griffiths, for Housing Association Building and Maintenance magazine, and is reproduced here with their kind permission.
After weeks of political wrangling and newspaper headlines about ‘green taxes’, the Autumn statement finally saw details released of how the government would achieve its aim to cut £50 from household energy bills. With the cost of living spiralling and wages stagnant, a reduction in energy costs will be welcomed by many.
However, somewhat perversely, the main victim of this short-term fix is the Energy Company Obligation (ECO) – a programme specifically designed to improve the energy efficiency of the homes of the most vulnerable in society and those properties that are most poorly performing.
With social housing providers expected to be the major recipients of ECO funding, the changes have potentially significant implications for the sector. The headline is that the ECO carbon target has been cut by 33% and extended pro-rata for a further two years. Within this target the rules have also changed so that lower-cost measures such as loft and cavity wall insulation can be funded.
The implication is that solid wall insulation (SWI) installation rates are expected to tumble. The minimum SWI target is now a mere 25,000 p.a. over the four years to 2017, which is less than half of what the insulation industry was preparing for. The ‘affordable warmth’ element of ECO was protected but, as we all know, social housing was not eligible for this money anyway. This leaves only the relatively small Carbon Saving Communities Obligation (CSCO)intact from the perspective of Registered Providers.
So what are the implications for retrofit programmes in social housing? Already, the changes are beginning to bite. Stories abound of funding being pulled from projects, particularly those that are smaller in size and thus which may no longer offer economies of scale required by energy companies looking to cut costs. It is hoped that those with works already under way will be completed, but so soon after the announcement it is still unclear whether even these projects will be safe from the axe.
At the very least there is likely to be a period of delay and uncertainty. For those further back in the process – still planning their programmes – the prospect of securing funding must currently seem remote.
The future for retrofit
Does this mean the death of retrofit in the sector? Almost certainly not, but it will mean big changes for how works are funded and delivered. Previously, it was expected that ECO might meet somewhere between 50-90% of the cost of solid wall insulation programmes (and the costs of related retrofit measures). Now funding levels are likely to be significantly lower, and the pot will be smaller, leading to increased competition to secure the limited money available.
First and foremost, this means that over the next few years those who are better prepared, and who can go to potential funders with clearly defined projects, will be most likely to receive support. With funding levels decreasing, it will also only go to those that are able to make a relatively significant contribution to the total costs.
This will, of course, advantage the larger, better-funded associations. However, there is no reason why, with some careful planning, others shouldn’t get a piece of the action. If retrofit can be effectively integrated with wider investment and repair and maintenance works, it should be possible to bring the costs of projects down and make them feasible even with a lower level of grant funding. If we are to look on the bright side a little further, the extension of the target for an extra two years may also help to give some long-term certainty to the sector, and allow more time for Registered Providers to design and plan strategic retrofit programmes rather than rushing to meet the 2015 deadline.
Incentivising early delivery
Government has bought in measures to incentivise early delivery of ECO projects, which is helpful in that it should hopefully reduce the likelihood of an unhelpful spike in activity – and prices – at the end of the period. It may also mean that, in the short term (pre March 2015), there will still be the opportunity to get new projects funded. However, it is likely that any funding released will go to those who have already been proactive in developing a retrofit strategy and designing specific projects. Either way, with a consultation on the changes not due for a few months, it may be a while before we have much movement in the sector on both projects old and new.
All in all, it’s been a traumatic few months for retrofit in the social housing sector. Trying to be positive, at least we now know more-or-less where we stand, and it can only get better from here. With the government also under pressure to drive demand for the Green Deal, and reform the scheme to make it simpler, we may also see changes that make it more useful to Registered Providers as an alternative source of finance.
We must all hope that rather than holding back the industry, recent news can help to drive innovation in the way we plan, finance and deliver retrofit programmes. It’s often claimed that we respond best when our backs are to the wall. The ability of tenants to pay their energy bills in the long term may depend on it.