A recent Cebr report for Grundfos has found that UK homes and businesses are losing out on £3.1 billion worth of savings per annum due to barriers preventing energy efficiency improvements. The government’s new ECO plus scheme will help plug this gap, by saving UK homes about £124 million per annum, but it will still leave upwards of £4 billion per annum to be potentially saved through insulation alone.
The UK government has belatedly started to formally acknowledge the role of energy efficiency in combating the impact of the global energy crisis. Due to the strain on public finances, it cannot continually subsidise households’ and businesses’ energy consumption – the current support packages are merely short-term fixes to mitigate the impact of higher energy prices, rather than a new normal. The government is now turning more deliberately towards energy efficiency as a longer term, and cheaper option for addressing the energy crisis.
The most recent scheme to support increased energy efficiency is ECO plus. The scheme is seeking to support over 400,000 more homes to access energy efficiency improvements, such as insulation. It is also to be combined with an £18m information campaign supporting the move towards more efficient, low-carbon heating systems.1 Cebr’s recent report for Grundfos identified a critical lack of awareness as a key barrier preventing the adoption of energy efficient measures along with high upfront costs. As such, ECO plus aims to overcome the key stumbling blocks that prevent households and businesses from transitioning to more energy efficient heating systems.
The savings found in Cebr’s report for Grundfos relate specifically to the lack of hydraulic balancing in homes: some parts of homes are hotter than others. On top of this, with an expected saving per household of £310, ECO plus could lead to total savings of at least £124 million per annum.2 When considering the initial investment by the Government of £1bn, it will take approximately ten years to yield a net positive return on what can be seen as a public sector investment in energy efficiency. In contrast, a recent report by Cebr for Kingfisher on energy efficiency found that households can generally only expect to recover their upfront investments of improving energy efficiency within a time period of up to 30 years, based on the savings from swapping from an Energy Performance Certificate rating of ‘D’ to a ‘C’ rating. This, however, is reduced by 23 years if a £10,000 grant is available to households.3 ECO plus therefore has a relatively high rate of return for an energy efficiency investment. More generally, it is much cheaper than borrowing money to simply subsidise consumer bills, which yields a negative return given that those borrowed funds must be repaid with interest.
The scheme is primarily targeted on those with an ‘energy performance certificate’ (EPC) rating of D or below that are in qualifying council tax bands, along those who are most vulnerable. These are precisely the groups who will be most disincentivised from fronting the costs of installing energy efficient technologies.
Even so, there remains more to be done and more savings to be grasped. As of 2020, around 20 million dwellings (85%) had a loft, but only 15 million of these were insulated.4 Moreover, there were 8.7 million dwellings with a construction type that could benefit from having some form of solid wall insulation installed. Therefore, even if ECO plus leads to a further 400,000 homes becoming insulated, this still leaves in excess of 13 million homes uninsulated. With an estimated saving of £310 per household, this will mean more than £4 billion pounds worth of annual savings associated with insulation will remain yet to be grasped, even if ECO plus is successful.
Over the longer term, the goal of UK, as other countries, will be to continue to de-couple energy demand from economic activity. The UK has been successful in achieving this over recent decades; by 2019, the ‘energy ratio’ (primary consumption to GDP) was 47% of its 1990 level.5 Nevertheless, the energy crisis has made it even more important to reduce energy consumption – especially in the heating of buildings, where progress has been relatively slow. Increasing energy efficiency, which can allow consumers to attain the same levels of comfort for less energy input, will be a major part of these efforts and further government initiatives will be needed to enable homeowners to make the necessary investments.
3 Energy inefficient homes set to cost households extra £748 in bills from October
For more information contact:
Author: Rowlando Morgan, Head of Environment, Infrastructure and Local Growth
Email: rmorgan@cebr.com, Tel: 0207 324 2861
Cebr is an independent London-based economic consultancy specialising in economic impact assessment, macroeconomic forecasting and thought leadership. For more information on this report, or if you are interested in commissioning research with Cebr, please contact us using our enquiries page.