27 November 2012: Energy sector trade body Energy UK has published research undertaken by NERA on what they believe are errors in the Government’s assumptions of the cost per household of the new Energy Company Obligation (ECO). The report’s findings suggest that:
- DECC estimated that the ECO would cost energy suppliers £1,300 million per year (about £53 per customer per annum). ..Our analysis suggests that correcting unreliable assumptions in DECC’s modelling would raise the estimated cost of the programme to around £1,700 million per annum (ca. £69 per customer per annum).
- In addition, there may be a problem with DECC’s reliance on a “stated preference” study, a form of customer research which is known to suffer from a bias in the case of environmental programmes (i.e. the “warm glow” of appearing to favour good works leads people to state that they will pay more for environmental programmes than they will pay in reality). DECC has not published the study, so it is difficult to quantify precisely the impact of any bias inherent in the answers. A simple and transparent sensitivity is to assume that respondents might have ignored the “hassle costs” that an ECO project would impose on them. Adjusting DECC’s model of customer preferences by a comparable amount raises the cost of the programme further still, to around £2,350 million per annum (ca. £94 per customer perannum), but the final cost could be much higher.
Download the report here – The Costs of the Energy Company Obligation.