Energy efficiency scheme failures slammed in damning NAO report

Poor-quality installations, weak government oversight and inadequate audit and monitoring have all contributed to failures in the Energy Company Obligation (ECO) scheme, according to the National Audit Office (NAO).

In a new report, titled Energy efficiency installations under the Energy Company Obligation, the NAO says that substandard installations have led to tens of thousands of homes needing repair work to address major issues that could cause subsequent problems such as damp and mould.

According to the report, poor installation work has resulted in major issues that need fixing in an estimated 22,000-23,000 homes with external wall insulation fitted under the scheme (98% of the total).

Poor installation was also identified as a cause of major issues in 9,000-13,000 homes with internal insulation fitted under the scheme (29% of the total), according to the report.

Of the homes affected by major issues, an estimated 900-2,000 homes with external wall insulation and 300-1,400 homes with internal wall insulation pose an immediate health and safety risk from issues such as exposed live electrical cabling or blocked boiler ventilation.

According to the NAO, substandard installations are possibly due to an underskilled workforce, with work being subcontracted to individuals and firms who are not competent or certified; uncertainty over which standards apply to which jobs; and businesses compromising quality when undertaking design and installation work.

Systemic failures

The Department for Energy Security and Net Zero (DESNZ) implemented a consumer protection system for the ECO scheme in 2021, which included appointing TrustMark as its government-endorsed quality scheme.

However, this system failed to alert DESNZ to significant issues with the quality of installations until October 2024, NAO said.

According to the report, the main issues impacting the scheme include:

Weak government oversight resulting in widespread issues with the ECO scheme not being identified sooner.

An overly complex consumer protection system that ultimately failed due to unclear and fragmented roles, responsibilities and accountabilities among DESNZ, Ofgem and private sector certification bodies and scheme providers.

TrustMark’s funding arrangements limiting its ability to have analytical systems fully up and running until the latter half of 2024.

Insufficient audit and monitoring, in part due to weaknesses that allowed installers to ‘game’ the system.

Call for widespread reform

In addition to these issues, in November 2024, Ofgem estimated that businesses had falsified claims for ECO installations in approximately 5,600 to 16,500 homes, potentially claiming between £56 million and £165 million from the energy suppliers operating under the scheme.

DESNZ and Ofgem took action once TrustMark made them aware of the extent of the problems. This included asking certification bodies and scheme providers to suspend the worst performing installers; communicating the issues to potentially affected households and to the wider public; and implementing immediate changes to the consumer protection system.

Commenting on the report, Gareth Davies, head of the NAO, said: “ECO and other such schemes are important to help reduce fuel poverty and meet the government’s ambitions for energy efficiency. But clear failures in the design and set-up of ECO and in the consumer protection system have led to poor-quality installations, as well as suspected fraud.

“DESNZ must now ensure that businesses meet their obligations to repair all affected homes as quickly as possible. It must also reform the system so that this cannot happen again.”

Swift action needed

To improve consumer protection and to boost householders’ confidence in government-backed schemes, the NAO recommends that DESNZ:

Takes clear responsibility for schemes such as ECO, even when they are funded through consumers’ electricity bills.

Clarifies its approach to repairing faulty ECO scheme installations alongside its Warm Homes Plan.

Reforms the consumer protection system for retrofit schemes.

Reports annually on a statistically robust estimate of the level of fraud and non-compliance in each of its retrofit schemes.

Sir Geoffrey Clifton-Brown, chair of the Committee of Public Accounts, said: “The failures of the two current Energy Company Obligation schemes are stark, with nearly all external and nearly a third of internal wall insulation fitted under the schemes requiring remediation. The potential impact of major issues to the health and safety of affected households must not be understated.

“Despite allegations of fraud, lack of sufficient quality data means that overall levels of fraud in ECO remain unknown. DESNZ and Ofgem have been quick to act after becoming aware of widespread problems, but their efforts remain hampered by weak government oversight and an overly complex consumer protection system. It is imperative that households receive clarity on how they can fix their homes and a system is put in place whereby these failings do not reoccur.”

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