Energy Company Obligation (ECO4) Scheme | The Evolution and Impact

The UK government has long recognised the need to improve energy efficiency, particularly in the housing sector, to tackle fuel poverty and reduce carbon emissions. Prior to the introduction of the Energy Company Obligation (ECO) in 2013, several initiatives laid the groundwork for government-mandated energy efficiency measures.

Following CERT and CESP, the UK government introduced ECO in January 2013 as part of a broader energy efficiency strategy. ECO was designed to complement the Green Deal, a flagship policy that allowed homeowners to take out loans for energy efficiency improvements, repaid through their energy bills. However, the Green Deal failed to gain traction, leaving ECO as the primary mechanism for delivering large-scale domestic energy efficiency improvements.

Several lessons emerged from ECO1-ECO3 that informed the design of ECO4:

1. Targeting Fuel Poverty More Effectively: Early ECO phases placed too much emphasis on general carbon reduction rather than directly alleviating fuel poverty.
2. Whole-House Approach: The need for comprehensive retrofit solutions, rather than piecemeal measures, became increasingly evident.
3. Administrative Efficiency: ECO3 highlighted the importance of reducing bureaucratic hurdles to ensure the efficient delivery of measures.
4. Greater Flexibility: The introduction of ECO Flex was a major success in reaching fuel-poor households outside the traditional benefit system.

With these lessons in mind, the government designed ECO4, which launched in April 2022 and is set to run until March 2026. ECO4 represents the most ambitious phase yet, with a greater emphasis on deep retrofits, heat pump adoption, and the elimination of inefficient heating systems. The programme also aligns more closely with the UK’s legally binding net-zero 2050 commitments.

The historical evolution of ECO demonstrates how the UK’s approach to energy efficiency has adapted over time to balance cost-effectiveness, environmental impact, and social equity. By learning from past successes and shortcomings, ECO4 aims to build on the strong foundation laid by its predecessors while addressing the growing urgency of climate change and fuel poverty.

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Several key factors led to the development of ECO4:

In 2019, the UK government passed legislation committing to net-zero carbon emissions by 2050. This legally binding target meant that energy efficiency schemes such as ECO had to be restructured to contribute effectively towards this goal. Previous iterations of ECO focused on reducing fuel poverty but did not necessarily align with broader decarbonisation objectives. ECO4 was designed to integrate both fuel poverty reduction and emissions reductions, ensuring a dual impact.

The economic consequences of the COVID-19 government lockdowns significantly impacted household finances, exacerbating fuel poverty and energy insecurity. As a result, ECO4 was crafted with greater flexibility and reach, allowing local authorities to identify and support households struggling with energy costs even if they did not qualify under traditional eligibility criteria.

Additionally, the UK’s energy market volatility, particularly in light of rising global gas prices in 2021-2022, reinforced the need for long-term energy efficiency strategies. ECO4 was expected to alleviate the pressure on households by reducing energy demand and making homes more efficient, thus insulating families from market fluctuations.

One of the most significant learnings from previous ECO phases was the need for comprehensive energy efficiency upgrades rather than isolated interventions. Under ECO1, ECO2, and ECO3, many homes received singular measures, such as a new boiler or loft insulation. However, this piecemeal approach often left homes partially inefficient, requiring further interventions later.

ECO4 introduced a whole-house retrofit approach, ensuring that multiple measures were installed simultaneously to maximise energy efficiency improvements. This holistic approach addressed insulation, heating systems, ventilation, and renewable energy adoption in a single intervention, leading to higher energy savings and long-term benefits.

The development of ECO4 was guided by extensive stakeholder consultations involving:

• Government departments such as the Department for Business, Energy & Industrial Strategy (BEIS).
• Local authorities and housing associations to ensure local flexibility.
• Energy suppliers responsible for delivering the scheme.
• Consumer groups and fuel poverty charities, including National Energy Action (NEA).

These consultations resulted in several key decisions:

• Expanding eligibility criteria beyond those receiving means-tested benefits.
• Strengthening local authority involvement through the ECO4 Flex scheme.
• Prioritising off-gas homes to promote low-carbon heating solutions.
• Increasing the adoption of renewable technologies such as heat pumps and solar panels.

ECO4 was officially launched in April 2022, introducing several major policy innovations:

ECO4 was set to run from April 2022 to March 2026, with a total budget of £4 billion over four years (£1 billion per year). This was the longest and most well-funded ECO phase to date, ensuring a stable framework for energy suppliers and installers to plan long-term investments.

The scheme shifts funding away from fossil fuel heating and towards renewable technologies.

ECO4 expanded the ECO Flex scheme, allowing local authorities, energy suppliers, and devolved governments to identify households in need beyond traditional benefit recipients.

Key improvements included:

• Four separate Flex pathways, making eligibility criteria broader.
• Increased autonomy for local authorities to determine eligibility based on specific local needs.
• Provisions for households with health-related vulnerabilities, recognising the intersection between fuel poverty and health risks.

One of the major criticisms of past ECO schemes was inconsistent quality control in installations. To address this, ECO4 introduced:

• Stricter accreditation requirements for installers.
• Mandatory post-installation inspections for a higher percentage of projects.
• Penalties for non-compliance, ensuring high standards in the supply chain.

By 2026, ECO4 is projected to:

• Improve energy efficiency in 450,000 low-income households.
• Deliver average household energy bill savings of £300-£400 per year.
• Cut lifetime CO2 emissions by over 6 million tonnes.
• Support the transition towards low-carbon heating and electrification.

The broader impact of ECO4 is expected to contribute significantly to the UK’s net-zero pathway, while also providing economic benefits through job creation in the energy efficiency sector.

The genesis of ECO4 was driven by a combination of policy evolution, economic necessity, and climate commitments. By integrating fuel poverty reduction with decarbonisation strategies, ECO4 represents a pivotal step towards a more sustainable, energy-efficient housing sector in the UK.

Unlike previous ECO phases, ECO4 is designed with long-term impact in mind, moving beyond short-term fixes to create durable energy efficiency improvements. By 2026, it is anticipated that ECO4 will have set a new benchmark for future energy efficiency schemes, paving the way for continued innovation in the UK’s residential energy sector.

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The UK Government, particularly the Department for Business, Energy & Industrial Strategy (BEIS), played a critical role in shaping ECO4. The scheme was introduced as part of the broader Energy White Paper 2020, which outlined the UK’s commitment to achieving net-zero emissions by 2050. ECO4 was legislated under The Electricity and Gas (Energy Company Obligation) Order 2022, a statutory instrument that laid out the responsibilities of energy suppliers and key eligibility criteria for households.

The ECO4 framework was debated extensively in Parliament, with MPs and Lords evaluating the scheme’s projected impact on fuel poverty, household energy costs, and carbon reductions. Notably, ECO4 was seen as a necessary evolution following criticisms of previous iterations, particularly regarding the lack of whole-house retrofit measures and reliance on fossil-fuel heating upgrades in ECO3.

Several key policy decisions influenced the direction and implementation of ECO4:

1. Extended Duration and Increased Funding
   • ECO4 was set for a four-year period (2022-2026) with an annual budget of £1 billion, ensuring long-term certainty for energy suppliers, installers, and local authorities.
   • This was a significant increase from earlier ECO phases, reflecting the government’s commitment to scaling up energy efficiency improvements.
2. Elimination of Fossil Fuel Heating Subsidies
   • Unlike previous phases, ECO4 removed funding for gas and oil boilers, instead prioritising low-carbon heating solutions such as heat pumps and solar PV systems.
   • This decision aligned with the UK’s Heat and Buildings Strategy, reinforcing the transition toward renewable energy sources.
3. Strengthened Consumer Protections
   • To address past issues of substandard installations and supplier misconduct, ECO4 introduced stricter accreditation requirements for installers and mandated more rigorous post-installation inspections.
   • Penalties for non-compliance were introduced to ensure high standards and prevent mismanagement of funds.
4. Expansion of ECO Flex Mechanism
   • The ECO4 Flex program allowed local authorities, energy suppliers, and devolved governments to determine household eligibility beyond traditional means-tested benefits.
   • Four distinct Flex pathways were introduced, including considerations for households affected by health vulnerabilities and fuel poverty risks.
5. Priority Given to Whole-House Retrofit Approach
   • ECO4 prioritised comprehensive retrofitting rather than individual energy efficiency measures, ensuring homes received multiple improvements in a single intervention.
   • The scheme aimed to move homes up two EPC (Energy Performance Certificate) bands, making them more energy-efficient and reducing overall heating costs.

Under ECO4, large energy companies such as British Gas, E.ON, EDF, and Octopus Energy were obligated to fund and implement energy efficiency measures. These suppliers played a key role in:

• Partnering with accredited installers to deliver improvements.
• Ensuring compliance with Ofgem regulations.
• Reporting progress to the government and engaging in periodic evaluations.

Local authorities were granted increased involvement under ECO4, particularly through the ECO Flex mechanism. Many councils collaborated with energy suppliers and third-party installers to identify eligible households in need of support.

The devolved governments of Scotland, Wales, and Northern Ireland also played a role in shaping how ECO4 funds were distributed in their respective regions, ensuring a fairer and more region-specific approach.

ECO4 expanded eligibility to include tenants in the private rented sector (PRS), encouraging landlords to improve the energy efficiency of their properties. Housing associations also benefited from the scheme, receiving funding to retrofit social housing stock.

To drive landlord compliance, the government tied ECO4 incentives to Minimum Energy Efficiency Standards (MEES) regulations, which mandate that rental properties meet a minimum EPC rating of E or higher.

Organisations such as National Energy Action (NEA) were heavily involved in the consultation process. Their advocacy ensured:

• A fairer and more transparent eligibility system.
• Greater protections for vulnerable and fuel-poor households.
• Enhanced consumer awareness campaigns to improve uptake.

The implementation of ECO4 required a strong and regulated supply chain. Installers and industry representatives highlighted key challenges, including:

• Shortages of skilled workers, particularly for heat pump installations.
• Delays in material procurement, impacting insulation and renewable energy system installations.
• Bureaucratic hurdles in compliance and reporting, prompting calls for a streamlined administrative process.

Despite its ambitious scope, ECO4 faced several criticisms and challenges:

1. Complex Eligibility Criteria
   • Some stakeholders argued that the eligibility requirements under ECO4 were too complex, leading to delays in applications and installations.
2. Concerns Over Supplier Costs
   • Energy suppliers raised concerns about the increased financial burden placed on them, warning of potential higher costs being passed onto consumers through energy bills.
3. Implementation Speed and Bureaucracy
   • Some local authorities and installers found the bureaucratic approval processes under ECO4 to be too slow, impacting the timely delivery of energy efficiency improvements.
4. Limited Support for Some Vulnerable Groups
   • While ECO4 expanded eligibility beyond benefit recipients, some advocacy groups argued that certain vulnerable households were still being left out.

The development and implementation of ECO4 involved critical political decisions and extensive stakeholder collaboration. From government agencies to energy suppliers, local councils, and advocacy groups, each entity played a role in shaping the scheme’s policies and outcomes. While ECO4 represents a significant step forward in the UK’s energy efficiency and net-zero journey, ongoing refinements and adaptations are. required to ensure that its benefits are maximised and equitably distributed.

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ECO4 introduced an expanded eligibility framework designed to ensure that assistance reaches those who need it most, focusing primarily on low-income households, fuel-poor homes, and inefficient properties. Unlike its predecessors, ECO4 shifted away from a purely means-tested benefits approach as the primary determinant of eligibility and incorporated a more inclusive and flexible set of criteria.

Under ECO4, eligibility is determined based on multiple factors, ensuring that more vulnerable households receive support. These include:

Households receiving certain means-tested benefits automatically qualify for support under ECO4. These include:

• Universal Credit (UC)
• Income Support (IS)
• Jobseeker’s Allowance (JSA)
• Employment and Support Allowance (ESA)
• Child Tax Credit (CTC)
• Housing Benefit (introduced in ECO4 for the first time)
• Pension Credit (Guarantee Credit and Savings Credit)

Additionally, the government introduced broader fuel poverty considerations. Households that do not receive means-tested benefits may still qualify if they meet specific low-income and high-energy-cost thresholds, addressing gaps in previous ECO iterations.

ECO4 prioritises homes with poor Energy Performance Certificate (EPC) ratings, ensuring that support goes to properties with the greatest energy inefficiencies. Eligible properties must have an EPC rating of D, E, F, or G.

This criterion ensures that the program targets homes that require substantial energy efficiency improvements, aligning with the government’s long-term net-zero and decarbonisation targets.

Recognising that traditional means-tested benefits exclude some vulnerable households, the government expanded the ECO4 Flex mechanism, allowing more flexibility in determining eligibility. Under this scheme, local authorities, energy suppliers, and devolved governments can identify at-risk households based on broader socio-economic factors.

ECO4 Flex operates under four distinct eligibility pathways, ensuring wider coverage:

• Route 1: Income Threshold Route – Households earning below a set income threshold qualify, even if they do not receive benefits.
• Route 2: Proxy Indicators of Fuel Poverty – Households identified using fuel poverty indicators such as high energy costs or poor insulation.
• Route 3: Health Conditions Linked to Cold Homes – Households where a resident suffers from a health condition exacerbated by cold temperatures (e.g., respiratory illnesses).
• Route 4: Bespoke Local Authority Identifications – Local councils can establish additional criteria to determine fuel-poor households in their jurisdiction.

This expanded approach ensures that ECO4 addresses fuel poverty beyond traditional benefit recipients, significantly increasing the reach and impact of the program.

ECO4 prioritises whole-house retrofits rather than isolated improvements, ensuring that eligible homes receive multiple energy efficiency measures in a single intervention. Key measures include:

• Loft Insulation: Reduces heat loss from the roof, enhancing energy efficiency.
• Cavity Wall Insulation: Fills the gap between external walls to improve heat retention.
• Solid Wall Insulation: Applies insulation to solid walls.
• Underfloor Insulation: Reduces heat loss through ground floors in older properties.

• Heat Pumps: ECO4 prioritises air-source heat pumps, aligning with the UK’s transition to low-carbon heating solutions.
• Efficient Electric Heating: Upgrades to modern, high-efficiency electric heating systems.

• Solar Panels (PV Systems): Provides renewable energy generation, reducing reliance on the national grid.

• Smart Thermostats: Helps residents better control heating and reduce energy waste.
• Ventilation: Improves indoor air quality while retaining heat efficiency.

By adopting a whole-house retrofit approach, ECO4 ensures that homes receive comprehensive upgrades that provide long-term energy savings and comfort.

The Office of Gas and Electricity Markets (Ofgem) is responsible for overseeing ECO4 compliance, ensuring that obligated energy suppliers deliver the expected energy efficiency improvements. Ofgem’s role includes:

• Approving supplier applications for eligible homes.
• Monitoring program outcomes and compliance.
• Ensuring quality assurance and auditing installations.

Energy suppliers must submit evidence of completed improvements and undergo random audits to verify quality standards. Failure to comply can result in financial penalties and mandated remediation efforts.

Despite its expanded eligibility framework, ECO4 faces some challenges and criticisms:

1. Complexity of the Application Process
   • Some local authorities and consumers have reported delays in applications due to administrative hurdles.
2. Gaps in Support for Certain Vulnerable Groups
   • While ECO4 Flex broadens eligibility, some households still struggle to qualify, particularly those just above income thresholds but still facing high energy costs.
3. Supplier Costs and Implementation Delays
   • Energy suppliers argue that the increased funding obligations require significant upfront investment, sometimes causing delays in project execution.

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ECO4 adopts a comprehensive and structured approach to implementation, ensuring that the scheme effectively delivers energy efficiency improvements while aligning with the UK’s net-zero targets and fuel poverty reduction objectives. Implementation is driven by energy suppliers, local authorities, and government oversight agencies, ensuring that eligible homes receive high-quality energy efficiency upgrades.

The implementation of ECO4 involves multiple key stakeholders, each responsible for different aspects of the scheme:

Under ECO4, large energy companies such as British Gas, EDF, E.ON, and Octopus Energy are obligated to fund and deliver energy efficiency measures. Their role includes:

• Identifying eligible households and ensuring compliance with Ofgem regulations.
• Partnering with accredited installers to carry out energy efficiency improvements.
• Reporting implementation progress to the UK government and Ofgem.
• Funding the program through energy tariffs, with costs absorbed into customer energy bills.

The Office of Gas and Electricity Markets (Ofgem) is responsible for:

• Approving supplier-led installations and verifying compliance with energy efficiency targets.
• Conducting audits and inspections to ensure the quality of work delivered.
• Imposing penalties on energy suppliers that fail to meet their obligations.

Local authorities play a crucial role in ECO4, particularly through the ECO Flex scheme, which allows them to:

• Identify fuel-poor households beyond those receiving means-tested benefits.
• Work with energy suppliers and installers to prioritise upgrades in areas with high fuel poverty rates.
• Ensure alignment with regional energy efficiency programs such as the Home Upgrade Grant (HUG).

The success of ECO4 depends on high-quality installations by accredited professionals. Installers must adhere to PAS 2035 retrofit standards, ensuring best practices in energy efficiency improvements. Challenges within the supply chain include:

• Shortages of skilled workers, particularly for low-carbon technologies.
• Material procurement delays, impacting insulation and renewable energy installations.
• Quality control measures, ensuring installations meet strict efficiency and safety standards.

Despite its ambitious scope, ECO4 faces several challenges in implementation, including:

• Energy suppliers report rising material and installation costs, impacting delivery rates.
• Supply chain disruptions, particularly for heat pumps and solar panels, create delays.

• The UK faces a shortage of qualified retrofit installers, slowing project implementation.
• Government initiatives aim to increase training and certification programs for new installers.

• Ofgem’s stricter auditing measures place added compliance burdens on suppliers.
• Some installations require multiple inspections, extending project timelines.

• Some eligible households remain unaware of ECO4 benefits, limiting participation.
• Consumer outreach programs are being expanded to improve awareness and uptake.

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Diverse Perspectives on ECO4

The Energy Company Obligation (ECO4) scheme has garnered a range of opinions from policymakers, industry leaders, energy suppliers, consumer advocacy groups, and environmental organisations. While many support its goals, others highlight areas for improvement, such as cost implications, quality, eligibility criteria, and long-term sustainability.

Chris Norbury, CEO of E.ON UK

Chris Norbury has emphasised the importance of improving home insulation, stating:

“Upgrading the energy efficiency of homes across the UK is a key national priority that promises significant returns. The upfront cost of improving home insulation may seem daunting – but at E.ON Next, we’re here to make new energy work for everyone and help reduce the costs of making homes more energy efficient, while also making homes more comfortable and cheaper to run.” – source E.ON

This reflects the industry’s recognition of both the challenges and benefits associated with energy efficiency improvements.

Despite the good intentions of the scheme, government recognise some of the problems.

In the House of Lords debate on January 29, 2025, titled “ECO4 and Insulation Schemes, Miatta Fahnbulleh appointed Parliamentary Under-Secretary of State at the Department for Energy Security and Net Zero, stated the following;

“early findings suggested that there were widespread cases of poor-quality installations that did not meet the required standard. Since that point, we have consulted the certification bodies responsible for overseeing the work, and the building safety regulator, to understand the true scale and nature of the emerging problem” – UK Parliament

This indicates governmental awareness of the need to continually improve standards.

Greenpeace UK

Greenpeace UK has been vocal about the need for government investment in home insulation. In a protest highlighting the issue of cold homes, Paul Morozzo, Greenpeace UK’s fuel poverty campaigner, stated:

“Cold homes cost lives and we urgently need a government willing to invest at least £6 billion every year to end this national scandal once and for all.”  – Greenpeace

This underscores Greenpeace UK’s advocacy for increased funding towards energy efficiency measures.

National Energy Action (NEA)

NEA has expressed concerns about the current delivery of ECO4. In a written evidence submission, they noted:

“Over the past year ECO installations have dropped significantly: only 3% of the overall delivery target has been realised within the first eight months.” – UK Parliament

They recommend revising cost assumptions to reflect current market conditions to improve the scheme’s effectiveness.

Meanwhile, the Federation of Master Builders (FMB) has expressed concerns about the shortage of skilled workers in the construction sector, which directly impacts the implementation of energy efficiency measures. In their State of Trade Survey, they reported significant difficulties in hiring key trades:

“64 per cent of companies are struggling to hire bricklayers, and 59 per cent are struggling to hire carpenters/joiners.” – FMB 

To address this issue, the FMB advocates for increased investment in workforce development, emphasizing the importance of training and apprenticeships:

“By investing in and protecting our existing workforce, we’re not only ensuring that construction is a challenging yet secure industry to work in, but we’re also showing the next round of recruits that if you work hard, you will be rewarded with support and success.”  – FMB 

Addressing these workforce challenges is crucial for the successful delivery of initiatives like ECO4.

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As ECO4 progresses towards its completion in 2026, policymakers and stakeholders must assess its impact and explore future iterations of the scheme. With the UK’s legally binding commitment to achieving net-zero emissions by 2050, there is growing consensus that the Energy Company Obligation should evolve beyond supplier obligations and integrate broader government and private sector partnerships.

Several policy shifts and refinements can be introduced to ensure that future versions of ECO are more effective, equitable, and aligned with long-term sustainability goals.

One of the most debated aspects of ECO4 is its reliance on energy suppliers to fund energy efficiency improvements, with costs ultimately borne by consumers. While this model ensures private sector accountability, it also raises concerns about rising energy prices.

• Future ECO schemes could incorporate direct government grants
• A hybrid public-private funding model could distribute costs more equitably.
• Tax incentives could be introduced for homeowners who proactively invest in energy efficiency improvements beyond ECO-funded measures.

Under ECO4, local councils play a key role through the ECO Flex mechanism, allowing them to identify and refer fuel-poor households. However, councils have raised concerns about limited administrative resources to manage large-scale retrofit programs.

• Future schemes should allocate dedicated funding to local authorities to administer ECO measures effectively.
• A regional approach could be adopted, with councils tailoring energy efficiency strategies to specific housing stock and demographics.
• Collaboration between central government and local councils should be strengthened to ensure data sharing and coordinated delivery of improvements.

While ECO4 expanded eligibility beyond means-tested benefits, some low-income households still fall outside the current criteria. Many fuel-poor households do not claim benefits but still struggle with high energy costs.

• Future ECO schemes should implement wider income-based eligibility criteria, ensuring all fuel-poor households can access support.
• Expansion of the ECO Flex mechanism could allow councils and suppliers to address regional disparities in fuel poverty.
• The use of real-time energy consumption data could help identify vulnerable households in need of urgent intervention.

While ECO4 supports solar panel installations, its focus remains on reducing energy consumption rather than promoting energy generation. To align with net-zero objectives, future ECO schemes should:

• Provide subsidies for battery storage systems, allowing households to store solar-generated electricity.
• Expand funding for solar panel installations beyond fuel-poor households to create a more self-sufficient energy grid.
• Introduce localised microgrid initiatives where communities can share renewable energy surplus, reducing dependence on national grid infrastructure.

A major obstacle to ECO4’s success has been the shortage of trained retrofit installers and heat pump engineers. Without a skilled workforce, future ECO schemes risk delayed implementation and rising labor costs.

• Government-backed training programs and apprenticeships should be introduced to increase the number of skilled energy efficiency professionals.
• Incentives for retraining workers from traditional heating and construction industries can help bridge skill gaps.

Both households and installers have reported complex and lengthy application processes under ECO4, resulting in delays in delivering improvements.

• Future schemes should introduce a streamlined digital application system for faster approvals.
• A centralised energy efficiency database could track household energy performance, automatically identifying homes in need of support.
• Reducing bureaucratic obstacles for installers would help improve delivery rates and reduce administrative costs.

Given the current trajectory of UK energy policy, an anticipated ECO5 scheme (potentially launching in 2026) could incorporate several of the recommendations outlined above. Possible features of ECO5 may include:

• Larger budget allocation, allowing more homes to be retrofitted per year.
• A focus on multi-property and social housing upgrades, targeting entire communities rather than individual homes.
• Integration with green finance initiatives, offering homeowners and landlords affordable financing options for deep retrofits.
• Enhanced public awareness campaigns, ensuring households fully understand the benefits of energy efficiency improvements.

The future of the Energy Company Obligation will be shaped by evolving government priorities, advancements in energy technologies, and feedback from stakeholders. While ECO4 has made significant strides in improving home energy efficiency, future policy directions must address funding gaps, administrative challenges, workforce shortages, and the need for broader eligibility. By incorporating lessons from ECO4 and international best practices, the UK can ensure that future iterations of ECO deliver greater energy savings, lower carbon emissions, and improved quality of life for households nationwide.