Thousands of homes given faulty insulation through Energy Company Obligation scheme

The Energy Company Obligation (ECO) scheme aims to tackle fuel poverty and reduce carbon emissions in Great Britain by requiring energy companies to fund the installation of energy efficiency measures, such as insulation, in homes.

But the National Audit Office (NAO) found that poor installation work has resulted in an estimated 22,000 to 23,000 homes with external wall insulation fitted under the scheme (98% of the total) and 9,000 to 13,000 homes with internal insulation (29% of the total) having major issues that need fixing. A small percentage of these installations also pose immediate health and safety risks.

Possible explanations why so many installations have been carried out to such a poor standard include an under-skilled 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 ‘cutting corners’ when undertaking design and installation work.

DESNZ implemented a new consumer protection system for the scheme in 2021, which included appointing TrustMark as its government-endorsed quality scheme. But this system failed to alert DESNZ to significant issues with the quality of installations until October 2024, by which time the media had already reported on individual cases of bad mould in homes.

Reasons for the ECO scheme’s shortcomings 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; and
• insufficient audit and monitoring, in part due to weaknesses that allowed installers to ‘game’ the system.

In addition to these issues, in November 2024 Ofgem estimated that businesses had falsified claims for ECO installations in between 5,600 and 16,500 homes, potentially claiming between £56 million and £165m 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.

DESNZ also plans to apply the lessons learned from this experience to the design of its future schemes and its forthcoming Warm Homes Plan.

To improve the consumer protection system, 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; and
• reports annually on a statistically robust estimate of the level of fraud and non-compliance in each of its retrofit schemes.

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.”

Martin McCluskey, minister for energy consumers, said: “Today’s report shows unacceptable, systemic failings in the installation of solid wall insulation in these schemes, which have directly affected tens of thousands of families.

“We are fixing the broken system the last government left by introducing comprehensive reforms to make this process clear and straightforward, and in the rare cases where things go wrong, there will be clear lines of accountability, so consumers are guaranteed to get any problems fixed quickly.”

Stew Horne, group head of sector intelligence at the Energy Saving Trust, added: “The Warm Homes Plan is a pivotal opportunity to put right past issues and roll out a refreshed joined-up strategy that instils trust and confidence in households to upgrade their homes. This is key so that everyone can benefit from lower energy bills and warmer homes — it’s an opportunity that must not be wasted.”