Utiliko’s attempt to implement energy efficiency measures was embedded in a network of business relationships with the actors introduced above.
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Throughout the two years of interactions within and across this business network, I focus on five key relationships held by Utiliko. Delineating the interactions in and around these relationships enables the development of a holistic understanding of how companies respond to climate change.
5.1.3.1 Relationship 1 (R1): Cost-effectively installing energy efficiency measures
The first relationship that affected Utiliko’s response to climate change was with
Thameswide, Brixwell Council and Isotec. For these three actors, the ECO scheme was a big opportunity.
The social housing association, Thameswide, had recently announced its intention to put the most vulnerable people first by providing high-quality and affordable homes. What was interesting for Utiliko, however, was the fact that Thameswide had detailed information about 50,000 properties and knew the ones that were inhabited by consumers eligible for the ECO scheme. In return for sharing this knowledge on eligible households, Utiliko committed to getting as many of Thameswide’s properties as possible retrofitted with energy efficiency measures.
Furthermore, Brixwell Council, responsible for the strategic regional administration of London, perceived the ECO scheme as an opportunity to secure additional funding to meet its climate change and energy objectives. In fact, Brixwell Council and Utiliko
signed a Memorandum of Understanding that obliged Utiliko to maximise the number of energy efficiency measures installed within the Brixwell Council area in exchange for the latter providing detailed information and access to 21% of all ECO qualifying households. Lucy, Utiliko’s Business Development Manager, was the driver behind this
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agreement as she perceived that Utiliko could gain substantial cost-benefits from collaborating with Brixwell Council:
“[Brixwell Council] obviously has knowledge of the properties and the areas that can help with planning measures such as solid wall insulation. It is also about their branding. It's good to have
[Brixwell Council’s] support for the project as it gives consumers confidence.” [Lucy, Business Development Manager, Utiliko]
Once Thameswide and Brixwell Council had helped Utiliko identify eligible households, the company’s Business Develop Manager Lucy tasked the British wall insulation specialist Isotec with installing solid wall insulation. Isotec had the manpower and technical expertise needed to install wall insulation at scale because the company had invested heavily in training their staff in anticipation of the large-scale delivery of solid wall insulation required to meet the ECO.
5.1.3.2 Relationship 2 (R2): The willingness of eligible households
The role of consumers in shaping Utiliko’s effort to implement energy efficiency measures cost-effectively cannot be ignored. While Utiliko’s close engagement with
Thameswide and Brixwell Council increased consumer confidence, getting eligible households to agree to have the energy efficiency measures installed remained a major challenge. Indeed, Utiliko’s Business Development Manager Lucy was devastated:
“We can't make consumers do things to their homes. Even in social housing, the tenant has the right to say, 'I don't want those cooperies filled' despite [Thameswide] trying their best to have it done.”
[Lucy, Business Development Manager, Utiliko]
As a result, over the first six months of the ECO scheme and despite the cost-efficiencies stemming from working closely with Thameswide, Brixwell Council and Isotec,
Utiliko’s costs in respect to installing energy efficiency measures added up to over £90 per household per year. Utiliko’s Chief Corporate Officer Rudy was concerned since
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this was 80% more than the MDfE’s estimate of £50 per household per year; the amount that would have allowed Utiliko’s to stay within its ECO budget of £134 million.
Since the costs of responding to the ECO scheme had skyrocketed, Utiliko’s profits dropped by 7.3% by the end of 2012. As a result, and effective as of January 2013, Rudy had no choice but to increase energy prices by 8.8%.
Andrew, Head of Business Development at Utiliko, criticised the way in which the ECO scheme was designed as it ultimately led to an increase in energy prices:
“ECO has got to be affordable for consumers; that is the most critical point.” [Andrew, Head of Business Development, Utiliko]
In fact, the increase in energy prices of 8.8% not only put more households into fuel poverty, but it also risked losing customers.
5.1.3.3 Relationship 3 (R3): Competing for market share
The increasing costs stemming from Utiliko’s obligation to install energy efficiency measures in low-income homes and harder-to-treat properties put the company at a competitive disadvantage in comparison to the small energy supply company The Energy Bjird. As a result of having less than 250,000 customers, The Energy Bjird was not required to oblige with the ECO scheme and hence was soon able to offer its customer’s energy prices approximately 20% below Utiliko’s average energy price.
Although some consumers did not switch to The Energy Bjird due to lack of trust in smaller energy suppliers, Utiliko’s Chief Corporate Officer Rudy believed that the ECO scheme had put its company in an unfair position as it indirectly subsidised small energy supply companies. In early 2013, he concluded that this issue had to be brought to the attention of the MDfE.
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5.1.3.4 Relationship 4 (R4): Establishing industry-wide consensus
Utiliko interacted with Exxelo UK, a British energy industry association, to establish an industry-wide consensus about the challenges associated with responding to the ECO scheme.
Engaging with Exxelo UK was within the remit of Julia, Utiliko’s Energy Policy Manager. She initiated a meeting with Sheila, the designated Policy Manager at Exxelo UK, to discuss the company’s position on the ECO scheme:
“We work with [Exxelo UK] and then use that to try and establish industry positions on certain aspects of the legislation. We agree as much as we can in the industry, then those messages are going into government and to the regulator. It certainly helps when we have got all the same message!”
[Julia, Energy Policy Manager, Utiliko]
As a result, Exxelo UK’s Policy Manager Sheila organised a workshop to which she invited the Policy Managers of the six largest energy supply companies to further discuss the issues raised by Julia. In this meeting, Utiliko’s Business Development Manager Lucy said that they quickly reached consensus on the extensive administrative burden and costs related to responding to the ECO scheme:
“I mean, one of the examples was, and this was for all suppliers, when they launched ECO, the policy has totally moved towards solid wall insulation and after six month when it was launched, you know, we all said it's going to be hard because the solid wall supply chain hasn't developed efficiently to deliver the number of solid wall measures that were required.” [Lucy, Business Development Manager, Utiliko]
The demand of the Policy Managers of the six largest energy supply companies was clear: The MDfE had to scale back the ambition of the ECO scheme to allow energy supply companies to achieve their obligation through installing energy efficiency measures other than just solid wall insulation.
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5.1.3.5 Relationship 5 (R5): Negotiating alterations to the ECO scheme
The fifth and final relationship that affected Utiliko’s response to the ECO scheme was with the MDfE. Between mid- and late-2013, Exxelo UK’s Policy Manager Sheila engaged with the MDfE in response to her request to revise the ECO scheme. Sheila felt that the discussions with the MDfE were constructive as they had a common interest in improving policies:
“My experience with the [MDfE] has been that they are extremely open to talking to us and listening to our views and trying to improve the scheme.” [Sheila, Policy Manager, Exxelo UK]
Sheila was also self-critical, however, and acknowledged that the current design of the ECO scheme was partially Exxelo UK’s fault as they were involved in the initial design:
“One of the mistakes that we didn't want to make was having to change the policy retrospectively by making sure that everything is developed early, but now we have failed.” [Sheila, Policy Manager, Exxelo UK]
While Utiliko appreciated Exxelo UK’s engagement, the magnitude of the issue also led Julia, Energy Policy Manager at Utiliko, to engage directly with a representative of the
MDfE:
“In the case of ECO, there are so many aspects of how much that costs us and what the cost to the consumer is. It is not just about delivering it but the costs have to be low otherwise the government will not favour that option. You know, it has to be affordable for consumers because they are dependent on the electricity.” [Julia, Energy Policy Manager, Utiliko]
During six months of extensive negotiations, Julia repeatedly emphasised the high costs of delivering the ECO scheme and the burden that higher bills put on the consumers of energy. In support of her argument, she provided evidence for why the scheme was not working in terms of installing energy efficiency measures cost-effectively. In doing so, she highlighted that, despite collaborating with Thameswide, Brixwell Council and
Isotec, it was impossible to comply with the ECO scheme without increasing energy prices.
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In late 2013, the MDfE announced an alteration to the initial design of the ECO scheme. The concerns over the ECO’s impact on consumer bills had caused the MDfE to revise down the carbon emission saving targets by 25% while also broadening its scope to include less expensive energy efficiency measures. These changes were effective as of January 2014.