The building insulation market contracted by an estimated 22% in 2013, as activity in the retro-fit cavity wall and loft insulation sectors collapsed. This is a reflection of new government programmes – the Energy Company Obligation (ECO) and Green Deal – not generating the levels of demand seen under preceding government schemes.
Mintel’s Thermal Insulation UK 2014 report explores the recent performance of the thermal insulation market and the prospects for key sectors.
In January 2013, the Green Deal and the new Energy Company Obligation (ECO) scheme were launched, replacing previous government programmes promoting energy efficiency measures in the household sector, such as Warm Front and the Carbon Emission Reduction Target (CERT). These programmes were the key drivers for the building thermal insulation market up to 2012 and fuelled buoyant demand for retro-fit cavity and loft insulation installations over the last decade.
ECO – like its preceding scheme CERT – places legal obligations on the larger energy suppliers to deliver energy efficiency measures to domestic customers’ buildings, with a focus on low-income customers. The Green Deal, which runs alongside ECO, is designed to give people an incentive to improve the energy efficiency of their home. At its heart is a loan scheme that customers can use to pay back the cost of installing energy efficiency measures through their electricity bills.
Collapse of cavity wall and loft insulation installations under ECO
Loft insulation and cavity wall insulation measures carried out under ECO in 2013 were significantly below activity levels under preceding programmes – cavity wall insulation measures were down 60% and loft insulation installations by more than 80% in 2013, compared with the number of measures installed under CERT in 2012. This was largely due to a shift in focus under ECO to more hard-to-treat properties (incl. solid wall buildings), where the thermal performance cannot be improved through standard measures such as cavity wall and loft insulation. Under CERT cavity wall and loft insulation were the key measures promoted by energy suppliers to achieve their targets under the obligation.
The Green Deal has also had very little impact on the thermal insulation market to date. Latest data shows that in the 19-months to July 2014, a total of 1,693 thermal insulation measures were installed using Green Deal Finance – well below initial government projections and a fraction of the insulation levels generated under previous programmes.
Cuts to ECO scheme resulting in further turmoil for insulation industry
During 2013, rising household energy bills gained much media attention and became an important political issue. The ‘big six’ energy suppliers partly blamed green levies, including ECO, for rising prices, as the cost of the programme is factored into household energy bills. In response to the rising energy bill the chancellor George Osborne announced in December 2013 that the ECO scheme would be rolled back to cut household bills. The government agreed to give suppliers four years, rather than two, to achieve targets under the scheme, with existing support for low income and vulnerable households maintained and extended from March 2015 until March 2017.
The roll-back of the ECO scheme is likely to result in a further significant downturn in key thermal insulation measures installed over the next two years. Changes to the scheme also allow energy companies to lower carbon targets and focus on cheaper, easier-to-deliver solutions, such as loft and cavity wall insulation, whereas under the original initiative the focus was on hard-to-treat properties, such as solid walled properties. Thus, the solid wall insulation sector, which was set to be the key beneficiary of the ECO scheme, is now hardest hit by the amendments.
This has caused further turmoil in some sectors of the thermal insulation industry, which had been ramping up capacity in preparation for increased demand through government initiated programmes, which is now unlikely to materialise. Indeed, the think tank IPPR suggested that the reduction of insulation targets under ECO from April 2014 could result in 20,000 job losses in the solid wall insulation industry and supply chain.
Outlook for thermal insulation market uncertain due to changing government policies
With the recent policy changes and low take-up of the Green Deal, the outlook for the thermal insulation market now carries a high degree of uncertainty. A more buoyant new construction sector will bolster demand in a number of thermal insulation measures, although improved market prospects will strongly depend on an upturn in retro-fit activity and renewed government support. This has also been echoed by the industry, which recently called on the government to commit to a major retrofitting programme as a national infrastructure priority.
