First 100 Days: Warmer and more energy efficient homes

1. Purpose

This report sets out the work undertaken to fulfil the Welsh Government's First 100 Days commitment to

review the existing Warm Homes Programme, and work to introduce changes so that we can go further and faster on improving home energy efficiency – raising living standards, tackling fuel poverty, and reducing carbon emissions for more households, more quickly.

It sets out the current condition of homes in Wales and our levels of fuel poverty, the review undertaken on existing activity, the wider context and the opportunities we have identified to do things differently and our next steps.

2. Current levels of energy efficiency and fuel poverty

Emissions from homes in Wales contributes 8% of the total greenhouse gas emissions. To remain on track for net zero, the Climate Change Committee advises targeting a 22% reduction in residential carbon emissions, from 3.0 MtCO2e in 2022 to 2.4 MtCO2e by 2033. Primarily this is achieved through installation of low carbon heating – approximately 25,000 per year by 2030, rising to 80,000 per year by 2035 – and energy efficiency measures. Achieving the targets would result in around 16% of homes having air source heat pumps, and 23% having some form of low carbon heating, by 2033. 

In Wales, 45.9% of all homes which were assessed between 2015 and 2024 received an Energy Efficiency Rating (EER) of A, B or C. There are clear differences between tenures, with social homes significantly outperforming other tenures. 73.2% of socially rented homes received an EER of A-C while this falls to 37.3% of privately rented homes and 32.4% of owner-occupied homes assessed over the same period.

25% of all households (340,000 households) were estimated to be living in fuel poverty as of October 2024, with an additional 16% of households estimated to be at risk of fuel poverty. Households living in the private rented sector were most likely to be fuel poor, with 30% (55,000) of these households living in fuel poverty. This compares to 24% (231,000) of owner occupiers and 22% (53,000) of social housing households. 15% of households living in dwellings with an EER rating of A to C were in fuel poverty and this rose to 58% for households living in homes rated F or G.

3. Review of the existing Programme

Our rapid review covers all Welsh Government funded schemes to support energy efficiency and the switch to low carbon heating. It also considers the impact GB or UK wide schemes have had, or continue to have, in Wales as well as the broader policy context.

3.1 Warm Homes Nest scheme

The latest iteration of Nest, the Welsh Government’s energy efficiency scheme for low-income households, was launched on 1 April 2024. It targets support to low-income owner occupiers or tenants in private rented accommodation. 

A range of improvements are funded at no cost, as guided by a whole-house retrofit assessment and a medium term improvement plan produced by an independent advisor. A package of measures might include insulation, efficient heating systems, rooftop solar PV and, where feasible, low carbon heating technologies such as heat pumps. 

A formal evaluation of the scheme is not yet available. However, it has been started and will report in 2027-28.

A rapid review has been carried out focusing on eligibility, technology supported, quality of installations, outcomes for households and value for money. Current and future demand has also informed our conclusions.

On eligibility – The expansion of eligibility to low-income households who do not receive means tested benefits has improved its fairness while remaining focused on households in most need of support. The health eligibility route is also valued. 

On technologies – The inclusion of windows and doors has been positive, as they have a significant impact on the energy performance of our homes. A recent increase in heat pump installations, where they will reduce bills, has been facilitated by the changes to planning law. This change is supporting our climate goals; however, it comes with additional capital cost which we need to take into account when considering future budgets.

On quality – In 2024-25, 98.4% of installations surveyed passed first time, and the percentage of customer complaints upheld during this period accounted for only 1.4% of all installations. This indicates the focus on quality is paying dividends. 

On outcomes – In 2024-25, the improvements resulted in an estimated £595 average annual reduction in energy bills. As well as lifetime carbon savings exceeding 107,000 tonnes. However, some eligible customers who enter the scheme did not proceed to installation as it was not possible to deliver the 12% bill savings target.

On costs and value for money – The average installation package has costed approximately £20,000 in its first two years. However, with the inclusion of windows and doors as well as the increase in heat pump installations this year, there are an increasing number of installations costing significantly more. The use of local contractors retains the value of our investment within Wales and offers good jobs to local people. 

On demand – Since the announcement that the Energy Company Obligations Phase 4 (ECO4) was coming to an end, there has been a surge of applications to the Nest scheme. This surge is likely to continue as more households recognise ECO is heading towards full closure and there will be no GB wide replacement scheme.

In summary, the Nest scheme is providing a crucial service to low-income households living in cold, damp homes. It is generally operating well, delivering quality installations and positive outcomes for households. Costs and efficiency need a focus to ensure it continues to deliver value for money.

3.2 ECO4

ECO4 has been operational across England, Wales and Scotland since 2022. It is the latest of a series of ECO phases funded through our energy bills and is designed to support low-income households. Its eligibility criteria are similar, but not identical, to the Warm Homes Nest scheme. Each of the local authorities in Wales operated a local scheme which sat alongside the core scheme.

Our review found Wales has received a disproportionately high level of ECO4 investment at approximately 12% of all installations under the scheme with investment estimated at over £100 million per annum. While this investment resulted in benefits to many households, its well-documented quality issues have also impacted many households across Wales and there are ongoing problems with the delivery of remediation works. 

Closure of the scheme has left a gap in investment, unresolved quality issues and a confusion among the public and support organisations regarding future support. £86 million of consequential funding has been allocated to Wales across 4 years because of the ECO closure and proposed successor support in England.

3.3 Optimised Retrofit Programme

The Optimised Retrofit Programme (ORP) was established in 2020 to decarbonise the social housing stock and develop evidence to be used as a springboard to move into the decarbonisation of homes in other tenures. It introduced a ‘test and learn’ approach to how to decarbonise homes effectively and efficiently as well as reducing bills and increasing tenants’ standard of living. It has supported social housing landlords to implement energy efficiency upgrades such as insulation, solar panels and heat pumps into their social housing stock and assists in meeting Welsh Housing Quality Standard (WHQS) commitments. ORP is intended to act as proof of concept for approaches to both fabric and technology retrofit and establish a firm evidence base on which to develop our longer term retrofit strategy. 

Transitioning from the early competitive bidding process to an allocation formula, ORP now supports all social landlords along their decarbonisation journey. The total funding allocated since 2020 to date has been £480 million, enabling over 42,000 energy efficiency upgrades.

A recent independent evaluation of the programme highlights benefits to tenants, including improvements to their health and finances, and states that “ORP 3 delivers strong value for money across all packages and scenarios tested”. It also reported that the ORP has been successful in building organisational capacity, enabling testing of retrofit approaches, and supporting alignment with WHQS 2023. Welsh Government has complemented this external evaluation with ongoing data capture and analyses, case studies and research activity to identify, understand and use the outputs of the programme for future strategy.

The ORP is in its final year of its current form and Welsh Government is using its findings along with a range of other sources to inform any successor scheme within the sector as well as our wider retrofit programme.

3.4 Green Homes Wales

The Green Homes Wales pilot scheme was launched in autumn 2024. It has offered households whose income is above the threshold of eligibility for Nest or ECO4 access to trusted advice, interest-free finance and vetted retrofit experts to help them navigate what can often feel like a complex process. 

Since its introduction, the scheme has received more than 8,000 expressions of interest, leading to 1,700 whole-home assessments and the issue of 445 loans to support home energy improvements at an average of £14,500 per loan. Homeowners have invested in measures such as insulation, solar panels and low-carbon heating systems. The free technical reports are also giving householders greater confidence to make informed decisions about future improvements to their homes.

An interest-free financial offer will always be popular. However, the high quality attained by use of vetted businesses and the high level of customer satisfaction with the end result suggests there are wider learnings from the pilot. Our rapid review has indicated that as we continue to support housing decarbonisation, the focus should remain on ensuring households have ready access to the advice, support and financial options they need to improve their homes. The experience and achievements of the Green Homes Wales pilot provide valuable lessons for future approaches.
 

3.5 Boiler Upgrade Scheme

The Boiler Upgrade Scheme offers grants to support households with the transition away from fossil fuel heating systems. The scheme supports a range of technologies including air-to-water heat pumps, air-to-air heat pumps, ground source heat pumps, ground loop ground source heat pumps and biomass boilers for rural off-gas-grid properties. The grant level varies by technology and there is an uplift for homes fuelled by heating oil or LPG.

The scheme is administered by the Department for Energy Security and Net Zero across England and Wales. The UK Government was required to consult with the Welsh Ministers on the Boiler Upgrade Scheme (England and Wales) Regulations 2022 and any changes it wishes to introduce to the scheme through amendments to those Regulations.

The latest available data indicates installations in Wales account for approximately 5% of vouchers issued and redeemed over the period May 2022 to May 2026. Our expectation is that the scheme will continue to operate in Wales until at least 2030, where it will remain an important part of the package of available interventions.

4. Wider Context

A number of wider policies within the Welsh Government’s responsibility support the decarbonisation of housing in Wales, including rules within the planning system and housing quality standard. Notably, the 2025 consultation on changes to Part L (conservation of fuel and power), Part O (overheating) and Part F (ventilation) of the Building Regulations will ensure our new build homes are futureproofed, with measures to reduce climate impacts and adaptation to extremes of weather accounted for at the outset. Our permitted development rights have also been amended; installing an air, ground or water source heat pump system does not usually need planning permission and should fall within permitted development rights.  

Standards set expectations on sectors and drive delivery. The Welsh Government is keen to adopt practical and achievable energy-efficiency standards that will enable more homes to be upgraded faster and more cost-effectively using the same resources.

The UK Government has a key role in driving decarbonisation in the housing sector as they have responsibility for regulating energy supply and the associated costs to customers. Policies to further rebalance electricity and gas prices, working alongside a social tariff, could incentivise the switch to low carbon heating systems while protecting low-income households connected to the gas grid. 

The UK Government is also responsible for setting minimum energy efficiency standards in the private rented sector, which have recently been increased to a rating of C by 2030.

The UK Government’s Warm Homes Plan includes a Warm Homes Fund to be delivered in partnership with the private sector. The fund will include opportunities for households in Wales to access loans for energy efficiency upgrades.

5. Opportunities and Next Steps

The review identified the following opportunities for immediate action and longer-term steps towards a cross-tenure retrofit programme.

Immediate opportunities include:

Injection of finance – The existing Nest scheme and Optimise Retrofit Programmes are operating well and demand is high. Additional funds into these schemes will deliver value for money, considerable benefits for people and alignment with our broader climate, poverty, preventative health and economic policies.

Continuous improvement – The review of Nest identified the need to explore cost-effective smaller measures, which may offer cost savings to households for whom a larger package is not possible. Benchmarking of costs and exploring further efficiencies will help extend the scheme’s reach while maintaining a strong focus on value for money.

Trialling new approaches – While the existing schemes are delivering, they have limitations in terms of their targeting and delivery models. This government is keen to trial different approaches to policy delivery, including area-based activity. Gathering insights from a small number of pilot projects over the next 18 months could be very beneficial in informing the longer-term strategy.

Over the longer term, a tenure-neutral approach requires a holistic review of cost-effectiveness, including the energy efficiency levels required across tenures to meet our statutory climate targets and a decision on the targeting of government interventions, including funding. This should be conducted over the coming months, to inform the next emissions reduction plan.