I hear that DECC, according to its monthly progress report has now completed its work on the final design for financing the ‘Green Deal’ and all is now ready to be launched into the world (or into the house of Lords, to be precise.)
Well done DECC for getting to this point: it has always seemed that the knotty issue of finance and how it will be mustered is the troublesome bit of the ‘Green Deal’ to crack. The Green Deal’s aim is to remove the capital impediment to installing energy efficiency measures by loading the charge on the future bill to the household and thereby financing the whole thing from future savings. This is a good idea, but the trouble is, it has been a bit oversold. There was Greg Barker, the minister responsible, raving in June in a Commons Debate on Energy Efficiency that:
‘’The Green Deal is a dramatic change in the status quo….even more ambitious than Mrs Thatcher’s sale of Council Houses in the 1980’s”
And that, on another occasion
“Green deal will mean houses having to be visited only once before 2050 to ensure they are fully energy efficient”
Steady on Greg, many of us said (at least internally) and steadying has proved to be the order of the day.
The ‘golden rule’ was introduced early – that is that the total amount put on your bills should not make them higher than they were before your home was ‘green dealed’. This cuts financing capacity and the scope of the deal right down: Just how much is, interestingly, set out in an obscure piece by Ingrid Holmes in the Aldersgate ‘Green investment bank’ report [here]. She says that a purely market-led green deal (with a 9% interest rate) would actually increase the average householder’s fuel bill by 13%. I assume she means here B&Q expecting a return on the money they are supposed to be investing in home energy efficiency, and the advancing of the £6500 to boot.
Sooo…. there would need to be some pretty startling changes as a result to overcome that sort of increase. Ingrid points out, incidentally, that aggregating financing arrangements through the Green Investment Bank would have a marked effect on these calculations because of the far lower rates the GIB could lend out at. But there’s a firm veto in place on GIB involvement in ‘green deal’.
I guess that is what is behind the retreat of the ambition of the Green Deal to passive insulation only: the golden rule may well work for these improvements, but will hardly lead to that ‘one off visit’ Greg was touting a while ago. And of course, forget about those hard to treat properties (some nine million of them) – too expensive by half.
But if that is to be the sum of it, there’s another question that arises, put very neatly by Andrew Warren in his piece in November Energy in Buildings and Industry magazine (website currently under development). He quotes an unnamed ‘Big Six’ energy company director who said to him:
‘We have spent the last ten years heavily subsidising installation of the most cost effective energy saving items: loft insulation; cavity wall fill. An increasing part of our costs has been trying to find people to take these offers up. The Green Deal is going to say to these previous refuseniks: pay for these same items at a full unsubsidised rate, plus others less cost-effective, plus a full interest rate. What on earth will make this package so much more attractive?’
So it will be interesting to see if the hard work done by the DECC hands below deck, so to speak, will crack these nuts: right now it doesn’t really look like it. That would be a great shame: because moving home energy efficiency rapidly through the UK’s shockingly poorly clad housing stock is a must right now. I predict that the Energy Companies Obligation, (AKA son of CERT) hardly heard of in the summer but moving smartly onto the stage will prove to be much more significant in this respect than the ‘Green Deal’ will: and that the unnamed Big Six head will find his coffers raided for it. That’s probably how packages will be made attractive, since he asks.