Green deal or mean deal?

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.

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3 thoughts on “Green deal or mean deal?

  1. Alan is absultely correct on the “hard to heat” buildings.
    The Country Land and Business Association (CLA) has about 35,000 members who collectively manage perhaps a million existing buildings. In particular they provide and manage almost 40% of the private rented housing in rural areas, and large numbers of rural workshops (generally in converted farm buildings). Much of our members’ property is of traditional construction, in many cases constructed in the 19th century or before.

    The CLA has long supported the Government’s drive to address climate change, and welcomes in general terms the proposals set out in the Green Deal to help improve the energy performance of buildings.

    However, we are deeply concerned that:

    (a) the scheme may emphasise short-term energy efficiency rather than overall whole-life carbon impacts. If it encourages high-carbon impact, short-lifespan changes, it may have negative rather than positive overall carbon impacts. The most obvious example is uPVC windows, with their high-carbon-impact glass/plastics/steel construction and mere 10-20 year lifespan. Government policy up to now has focused on energy efficiency and insulation at the expense of all other carbon impacts, but there are encouraging signs that thinking is changing (see the HM Government Low Carbon Construction Innovation and Growth Team Final Report, Autumn 2010, which has a much broader emphasis on whole-life carbon impacts).

    (b) the scheme may not take into account the different methods required to improve the energy efficiency and carbon performance of the quarter or fifth of existing buildings which are of traditional construction. These buildings have an inherently benign carbon performance because of their long lifespans, and this can usually readily be improved by specific changes like draughtproofing, shutters, and curtains, as well as more conventional methods like loft insurance and cylinder lagging. A key problem is that conventional assessment methods, like the SAP testing which underlies Energy Performance Certificates, are designed for buildings of modern construction. For traditional buildings, they give a largely false assessment of energy efficiency, and prescribe methods which do not work or damage the physical integrity of the building (for exampleby making them damp). If this kind of approach is taken in the Green Deal, it is likely to have malign unintended consequences. Given that so many existing buildings fall into this category, this is a very significant problem which the scheme needs to take into account as it is worked up.

    (c) these approaches are a particular problem for heritage assets, the great majority of which are unlisted (listed buildings, at least in theory, are more protected from damaging changes). In this case we have a particular concern that physically and aesthetically damaging changes may be forced on the owners of unlisted heritage assets by tenants, and also more generally that the owners of unlisted heritage assets will be encouraged by ‘door-stepping’ contractors to make changes which do not improve energy performance and which they will later regret.

    (d) that heavy handed action based on national standards may inadvertently make the provision of rented accommodation (both housing and business premises) uneconomic.

    In fairness, we should add that the cost constraint set out in the scheme – that savings must exceed costs – may reduce its potentially damaging impacts, because changes which will have high upfront carbon impacts or damage the integrity of heritage assets are likely to be more expensive. Again an obvious example is uPVC windows, which – if correctly assessed – should not meet the scheme criteria because of their high financial cost and low return on capital. But in practice there may be strong pressure from the uPVC window industry for its products to be included, and there will also be some changes which are damaging but not expensive. Much will depend on how the scheme is set up and implemented on the ground.

  2. I agree that the Green Deal looks like it may miss the mark. One incentive for homeowners is that their property value may be increased by reducing fuel bills, and (so far as I thought) a better rating on the Energy Performance Certificate. I think it is therefore important that the EPC scheme is not scrapped, but from Oliver Harwood’s comment, it is clear that it needs some improvement. One problem I have seen with the Green Deal, from my own experience of externally insulating my 1910 house, is that if the basic improvements have already been made by the homeowner (loft insulation, draughtproofing, new boiler) then the payback on solid wall insulation will probably not meet the “golden rule”. I think we need to learn more from Germany. In 2009 the german bank for reconstruction (Kredit fuer Wiederaufbau) lent a total of €8.9 bn for energy refurbishment of 620,000 older homes. This is 20 times the amount that was invested in the UK in the same year through CERT. Is the UK 20 times poorer than Germany, or have we just got our priorities wrong!

  3. I am most grateful to Dr Alan Whitehead for drawing so extensively from my latest monthly column in Energy in Buildings & Industry magazine. Those who wish to read the full article, concerning the viability of the Green Deal concept , can find it on http://www.ukace.org. Many earlier articles of mine on this and related subjects can be found on this same website.

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