We’re still being told that the Green Investment Bank (assuming that’s what it turns out to be) will play no role in the ‘green deal’. All the investment in energy efficiency in the home, it seems, will come from the good offices of B&Q and Marks and Spencer, and that (subject to the ‘golden rule’) will be it. So says energy minister Greg Barker at least. That seems a potentially ruinous stance, since most impartial observers agree that the operation of the ‘golden rule’ (which is supposed to ensure that energy costs of those taking on energy efficiency improvements always end up with lower electricity bills after the costs for the investment has been tagged onto their bills) will, at market interest rates critically restrict what can be done to increase a household’s energy health. Here’s the Association for the Conservation of Energy, for example:
‘The Government insists that all Green Deal energy saving packages must meet the ‘golden rule’…..however at commercial rates of interest it is unlikely that higher cost measures (such as solid wall and underfloor insulation and replacement windows) will be able to meet the golden rule. If the green deal is to deliver ‘whole house’ packages of the kind required to meet the UK’s carbon reduction targets, then the GIB must be enabled to play a significant role in maintaining Green Deal interest rates at the lowest possible level.‘
Quite, ACE, but how, exactly? I think we all know that some kind of underwriting to support the sort of measures to which ACE draws attention must be found, and I’m sure that the still to be defined Energy Companies Obligation (ECO) will play a part, but the Government could do worse than take a short trip to Germany to find out how it can all be done.
I had the opportunity last week, along with colleagues from the Environmental Audit Select Committee, to talk to the KfW Bank, Germany’s nearest equivalent to the proposed Green Investment bank in the UK.
It has interests far wider than home energy improvement, and has been established now for fifty years, supporting a range of infrastructural activities in Germany with long term loans. Since 2001, though, it has promoted a programme specifically to assist with retrofitting of existing homes: 1.8 million homes to be precise, with 630,000 loans provided.
But it does this in a very interesting, and for the GIB, relevant way. The KfW doesn’t have branches: all its loans, to companies, landlords and to householders go through banks. It (KfW) provides the sums to banks long term and at low interest, using its Government AAA rating and its ability to refinance loans as they proceed. The bank takes a margin for credit risk and handling, but this is very low, because of the security KfW brings. The Government, if it is providing subsidy will not, however, place this into the loan itself: instead it will, by agreement with KfW, subsidise the interest it offers, enabling the underwriting to go much further and become incorporated into much simpler procedures. The result is that very long term loans at sustained low interest rates are available for much more extensive energy improvements than would otherwise be feasible. Germany doesn’t have a ‘green deal’ as such, but it would be relatively straightforward for loan repayments set up on this basis to be repaid on the basis of a bill charge as the green deal provides for, except with a far higher ‘golden rule’ threshold than is currently possible. Simples, as those very annoying stuffed meerkats would say.
So go on Greg, get yourself over to Frankfurt and find out for yourself how they do it. And then persuade the Treasury to let you do it too. Shouldn’t be difficult.