The news that there is going to be a ‘Green Deal financing company’ consisting of ‘not-for profit’ inputs from a number of leading banking building and energy companies (here) deserves, I think, about a cheer and a half. The new company is apparently going to gather together a loan book of a billion pounds a year, rising to ten billion over the next decade. That is not insignificant money, if indeed it materialises. And, the proposal suggests the ‘not-for-profit’ nature of the loan book means that it can be deployed at a lower rate of interest than the bilateral loans from company to green dealee. Those, it is being widely assumed, will come in at about 9%. The people talking the new company up suggest a rate of 6% will be possible instead.
The cheer bit (assuming all this works) will be in the way this fund aggregates those individual loans, which in itself will push the rate down. It will also make district uplift programmes much more possible, enabling local authorities and housing associations to manage loans with one point of reference. All good. It will also (a side point but important) enable individual companies to fund without ‘branding’ – knowing that if they do the negative reputational effect of – say – a B&Q loan that goes wrong or does not result in the savings predicted will always outperform the putative gain from the loan .
There is also half a cheer for the prospect of a reduction in interest rate – truly the sticking point at present in making Green Deal work. Not a whole cheer by any means, because at 6% the rate is still almost certainly way too high to elicit anything but the smallest interest from the great British public, who after all, will collectively be asked to take a flyer on these new forms of finance. Revealingly, market research for the Great British Refurb campaign this autumn suggests that hardly anyone (about 7%) would be motivated or interested in a makeover programme at 6% interest. Only a few more (12%) would commit at 4%.
And worse…the degree to which householders will get anything serious done on refurbishment lies very much in the interest rate realm. Consumer Focus did some very significant research on refurbishment ‘packages’ and interest rates in the spring (here). They showed that virtually nothing other than very basic refurbishment (e.g. loft insulation) is possible within the ‘golden rule’ on future bill costs and a high interest rate on a loan. Only when the rate goes down well below 6% does it usher in the sort of extensive energy efficacy uprating that really makes a difference. So 6% is better, but certainly no fish for the seal at this stage.
What the emergence of a finance company might do, however, is make it possible for the inevitable eventual need to publicly underwrite Green Deal in some way to be marshalled. The financing company, after all, sounds a little like a proto – Green Investment Bank, but in this instance actually able to gather and lever loans. Injecting underwriting into the loan book (as the German Government has done by arrangement with the German infrastructure investment bank KfW) could put loan rates down into the ‘virtuous circle’ level – where uptake increases, and at the same time extensive refurbishment becomes possible, leading to far greater energy and cost savings. Now that would, I think be eligible for a large bucket of fish. If only this would happen at the outset of the scheme, rather than, as I suspect, by rout, when it becomes apparent that the initial available mechanisms don’t work.