Download A Review of the Green Deal

A Review of The Green Deal:
The impacts to
Local Governments, Businesses and Consumers
Peng Li
Literature Review submitted as part requirement for the
Master of Arts in Professional Practice
(Sustainable Development Advocacy)
University of Worcester
July 2013
Summary
The Green Deal is the Government’s flagship energy saving scheme that aims to
improve the energy efficiency of the UK’s housing stock. Unlike other subsidy-based
energy saving schemes the Green Deal is a loan deal. Consumers are offered minimal
or no upfront cost for the installation of their energy saving measures, the repayment
for which will go through their energy bill. The Green Deal Golden rule also assures
Green Deal takers that their repayment should not be more than the estimated saving
achieved through their reduction in energy use.
This literature review reviews the background information on the Green Deal, its brief
history, the impact of the Green Deal on local government, relevant businesses and
consumers. It aims to provide a holistic view of what opportunities the Green Deal
could offer to each of its stakeholders and what kind of future lies for the Green Deal.
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List of Contents
Page Number
Summary
ii
List of Contents
iii
List of Figures
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1. Introduction
1
2. Background
1
2.1 Housing stock status
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2.2 Government led schemes
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3. The Green Deal
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3.1 The Green Deal explained
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3.2 Brief History of Green Deal
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4. The impact of the Green Deal to its stakeholders
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4.1 The Local Government
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4.2 The Businesses
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4.3 Consumers
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5. Summaries and Conclusion
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References
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List of Figures
Page Number
Figure 1 Green Deal Customer Journey Explained
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Figure 2 Birmingham Energy Saver delivery model explained
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1. Introduction
The UK’s 2008 Climate Change Act (CCA) requires the country to cut Green House Gas
(GHG) emissions to 34% of the 1990 level by 2020, and to 80% of 1990 levels by 2050.
In addition, energy security is a key concern for the UK government. In 2011 the UK’s
net energy imports contributed to 39% of the total energy supply in the whole country.
With the purchasing power of sterling severely weakened by the 2008 financial crisis
(Ashcraft 2012) the UK government needs to spend much more money to import this
energy from other countries, which is not a favourable position from which to
strengthen its energy security when the country is heavily in debt both internally and
externally.
Increasing energy efficiency is one of the key strategies for the UK
government’s commitment to strengthen its energy security (DECC 2012a) and, in
order to comply with the UK’s carbon emission reduction commitment and strengthen
its energy security, the UK government has generated a series of policies and schemes
to improve energy efficiency in various aspects.
This literature review reviews the government’s recent efforts to improve UK housing
stock energy efficiency, especially focusing on one of the latest schemes, the Green
Deal. The following sections discuss the background to the Green Deal, its brief
history, the opportunities and barriers to different stakeholders, and where the future
of this scheme is heading.
2. Background
2.1 Housing stock status
The UK has some of the oldest housing stock in Europe (DECC 2010). According to the
English Housing Survey (EHS) 2010-11 (EHS 2012), there are a total of 22.4 million
dwellings in England of which 22% were built pre-1919 (EHS 2012, Ravetz 2008) and
fewer than 21% were built after 1980. According to the same EHS survey, around 7%
of the dwellings had some damp problems in 2010, which occurs in all the dwellings
built pre-1919 but in just 1% of dwellings built after 1990 (EHS 2012). The Decent
Homes Standard (DHS) is a standard used for measuring the quality of the dwelling in
which a reasonable degree of thermal comfort is an essential criterion (Department of
Communities and Local Government (DCLG) 2006). The EHS 2010-11 indicated that
pre-1945 dwellings are less likely to pass the DHS standard. Over 37% of pre-1945
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built homes failed to meet the thermal comfort criterion because of poor insulation,
and the estimated average cost for improvement on thermal comfort was around
£5,537 per dwelling, although this figure could easily rise to £20,000 for difficult to
treat properties (EHS 2012).
Thermal comfort is not only important to the quality of the dwelling, but also crucial to
the health of the occupants. Barker’s (2011) review on fuel poverty intervention
suggests that a low quality of thermal comfort would have a significant effect on the
physical and mental health of individuals. According to World Health Organisation
(WHO) advice, a home temperature range between 18 – 24oC provides the minimal
health risk to people of all ages, but especially the elderly (Ormandy & Ezratty 2011,
WHO 2007). It requires much higher energy consumption in older energy inefficient
dwellings to maintain the recommended level of room temperature than in houses
newly built to a higher energy standard. Under the current utility price, this difference
in energy efficiency usually means a significant financial pressure on tenants in less
energy efficient properties.
From an energy performance point of view, the Standard Assessment Procedure (SAP)
is used to assess and compare the energy and environmental performance of dwellings
(BRE 2011). SAP measures the typical annual energy costs and CO2 emissions in a
property. The SAP rating ranks the property’s energy performance from 1 to 100, with
1 being the least energy efficient and 100 being the most. According to the Building
Research Establishment (BRE) Group’s 2011 report, the average SAP rating for the
whole of the England housing stock is around 55 (DECC 2012b). According to the ESH
2010-11, only 43% dwellings are insulated with at least 150mm of loft insulation, and
only 32% of households were using energy efficient condensing gas boilers.
All the evidence indicates that the current English housing stock is relatively energy
inefficient. Large numbers of dwellings are at least 60 years (pre-1945) old with very
poor energy efficiency and thermal comfort for the occupants. Energy inefficient
housing stock also has a relatively bigger environmental impact compare with energy
efficient dwellings, for example, dwellings which were constructed pre-1919 on
average emitted 7.7 tonnes of CO2 per year whereas houses built after 1990 emitted
on average 4.1 tonnes of CO2 per year (Killip 2008, EHS 2012). Thus improving
domestic property energy efficiency is essential for reducing GHG environmental
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impacts in the UK given the existence of the large proportion of old (pre-1945) energy
inefficient dwellings.
2.2 Government led schemes
There have been many government-founded schemes and projects targeting energy
inefficient dwellings, especially targeting low income households living in energy
inefficient homes. Some offered subsidies to low income households for their energy
bills, for example, the Warm Home Discount (WHD) Scheme for households with
residents aged 80 and over to get a £135 discount on their electricity bill (DECC 2013a).
Some schemes aimed to replace old heating appliances such as the Boiler Scrappage
Scheme (BSS), which offered households vouchers to replace old inefficient boilers
with new energy efficient condensing boilers (BBC News 2009). Other schemes tried
to encourage renewable energy micro-generation such as the Feed In Tariff (FIT),
which encouraged households to install renewable electricity generation (e.g. Solar PV
or Wind Turbines), the government paying a subsidy for the electricity generated and
enabling surplus energy produced to be fed into the National Grid (DECC 2013b). All
the schemes have been relatively successful in encouraging households to improve
quality of life as well the quality of the properties and, as a result, reduce the impact to
the environment and become more resilient to climate change.
Government led schemes have several advantages. Firstly, they target the most
vulnerable households by offering a financial subsidy to improve their quality of life.
Secondly, these financial incentives not only benefit the consumers but also provide a
business opportunity. The FIT is one of the most successful examples. According to
Solar Power Portal, the FIT boosted the solar installation business by almost 1000%
just one year after the introduction of the FIT (Hughes 2012).
Schemes that rely heavily on government subsidies do come with consequences when
the subsidy runs out. Firstly, high subsidies often lead to heavier government debt.
When the economy is doing well government may be able to provide generous
subsidies because of high taxation income and, in return, the money spent into the
economy will boost business as a healthy circle. However, when the economy is not
doing well it is difficult to maintain the same level of spending with less funds available
to put into the economy. Sometimes the central government may decide to artificially
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increase the money supply which may result in inflation, not the most effective
method for long-term development (Blanchard 2000). Otherwise in order to maintain
the same level of subsidy, the government will have to raise the level of taxation (such
as fuel tax) in order to generate more income, a measure which impacts on businesses
and consumers alike.
Secondly, when the consumer is subsidised to purchase a product, it usually means the
product itself might be too costly to purchase. Once the subsidy is stopped it might
not be financially attractive for the consumer to carry on using the same product. This
applies especially to new technologies when the unit price is still relatively high.
Although beneficial in the long term, without the initial subsidy it is often very hard for
new technologies to compete with established conventional technology. The FIT is a
very interesting example of this. When the FIT first launched in April 2010 the
(subsidised) National Grid buy in unit price for surplus electricity was 43.2p/kWh
(Which 2012); however the price dropped to below 16p/kWh (7.1p/kWh for houses
with an EPC below band D) after August 2012 (DECC 2013b). As a consequence of the
sharp cut in subsidy FIT and micro generation of renewable energy became less
attractive to consumers, with the result that this industry shrank by 90% after the
announcement of the subsidy cut (Harvey 2013a).
Finally, when government subsidises a scheme by offering consumers a certain
incentive, it is very likely that some businesses will try to inflate the product’s sale
price in order to further increase their profit margin. This opportunist behaviour
damages the purpose of the incentive from the government while also wasting
taxpayers’ money.
Therefore, even though government subsidies aim to make the best use of investment
to encourage best practices, it is unlikely to always have the best possible outcome. In
recent years (2008 – 2013) government debt has increased due to the financial crisis
making subsidy based incentives economically unattractive to government.
The
present Government has been trying to devise a new market led scheme that can
potentially run on its own with minimal government financial investment, yet still be
able to achieve the same goal. That is where the Green Deal comes into the agenda.
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3. The Green Deal
3.1 The Green Deal explained
The Green Deal is the Government flagship energy saving scheme that aims to improve
the energy efficiency of the UK’s housing stock through a loan scheme to fund the
installation of energy saving measures such as boiler replacement, loft insulation,
cavity wall insulation, window glazing, and energy micro-generation for domestic use
to improve energy efficiency, reduce energy bills, improve thermal comfort, and
reduce CO2 emissions (DECC 2010). To enter into the Green Deal, firstly consumers
need to arrange a Green Deal assessment with an accredited Green Deal Assessor to
assess the eligibility of the property for the Green Deal scheme. If the property
qualifies, the applicant then contacts an accredited Green Deal provider to discuss a
possible Green Deal Plan. Once the Green Deal Plan has been agreed by both parties
the Green Deal provider will arrange for accredited installers to complete the agreed
energy saving measures on the property. At the same time, the Green Deal provider
will also update the energy supplier with the Green Deal financial charges. Once the
installation of the energy saving measures has been completed consumers will begin to
receive energy bills with the Green Deal charges included in the bills. The energy
company will then forward the Green Deal payment to the Green Deal provider (see
Figure 1) (DECC 2012b, BRE 2013).
In the Green Deal the consumer gets the energy saving installation measures up front
with payment made through their energy bills. The Green Deal Golden Rule ensures
the repayment should not exceed the money saved through the energy reduction
gained by the housing improvement (DECC 2011a). Consumers do not apply for the
loan personally. Instead they sign the contract with their Green Deal provider as part
of the Green Deal Plan, although a credit check procedure to qualify for the loan deal
does apply. The repayment of the loan is scheduled to be completed before the
lifetime of the installed energy saving measures, or within 25 years. Unlike most other
loans, Green Deal finance does not attach to the loan taker but to the beneficiary of
the energy saving measures, usually the house tenants or bill payers. Thus, when the
property is sold, the new tenant becomes liable for the repayment, not its previous
owner (DECC 2010, DECC 2011b, Stroma 2012).
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Figure 1 The Green Deal Customer Journey Explained
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3.2 A Brief History of the Green Deal
In May 2010, the coalition government proposed the Green Deal as an energy saving
(or energy efficiency) scheme aimed to meet the UK’s carbon emission target as stated
in the Climate Change Act 2008:
“It is the duty of the Secretary of State to ensure that the net UK carbon
account for the year 2050 is at least 80% lower than the 1990 baseline.”
The original proposal targeted all properties across the UK, including domestic and
non-domestic properties, by proposing it as a ‘pay as you save’ energy efficiency
scheme (DECC 2010). Former Energy Secretary Chris Huhne commented that this
scheme “not only would benefit the energy efficiency of the UK’s housing stocks, but
also create a substantial number of relevant employment opportunities in the energy
sector and property services.” (DECC 2010).
The Green Deal was introduced to the Parliament as part of the Energy Bill in
November 2010, and was approved by the House of Lords in February 2011 (Green
Deal Guide 2011). In June 2012, the Department of Energy and Climate Change (DECC)
produced a review based on the public consultation held in November 2011 (DECC
2012a). In this report, DECC identified a number of concerns that had been raised
during the public consultation, such as:

The transparency of the assessment process.
For maximum consumer
protection, the Green Deal assessment procedure needs to be transparent,
providing evidence based recommendations to enable the consumer to choose
the most suitable Green Deal provider for their needs.

The potential affiliation between Assessors and Green Deal providers. This
concern focused on the Green Deal assessment and its recommendations. It is
likely that most Green Deal Assessors will have a close association with Green
Deal providers, possibly even as sub-contractors. There was a worry that
Green Deal Assessments may be written to favour associated Green Deal
providers, rather than the consumers.

Concerns also focussed on how ‘lower than average energy use’ users would
benefit from the deal. The Golden Rule offers assurance of “the repayment
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less than savings achieved” however, if the household has a lower than
average energy consumption, this assumption of saving is not a behaviour
based evaluation and the monetary saving might not be as high as that
achieved by the average energy use consumer.
In response to the review and to strengthen consumer protection, DECC introduced a
Code of Practice advising that any Green Deal related information passed on to the
consumers by the Green Deal assessors and the Green Deal providers has to be clear
and precise in order to avoid miss-selling (DECC 2012f, DECC 2013c).
Prior to the publication of the review, in April 2012, 22 companies had signed up to
become the first Green Deal providers (DECC 2012g). Of these providers, 3 out of the
top 6 energy companies (British Gas, Empower and E.ON) had signed up. B&Q was the
only high street retailer to join the scheme. The other top energy companies and high
streets giants who did not sign-up for the Green Deal were concerned by the lack of
awareness of the scheme by the general public, and also by the complicated finance
options that might limit the number of people taking the Deal.
In September 2012 seven English cities (Birmingham, Bristol, Leeds, Manchester,
Newcastle, Nottingham and Sheffield) joined the Green Deal piloting project for the
pre-launch of the Green Deal (originally scheduled for October 2012) (Business Green
2012). The £12million funds in this piloting project were targeted at retrofitting up to
2,500 houses within the seven cities. Each city has used a different delivery model to
run their project.
Birmingham City Council (BCC), for example, has gone into
partnership with one of the early Green Deal providers, the property consultant
Carillion Energy Services (DECC 2012g) and branded it as the Birmingham Energy
Savers (BES). In this partnership, Carillion Energy Services is the sole Green Deal
provider with full control of Green Deal assessment, and delivering the Green Deal
plan to the customer (Figure 2). Birmingham City Council allows Carillon Energy
Services to use the Council name in its marketing and promotional material.
By the end of the 2012 the DECC had also introduced another pot of funding for local
authorities and other interested parties (other than the seven pilot cities) to conduct
innovative projects to test the practicality of the Green Deal under different delivery
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models (DECC 2012d). On 28th January 2013 the Green Deal was formally launched to
all markets within the UK (Northern Ireland is excluded).
Figure 2 The Birmingham Energy Saver Delivery model explained
4 The impact of the Green Deal on stakeholders
The main aim of the Green Deal is tackling the energy inefficient housing stock in Great
Britain (DECC 2010). The Coalition Government also hoped this scheme would create
employment opportunities in various “Green” businesses, boost local economies, and
reduce Britain’s long term carbon emissions. However, do these aims match the aims
of the other stakeholders in this scheme, or it is just another scheme that is destined
to fail? This section focuses on different stakeholders’ involvement in the Green Deal,
analysing and evaluating the benefits, opportunities, risks and barriers that they may
be facing.
4.1 Local Government
The term ‘local government’ in this section mainly refers to local county councils and
district councils.
According to the local council guide (LG Group 2011), local
government is responsible for making and carrying out decisions on local services,
therefore it is local governments’ responsibility to ensure how central government’s
policies “fit” best into their regional area. Local government often has a better
knowledge of their region and it is their remit to act in the best interests of the
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residents of their regions; however they are also under pressure from central
government to deliver policies from the central government’s agenda. In the case of
the Green Deal, for example, the coalition government wanted its “flagship” energy
saving scheme to make a significant impact nationally. The initial plan was to launch
the scheme across the country and let it run in the open market. After two years of
public consultation and small regional piloting projects, feedback suggested that low
public awareness and the complex financing structure made the deal very hard to
promote in the open market. In order to effectively promote the Green Deal, DECC
suggested that local government should manage the Green Deal with suitable delivery
models within each local region. It became local governments’ responsibility to ensure
the Green Deal scheme is carefully regulated and successfully embedded into their
local development plans.
Birmingham City Council (BCC) was one of the first of seven local governments to pilot
the Green Deal. BCC branded their Green Deal as Birmingham Energy Savers (BES)
(Figure 2). Under the BES, BCC has partnered with Carillion Energy Services to deliver
the Green Deal within Birmingham city. The aim for BES is to tackle an estimated
60,000 energy inefficient homes in Birmingham city, which, according to the Carillion
Group’s analysis (Carillion 2012), would require funding of around £600m to manage.
This is an interesting Green Deal delivery model, in which BCC has avoided spending a
huge amount of council budget to manage its promotion of the Green Deal while also
successfully having the deal embedded into its city development plan. It is worth
noticing that the key reason for BCC being able to negotiate such a desirable contract
was the huge business potential within the city. BCC owns one of the biggest housing
stocks in Europe (BCC 2010, BCC 2012) and the potential to deliver such a big
retrofitting project is an attractive business proposition. Taking sole control of the
market with backing from BCC would offer Carillion great financial benefit. Moreover,
Carillion would also be able to expand their business model across the West Midlands
region, and even nationally. Other local governments may not have the same leverage
to negotiate with big companies such as Carillion Energy Services to have their Green
Deal projects managed in the way that is managed with BES.
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The Coalition Government’s strong desire for the success of the Green Deal has posed
a big conundrum to all the local governments. On the one hand, it is an energy saving
scheme that aims to be run in the open market. On the other hand, DECC is pushing
local government to promote the Green Deal as a local scheme. BES has been a
successful example, but not every local government has the same advantage of being
able to out-source the contract to an external company without providing some initial
financing.
Therefore, for local government, the Green Deal might be a great
opportunity to tackle local energy inefficient housing stock and boost the local
economy; or it might end up as another huge budget that the councils are not able to
support, since local councils’ budgets look set to become tighter year by year for the
near future (BBC News 2012).
4.2 Businesses
Businesses in this section refer to businesses involved in the delivery of the Green
Deal. The local government role is to focus on facilitation and regulation; they do not
usually become directly involved in the supply chain of the Green Deal. The business
sectors on the other hand are doing the “real” job by delivering the Green Deal.
The Green Deal was promoted by the Government as a highly market driven scheme
that could potentially generate thousands of jobs through the delivery process.
According to Green Assess, an energy efficiency advice website, should the Green Deal
become a success it will potentially “create 250,000 jobs involving around £100 billion
investment by 2020” (Green Assess 2013). Given the estimation of the potential
market size, it would be desirable for any business to be part of it. However, there are
several uncertainties surrounding the Green Deal which has made many businesses
hold back, and spectating.
Firstly, most businesses are concerned about the level of consumer interest and
potential demand. The advertised market value is only based on estimation, for most
of the time it does not reflect the real situation in the current marketplace. UK
economic growth is suffering from global financial depression, while at the same time
the Coalition government is trying to increase taxes and cut public spending in order to
reduce the government deficit. In addition the much tighter lending policies adopted
by most UK banks is making it difficult for businesses to survive. As a result, many
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businesses are cautious about investing money into a relatively new market. This fear
is not unreasonable. According to a report from the BBC on the date of the Green Deal
launch (BBC News 2013a) only 5 households in the country had arranged a Green Deal
assessment. The accuracy of this report is questioned by DECC, but it is fair to say that
so far there has been a very low participation from the general public in the scheme.
Another report in March 2013 (Green Building Press 2013) claimed that two months
into the formal launch of the Green Deal only £205,000 out of the £125 million Green
Deal cash-back incentives have been claimed, a clear sign of lack of confidence from
consumers to take the deal. As a result, most businesses fear that it would be highly
risky to enter the market without assurances. In fact recent news reported by the BBC
(BBC News 2013b) on 27th June 2013 suggested that only four people in the whole
country had actually signed and agreed a Green Deal Plan. To date, the Green Deal
seems a scheme that has failed to meet its goal.
Moreover, central Government has not generated much confidence in the business
sector since it appears that the Government itself is not totally confident about the
success of the scheme. One of the key observations has been the constant delay of
the Green Deal launch. The original plan for the launch of the scheme was October
2012, two years after a series of public consultations and regional pilots, however this
was re-scheduled to December 2012 due to a lack of preparation. In particular the
Green Deal Finance Company was not ready by October 2012. Another reason for the
delay was the lower than expected number of Green Deal Assessment uptakes from
the piloting projects. As a result the formal launch was postponed until 28th January
2013. The original plan was to launch the Green Deal to both domestic and nondomestic consumers (DECC 2010), but it was decided to delay the launch to nondomestic customers indefinitely, due to complications in the Green Deal finance
structure. According to various comments from people working in relevant businesses
and local authorities, since the launch of the Green Deal DECC has failed to deliver
many of its actions according to the plan; and one of the biggest issues has been with
the finance.
The core principle of the Green Deal is to take out a loan for home energy efficiency
improvement without paying any deposit, and pay back the loan through savings made
on energy bills. The Green Deal Finance Company (TGDFC) Limited, an industry led
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consortium formed by a partnership of the UK’s leading banks and major corporations,
was set up by DECC to issue loans to companies and individuals who take the Green
Deal. For any businesses a loan is crucial since most companies have very tight cash
flows with low cash reserves. Even for large companies such as Carillion Energy
Services, managing cash flow on the scale of the projects they have been involved in is
difficult. Thus strong financial back up from TGDFC is important for the success of the
scheme. However, according to Building, the TGDFC (Pitt 2013) has failed to raise the
target fund by £66 million over the first round of fund raising. Furthermore, the
interest rate issued by the TGDFC is 6.69% and, allowing for administration fees and
services charges, the final interest rate is more likely to fall between 7.67% - 7.96% per
every £5,000 borrowed according to TGDFC’s own website. Compared with other loan
schemes, this is a very high interest rate; for example, the current mortgage rate
across the majority of UK banks ranges from 3.99% - 4.49% for re-mortgaging (Money
Supermarket 2013a); and a personal loan for up to £15,000 is only charged around 5%
interest rate (Money Supermarket 2013b). These loans are much more competitive
and cheaper compared with what TGDFC is offering.
A lack of market confidence and failed promises from central Government has made
businesses, especially small businesses, extremely uncertain about the future of the
Green Deal. Despite a huge estimated market value, it is still considered as a massive
gamble to move towards the early stage of the Green Deal. Moreover, the Green Deal
operates in the free market. Should the market demand pick up in the future, local
businesses are likely to face intense competition from national corporations. With
higher brand recognition, more resources and relatively more liquid cash reserves,
national corporations have a positional advantage to get the lion’s share of the market,
even though “boost the local economy” repeatedly appears on the DECC’s Green Deal
proposal (DECC 2010, DECC 2011, DECC 2012b). There is the fear that local small
enterprises such as independent Green Deal Assessors, insulation contractors etc. are
unlikely to see rapid financial returns by investment on the Green Deal.
To sum up the Green Deal and businesses; it might seem a fantastic business
opportunity provided by the central Government but, because of the market led
nature of this scheme, unless businesses can see both consumer confidence and
financial competence in the Green Deal, most of them will just be spectating until the
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market reaches a more mature stage. At the moment it is unknown how long it might
take the market to grow into this stage. Evidence suggests that even big corporations
such as Carillion Energy Services, who were one of the first companies to enter the
Green Deal (DECC 2012g), are still not ready to handle large numbers of Green Deal
Assessments nationwide because they do not wish to invest too much into the market
just yet.
4.3 Consumers
This section analyses the Green Deal from the consumer’s point of view, explaining the
benefit the Green Deal might bring to consumers and the possible reasons behind the
lack of confidence from consumers for this scheme. Does the Green Deal offer
consumers a great opportunity to improve their homes or is it another baggage loan
deal added to ordinary households?
The first point is the Golden Rule. The Green Deal markets itself as a great opportunity
for consumers to save money while improve home efficiency. The Golden Rule clearly
states that the loan repayment shall not exceed the potential savings the loan could
have achieved (DECC 2010). However, there is a huge loophole in this Rule in that the
estimated saving is not associated with the individual homeowner’s energy behaviour.
The Green Deal Assessment, which gives households an estimation of the potential
savings that might be achieved through various improvements, is mostly based on the
property type, and condition and energy efficiency of household appliances. The
estimation of the potential saving is mostly based on the national average, not on the
actual energy consumption of each household. Therefore, this estimation is not
accurate and, more importantly, the estimated financial saving is based on the current
utility price. Given the current rate of price changes, any estimate is likely to become
inaccurate within a short period of time (Harvey 2013b, Jones 2013). If the key selling
point of the Green Deal cannot even satisfy this promise it will be hard to convince
consumers to further engage with the scheme.
The second point is the interest rate on the Green Deal loan. When the DECC
introduced the Green Deal, the interest rate was never mentioned anywhere. Even in
the Green Deal proposal the interest rate is not mentioned. Many consumers who do
not fully understand the Green Deal may not even realise that it is a loan deal with an
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interest rate attached to the loan. As mentioned in section 4.2, the Green Deal
Finance Company (TGDFC) was set up by the Government to raise funds for the loan.
Although it is not the only organisation that could legitimately issue the loan the
majority of UK banks and building societies are tightening their lending policies making
it harder to borrow money for retrofitting purposes because retrofitting does not
significantly increase the property value. Thus TGDFC have almost monopolised the
market and they can set the interest rate where they want and, according to their
website, it is going to be around 6.69%, plus an administration fee increasing the rate
to become as high as 7.96%. This is an extremely high interest rate. For households
with savings it is not an economic investment; and for households who do not have the
capital it is going to be an expensive loan to take, despite the Golden Rule.
Thirdly, most consumers might not be aware that to qualify for the Green Deal does
not automatically qualify them for the Green Deal loan. Applicants have to go through
a credit check process like any other loan. For low credit scorers wishing to participate
in the scheme, such as low-income households and students, there is no guarantee of
the success of the loan application. Once again, these risks are not clearly apparent in
any of the DECC issued documents (comments from member of WCC), potentially
creating conflict and confusion in consumers who might be interested in taking up the
Green Deal.
The fourth key point in the Green Deal is the ownership of the loan. According to the
DECC’s statement, the loan will be attached to the benefitting property. This rule has
both a positive and negative impact on tenants and homeowners. On the positive
side, this rule ensures that only the beneficiary of the energy improvement is liable for
the payment. This works well for long-term occupants who will be able to benefit from
the improvements for as long as 25 years. For homeowners who intend to sell or let
the property within a short time period, or in the case of Houses of Multiple Occupants
(HMO) that generally have a very high tenant turnover, this scheme does not always
offer the best option. For homeowners who intend to sell their property within a short
period, although the scheme will improve the energy efficiency of the property, having
a loan attached to the property might not be viewed favourably by potential buyers.
More research on this is needed, especially into whether the improvement of energy
efficiency might add value to the dwelling. For HMOs, the position is even more
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complicated. The Green Deal states that the repayment should go through the energy
bills, therefore the bill payer (or account holder) is liable for the repayment. With
HMOs having frequent changes in tenants the repayment process could potentially
create conflict between old and new tenants. New tenants may be reluctant to rent a
property that has a loan attached, even though the Golden Rule might apply.
In order to better research the complication of HMOs, Worcester Energy Pioneers
(WEP), a piloting project for the Green Deal, was launched in Worcestershire as part of
the DECC’s Green Deal Pioneers Project Fund (DECC 2012d). This project was a
partnership between Worcestershire County Council, the University of Worcester and
Worcester City Council. It aimed to promote the Green Deal to HMOs in Worcester
City, especially targeting students in shared rented houses.
To sum up, consumers are the core of the Green Deal, but at the moment they are
unsure about joining the scheme.
On the one hand, the Green Deal offers
opportunities to improve property energy efficiency without investing any capital up
front, and the payback is potentially “unnoticeable” according to the Golden Rule.
However, the detailed terms and conditions in the Green Deal have made it confusing
and unviable for the average homeowner to participate, especially low income
homeowners. For them accessing this deal might put them in danger of being stuck
with a high interest loan, even though the majority of these people are more likely to
be living in energy inefficient homes and suffering from high energy bills.
5. Summary and Conclusion
The Green Deal is an innovative energy efficiency scheme that aims to improve the
UK’s housing stock. The Government hopes this scheme will initiate a new type of low
carbon project, self-sufficient and run in the open market. The Government will
benefit from minimal public spending, while still running low energy projects and
creating business opportunities at both the national and local level. However, the
initial consultation and piloting project indicate that the ambition of this scheme does
not match up with the actual market demand. Its complicated financing system has
become the first drawback to the scheme; for businesses and homeowners to access
16
the Green Deal they need to fully understand how the finance works. A particular
problem is the lack of useful and easy accessible official documents to give people a
clear understanding of the scheme.
This makes it hard for businesses and
homeowners to gain sufficient confidence in the scheme for it to be a success and
deliver its promises.
In addition the readiness of the government’s preparation is also in doubt. Initially the
Government failed to raise sufficient funding for the Green Deal Finance Company to
offer loans to the public. Moreover, the Green Deal pilot scheme to local authorities
was launched at the same time as the official national scheme, creating extra doubt on
the level of preparation by the Government.
This lack of preparation by the
Government has created uncertainty in consumers and businesses on the future of the
scheme; whether it will be ready to deliver to all UK homes as hoped, or whether the
current economic climate has prohibited the process.
In spite of all the doubts expressed by the medias businesses and homeowners the
Green Deal, in my opinion, is still is a highly innovative scheme that could potentially
shift the UK’s energy efficiency improvements from a conventional government funded
“passive” format to a more positively market driven scheme. In this way, it can not
only reduce carbon emissions, improve home energy efficiency with minimal public
spending, but also create a long-term sustainable “Green” market that is self-sufficient
and resilient to financial depression. However, this can only be a success if the Green
Deal can survive the initial drawbacks and doubts, and develop a much more mature
plan for the market to accept it.
17
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