Green Deal: deal or no deal?
The Government’s much-heralded ‘Green Deal’ (1) was launched on 28 January. The objective is very worthwhile – to provide a funding mechanism to enable a lot of the 20-odd million homes in the UK which are energy inefficient to be retro-fitted with insulation and energy efficient appliances like boilers and heating systems that greatly reduce the energy costs of the householder and greatly reduce the CO2 emissions of the nation. A typical UK house emits about six tonnes of CO2 per annum using about 26,000KWh of energy in the process and accounts for about a quarter of the household’s total CO2 emissions. Current Government targets are to reduce total CO2 emissions by 80% by 2050 – which means that the typical house would emit no more than 1.2 tonnes by then and use no more than 5,000KWh in doing so. The scale of the ambition is real enough. Practically all homes built before 1995 need significant upgrading and the worst pre-1995 houses, about three million of them, will need to be demolished (2), another little point to factor into current house building targets.
The Green Deal has been launched with these ambitious targets in its sights and as recently as 2011 the Government was forecasting that it would help insulate or otherwise energy improve 14 million homes by 2020. However in the period between the consultation process and its launch the Governments own ambition was massively downgraded. Having referred to 20 million households, their Impact Assessment revised that number down to 3.6 million by 2022 and that was for the Green Deal and the linked ECO scheme combined. The figure was just 1.5m for the privately delivered Green Deal, or 150,000 households a year for a decade. European comparisons are instructive. UK homes use more energy to heat than homes in Sweden where the average temperature is 6C colder and a lot of UK homes are considered to be ‘under heated’ which means that energy efficiency may well be partly offset by households keeping their houses warmer once they can afford to. In 2010 the German Government announced a scheme to retrofit all homes built before 1978 by 2029 ie a programme covering 5% of the stock each year. The reason post-1978 homes weren’t included in the programme was because by 2010 they had all already been done.
Early last year the Green Alliance (3) published a discussion document on the delivery of the Green Deal which came out of a consultation over the previous few months, having convened a series of workshops in their constituencies with MP’s from all the major parties. Five measures emerged from these workshops as necessary requirements for success:
• Help to encourage take up
• Give more support to the fuel poor
• Make sure there is local economic benefit
• Spread the message and
• Help drive real demand reduction
These look like a pretty good benchmark against which to assess whether the Green Deal is likely to deliver what it was set up to do or not, both for the householder and the nation.
In a nutshell the Green Deal works by householders having an assessment of their home which identifies those areas where action can be taken to improve energy efficiency, the work is then undertaken by an approved contractor and the cost of this is then attached to the household’s electricity bill as a loan over a 15-25 year period. It focuses exclusively on energy efficiency measures which meet the ‘golden rule’ ie for each measure the expected financial savings must be greater than the costs attached to the energy bill – so the householders energy for the period of the loan is no more than it would have been if the work hadn’t been undertaken.
Now that the scheme has been launched it is possible to get some idea of whether it’s scaled down ambitions look likely to be delivered. First indications are not good. On the positive side a You Gov poll found that 39% of the population had heard of the scheme two weeks after its launch – an impressively high figure in such a short time. The Government has also come up with a ‘cash back’ scheme to encourage take up, offering up to £1,000 per household depending on the nature and scale of the work being done. There is £125m in the pot for this on a first come first served basis. This will certainly raise the schemes profile and with luck will kick-start some real work which people will be able to see in their neighbourhood, helpful in expanding knowledge and take-up. However the rest is more worrying. Once the work is identified and agreed it is paid for by the householder (or landlord) taking out a loan for period of 15-25 years. The interest rates charged are between 7-9% which means that it is quite possible that the total repayments will be twice the upfront cost of the measures installed. Repaying them through the electricity bill (there is no facility to repay them through gas bills on the grounds that not everybody has gas and this simplifies the billing system) means of course that the bill the householder sees doesn’t decline over the period of the loan. It doesn’t feel like a big incentive.
Worse still the rates are high in comparison to what someone would pay if they extended their mortgaged to cover the work or took out a regular personal loan. Indeed several building societies have come out with new products to encourage green investment, including the Nationwide the UK’s largest which on 13 February launched its ‘Green Additional Borrowing’ scheme at just 3%. The argument for this arrangement is that a lot of beneficiaries of the Green Deal aren’t credit-worthy, won’t be eligible for the better rates on offer via building societies and might not get a long-term loan of any sort other than through the Green Deal. This seems to put the financial security of the scheme a long way ahead of any energy-efficiency policy imperative.
There are complications with early repayments too with significant early repayment penalties designed to compensate the utilities for the loss of income on interest. These may well be invoked on sale of a house because it is not necessarily the case that a new purchaser will want to continue the repayment schedule, as the loan is attached to the property not an individual. Installing the green measures may not be done very cost effectively either as some of the Green Deal providers include big energy companies which are notorious for charging over the odds for things like new boilers. Which? carried out a survey in 2010 which showed British Gas charged an average of 39% more than a local fitter for a new boiler. Local companies play a very limited role in the delivery of the Green Deal. Of the 25 recommended to me when I tapped my postcode into the Green Deal website, to none were located in the same county as me, let alone city.
The Green Deal comes with a lot of goodwill. We need something like this if the UK housing stock is to be fit for purpose in a climate-uncertain and energy expensive world, but the practicalities aren’t encouraging. Take-up (as opposed to awareness) is likely to be very limited, and the benefits to local economies and the fuel poor look doubtful. The conclusion must be that if you can afford it, do the Green Deal, but do it yourself.
(1) https://www.gov.uk/green-deal-energy-saving-measures/how-the-green-deal-works
(2) Boardman B: Home truths; a low carbon strategy to reduce UK housing emissions by 80% by 2050. Environmental Change Institute. 2008.
(3) Green Alliance: Getting a good deal from the Green Deal. 2012
This post first appeared in the March 2013 edition of Town and Country Planning.
