Where next for Green Deal?
Author: Date: 19/11/2014
In 2012, Green Deal heralded a brand new policy to improve the energy efficiency of the nation’s housing stock through a model of financing the installation costs of measures via the savings in energy bills realised by the householder. We are now two years into the programme and, suffice to say, there has been a slow uptake so far.
The Green Deal idea
The idea of Green Deal was beautifully simple: there was no up-front cost because you would pay for the actual cost over a long period though the savings - so, in real terms, you could have the benefit of the measures and be no worse off. So, what was lost in translation into actual implementation?
Well, many argue that the actual mechanisms that were put in place to make the whole thing possible were just far too complex. Firstly ‘The Golden Rule’, which stipulated the threshold of annual saving and therefore the amount of Green Deal finance that could contribute to the cost, was too complicated and, in reality, just didn’t contribute enough to cover the cost of measures that people really wanted. In practice, we've found a good rule of thumb is that people can borrow seven times their reported annual saving. For most of the Green Deal plans that we've seen, this equates to a loan headroom of around £2,000 across all measures, which is certainly not enough to cover the cost of the measures in their entirety. Again, another rule of thumb we've come to know is that whatever the headroom is to borrow against a Green Deal Plan, it generally comes to no more than one third of the overall cost - ie: the householder needs to fund the other two thirds.
Green Deal finance
The finance aspect from the Green Deal Finance Company has generally not been well-received. The fact of the matter is that for the type of finance that it is - ie: long-term, unsecured and fixed-rate, the Green Deal plan element is a good financial product in the marketplace and the rate is one of the best. However, much of the popular media has presented it as an expensive product when compared with, for example, short-term personal loans or mortgage rates. This isn’t, of course, comparing apples with apples but most of those commenting on this have neglected to mention that. The overall impact is that consumers who do know about the loan element, may well have a poor view of it. The target was to achieve a 60,000 plans per annum whereas at the time of writing around 2,500 plans have been written.
ECO and Green Deal
The Energy Company Obligation (ECO) was always designed to work hand in hand with Green Deal offering a direct subsidy to support the remaining balance, and it was originally envisaged that by coupling ECO and Green Deal, the consumer offer would generally be at zero up-front cost. However, volatile rates of ECO, an unclear brokerage system and suggestions of cherry picking individual measures such as boiler replacement have all resulted in a mechanism that hasn’t offered the stability and certainty that many in the supply chain seek in order to offer a durable and consistent offer.
Where next for Green Deal?
So, what's next for the industry that has geared up to operate in this highly regulated market? Well, we know that for some players it has just been too much and the combination of onerous set-up and operational costs plus too few customers have put them in a highly vulnerable position, and some have even gone out of business.
The Minister who championed Green Deal, Greg Barker, has since moved on and the coalition government has remained quite silent on where it sees Green Deal going. That said, the commitment to supporting the industry remains in the form of the soon-to-be-announced next phase of the Green Deal Home Improvement Fund and cashbacks towards selected measures may well still be available to consumers.
The Conservatives and Liberal Democrats have suggested some kind of a ‘pay as you save’ successor.
Labour has been quite progressive in setting out a successor model, which involves interest-free loans to pay for measures and the suggestion that ECO might be channelled through local authorities.
If either or both of these things happen then the consumer proposition will be much more compelling, especially if finance becomes much more widely available. If ECO becomes channelled through councils then there will be a much better opportunity for local needs to be addressed.
So, until the next election, it's a case of sitting tight and taking advantage of the Green Deal Home Improvement Fund when it's announced later this month (November 2014).