Tuesday, January 29, 2013

The Green Deal - is it any good?



The Green Deal launched this week in a blaze of publicity, unfortunately much of it negative. The scheme has been the Conservative’s flagship home energy efficiency policy since before they even came to power, so the big question is: is it any good? The short answer is that it’s good for some, but not for others.

At its heart the Green Deal is a loan scheme for energy efficiency and renewable energy measures, but rather than homeowners paying back the loan directly to the bank the repayments are made via a charge on their electricity bill. The two key innovations of the Green Deal are that the repayments should not exceed the anticipated savings on your energy bill (i.e. your bills will be lower afterwards, even with the loan repayments) and that the loan stays with the property rather than you (if you move the new owner takes over the repayments).

The Green Deal is an attempt to address one of the big problems with some energy efficiency and renewable energy measures. Upgrades such as solid wall insulation and solar panels are expensive – many people would struggle to raise the cash to pay for them and they may worry that they’ll move house before they’ve recouped the costs through lower energy bills. The Green Deal offers a solution by providing financing and a guarantee that you’ll pay less than you’ll save. For homes that need these kind of expensive measures the Green Deal looks like it could be a real success.

Recent press criticisms of the scheme have focused on the fact that only 5 people appear to have signed up for it and the high interest rates on Green Deal loans. These criticisms appear to be the result of teething problems: the tiny number of people signed up is because the scheme database isn’t ready yet rather than a lack of public interest, whilst a competitive market will presumably bring interest rates down in time.

The real problem with the Green Deal is that in their zeal to encourage high cost home energy measures the Government has lost sight of the fact that many homes still just require bread and butter measures such as loft and cavity wall insulation. The Green Deal and its sister ‘ECO’ subsidy scheme replace an obligation on energy suppliers called the Energy Efficiency Commitment, under which millions of cavity walls and lofts were insulated all over the country.

Getting insulation under the Energy Efficiency Commitment worked like this. You’d ring up your energy company who’d give you a quote for (subsidised) insulation. If you wanted to proceed a couple of men in a van would turn up at your house, assess the job and (assuming they didn’t find any problems) install the insulation. The cost would be a few hundred quid on a typical house and the outlay of your time fairly minimal. Compare that to the hoops you need to jumpthrough for the Green Deal, and the costs that will be loaded on to the job by assessors, management companies and finance providers.

The result is that anyone who can afford a few hundred quid to pay upfront for cavity wall and loft insulation would be barking mad to have it installed through the Green Deal. The real shame is that people are far less likely to do these basic insulation measures now that subsidised insulation is no longer available through the Energy Efficiency Commitment  – they’ll have to pay the full cost instead.

The other controversial element of the Green Deal is that it can be used to fund what I’d tend to call basic home maintenance measures, such as new boilers and double glazed windows. Picture a situation where you had a choice of buying or renting two identical houses, one where the owner had paid for the (modern) boiler and windows themselves and one where these were funded through the Green Deal. In that situation most people would want a discount on the price (or rent) to make up for the loan charges added onto the Green Deal home’s electricity bill. Bang goes the Green Deal advantage of the loan staying with the property.

Of course in reality you’ll rarely find two identical homes where you’ll be making a direct comparison, and in areas with busy housing markets this factor might be forgotten as buyers scrabble to secure a desirable property. But a Green Deal loan will be something you’ll need to declare when you’re selling or renting a home.

Maybe my discomfort with the Green Deal is a sign of me getting old – my first job involved dealing with Energy Efficiency Commitment funded insulation grants and energy saving lightbulbs – but my view is that the Government’s desire to get solid walls insulated and solar panels fitted has made them kill off one of the most successful energy saving schemes of recent decades. The Green Deal isn’t aiming to demolish our old solid walled housing stock and replace them with new houses; it’s trying to improve these (in many cases) lovely old buildings. It’s just a shame that the Government isn’t applying the same ‘improve the old’ logic to its successful home energy efficiency schemes.