Tuesday, June 12, 2012

Green Deal will be a lame duck: Government sets out its unambitious terms

Ed Davey, Energy Secretary, learning how to insulate solid walls.
Ed Davey, Energy Secretary, learning how to insulate solid walls. Some think he should take this up permanently...

The Government has set out the parameters of the Green Deal energy efficiency scheme, which have been met with a muted response from the industry and consumer groups.

The proposals outline the secondary legislation to be enacted, the expected extent of the work that will be undertaken, and new measures to strengthen consumer protection, reduce industry burdens, and implement the Energy Company Obligation (ECO).

But DECC confirmed that it now expects the Green Deal to take up to 18 months to get going. Its introduction "will happen gradually, building towards a 'natural peak' in the spring and summer of next year", DECC says. “Functionality will be phased in, with collection of the Green Deal charge beginning early in 2013."

The Green Deal for business will launch alongside the domestic Green Deal as had been originally planned.

DECC says the scheme will cost around £17.3 billion over ten years and bring £25.6 billion of benefits. The ECO (mandatory fuel poverty action) alone is expected to prevent the emission of 27.8 mega tonnes of carbon dioxide over two years.

The list of eligible measures has been extended from 30 to 45 measures, with fewer solid wall and more cavity and loft insulations expected than were in the original consultation. However, the annual rate of loft insulation will be substantially less than it has been in the past few years.

As a result, the Impact Assessment accompanying the proposals says, "job losses from parts of the cavity and loft insulation market are likely".

Despite this, the Secretary of State for Energy, Ed Davey, said he believes the Green Deal "has the potential to support up to 60,000 jobs in the insulation sector alone, more than doubling the number of jobs in the sector, and making a real contribution to green growth".

For comparison, 4,700 installers were employed in the insulation market in 2007/8, which covers loft and wall insulation, and another 22,000 in the wider supply chain.

"We have listened very carefully to what industry, consumer groups and other organisations have told us," Davey said in a statement. "Broad support for a managed, tested and careful introduction of the Green Deal fits exactly with our objective to provide an excellent customer experience from day one and a market where a range of new players can readily participate."

However, speaking for consumers, Audrey Gallacher, Director of Energy at Consumer Focus, said: "We are concerned that the Government has still not outlined further steps to stimulate consumer demand for the Green Deal. Without clear incentives to attract consumers, such as council tax or stamp duty discounts, we are worried that people won’t see the benefit or relevance of the scheme to them."

He added that “much more needs to be done" to help the vulnerable in society, “given the millions of pensioners, families and disabled people struggling to afford to heat their homes" and proposed that the Government should use some of the revenue that it will receive from carbon taxes "to get help to those who need it."

The Impact Assessment says that it expects that the average saving per household on bills will be £50-60 per year by 2023. But with work costing up to £10,000 per household this would take 200 years to pay off at this rate, allowing for absolutely no saving on the bill for householders. It is only designed to operate until 2030.

Ministers have always said that the customer will experience reduced bills and at the same time be able to pay off the loan taken out to finance the energy efficiency measures from further savings on the bill.

But customers with bills lower than the national average may find that their repayments will be higher after a Green Deal than previously, the impact assessment says. This is because at the heart of the Deal is the Golden Rule, which limits the amount of finance that can be attached to an electricity bill, and which is based on average energy users' bills. Green Deal Providers had been told that they must now obtain a written acknowledgement of customers' awareness of this before work can take place.

The impression of financial chaos is underlined by the decision a few days ago by some business leaders from the Green Deal Finance Company to suspend work. Kingfisher, British Gas, Willmott Dixon, Carillion, Marks & Spencer and Travis Perkins are amongst those who have written to senior officials complaining that a lack of funding is hindering their work. They are calling for £40m in start-up funding to cover initial construction and early operating expenditure and a further £260m from the Green Investment Bank to secure access to capital market funding. At the current rate they say they won't be in a position to lend money until well into next year.

Rhian Kelly, CBI Director for Business Environment policy, commented that: "the Government needs to move quickly to put everything in place. It must ensure that businesses who want to get involved are in the best position to do so and put the right policies in place to stimulate consumer demand."

The main thing is the money. As Nathan Goode, Grant Thornton's Head of Energy, Environment and Sustainability, observes: "Virtually nothing is said about the Green Deal Finance Company, other than a general statement alongside other possible options in the framework document, while an answer on the disbursement of the early adopter money is postponed until later in the year. The role of the Green Investment Bank appears still to be unresolved."

The Government has still not decided how to spend the £200 million allocated in the Autumn Statement to encourage early uptake of the Green Deal. With only four months left to go till the scheme is scheduled to start, this has raised some criticism, not least from the group of Pioneer Green Deal providers who signed a Memorandum of Understanding with DECC to start work early.

Nevertheless, DECC is estimating that between £1.1 and £1.3 billion will be lent to householders by 2015.

Greg Barker tweeted optimistically: "Full steam ahead #GreenDeal but the roll out from the autumn will be very carefully managed so we grow from strong foundations".

His enthusuiasm is not shared by fellow MPs, less than half of whom have indicated that they will promote the uptake of the Green Deal, in a survey conducted by Velux, Land Securities and the Glass and Glazing Federation. The survey of 100 MPs found that more than a fifth (21%) were unlikely to promote the scheme, 20% said they were neither likely nor unlikely to champion it, while 11% were still unsure.

What will it finance?

The Impact Assessment estimates that up to one million solid wall insulations will be completed by 2022. It also estimates that 1.2 million easy to treat cavities will be filled out of the current potential of 2.6 million. Including loft top-ups of around a quarter of the six million potential and the non-domestic sector’s abatement, this contributes 9 MtCO2 of savings within the second Carbon Budget period and a further 16 MtCO2 to the third.

Just 364,000 loft insulations are envisaged up to 2015. This contrasts to 800,000 that were installed in 2009, 540,000 the following year and 870,000 last year. The full total envisaged by 2022 is just 1.7 million.

Either added to this or included within this is, “an extra 540,000 lofts and cavities" to be filled in “hard to treat cavities (and lofts if bundled with them)” under the ECO.

DECC's argument for this reduction in the number of loft insulations is that the cost of these measures has now come down, as a result of previous subsidies, in the same way that the cost of solar photovoltaic installations came down, and so requires less subsidy. This is in comparison to other energy-saving methods in the home such as external wall insulation.

However, very few external wall insulations are likely to be conducted under the scheme, as the payback period is typically far too long. What would make sense is that the measures which secure the most money and carbon saving for the least amount of expenditure should be implemented first. These are the quick wins, like topping up loft insulation and the still unfilled cavity walls around the country.

Protection for customers

Some consumer protections have been tightened as a result of the consultation, but other burdens on Green Deal Providers have been removed to save them money.

Among the protections are that Green Deal Assessors will have to tell customers before they visit whether they are independent or tied to a particular provider, and how and how much they are paid.

However, cold calls will still be allowed, but customers will be permitted a cooling off period of at least one day after a cold call has been made and before the assessment is carried out.

It is confirmed that the interest rate charged on the loans would be at a fixed rate for simplicity's sake and to allow consumers to hedge against future energy prices. However providers can increase the whole charge by 2% a year, in line with the inflation target of the Bank of England, which will “allow them and customers to capitalise on some of the expected increase in savings due to expected fuel price inflation”. This will be set at the outset of the deal.

The whole process will be overseen by a separate Green Deal Ombudsman and Investigation Service, the details of which will be announced shortly.


Energy suppliers with more than 250,000 customers will be required to take part in the ECO scheme. This will involve spending £1.3 billion a year on three obligations, rather than the two originally proposed: Affordable Warmth, Carbon Saving Communities and Carbon Savings. They will be administered by Ofgem.

The new element, the Carbon Saving Communities Obligation, is designed to target insulation measures in the bottom 15% of low-income communities, 15% of which will be targeted at rural, low income households.

This was hailed by the National Housing Federation. But its policy leader Pippa Read added that the Government should "think again about the continuing exclusion of social landlords from one pot of funding for fuel poverty, and to simplify the process of securing consent for work in blocks of flats".

Under the Affordable Warmth Obligation, any measure will be eligible for support if it reduces the notional cost of heating the property.

District heating will be eligible under the ECO Carbon Saving obligation when connections are delivered as part of a package that also includes SWI or non-standard cavity insulation.

For providers

Already, a full set of National Occupational Standards has been finalised, enabling qualifications to be developed, and the Green Deal Installer standard (PAS2030) has been published, which controls the processes and the quality of service the customer can expect before, during and after the installation.

The Green Deal Register will open in early August 2012, and accredited certification bodies can then begin applying for the power to be able to certifying assessors and installers. It will be administered by the Registration and Oversight Body, which will overlook the process.

All assessors and installers who want to be Green Deal authorised should contact the appropriate certification body to find out how they can become certified, a list of which can be found on the DECC website.

One provider, Garry Worthington, Head of Green Deal at Climate Energy, said: "we are disappointed that the Government remains undecided about its £200m fund to kick-start the scheme". He called the current plans to use this purely as a cash-back incentive over the next two years "misguided" and said they should "be used much more creatively to support regional schemes, local innovations, jobs, communities and delivery to give take-up an initial boost.

"We would also urge DECC to reconsider its support around promoting Green Deal and creating awareness of the scheme."

All in all, it looks as if the Green Deal will be a light, rather than dark shade of green.

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