The UK Government’s sale of the Green Deal Finance Company, which finances energy efficiency retrofits, has slipped through almost unnoticed – and the Green Deal is to be relaunched by the private sector.
The GDFC’s new owners, Greenstone and Aurium, have stated their intention to commence the financing of new Green Deal loans by the end of the current quarter.
The sale
The sale was ordered by the Conservative MP George Osborne when he held the post of Chancellor of the Exchequer in an attempt to reduce government debt.Like the Green Investment Bank, the Green Deal Finance Company was set up in 2012 (this was the year when the Conservative-Liberal Democrat alliance wanted to be “the greenest government ever”). It was a not-for-dividend company whose job was to provide low-cost financing to households for energy efficiency improvements to their homes.
It failed.
Originally, its 55 members came from the public and private sector and included energy companies, trade associations, local councils and potential green deal installers. They provided some of the start-up cash, with the rest provided by the Green Investment Bank and the European Investment Bank.
It had expected to deliver around £300 million of financing for Green Deal Plans before 2014. But it was an abysmal failure, and I have documented why here.
Last year it was lambasted by the Public Accounts committee, whose chair, Meg Hillier MP, said: “This blinkered approach resulted in a truly dismal take-up for Green Deal loans and a cost to taxpayers of £17,000 for every loan arranged. Savings in CO2 were minimal.”
The Energy and Climate Change Department (DECC – since abolished) oversaw the Green Deal and believed that the Green Deal Finance Company would provide loans of over £1.1 billion by the end of 2015. The actual figure was £50 million!
The finance company incurred large financial losses as a result of the low demand resulting in DECC writing off £25 million of the cash it loaned to it. It stopped offering new Green Deal Plans in July 2015.
The new owners
The board of the GDFC last week announced the sale of its wholly-owned subsidiary, GDFC Services, for £40 million.The new co-owners are Greenstone Finance, which invests in organisations focused on financing in renewable energy and energy efficiency, and Aurium, which describes itself as “a structured finance boutique with a focus on renewable energy”.
They say they will continue to service the existing Green Deal loans and will commence financing of new Green Deal loans this quarter.
Richard Twinn, policy advisor, UK Green Building Council, welcomed the sale, commenting that “the limitations of the Golden Rule mean it will only be attractive to a specific part of the able-to-pay market. But in the absence of a policy alternative from government, the possible reignition of a pay-as-you-save mechanism could provide a viable option for households on moderate incomes to make improvements to draughty homes.
“However, one of the big failures of the Green Deal the first time around was the lack of incentives from government to drive uptake. Unless government grasps the nettle this could well become a problem once again.”
The Green Deal was established to address the fact that the UK has some of the most thermally inefficient housing in Europe. Its loans let customers, including landlords, improve their homes by installing energy efficiency products.
The loans are repaid as part of a customer’s electricity bill, which may (critics say: only if heating was provided by electricity) be reduced by the savings generated from the measures the loan financed – a “Pay-As-You-Save” scheme. The loan remains with the property – ensuring the payments are made by the person who benefits from the energy saving.
Kilian Pender, founder and chief executive of Greenstone Finance, commented on the acquisition and the relaunch by saying, “We believe that the concept of repaying your loan as you save on your energy bills is an excellent one and with the significant private investment that we have secured, we’re looking forward to rolling the Green Deal finance scheme out across the country. We will provide homeowners a cost-effective way to improve their homes and quality of life.”
Energy assessment company Elmhurst said it looked as if the new organisation was willing to breathe new life into the pay as you save model, observing that “the private rental market is certainly an opportunity for Green Deal”.
It said that some commentators believed that the legislation on Minimum Energy Efficiency Standards – which make it unlawful for landlords to grant a new lease on properties that have an energy performance certificate rating below E, from 1 April 2018 – actually allow some landlords to avoid bringing up their properties to the required E rating. But “with the re-launch of the Green Deal, this loophole looks like being closed”, it said. “The first task for the organisation will be re-launching the loan scheme and getting traction in the market place. This is definitely one to watch this year.”
David Thorpe is the author of:
- Earthscan Expert Guide to Sustainable Home Refurbishment
- Earthscan Expert Guide to Energy Management in Buildings
- Earthscan Expert Guide to Energy Management in Industry
- Earthscan Expert Guide to Solar Technology
- The One Planet Life
- Best Practices and Case Studies for Industrial Energy Efficiency Improvement (with Oung, K. and Fawkes, S., UNEP)
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