The Green Deal scheme: a constructive role for local authorities, established businesses and government

phil beardmore 3In this article, first published on the Birmingham Eastside website, Phil Beardmore describes why the Green Deal scheme has not taken off and what we can expect in the future.

When the Green Deal started in 2013 there was widespread optimism that this was the dawning of a new era of mass-market uptake of energy-saving measures.

Below: Minister of State Greg Barker launched the Green Deal quality mark with David Thorne, chief executive of Gemserv and Virginia Graham, chief executive of REAL. Photo by DECC

GD launch pic

Local authorities everywhere launched Green Deal pilot projects. Here in Birmingham, Carillion Plc was appointed to deliver Birmingham Energy Savers, expected to be the biggest energy-efficiency retrofit project in Europe.

The Green Deal is a pay-as-you-save mechanism. The idea was that householders would not have to pay anything up front, and the cost of the measures would be recovered on a pay-as-you-save basis through the electricity bill.

Alongside the scheme, the Energy Company Obligation(ECO) would provide partial capital grant funding. ECO was to support expensive measures on homes that were considered hard-to-treat (like older houses with solid walls) and households on low incomes.

Not a convenient mechanism to support energy efficiency

However, it became obvious early in 2013 that Green Deal was not working as planned. It was apparent to those of us working in energy-efficiency that there was a small but rising demand for energy-saving measures such as insulation, condensing boilers and solar panels, mainly among a layer of able-to-pay consumers.

Able-to-pay consumers by and large weren’t interested in the Green Deal as a finance mechanism because the interest rates were too high. The cost of measures overall through the Green Deal, including and excluding the interest rates, was more expensive than people could get on the open market. People with decent credit ratings could access credit at better rates than the Green Deal, or use their own savings.

People on low incomes found the Green Deal a difficult idea to get used to, for two reasons. Firstly, they tend not to plan their finances on a long-term basis, so the idea of a 25-year loan is not attractive. Secondly, they (in common with more affluent people) cannot understand why they pay the electricity company for a product that the electricity company is not providing (most Green Deal early entrants were construction companies, installers and retailers). Also, people on low incomes tend to be more mistrustful as to the accuracy of their fuel bills. This isn’t just a matter of having lower educational levels. Utility company billing systems for more affluent people are simply more reliable and accurate, because the utility companies have invested more in better billing systems for the Direct Debit customers whom they want to keep.The fuel-poor are seen as a liability by the utility companies because they don’t spend much and are a credit risk. So the payment systems that the fuel-poor use – payment-on-receipt, Economy 7, prepayment/pay-as-you-go – are more error prone because the customers that use them are not lucrative.

ECO also failed to complement the Green Deal in the way it was meant to

The level of ECO funding for more expensive measures like external wall insulation was too low to make a difference to their affordability. Funding was available for boiler replacements for people on certain benefits for a period but this scheme could not be sustained.

Part of the problem was the introduction of a carbon-trading mechanism against which ECO funding was offered. This was incomprehensible to most people.

There is nothing to compare to the look of amazement on people’s faces when you explain to them that they “might” get a grant and that it depends on the price of carbon this week.

A wise decision: raising the level of Green Deal Cashback

The decision in the Autumn budget statement, hidden behind the “green crap” rhetoric, to raise the level of Green Deal Cashback, is a wise move, because in theory it should be easier to access, more transparent, and not controlled by the Big Six energy companies.

Through the Cashback householders can claim cash back from Government on energy saving improvements like insulation, front doors, windows and boilers, up to a total of two thirds of the amount to pay for the installations. The rise of Green Deal Cashback may well sound the death knell for ECO and also presents a political dilemma for the Labour Party. Caroline Flint has spoken of reforming ECO; I think the conversation may have already moved on beyond that.

What next?

Setting up new business models entirely around energy-efficiency is highly risky and there have been a number of high-profile failures. I feel that demand for energy efficiency measures is small but continuing to rise, despite the failures of Green Deal and ECO.

A role for local authorities . . .

Local authorities should make sure that alternative finance mechanisms such as the energy efficiency loans being offered by one credit union are known by people who can’t pay for measures outright. There are small energy-efficiency businesses who are starting to make a success of Green Deal under the noses of the big energy companies and local authorities who have nailed their colours to the mast of the big boys.

for established businesses . . .

It seems that established companies who are not dependent on energy efficiency or Green Deal in their business models are best placed to make it work. People may be getting used to the idea of Green Deal. An example is Birmingham-based builder’s merchant E.H. Smith, who recently held an event on their new proposals.

and for government

If ministers are serious about ripping up red tape then they would allow local authorities to endorse local accredited providers. Local authorities may not always be liked by their council taxpayers but they do enjoy a level of trust, and their endorsement would help people to recognise who is a cowboy and who isn’t.

Providers could use some of the extra income they would get to pay for periodic re-accreditation. Local authorities have become dependent on large contractors to deliver services for them. There is no reason why they should do the same with energy efficiency.

Phil Beardmore is a member of Localise West Midlands and a member of Birmingham’s Green Commission.

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Posted on April 7, 2014, in Local government, Planning and tagged , , , , , , , , , , , , , , . Bookmark the permalink. Leave a comment.

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