Retrofitting the Green Deal
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Retrofitting
the Green Deal
1
Table of Contents
Foreword 1
Executive summary 2
Introduction 4
Closing the Green Deal funding gap 9
Further opportunities and better assessments 16
Conclusions and recommendations 19
End notes 21
This report was written by Nicholas Schoon on
behalf of BioRegional and The Association for
the Conservation of Energy.
BioRegional is an entrepreneurial charity which
establishes sustainable businesses and works
with partners around the world to demonstrate
that a sustainable future can be easy, attractive
and affordable. We call our approach One Planet
Living.
www.bioregional.com
The Association for the Conservation of Energy
represents companies and other organisations
engaged in energy conservation. It aims to
encourage a positive national awareness of the
need for and benefits of energy conservation,
to help establish a consistent and sensible
national policy and programme, and to increase
investment in all appropriate energy saving
measures.
www.ukace.org
2Foreword
Britain badly needs the Green Deal and the accompanying Energy Company Obligation (ECO) scheme
to work, for the sake of the economy, the environment and people’s wellbeing. If it succeeds in its big
ambition of directing massive private sector investment into energy-saving retrofits in millions of
homes and small businesses, it will have cracked one of the hardest of energy conservation nuts.
The Government finds itself under real pressure this autumn from rising household energy bills. A
thriving Green Deal, set to help millions of families to cut their gas and power consumption, could
have relieved some of that pressure. Instead, Government is considering entirely the wrong response
- cutting back on programmes which help the fuel poor to keep warm and ordinary households to cut
their energy consumption.
The Green Deal has got off to a painfully slow start. Unless changes are made, the pace will not pick
up sufficiently and its potential will remain very far from being fulfilled. The Green Deal itself is in
need of an urgent retrofit.
In this report we offer practical, affordable recommendations for such a retrofit which should be
implemented relatively quickly. Going with the grain of the Green Deal, our recommendations aim to
build on the large amounts of work already done in setting up the scheme.
Success depends, ultimately, on many different businesses, organisations and individuals involved in
delivering energy-saving improvements. But Government played the lead role in creating the Green
Deal and legislating for it; now it must take the lead in tackling some major shortcomings.
We speak from experience and with a strong desire for the Green Deal to succeed. The member
companies of the Association for the Conservation of Energy want to build viable, long term
businesses on energy saving retrofits for homes and small businesses.
BioRegional ran one of the Pay As You Save trials, with B&Q and Sutton Borough Council, which
helped pave the way for the Green Deal.(1) Working with Cherwell District Council, we have delivered
more than 100 Green Deal assessments and are organising Green-Deal style retrofits to 14 homes and
small businesses in Bicester, Oxfordshire.
Today’s homes and buildings are going to be around for many more decades. We cannot afford for
them to carry on wasting warmth on such a huge scale – not if we are serious about cutting carbon,
helping families, improving living standards and greening economic growth. We need a Green Deal,
now, which can stay the course and make a real impact.
Sue Riddlestone, Andrew Warren, Director,
Chief Executive, BioRegional Association for the Conservation of Energy
November 2013
1Executive summary under the Green Deal. Most households which
might be interested in taking out a Green Deal
would find themselves having to pay at least
Properly executed, the Government’s new Green £1,000 upfront.
Deal energy saving loan scheme has the potential
to transform energy saving in Britain’s homes, Green Deal assessments, the starting point for
bringing in big gains to the economy, household the scheme, need improving and the bulk of
budgets and the environment at the same time. them need to be provided free of charge.
But it has got off to a disappointingly slow start We make several recommendations which, taken
and seems on course to deliver a few tens of together, represent a retrofit for the Green Deal
thousands of home retrofits a year, at most. – one which would enable it to fulfil its great
Given all of the time and effort that has gone potential.
into creating the scheme from government and
the private sector and the scale of the original The Green Deal interest rate needs to be lowered;
ambition behind it, this is a tiny sum. we suggest how it could be. We also argue for a
government-backed incentive scheme for Green
The Green Deal ought to be delivering several Deal retrofits. This would help to close the Green
100,000 retrofits a year. A goal of more than one Deal funding gap, but it would also encourage
million homes per annum would be reasonable many households to use the Green Deal as an
given the size of the task of improving the UK’s assurance scheme without having to use Green
still highly energy-inefficient housing stock. Deal finance.
The benefits in carbon savings, energy bill We make recommendations for improving
reductions, maintaining and creating jobs and the assessment process, for encouraging more
enhancing welfare and health from this level of small businesses and traders to be engaged in
retrofits would be enormous. the scheme, and for the Green Deal to have a
stronger impact in streets and local communities.
The most important problem with the Green
Deal, as it now stands, concerns a funding gap
caused by its so-called ‘golden rule’ which places
limits on how much a household can borrow
2Recommendations at gaining a better fix on the typical energy
savings actually achieved by the various
Green Deal measures, in kilowatt hour,
Incentives for retrofits and closing carbon and money terms. This should then
feed into improvements in the modelling
the Green Deal funding gap and methodology used to makes savings
1. Government needs to guarantee Green estimates in Green Deal assessments.
Deal loans so as to reduce the APR to below
7. A long-term supply of free assessments
4%.
should be offered to householders, lasting
2. Government should assess variable stamp at least three years and capped in the
duty and Green Deal grants as incentives region of one million assessments a year.
for household retrofits, then deploy one or This offer should be focused on households
both of these for at least three years. that are most likely to benefit from a Green
Deal package and most likely to take one
3. Government should explore the potential out.
for a street-level Green Deal incentive,
administered by local councils, aimed at 8. The Energy Performance Certificate and
encouraging groups of neighbours to club the Green Deal Occupancy Assessment
together in commissioning Green Deal Advice Report need to be restructured and
retrofits for their homes. rewritten so as to align more closely with
each other, with clear and simple messages
4. Green Deal incentives along the lines about their purpose and the differences
we propose strengthen the case for between them. The explanation of ‘actual’
‘consequential improvements’ measures in versus ‘typical’ estimated savings should
the Building Regulations. This means that be improved, with clearer messages about
if approval is sought for any alteration or the likely accuracy of these estimates and
extension which would increase a home’s what factors determine whether they will
energy demand, then its overall energy be realised.
efficiency must be improved so as to
offset this increase. Home improvements, 9. To further improve the accuracy, reliability
along with house purchases, are the and credibility of Green Deal assessments:
most important opportunity points for
• DECC should commission research
householders to make major energy saving
on an adequate sample of Green
retrofits. Consequential improvements
Deal assessments, to determine their
should be brought into the Building
accuracy and share information on
Regulations once a Green Deal incentive is
the most common errors and how to
deployed.
eliminate them.
Bringing more small traders and • If necessary, it should revise the Green
SMEs into the Green Deal Deal Code of Practice to ensure errors
in assessment reports are swiftly
5. Accredited Green Deal Installers should be rectified – by carrying out a second
able to offer unfinanced (or self-financed) assessment if need be.
Green Deal packages to households
without a Green Deal provider being • The typical costs of recommended
involved, provided appropriate safeguards measures used in all assessment
are introduced. reports should be updated annually.
On Green Deal assessments
6. The Department of Energy and Climate
Change should commission research aimed
31. Introduction legal carbon budgets (housing is responsible
for nearly a quarter of UK greenhouse gas
emissions).
A shared vision of a coming revolution for
Britain’s 27 million homes has formed during This uplifting vision was propped up by a harsh
the past five years. It was shared by government reality; unit costs for domestic gas and electricity
and a wide range of people, businesses and had risen sharply and were likely to keep rising.
organisations involved in housing, in promoting
local economies and employment, in energy Self-interest would transform the vision into
supply and environmental protection. substance. Most people would be willing
to invest in upgrading their homes’ energy
What did they envisage? A sea change in efficiency in order to control these rising fuel
attitudes and understanding around energy in bills. The exception would be a low income
the home. The nation’s enduring (and endearing) minority lacking savings or the ability to borrow;
love affair with home improvement would come their home retrofits would have to be financed by
to embrace home energy conservation. taxpayers, or by all energy consumers paying a
small levy on their bills.
When people bought or rented a dwelling, its
energy efficiency would become a key factor in These kind of redistributive measures were the
the price they were willing to pay. When they did means by which most of the work on retrofitting
any kind of renovation or improvement work, the UK’s overall housing stock had been financed
from a new kitchen to a loft extension, increasing over the previous two decades, most recently
their home’s energy efficiency would be a prime by the Warm Front, Community Energy Saving
consideration. Programme (CESP) and Carbon Emissions
Reduction Target (CERT) schemes. But the
Britain’s army of local tradespeople – small thinking, in government and beyond, was that
building firms, plumbers, gas and kitchen fitters - such subsidy schemes were incapable of doing all
would become energy retrofit ambassadors, with of the heavy lifting needed to complete the big
the knowledge, training and contacts to integrate task of retrofitting Britain’s existing homes.
energy efficiency upgrades into other home
improvement projects. Such schemes had succeeded in insulating
millions of lofts and cavity walls across the UK
Houses and flats would become more like over the past 20 years, plucking much of the
cars: people would pay close attention to fuel low hanging fruit. But not all of it. In any case,
economy figures before making a purchase (or lofts and cavity wall insulation represents only a
deciding to rent), then keep a close eye on energy fraction of the total domestic retrofit work which
performance while living in the property. can be justified as cost effective, in that energy
And so, within a decade, most UK households bill savings eventually cover the upfront costs of
would have attacked rising gas and electricity the energy saving measures. (2)
bills by radically upgrading their homes with This gap between what has been achieved so far
much improved insulation and heating systems, and what ought to be done grows still wider if a
lighting and appliances, and by installing their cost is put on household CO2 emissions and if the
own renewable and low-carbon energy sources. health and wellbeing benefits which accrue from
The nation’s heat-leaking housing stock would tackling fuel poverty are factored in.
thus be transformed, its chronic fuel poverty There was also a consensus that in order to make
curbed and tens of thousands of jobs related real progress individual upgrades needed to be
to home energy use would be protected - or bigger, covering the whole house with a package
even created - boosting the local and national of measures and offering correspondingly larger
economy. energy savings.
Direct and indirect carbon dioxide emissions
from energy consumption in homes would fall,
easing the burden of complying with the UK’s
4A long way still to go The Committee on Climate Change (CCC) 2013
Progress Report to Parliament finds there
The latest English Housing Survey, published are 5-7 million lofts with insufficient levels
in July 2013 and covering the period 2011-12, of insulation and some 4-5 million homes
found: with unfilled cavity wall. There are also some
7-8 million homes with solid walls in need of
• 11.5 million homes, 55% of those with insulating.
central heating boilers, were still lacking
the more energy-efficient condensing Under its indicators framework, which aims
type of boiler to guide government in cutting emissions and
meeting its statutory carbon budgets, the CCC
• At least 8.7 million homes, 37% of those proposes that:
with cavity walls, still lacked cavity wall
insulation • All remaining lofts and cavity walls be
adequately insulated by 2015.
• 7 million homes, 31% of the English
total, have solid rather than cavity walls, • Insulation of 2.3 million solid walls by
and only some 5% of these have had 2022.
solid wall insulation installed.
• Replacement of 12.6 million old,
• 8.7 million homes, 48% of those with inefficient boilers by 2022
loft spaces, have less than 150mm of loft
Its indicator trajectory sees direct and indirect
insulation. The recommended depth is
emissions from UK homes falling from 134
270mm
million tonnes of CO2 a year in 2012 to 80
• 2.7 million homes (12%) still have no million tonnes of in 2022. Improvements
double glazing or less than half of their in home energy efficiency, alongside
windows double glazed decarbonising grid electricity, would have a
leading role in delivering those carbon savings.
• 36% of England’s homes (some 8.3
million) were in the bottom three Energy
Efficiency Rating Bands – Bands E, F and
G. Only 15% were in bands A-C.
These bigger retrofits would save more energy but the big, familiar problem obstructing domestic
they would also be more expensive. That makes energy conservation remained. Most households
it harder to justify charging all energy consumers are unwilling or unable to spend significant sums
a levy in order to finance them. Why should upfront in order to save energy in future.
everyone pay when some of the households
receiving the retrofits can afford them as well as They can understand the argument for investing
benefitting from them? £5,000 in a new, high efficiency boiler and
controls, topped up loft insulation and cavity
Furthermore, there was always some danger that wall insulation, in order to cut their gas bill by
the money raised by this kind of levy might be £500 a year. But few would be willing to write a
poorly controlled and spent badly. Giving away cheque for it.
vast quantities of unwanted low energy light
bulbs, or even losing millions of them, as E.ON Why not? Because these savings lie in the future
did, became the most notorious example.(3) and may not be as large as promised. And what
if they sold their home in a few years and moved
So, some argued, the time was ripe for self out? Someone else would then benefit from the
interest rather than levy-funded subsidies to reduced bills.
become the main engine driving retrofits. But
5But the biggest obstacle is the plain fact that need energy-saving improvements so that the
£5,000 (or even £500) is a great deal of money gas and electricity they are struggling to afford
for most households. If they had that sum actually keeps them warm rather than going to
in savings, or could borrow it at a reasonable waste. They could not afford to pay off a loan
interest rate, many could find other things of through a charge on their electricity bill.
more immediate personal benefit or importance
to spend it on. The other ‘carbon reduction’ part of ECO tackles
measures which deliver major energy and carbon
1.1 Enter the Green Deal savings but cost so much that they could never
meet the Golden Rule. This covers interior or
Three key features of the long awaited Green Deal exterior wall insulation for homes with solid
launched by the Energy and Climate Change walls (lacking heat saving cavities) and insulation
Department (DECC) in January 2013 (and for cavity walls that are more difficult, and
the similar Pay As You Save scheme which the therefore expensive, to fill.
previous government had begun to work up) were ECO places an obligation on energy suppliers to
meant to break through these barriers. deliver target levels of carbon and energy saving,
Together these three make it a pioneering loan in line with the objectives of reducing fuel
scheme purpose-built for financing home energy poverty and delivering costlier retrofit measures.
retrofits in which the upfront costs are gradually The energy suppliers are meant to find the
paid off by an extra charge on electricity bills. cheapest ways of hitting these targets, and they
They are: pass costs on to all of their customers.
1. If a household which has taken out a Green The hope was that together the Green Deal
Deal moves out of a property the household and ECO would make a big impact on the great
moving in takes over the remaining loan national task of retrofitting the UK’s housing
payments. stock. The remaining low hanging fruit – under-
insulated lofts, easy-to-treat cavity walls, old,
2. The ongoing savings in energy bills should inefficient boilers – would continue to be plucked.
equal or exceed the ongoing costs of the loan More expensive, less familiar retrofit measures
repayments so that there is no overall increase in such as solid wall insulation would enter the
household costs. The Green Deal’s ‘Golden Rule’ mainstream. But there were warnings the pace
tries to cover this. of work would slow compared to that acheived by
3. Before deciding whether to enter into a CESP and CERT.
Green Deal, a household needs sound, credible ECO and the Green Deal form one of main
advice and recommendations about what energy planks in the energy and environment policy
saving measures it should install and the costs platform of “the greenest government ever”.
and likely energy bill savings resulting. It gets Much time and effort has gone into their
this from its own personalised Green Deal creation, not only from government and
assessment. The deal-making process also gives legislators but from private sector organisations,
assurances that the installation work will be councils and NGOs participating in extensive
done well and that there is a means of redress if consultation then gearing up to deliver the Green
things go wrong. Deal and ECO.
But a loan scheme with these three essential
features could not, of itself, transform that 1.2 A very slow start
shared vision of a great national housing retrofit The Green Deal is in danger of becoming a major
into reality. Some additional mechanisms would policy failure. If that happens, the cherished
be needed. These are provided through the vision of a revolution in home energy saving will
Energy Company Obligation (ECO). quickly become a mirage followed by lost years of
One part of ECO (called ‘affordable warmth’ and inaction.
‘carbon saving communities’) covers low income
households suffering fuel poverty. Many of these
6The biggest problem to emerge is that the
‘The vision for the Green Green Deal finance mechanism can only cover
a part (and often the smaller part) of a typical
Deal and the new ECO household retrofit. Very often, households
is an ambitious, far- will have to find much of the money for the
installation themselves, defeating one of the
reaching one … a world Green Deal’s founding purposes.
where the UK leads with Extra loft insulation and regular cavity wall
a dynamic new energy insulation can usually be fully covered by the
Green Deal, with projected typical energy bill
efficiency market, with savings equalling or exceeding the repayments.
nationwide brands, But other typical retrofit measures frequently
recommended in Green Deal assessments, such
local businesses and as replacing a gas-fired central heating boiler
with a more efficient model, fall far short of the
community organisations Golden Rule. Green Deal finance will only cover
competing to deliver the part of their cost. And the ECO carbon reduction
scheme, designed to bridge this kind of funding
best proposition for the gap, only applies to a small suite of energy-saving
consumer.’ measures; it does not cover boilers.
DECC consultation on Green Deal, 2011. Furthermore, the types of measures that can be
fully financed by the Green Deal tend to be the
At the last general election in 2010 the cheaper ones. But households may be loathe to
manifestos of all three main parties promised enter a loan arrangement with an APR of some
a Green Deal type scheme. During its party 8% lasting at least ten years in order to borrow a
conference in October 2013 Labour announced few hundred pounds.
that, if elected, it would overhaul the Green Deal In general, major retrofit packages costing
and replace it with a new but as yet unspeficied several thousand pounds will only be part-
Energy Save scheme. financeable by the Green Deal. The household
The most obvious early sign of things going would have to provide at least £1,000 to get the
badly wrong is the very low number of Green package installed, obtained either from savings
Deal plans actually going through in the first or another loan. For many, that will be a deal-
eight months of the scheme. According to DECC breaker.
statistics covering the period up to the end of This is the largest of several problems facing
October 2013, a mere 1,173 Green Deal plans the Green Deal. We discuss each of them, and
were underway for individual households. Only potential solutions and improvements, below.
219 had actually been completed, with the
installation work signed off and the repayments The intense political controversy of autumn 2013
having begun. (4) surrounding fast-rising household energy prices
casts a shadow over all of the government’s
Two years ago, ministers were speaking of 14 energy efficiency and low carbon policies. ECO
million homes being covered by 2020. (5) So seemed particularly vulnerable after the Prime
these low numbers signing up in the scheme’s Minister’s announcement that he wanted to “roll
first year represent a dismally slow start. DECC back” green taxation on energy.
has attributed this to Green Deal providers being
slow to come forward, with the first of them Yet DECC’s latest estimate is that ECO is adding
making finance available to households only only £50 a year, or some 3.5%, to the average
from May 2013. But five months on from then, household energy bill of around £1,400.(6)
take up remains at a trickle.
7Its predecessor schemes, CEST and CERP, were Our starting point is that we need the Green
estimated to be adding £41 to the average annual Deal and ECO to work well. Government must
bill when they ended in 2012. (7) So ECO plays a act to prevent all the time, effort and resources
tiny part in recent big increases in bills. expended in creating them going to waste. We
share the vision of a great national housing
Whether Government decides to fund ECO retrofit set out at the beginning of this report.
through general taxation in future, or leaves it
to be funded via energy bills, there is no case for To get back on track, the Green Deal itself
abandoning or cutting back on a scheme which urgently requires a retrofit, one requiring
aims to help the fuel poor keep their homes adaptation and fresh thinking but no major
warmer and to help hundreds of thousands of legislation. The Government should launch an
households to cut their carbon emissions. improved and updated Green Deal in 2014.
Orange ticks and green The most frequently recommended green tick
measure (25% of the 96 recommendations)
ticks: the Green Deal was for thicker hot water tank jackets, costing
funding gap a few dozen pounds.
Green tick 18% This is a small sample of properties and it was
In Green Deal assessment reports,Orange tick 82%
not chosen to be representative.* Even so, the
recommended measures that can be fully finding that the overwhelming majority of
financed by the Green Deal (typical first year Green Deal recommended measures cannot
savings equal or exceed first year repayments) meet the golden rule will apply across Britain’s
are given a green trick. Those that can only be housing stock. See page 20 for an excerpt
part-financed receive an orange tick, meaning from a Green Deal assessment report which
the household would have to make an upfront illustrates how orange ticks dominate.
payment.
Working with Cherwell District Council as
part of a project financed by DECC’s Green
Deal Pioneer Places scheme, BioRegional 18%
Green tick measures
delivered 103 free-of-charge Green Deal
assessments to households, in Bicester, Orange tick
measures
Oxfordshire in the spring of 2013. 82%
A total of 523 measures were recommended
in the Green Deal advice reports produced by
these assessments – an average of just over
five measures per property. Of these 96 (18%) Our sample was somewhat more energy efficient that the
England average. For energy efficiency rating bands, the
were green tick measures and 427 (82%) were distribution was: A&B 1%, C 26%, D 58%, E 12%, F&G
orange tick measures. Furthermore, almost a 3%. The England distribution for these bands is 0.2%,
fifth (19%) of these green tick measures were 15%, 49%, 28% and 8% respectively.
solid wall insulation (internal or external),
which would require ECO funding in order for
the household to avoid making a large upfront
payment.
82. Closing the would cover £1,079. So the householder would
therefore have to pay for at least £1,121 (or 51%)
Green Deal
of the costs of the installation upfront. The
Government’s temporary Green Deal Cashback
scheme would also pay £270 towards the new
funding gap boiler, reducing this outlay somewhat.
Many have complained that these interest rates
An example can be used to illustrate and explain
are too high and will stifle the Green Deal.
this Green Deal funding gap. Installing a new
So imagine that, instead of an 8% APR, the
gas-fired condensing boiler might cost £2,200
Government had devised a Green Deal with a
and promise ‘typical’ energy bill savings of £100
0% APR. For our boiler example above, a £100 a
a year, as set out in the Green Deal advice report
year repayment spread over 25 years would cover
following an assessment.
the £2,200 boiler cost; it would fail to do so if
For a typical UK house, £2,200 is at the low end the loan period was any less than 22 years. If,
of costs for a boiler installation, while savings however, the estimated annual gas bill savings
of £100 a year are towards the high end of were any less than £88 (£88 x 25 = £2,200)
the estimated gas bill savings given in Green then even a 25 year loan with a zero interest
Deal advice reports. So, for this example, we rate would fail to cover the boiler costs. Our
have drawn on our experience of Green Deal experience suggests the estimated typical savings
assessments to use typical figures which tend to would often be less than £88.
minimise the funding gap.(8)
So a long term, interest-free loan would usually
Under the ‘Golden Rule’ this savings figure fail to close the Green Deal funding gap for a new
of £100 a year sets the maximum repayment boiler, one of the most frequently recommended
that can be made in the first year of the Green and cost effective of energy saving measures. Add
Deal finance plan; savings would then equal in an interest rate and this gap widens.
repayments leaving the household no worse
The main cause of this funding gap is the small
off. (This estimated saving figure relates to
size of the estimated typical energy bill savings
a typical household living in that particular
achieved by different types of installation
property, rather than the actual household. Thus
relative to their costs. These estimates are based
a large family with more than typical energy
on the Reduced data-input Standard Assessment
consumption might obtain higher actual energy
Procedure (RdSAP) modelling and methodology
bill savings after installing the measure.)
used to draw up Energy Performance Certificates,
Given this limit on the size of Green Deal with further downwards adjustment to make
repayments, how much money could actually be them err on the side of caution.
loaned under the Green Deal? This depends on
These “in use” reduction factors, based on
the interest rate used on the loan and how long
(sometimes limited) data on actual savings
the loan lasts.
delivered by the different energy saving
The Green Deal Finance Company’s initial measures, generally cut the energy and bill
interest rate has been set at 6.96%, but a one saving estimates from RdSAP by 15-35%.
off initial loan fee (£63) and an annual finance
This tends to widen the funding gap. It is best
charge (£20) make the actual APR somewhat
that any error should favour caution over excess,
higher – the exact figure depends on the size and
in order to avoid promising energy savings which
length of the loan. For this example assume an
fail to materialise. But the estimates provided to
effective APR rate of 8%.(9)
households in Green Deal assessments need to be
At that rate, a £100 per year repayment spread as accurate and robust as possible.
over ten years (the minimum Green Deal loan
period) would cover a loan of £687. Spread
over 25 years (the maximum loan period) it
9Recommendation : DECC should will not impress the substantial proportion of
commission research aimed at gaining households who are able to obtain significantly
a better fix what on the typical energy cheaper finance (including via their mortgages)
savings actually achieved by the various for a wide variety of goods and services. They are
Green Deal measures are, in kilowatt hour, likely to see the finance element of the Green
carbon and money terms. This should then Deal as a rather poor deal.
feed into improvements in the modelling
and methodology used to makes savings This is not to argue that Government should loan
estimates in Green Deal Assessments. all or most of the Green Deal finance off its own
book. It was always intended that Green Deal
But even if improvements in the modelling led finance should flow from private sector investors
to slightly more generous estimates of typical via bond issues. Government needs to work with
savings, the funding gap would still exist for the finance industry to devise a debt structure
boilers and several other principal Green Deal with guarantees which will halve the interest
measures. rate. The fact that repayments are made through
a levy on a property’s electricity bills, irrespective
So a choice has to be made. Government could of who occupies the property, gives relatively
accept that the scheme will be unattractive for high security.
the great majority of households, and that the
Green Deal was not the solution for retrofitting It is worth noting that both the Government
the nation’s housing stock that many hoped it and the state-backed Green Investment Bank
would be. have already helped finance the GDFC, but only
to ensure it had money to lend for retrofits in its
Alternatively, it could try to recast the Green early days. Given the very slow initial demand for
Deal in ways which make it attractive to millions Green Deal loan packages, the money raised by
– rather than thousands – of households. the GDFC seems set to last for years.
There are three essential ingredients of such a A long-term element of state backing aimed at
Green Deal retrofit – cutting interest rates, bringing down interest rates would leave the
encouraging households to enter into Government with additional liabilities. It could
the Green Deal without using Green Deal contain its exposure through an annual cap
finance and developing a significant, long placed on the total sum of state-backed Green
term incentive for home retrofits. Deal finance plans. It could also devise a way of
focusing these cheap, low interest loans on less
2.1 Cutting interest rates affluent households.
The Government has made major interventions For example, there could be a maximum of
to make it easier for house purchasers and small 500,000 state-guaranteed Green Deal finance
businesses to borrow money. plans a year. With an average cost for each of
Recommendation: Government now needs £6,000, the annual expenditure on retrofitting
to guarantee Green Deal loans so as to homes would be £3bn but the government’s
reduce the APR to below 4%. exposure would be a small fraction of this.
This would shrink the funding gap, but in many Interest rates will have to be lowered if the Green
cases it would not close it entirely. It would, Deal is to succeed as a loan scheme. But it also
however, give householders a clear signal that has the potential to operate as an assurance and
this was a government-backed scheme offering a help scheme, enabling hundreds of thousands
highly competitive loan rate. of households a year to install energy saving
retrofits without using Green Deal finance.
The Green Deal Finance Company (GDFC)
justifies its relatively high interest rate on the
grounds that some 80% of UK households are
able to access its Green Deal finance. But that
102.2 Using the Green Deal 2.3 The need for additional,
as an assurance and help enduring incentive schemes
scheme DECC has made it clear from the outset that the
Green Deal Cashback is a temporary incentive
A great deal of effort has gone into creating aimed at ‘kick starting’ the scheme. Now,
assurances around the Green Deal. Hence however, a more permanent incentive is required
there is the ‘Green Deal approved’ branding, to drive retrofits and revive the faltering Green
accreditation processes for Green Deal assessors, Deal so as to fulfil its economic, social and
providers and installers, a code of practice and environmental potential. Without it the scheme
an ombudsman. Together, these aim to give is unlikely to reach more than a few 10,000s of
households confidence that they will receive: homes a year (the ECO scheme will treat more,
• Reliable information about the most cost- provided it survives) when it should be improving
effective energy saving measures they can many hundreds of thousands.
install and the likely costs and savings Such an incentive needs to give a strong, clear
• Help in finding reliable firms to carry out benefit for improving a home’s energy efficiency.
the installation At the same time it could:
• Installations done to a high standard, and • Further close the Green Deal funding gap,
reassurance that if anything goes wrong it to make it a more attractive loan product.
will be put right. • Widen the Green Deal’s appeal as a simple
If the Green Deal succeeds in providing all three assurance and help scheme, in addition to
it has the potential to be marketed to a segment being a loan scheme.
of households purely as an assurance and help • Emphasise that the Green Deal is a
scheme; that segment which can finance a Green government backed scheme which
Deal package upfront from savings or cheap benefits all of society, not just individual
loans (i.e. via a mortgage). This represents a households.
substantial proportion of the overall customer
base. And there are early signs that it is already At present, the Green Deal is marketed primarily
appealing to this segment. as a product to benefit households through
a commercial deal between them and the
DECC statistics on the Green Deal showed that private sector. It might have wider appeal if an
9.522 ‘Cashback’ vouchers had been issued accompanying message was that the nation and
by government by the end of October. These the planet benefit from the Green Deal as well as
vouchers help pay for the cost of Green Deal the individual household.
installations. To obtain them households must
go through the Green Deal process (starting with Each Green Deal installation reduces carbon
a Green Deal assessment) but they do not have to emissions, helps protect the environment,
take out Green Deal finance. Contrast this figure improves the housing stock and contributes
of more than 9,000 with just over 1,000 homes to economic growth and employment. A
intending to take out Green Deal finance over the state-backed incentive would be a reward
same period. to households for doing some social good,
reinforcing that positive message. This, after all,
To date, the great majority of households using is the kind of message implicit in the Feed- in
the Green Deal are keen to take advantage Tariff scheme for micro-renewables.
of the Cashback incentive but do not want or
need the loan facility. This also demonstrates Fresh burdens on the Exchequer will be resisted
that incentives can play an important role in in a period of austerity and deficit reduction. It is,
generating retrofits. however, possible to design incentives which are
revenue-neutral or near revenue-netural. In
11any case, the increased revenue arising from Before describing these incentives, we briefly
more Green Deal installations and all the explain the other two incentives proposed by the
economic activity accompanying them needs task group. These may have a longer term role in
to be factored in; VAT, income tax, national stimulating energy saving retrofits.
insurance payments and corporation tax.
2.3.1 Variable Council Tax
Government needs to consider options and
choose the best value incentives, the ones which Under this proposal, energy-efficient homes
are most effective at stimulating additional would receive a discount on their council tax
Green Deals and secure the largest energy while energy-inefficient homes would pay some
and carbon savings per pound spent. The additional, penalty council tax. The size of
chosen incentive can be capped and adjusted this discount or penalty, amounting to the low
periodically, as with Feed-in Tariffs, to limit hundreds of pounds at most, would be based
government exposure, ensure value for money either on the property’s SAP points or on its
and conserve revenue neutrality. Energy Efficiency Rating Band (A to G). Using
the latter would make the discount/penalty more
For example, incentives for less cost-effective crudely graduated but easier to administer.
measures (in terms of expenditure per tonne of
carbon saved) should only be given if the more Variable council tax would raise awareness of
cost-effective recommended measures are also the energy efficiency of homes. It could be made
taken up. A home lacking easy-to-apply and revenue neutral for the councils that run it, with
low cost cavity wall insulation would have to the ‘penalty’ tax revenue equalling the ‘discount’
have that installed at the same time as having a revenue.
new high efficiency boiler in order to qualify for
incentives for the latter. However, many homes still do not have a
SAP rating and these tend to be more energy
A task group set up by the UK Green Building inefficient. Some mechanism would be required
Council considered the question of retrofit which applies the discount/penalty to these
incentives in depth, reporting in July 2013. (10) unrated homes in ways which are justifiable and
ACE was represented on this task group and this equitable and which encourages owners to obtain
section of our report draws on its work. both a rating and an energy saving upgrade.
Obtaining a rating requires a stand-alone EPC
The group considered a long list of eight types of survey or a Green Deal assessment; both imply a
incentive, each scored against 14 criteria. Three cost.
of the four top scoring types of incentives were
then further developed as workable policies and The impact of a variable council tax on low-
presented to government as recommendations. income households would also have to be
These three were variable stamp duty (which the addressed. Those who live in a relatively energy
Committee on Climate Change has advocated), inefficient homes and pay council tax would find
variable council tax and an energy efficiency their tax bill increasing sharply but be unable
Feed-in Tariff. The task group is now asking to afford the energy saving upgrade required to
government to do further work on these reduce it. The Green Deal could only help them if
proposals and implement at least one of the the funding gap was closed.
incentives.
This incentive would also have to be adjusted
We believe variable stamp duty could provide every few years in order to maintain revenue
strong support for a revised Green Deal. We also neutrality. As more and more homes underwent
favour a Green Deal grant which, in essence, energy saving retrofits and lowered their council
would mean that the government’s existing tax bill, the SAP score or energy efficiency rating
Cashback scheme became a more permanent band which served as the neutral balance point
fixture. Such a grant scheme could be seen as one (higher scores earn the discount, lower scores
version of an energy efficiency Feed-in Tariff, but face the penalty) would have to be gradually
with all of the tariff payments lumped into one shifted upwards.
upfront payment.
122.3.2 Energy efficiency Feed-in Tariff on their stamp duty land tax (SDLT) while those
purchasing a relatively energy wasteful house
Regular payments would be made to households would pay extra SDLT; a penalty. This could be
for the energy and carbon they saved following used to make this incentive revenue neutral for
a retrofit. These payments for ‘negawatts’ would the Treasury. The size of the incentive/penalty
be based either on estimated (deemed) energy would be based on the property’s SAP rating, as
savings or actual, measured savings compared set out in its Energy Performance Certificate.
to the household’s baseline energy consumption
before the retrofit. In a worked example, the task group’s report
shows the purchaser of a £280,000 house at
It might be argued that no retrofit was the bottom of Energy Efficiency Rating Band
actually required to qualify for this kind of D (55 SAP points) having to pay extra ‘penalty’
energy efficiency feed-in tariff; instead, a SDLT of £1,200 above what it would otherwise
household could simply pledge to cut its energy be (£8,400).In contrast, the purchasers of an
consumption and be paid according to results. energy-efficient, £465,000 new-build home with
But people could then game the system; parents 84 SAP points in Band B would gain a £2,000
who knew their grown up children were leaving discount on their baseline SDLT of just under
home could enter the scheme just before they £14,000.
left.
The task group’s report shows that such a scheme
This scheme could be costly – the task group’s could be fairly simple to administer. Variable
modelling suggests a range of £52m to £273m stamp duty would sharply raise awareness of
per annum. It would have to be financed by energy efficiency among prospective home
taxpayers or energy bill payers (via a modified buyers, sellers and estate agents. Variable vehicle
ECO scheme), with no prospect of revenue excise duty (the ‘tax disc’) based on car carbon
neutrality for the Treasury. emissions has already proved itself a successful
policy, lowering vehicle fuel consumption and
It might be quite difficult to justify such a
emissions while enjoying public acceptance. The
scheme to the public (who might ask: “Why
government should take heart and confidence
should taxpayers/energy consumers pay money
from that.
to people who are already reducing their energy
bills?”). The modelled benefits of additional Variable stamp duty would encourage a small
retrofits, GDP and CO2 savings are all rather proportion of prospective house sellers to carry
lower than for variable stamp duty and variable out retrofits, in the hope that the resulting SDLT
council tax. discount would make their home easier to sell at
the desired price.
However, if the energy efficiency feed-in tariff
succeeded in delivering the promised long-term More importantly, it could stimulate many more
reductions in energy demand, it would cut costs post-purchase retrofits. The idea here is that
for all energy bill payers by reducing the need to house purchasers who chose to improve the
invest in costly new gas and electricity supply energy efficiency of their new home could then
infrastructure. claim the appropriate SDLT discount based on
their homes’ new, higher SAP rating (provided
One important point to consider is that neither
the retrofit was done with a year of purchase).
a variable council tax nor an energy-efficiency
Home improvement projects often follow a house
feed-in tariff do anything to help close the Green
purchase and these can readily be combined with
Deal funding gap, because they only offer small
an energy-saving retrofit in order to minimise
but regular payments or discounts after a retrofit
disruption and secure savings in the costs of the
rather than upfront.
combined works.
2.4 Variable Stamp Duty If the SDLT discount proved popular among
buy-to-let purchasers, it would help to raise the
Under this proposal, people buying a more generally very low energy efficiency standards in
energy efficient home would receive a discount the private rented sector.
13This variable stamp duty incentive proposal does once, upfront. Paying housholds in return
have some drawbacks. It is only of interest to for them delivering long-term reductions in
a segment of households likely to buy or sell a energy demand and carbon emissions has one
home in the next few years. But this is a large obvious justification. (11) It can cut costs for
segment, given that more than 900,000 homes all energy bill payers by reducing the need to
are sold in the UK each year. invest in major new gas and electricity supply
infrastructure.
If, as seems likely, most of the retrofits it
stimulates were post-purchase ones that would It can also act as a retrofit incentive for those
undermine its revenue neutrality for the households able to organise their own finance
Treasury because all these households would but still wanting to use the Green Deal process to
claim the SDLT rebate. make energy-saving improvements, starting with
an assessment. The existing Cashback scheme
Variable stamp duty would be bound to face succeeded in stimulating more than 9,000 of
some opposition; from prospective sellers living these ‘self-financed’ Green Deal packages in a few
in energy-inefficient homes and people wanting months.
to buy older homes, which tend to have lower
SAP ratings. Both would be hostile to the penalty Such a grant scheme offers simplicity in terms
side of the scheme. The more the Treasury tried of administration and fraud prevention, since it
to protect revenue neutrality, the larger this requires only one payment. Grants would only
penalty element would have to be. be made to households with retrofits based on
Green Deal assessments recommending plausible
According to modelling commissioned by the energy saving installations
task group, it would stimulate 135,000 to
270,000 additional retrofits a year, increase GDP As with the existing Cashback, the grant would
by £404m to £807m a year and achieve annual be based on standard payments for each different
CO2 savings of 209,000 to 417,000 tonnes a year. type of measure. Within this framework, there
is scope to fine tune a Green Deal grant scheme
Variable stamp duty would stimulate additional to limit overall costs (by capping total annual
retrofits, but it would not of itself close the Green expenditure), to maximise cost effectiveness
Deal funding gap. In most cases, a newly moved- (per unit of energy/carbon saved), to encourage
in household which wanted a Green Deal loan take up by lower income groups and minimise
in order to claim a stamp duty rebate would still deadweight losses (avoiding paying towards
find itself having to provide part of the finance installations which householders would have
upfront. But at least it could recover some or all funded in any case).
of this initial outlay (and even pay off some of
the Green Deal loan early) when the rebate was For example, the grant might only apply to
paid. ‘orange tick’ recommended measures (see pages
8 and 20) and be paid over only if recommended
2.5 Converting the Cashback ‘green tick’ measures were also installed as part
of the package.
into a Green Deal grant
Such a scheme could be funded directly by
A permanent Cashback scheme (or one that government of via ECO, although the latter
was guaranteed to last for several years) would seems unlikely given the controversy over fast-
convert it into a grant scheme helping to finance rising energy bills. If the grant was applied to
energy saving retrofits. For households interested 400,000 homes a year, at an average cost of
in using Green Deal finance, these grants would £300 each, total annual expenditure (excluding
help close the funding gap created by the Golden administration costs) would be £120m. This is
Rule. close to the £125m set aside for the existing
Such a grant is equivalent to an energy efficiency Green Deal Cashback scheme, only a tiny portion
feed-in tariff discussed above, but paid only of which has so far been spent.
14It is also small in comparison with government In essence, the proposal is that when a home
estimates for the total annual ECO costs of £1.3 undergoes significant building work which,
bn. The UK Green Building Council’s task group all things being equal, would raise its energy
did not select a Green Deal grant as among the consumption, then the entire property would
most promising retrofit incentives. Our view is have to meet minimum energy efficiency
that it should be a front runner. standards in order to receive the building
regulations approval required for the work. For
Recommendation: Government should example, the fabric of a proposed extension
assess variable stamp duty and Green would have to comply with building regulations
Deal grants as incentives for household and the rest of the house would also have to be
retrofits, then deploy one or both of these improved (the consequential improvements) if,
for at least three years. say, it lacked adequate loft insulation or cavity
Government has the resources and the policy wall insulation.
appraisal process required to devise an incentive, This is a way of controlling the rise in energy
or combination of incentives, which offers best demand and carbon emissions caused by home
value for money while securing hundreds of improvements. But it would tend to increase
thousands of retrofits each year. the upfront cost of major home improvement
projects – hence hostile press campaigning
2.6 Sticks and carrots – the against a “conservatory tax” which persuaded
case for ‘consequential government to drop the proposal.
improvements’ The Green Deal offers a way round the problem.
A Green Deal loan could cover any extra costs
Regulation could also be used to drive household resulting from “consequential improvements”
retrofits, at least in theory. The most obvious and leave the household no worse off provided
way to do this would be to compel existing the annual energy bill savings resulting from the
homes to meet minimum energy efficiency overall retrofit equalled or exceeded the annual
standards before going on sale (for example, Green Deal repayment.
they would have to be above bands F and G).
The Government has said it intends to ensure all But this will not always be the case with the
private rented properties achieve such minimum Green Deal in its present form, because of the
standards after 2018. funding gap issue outlined in this report. What is
needed is an incentive to close that gap.
Such regulatory ‘sticks’ are easier to justify if
there are also carrots – incentives of the kind Recommendation: A Green Deal incentive
discussed above. Even so, the UK GBC’s task along the lines we propose would
group decided that introducing minimum legal strengthen the case for ‘consequential
energy efficiency standards for existing homes improvements’ measures in the
at point of sale was a political impossibility. That Building Regulations. This means that
judgement is sound. if approval is sought for any alteration
or extension which would increase a
There is, however, one regulatory ‘stick’ driving home’s energy demand, then the overall
retrofits which the Government had intended energy efficiency of the property has
to deploy but then abandoned. This is the so- to be improved in order to offset this
called ‘consequential improvements’ measures increase. Home improvement works,
which would have been part of the latest revision along with house purchases, are the
of Part L of the Building Regulations covering most important opportunity points for
energy conservation. For several successive householders to make major energy
revisions of the regulations, governments have efficiency improvements. Consequential
begun considering such measures then decided improvements should be introduced into
not to proceed with them. the Building Regulations once a Green
Deal incentive is deployed.
153. Further a first step. And an installer acting without a
Green Deal provider would be obliged to offer the
opportunities and
same level of assurance, guarantees and means
to address complaints and resolve disputes as a
provider.
better assessments Recommendation: Accredited Green
Deal installers should be able to offer
There are several other ways in which the Green
unfinanced Green Deal packages to
Deal could be improved in order to fulfil its
households without a Green Deal provider
potential.
being involved, provided appropriate
safeguards are introduced.
3.1 Increasing opportunities
for smaller traders 3.2 The Green Deal street
It was always hoped that the Green Deal would by street
provide abundant additional work for small
If several households in one street took out a
firms and sole traders – builders, plumbers,
Green Deal at the same time, this could offer
glazing installers, electricians and so on. Having
them several advantages.
obtained the necessary Green Deal accreditation,
they would become Green Deal installers and • They could share information with each
carry out the bulk of the energy efficiency other about retrofits – the various possible
retrofits across the UK. measures and likely costs and benefits, all
the more so if they had the same type of
However, these Green Deal installers need to
house.
be linked to Green Deal providers, the larger
(generally) organisations which draw up Green • They might be able to bargain as a group
Deal finance plans and sign agreements with with Green Deal installers/providers,
individual households. Installers cannot offer obtaining a better price for the work.
Green Deal packages on their own.
• Working on several properties in one
But it is now clear that many of the households location, either simultaneously or
who might benefit from the Green Deal will sequentially, would provide the installer
not want to opt for Green Deal finance. And if with economies of scale and continuity of
households choose not to use this finance, then work, in turn allowing better margins and/
they should not be compelled to use a Green Deal or lower prices.
provider for their package. Instead, they should
be able to deal direct with accredited Green Deal Recommendation: Government should
installers. This would encourage small traders to explore the potential for a street-level
market unfinanced Green Deals, along with any Green Deal incentive, administered by
government-backed incentive, direct to potential local councils, aimed at encouraging
local customers. groups of neighbours to club together in
organising Green Deal retrofits.
Small traders should be able to improve their
own margins on Green Deal work as a result of DECC has made a start with its £20m Green Deal
this freedom. This change might also encourage Communities scheme launched in July 2013. It
many more of them to be interested in the needs to build on the learning from this in 2014.
scheme, and to make links with (or become) (12)
Green Deal assessors. Green Deal providers
would still be free to offer unfinanced as well as 3.3 Free Green Deal
financed Green Deal packages. assessments
Some safeguards are necessary. Households A Green Deal assessment, carried out by a
choosing to deal direct with an installer would certified assessor who visits the property, is the
still have to obtain a Green Deal assessment as
16You can also read
