Green Deal proposals: Deal or no deal?

Few Whitehall documents have been as keenly anticipated by the industry as last week’s 238-page, £14bn Green Deal proposals.

The document is the core of the government’s plan to reduce carbon emissions from homes by making them more energy efficient, offering a route to have the up-front costs of energy improvements borne by private companies, which then reclaim the costs from consumers’ energy bills. The day after it was announced, it was also backed by a further £200m of investment to build momentum into the scheme by offering incentives to early adopters. But this week’s autumn statement gave no further news of incentives to encourage take-up and questions remain over whether it will achieve the £14bn of private sector investment that the government claims it will.

Rick Wheal, sustainability consultant at Arup, is sceptical that it will achieve the levels of take-up needed to meet the government’s energy targets and provide a source of work in the industry. “One of the biggest issues is that you have a debt associated with your property and then you sell [your property] with a debt associated with it. That’s something which will be a hindrance to a lot of people taking it up,” said Wheal.

Sustainability consultant David Strong said he was not confident it would be successful until the government introduced incentives to drive take-up: “You’ve got £200m but after that there’s nothing”.

David Adams, director of Rethink at Willmott Dixon, said there was doubt over the real size of the opportunity the scheme represented to the industry unless there were concrete drivers for take-up from the Treasury. Opposite we get the initial reaction from the key groups that will be affected by the new policy.

What was the key news in the consultation?

• To be eligible for Green Deal finance properties will need to undergo an assessment by a Green Deal assessor accredited under the National Occupational Standard, who is qualified to produce energy performance certificates and is certified by a UKAS-accredited body against any other relevant standards. The recommended Green Deal solution also has to go through a two-stage approval process.
• A Green Deal oversight body, partly funded by fees from providers, will authorise providers, monitor assessors and spot check products.
• Providers must sign up to the code of practice and hold a valid consumer credit licence.
• Green Deal installers will need to meet a new standard which will be administered by industry certification bodies.
• Consumers can take out Green Deal finance on all work being done or can top-up funding themselves. Providers can offer £150 cash back to incentivise take-up.
• As well as the cost of approved products, providers can include preparatory work, make good costs, unexpected costs, assessment and cash back within the price of the work eligible for Green Deal finance.
• The liability to pay back the debt for the measures will remain with the house and be taken over by any subsequent purchaser.
• The Energy Company Obligation (ECO) part of the Green Deal will have two key targets. The Carbon Reduction element will mostly finance insulation of solid wall dwellings, rather than cavity or loft insulation. The Affordable Warmth component will be used to provide insulation to low income homes.

What has the reaction been?

Green builders
John Alker, policy director, UK Green Building Council

The formal consultation was fairly predictable. One of the key things everyone was looking out for was incentives for encouraging take-up, but the only incentive in the document itself is the slightly daft notion of the householder getting £150 cashback when taking out a Green Deal package. So you’re incentivised with your own money that is added onto the loan. Err, thanks.

However, the following day’s announcement that the Treasury is providing £200m in new money to incentivise take-up in “the introductory phase” was brilliant, if slightly bizarrely timed. Credit where it’s due, we’ve been calling for this for a very long time and the government appears to have listened. How it gets administered is the next challenge.

There are umpteen other issues to be worked through as part of the consultation. High on that list is what the transition looks like from the Carbon Emissions Reduction Target (CERT) and the Community Energy Saving Programme (CESP) to ECO: if we stop subsidising loft and cavity wall insulation overnight, it could spell big trouble for the manufacturers and providers. And of course the cost of finance remains a key concern, which is closely related to the overall viability of the whole proposition.

Consumers
Richard Lloyd, executive director, Which?

Unless people are offered a good deal that they can trust and understand, it’s difficult to imagine them flocking to take up Green Deal measures. They won’t if the interest rate is too high or the predicted energy bill savings don’t materialise. The government’s latest consultation does little to put our minds at rest, as the energy department’s own consumer research found that only a small number of people expressed a strong interest and many felt the annual cost savings were simply too small to make it worth their while.

So it won’t be for everyone. The government has committed £200m for incentives in the first year. But beyond the initial sweeteners, it’s crucial to get the fundamentals right. We want assessments that are personalised, accurate and genuinely impartial.

Contractors
Brian Berry, director of external affairs, Federation of Master Builders

Contractors who do not set themselves up as Green Deal providers will have reason to be concerned if they want to tap into the Green Deal market. The consultation clearly states that there must always be a Green Deal provider who contracts with the customer to make the improvements, arranges the finance and who can help customers with problems if they occur. The problem is that the cost of becoming a Green Deal provider will be prohibitive for most SMEs and many will simply not want to subcontract. There is therefore a very real danger that the large energy and utility companies will simply hoover up the Green Deal market and squeeze out smaller contractors.

The proposed £150 cash back incentive is unlikely to be enough to drive up demand and nor is it clear how the £200m incentive will be delivered. Clearly additional incentives will be required if the Green Deal is to take off.

Product suppliers
John Tebbit, industry affairs director, Construction Products Association

To be eligible for use in Green Deal-financed work, all products and systems will have to be on the list of “Green Deal ready” products and systems that will be held by the Green Deal oversight body. A product or system will have to be covered by a European standard, and be CE marked to show it meets the EU-wide quality standard. Many of the products already have to be CE marked from July 2013, meaning this requirement will bring forward the date by a year. Where products do not have European standards, “equivalent” testing will be required. We do not know how much of a problem this will be.

The insulation industry is currently mainly geared up for loft and cavity wall insulation, which will remain a major area of work for a few years, but the Green Deal has a focus on solid wall insulation. This part of the market will need to grow rapidly, but the industry is confident that sustainable growth is possible.

A final worry is that consumers may well wait until October 2012 before making purchases, which could lead to a short-term vacuum affecting sales.

Finance
Paul Davies, partner, PwC

From the point of view of us getting the confidence to raise the underlying finance for this from the capital markets, there are no fatal flaws in this document. It seems to be well written and for a big document it is clear on how the scheme will work and on the ECO.

There are concerns and some things that we will have to look at in detail, and we’ll have to respond later with a view as to the cost of finance.

The thing that doesn’t help raising finance is any uncertainty over payments: the more volatile the cashflow, the trickier it is to finance. So we’ll be looking for detail around what an owner of a property has to do to inform a buyer of any Green Deal obligation, but hopefully the legislation will clarify this.

Environment
Zoe Leader, sustainable homes policy adviser, WWF

For those of us concerned with getting the best system for the environment, the main concern has to be around funding, specifically the move from the CERT, Warm Front and CESP programmes, partially paid for by the government, to the ECO scheme, ultimately paid for by consumers. It is unlikely that this system will ensure carbon targets are met. Overall it will be a reduction in funding for programmes that support energy upgrades for existing buildings.

The Warm Front funding, worth about £1bn a year, has already been cut by two-thirds and will end entirely, meaning there will be no funding to help the genuinely fuel poor.

The commonsense logic of the measures has been laid out well in the consultation, but we’re worried there’s nothing in there to maximise investment for those with the least money.

There needs to be a step change - ambling along won’t cut it.