Green Deal is not the only way to fund emissions reductions

With the first birthday of the Green Deal now passed, and near universal condemnation for how the scheme has been launched, it seems clear that the government’s targets for reducing emissions are not going to come from its flagship green policy. Its problems have continued to make national news.

Demand for it from households is minuscule; by the end of November just 458 households had completed works. Even more damning, just 1,612 households have Green Deal Plans in progress, representing just 1% of the 129,000 assessments that have been carried out since the scheme launched this time last year.

These failings are not confined to the domestic market either. A recent report from Westminster Sustainable Business Forum and think tank Carbon Connect also highlights the commercial problems, stating that the commercial sector was currently “failing to link business growth to energy costs”. With commercial buildings responsible for 10% of the UK’s greenhouse gas emissions and with rising energy prices and taxes, potentially this could be a threat to the UK’s corporate profitability.

But, the Green Deal isn’t the only game in town when it comes to funding works to reduce carbon emissions, both domestically and commercially. There is slowly rising awareness of other models to finance sustainable development.

One such model is an Energy Performance Contract that develops, installs and arranges financing for projects designed to improve the energy efficiency and maintenance costs of a building or an industrial process. These can be in the public or private sector.

These different models show that there significant progress being made outside of the Green Deal

The entity that delivers these projects is often called an Energy Services Company (ESCo). What is most important about an ESCo is that the costs for whatever is delivered are directly linked to the savings generated, which ultimately funds the expenditure. When an ESCo undertakes a project, the company’s compensation, and often the project’s financing, are directly linked to the amount of energy that is actually saved. This is ensured through two main types of contract, shared savings and guaranteed savings. In the former the ESCo assumes both the performance and credit risk, while in the latter, the client assumes the credit risk, while the ESCo assumes the risk for the savings.

ESCo projects are usually fairly comprehensive, meaning they utilise a wide range of cost effective measures to achieve energy savings. These include such things as high efficiency lighting, combined heat and power systems, centralised energy management and distribution systems, electricity generation – basically anything which reduces the cost of energy services by improving the energy efficiency of homes and businesses.

There are other funding models outside of the Green Deal too. One such example is Salix Finance, which delivers interest free capital to public sector organisations to improve their energy efficiency and reduce emissions with the capital paid back through the energy savings. Crucially, it is funded by the Department of Energy and Climate Change (DECC), the Scottish and Welsh governments and the Department for Education. It is now the top funding body for the public sector, helping clients undertake over 11,000 energy saving projects which would not have otherwise been delivered, with the expectation of saving £1bn over all of the projects’ lifetime and our firm has been heavily involved in the technical assessments.

These different models show that there is significant progress being made outside of the Green Deal. With rising energy prices and an increase in the CRC carbon allowances price confirmed in the chancellor’s autumn statement back in December, there remain huge opportunities to make energy efficiency a more and more attractive investment for the private and public sectors alike.

Sean Lockie is head of sustainability and carbon management at Faithful+Gould