UKGBC proposes trio of Green Deal strategies

On the anniversary of the launch of the under-achieving Green Deal, the UK Green Building Council has published a report offering three strategies to reform the complex programme that could help boost uptake.

Although more than 100,000 assessments have been carried out, fewer than 1,500 households have signed Green Deal Plans, with under 500 homes having actually installed energy saving measures using the current finance arrangements.

Green Deal Finance: Examining the Green Deal interest rate as a barrier to take-up studied the impact of interest rates on the programme, concluding that households were more likely to see the length of the loan – up to 20 years – as more off-putting than the 8-10% interest rates offered by the Green Deal Finance Company. 

However, it pointed out that the interest rate directly impacts on what measures can be funded under the “Golden Rule”, which states the expected financial savings must be greater than the costs attached to the energy bill. In order to undertake certain packages of work, householders have to make substantial contributions from their own pocket or take out further loans.

Therefore, the report argues lowering the interest rate would therefore increase the number of measures that could be installed under the Golden Rule, potentially making the scheme more attractive.

Christoph Harwood, partner at Marksman Consulting who chaired the UKGBC task group that produced the report, said: “The report finds that while current interest rates are not the biggest barrier to take up of Green Deal finance, lower rates would make the scheme much more attractive to consumers.”

The three measures put forward are:

• The government subsidising a lower interest rate. For every £1bn worth of Green Deal plans taken out by householders, it would cost government up to £300m to reduce the interest rates to between 4% and 5%.
• Changing the Green Deal policy. Relaxing the Golden Rule would allow households to choose to repay loans more quickly and therefore reduce the overall amount repaid.
• Alternative sources of finance. Social investors or community funding could offer finance at lower interest rates using Enterprise Investment Scheme tax relief, allowing them to reduce their cost of capital to 4-5%. Alternatively, local authorities could access low cost capital to offer their own localised Green Deal finance packages delivering an APR of 5-7%.

The UKGBC report was compiled by a working group with representatives from financial intermediary Adca Investments; Behaviour Change, a not-for-profit think tank working to help people lead greener lives; Carillion; Consumer Futures (formerly known as Consumer Focus); E.ON Energy Services; the Energy Saving Trust; Ernst & Young; Forum for the Future; Gentoo; the Green Deal Finance Company; Keepmoat; environmental finance company Marksman Consulting; Saint-Gobain; Travis Perkins; climate change consultancy Verco; and Willmott Dixon.

Meanwhile, the Guardian reported at the weekend that the official Energy Saving Trust  figures on the typical amounts households could save on their energy bills by installing insulation and switching to more efficient boilers were set to be revised downwards.

The Guardian said that the move was triggered by the publication in November 2013 of a DECC study of around 21,000 households that had installed such measures.

It then quoted figures on likely financial savings calculated by environmentalist Chris Goodall using the DECC report’s data. Goodall concluded that the EST figures – quoted on its website and often used to support the Green Deal’s Golden Rule calculations – were distinctly over-optimistic. 

A spokesman for the EST agreed that new figures were due to be published in early February – as part of its annual update process – and might in some cases be revised downwards. However, he stressed that the EST’s calculations were based on a far broader range of input data than the DECC report alone, and that Goodall’s calculations missed a large part of the picture.