OnePointTwentyOne

Given that the Green Deal is intended NOT to be funded by consumers as the feed-in tariff is, the question is where will the money come from? Well the simple answer is if you want energy efficiency measure you have to pay for them. Seems reasonable. The Green Deal, simply, is a cheap, long-term loan designed to promote improvements in energy efficiency.

One of the biggest issues some people seem to have with the Green Deal is the Golden Rule and whether or not it is feasible. The Golden Rule sets out that the annual repayments the household installing the measures must be no more than the savings made on energy bills as a result of those measures. So in essence you shouldn’t even notice that the repayments are being made.

Currently the maximum repayment time for the Green Deal is 25 years and the interest rate is likely to be 7% APR (although this may be increased to include inflation as well). At these rates a lot of energy efficiency measures would not meet the Golden Rule, with both internal and external solid wall insulation being the most worrying as according to DECC 7.8 million homes have solid walls and only 122,000 of those are insulated (as of Jan 2012). In order to ensure these measures meet the Golden Rule the funding must be sourced either from Energy Company Obligations (ECO) or from the householder via an up front payment. Here are some examples of the likely repayments of a number of energy efficiency measures.

The plan is to have no maximum cap on contribution from ECO’s but Green Deal providers should be rewarded for persuading householders to take out maximum loan to minimise the cost to energy companies and thus overall energy consumers. However, there are potential problems as the repayments amounts are based on average figures for savings due to individual measures, rather than figures tailored to individual energy use, meaning some customers could end up paying back far more than they are saving on their energy bills. There are also issues with the collection of repayments as part of the household’s energy bills as British Gas have stated they will not have the processes set up by the 1^st October launch date.

Having said that, one of the biggest benefits of the Green Deal is that the repayments are attached to the property not the person, as is the case with traditional finance solutions. The only problem with this is the difficulty that estate agents may have in selling homes with a Green Deal loan attached to them (in a similar way to the problems encountered when selling homes with solar panels I mentioned in my previous post).

So the Green Deal is, in theory, going to do its best to give people the best and cheapest possible way improve the energy efficiency of their homes. But in our current economic climate, how many people are actually going to want to take out a loan, even if it is at a slightly better rate that a standard bank loan. This is what I’ll be exploring in my next blog post: what the likely uptake of the Green Deal is given its current structure.

Microgeneration systems like solar PV are a great way of reducing your dependence on carbon intensive grid power and even with the reduction of feed-in tariff payments for household size systems to 20.8p/kWh from 43.3p/kWh they present a great investment. However, it seems a bit of a waste when we could easily reduce energy demand by improving the energy efficiency of a much greater number of homes for the same cost. I spent a good amount of time last year researching the benefits of solar PV systems vs. home insulation in fuel poor households as part of my MSc research project (if you’d like to read the research paper or full version drop me a message) using the case study of a Leeds City Council scheme in which PV systems were installed on council housing. One of my principal findings was that the same government investment as would be provided by the feed-in tariff (at the <4kW system rate of 43.3p/kWh before the reduction in December 2011) to support just 5,000 systems over 25 years could provide a huge number of households with insulation measures.

Given that a solar PV system also requires a large capital investment of between £5,000 and £7,000 to install, it makes them out of reach for a lot of fuel poor households. There are a number of companies offering to install systems for free (the catch is that they receive the FIT), but there are a few cowboy installers out there and potential problems when trying to sell your house. Putting those issues aside it’s a great way for homeowners to invest in their home, but what about those who don’t own their home? 18% of households in fuel poverty live in private rented homes and there is currently no minimum SAP rating or thermal efficiency standard for these types of properties so tenants have no capacity to make changes to improve the standard of insulation, reduce their energy use and therefore energy bills.

I went to Ecobuild 2012 a few weeks ago and heard from Phil Wynn Owen (Director General, National Climate Change and Consumer Support, DECC) that according to the 2011 Energy Act, from 2016 a rental property must be made more efficient through the Green Deal if requested by the tenant and from 2018 it will be mandatory to do so before a property can be put on the rental market. Having spent the last 5 years as a student living in very cold private rented housing I think this is a great way to improve the standard of insulation in the sector.

There have been a number of articles and comments in the media and a few rebuttals from MP’s and the DECC about the viability of the Green Deal and what sort of market penetration it will achieve. Over the next couple of weeks I’ll be taking a critical look at all the points raised and trying to give a comprehensive and easily understandable view, so if you’re interested follow me on wordpress, tumblr and/or twitter. If you have any opinions, useful sources of info or tips on what to cover please like and comment.