Feature: the Green Deal explained

We’re now just six months away from the launch of Government’s flagship energy policy: the Green Deal, yet questions still remain. “What is it?” “How will it work?” and “Can I trust it?” are just a few of the most frequently asked. On the face of it, the Green Deal looks fairly straightforward, yet many areas remain confusing and could do with explaining. So here goes…

Put simply

When the Coalition Government came into power it made a promise to be the greenest Government ever. Many have scoffed at this pledge since its first mention, yet the Department of Energy and Climate Change (DECC) assured us that the upcoming Green Deal would prove everyone wrong.

The Green Deal has four main objectives:

1. To provide accredited advice and recommendations to improve the energy efficiency of UK homes
2. Improve the energy efficiency at no upfront cost to the homeowner
3. To provide reassurance that improvements will be executed to the highest standards
4. To allow repayments to be made through energy bills, with the opportunity of switching supplier at any time

The key aspect here is that the Green Deal open up energy efficiency measures to everyone, regardless of their financial standing, as there is no upfront cost involved. However, this all hinges on the scheme’s ‘Golden Rule’, which we’ll look at in more detail in a moment. But, first, let’s take a look at which measures are available under the Green Deal.

What qualifies?

Below is a list provided by DECC, outlining what is acceptable as part of the Green Deal policy:

Once a measure has been selected, and it has been checked against the eligibility list, the Green Deal provider must then check that the measure is suitable for the property and then, finally, that it meets the Golden Rule.

The Golden Rule

In order to qualify for the Green Deal, Government stipulates that the expected savings in typical properties consuming a normal amount of energy must be equal to, or greater than, the cost of the Green Deal measure. This is known as the Golden Rule.

The Golden Rule ensures that the cost of the Green Deal measure is recouped through instalments taken from savings on energy bills and, as a result, many will save energy as well as money, while the investor gains a return. Further, the charge attached to the bill should not exceed the expected savings, and the length of the payment period should not exceed the expected lifetime of the
measures.

This element of the Green Deal has been called into question, as many become concerned that the estimated savings won’t actually add up. This was brought up several times during the Green Deal presentations at the recent Solar Power UK Roadshow: Coping with Cuts, yet all speakers agreed that while Government can’t guarantee the savings customers can make, two assessments prior to installation will outline what to expect.

The first assessment will take account of the average energy use of the home, and the second will look at how the occupants use the home so they can enter the green deal knowing how best to maximise what they will save.

Ultimately however, the customer will be the one responsible for making sure their consumption is reduced.

Furthermore, not every household will be able to make cash energy savings by utilising the Green Deal. Lower income and vulnerable households – who may enjoy warmer homes rather than cash savings, and buildings that can only be made energy efficient through major improvements, will need additional support to bring down costs enough to meet the requirements stipulated by the Golden Rule.

The Green Deal Journey

Before a customer commits to a Green Deal measure, they will go on a journey, which involves:

1. Becoming aware of the Green Deal
2. Receiving a visit from a Green Deal Assessor
3. Gaining finance at no upfront cost
4. Receiving the installation from a Green Deal installer
5. Paying for the measure through the Golden Rule

The first stage of the journey will only transpire through successful marketing, conducted by the Green Deal providers. DECC has not set aside a marketing budget for the Green Deal and will be relying on the installers and providers to do this on its behalf. It will, however, be running a remote advice line for confused consumers.

During stage two, the customer will receive a visit from an accredited assessor, who will compose a Green Deal Advice Report (GDAR), including an EPC assessment and occupancy assessment, which will ultimately outline which measures are best suited to the building.

Next, the customer can take the GDAR and shop around for the best deal on the measures proposed. A Green Deal Plan will then be agreed between the Green Deal provider of choice and the customer before the finance is in place.

An accredited installer will then come and fit the measures according to Green Deal installer standards and the Green Deal code of practice.

Finally, the repayments will appear on the energy bills. This means that the ‘loan’ remains with the property, not the customer, so they are free to switch suppliers or even move house. This latter element throws up a few potential problems, which we will look at in more detail in a moment.

But how does the finance mechanism work?

Both owners and occupiers of a property will be able to participate in the Green Deal; however they will need to obtain consent from all relevant parties that have an interest in the property ahead of any measures being installed.

Whilst not a loan, a Green Deal plan attached to the energy meter at a property which has been entered into by an individual or small business is likely to count as a fixed-term credit arrangement, and therefore falls under the protection of the Consumer Credit Act (CCA) 1974. This means that Green Deal providers will need to gain a Consumer Credit Licence from the Office of Fair Trading before they can operate, and will therefore be regulated in their activities. They will need to comply with guidance on offering credit responsibly, and ensure the payments are affordable for customers.

Since energy suppliers are already licensed and regulated by Ofgem, they will be exempt from the requirement to have a Consumer Credit Licence. Ofgem will regulate the collection of Green Deal payments in the same way as it regulates the collection of energy bill payments by suppliers.

While customers will pay off the Green Deal through their energy bills, they will also have the option to repay their Green Deal early, in part or in full at any time.

Moving on

As mentioned earlier, there are several potential problems surrounding the way the Green Deal is financed by the consumer, primarily that the loan remains with the house, not the person, and that it is the residing bill payer that shells out.

1. Landlords could potentially take advantage of the Green Deal scheme by installing as many Green Deal measures as feasibly possible under the Golden Rule, thereby increasing the value of the home. However, they will not be the ones paying for the measures, the tenants will be.
2. Property developers could also take maximum advantage of the Green Deal, increasing the value of the house, and then sell it on. For example, if they were to install energy efficient glazing on a house costing £140,000 it could increase the value by £10,000 to £150,000. They will then sell the property on, making the additional £10,000 profit and leaving the new resident to pick up the bill.

There is also one other, rather glaring issue with the Green Deal and that is: will anyone actually bother? The fact is that many of the measures available under the Green Deal have been offered by energy companies for free for the past few years – yet no one has taken them up on the offer as it’s simply too much hassle. A case in point is loft insulation, as pretty much everyone who has a loft has years’ worth of junk up there that they were hoping to forget about. Taking it all out to fit insulation is really just taking up time they’re not willing to commit.

Nevertheless, this latter point could be rectified as energy bills continue to rise and Government persists in getting the energy efficiency message out there. The other problems, however, are not as easy to solve. These issues will be discussed in detail during the upcoming Solar Power UK 2012 Green Deal seminar, which will be held shortly after the launch of this flagship energy policy.

But what does it all mean for solar installers?

The Green Deal is, as you’ve probably gathered from the length of this article, a complicated policy with many areas that will need to be ironed out. However if it all goes to plan, one thing’s for sure: it will benefit the UK solar industry.

As many of you will be aware, from April 1 this year solar feed-in tariff rates have been linked to energy efficiency ratings, meaning customers will have to gain EPC level D before they can benefit from the highest rates. This could prove to be a very significant step for the solar industry, as PV will count towards gaining a level D, and the Green Deal will be instrumental in helping solar installers to sell more solar systems for two reasons:

1. PV is one of the listed Green Deal measures
2. Solar installers can branch out to offer other Green Deal measures that can be used to bring a property up to the required D

For example, a customer interested in having PV installed on his property finds out that his property is at an EPC level E. By installing PV the customer is told they will get to a level D and will therefore receive the full feed-in tariff rates as well as increasing their home’s energy efficiency.

When will it be available?

So, if you’re still with me, you’ll want to know when the official Green Deal rollout will commence. Unfortunately however, I can’t give you a solid answer.

Government has recently published a list of 20 prospective Green Deal providers, and repeatedly tells us that the scheme will begin in October this year. Yet whether this will actually happen or not remains to be seen.

As with most of Government’s policies, things are likely to be delayed, and there will almost certainly not be a mad rush in autumn. However, since the Green Deal is the backbone of the Coalition’s green agenda, it will go ahead as planned – it might just need a few tweaks before that happens.

If you’re interested in the Green Deal and want to know more about how you can get involved make sure you keep an eye on the Solar Power UK 2012 event website for updates on the Green Deal seminar.

Solar Power UK 2012 will be held from October 2-4 at the NEC in Birmingham.