Damning reports show Green Deal failed to deliver value for money

The National Audit Office (NAO) has put another nail in the coffin of the Green Deal after concluding the scheme failed to achieve value for money, costing taxpayers millions and even leading to higher energy bills for consumers.

In two damning reports released today the NAO claimed the scheme, which cost £240 million from the public purse, did not generate additional energy savings after just 14,000 homes signed up over a four-year period.

It also concluded that the design of the Energy Company Obligation (ECO) as a support scheme to the Green Deal meant that the cost of energy suppliers meeting their obligations was increased before being passed on to homeowners.

While DECC was able to reach its target of improving one million homes through both schemes, the overwhelming majority were through ECO, which has cost homeowners more than £3 billion since January 2013.

The NAO report on the two schemes claims that failure of the Green Deal to provide finance to top up the cost of ECO measures meant that while the government was able to reach its intended number of homes, Green Deal finance saved negligible amounts of CO2.

This is supported by comments made by DECC itself in July 2015 when it said in a report submission that Green Deal finance is “unlikely to have provided any material additional energy and carbon saving over and above what would have been delivered by other policies” in its absence.

ECO became the dominant energy efficiency scheme to pick up the slack and according to this latest report, it is expected to deliver 24 megatonnes of CO2 (MtCO2) savings over the lifetime of the measures installed.

However, the NAO says this is approximately 29% of the predecessor schemes’ achievements over similar timescales. The report asserts that ECO was initially focussed on harder-to-treat homes, in which increasing energy efficiency is relatively expensive, as earlier schemes had absorbed demand for cheaper measures.

To keep suppliers’ total costs similar to previous schemes DECC set lower suppliers’ obligations for CO2 savings in 2014 in an attempt to reduce the impact on household bills. This had the effect of shifting the scheme away from its focus on carbon savings and policies brought in to pick up the slack failed to do so, the report adds.

ECO is said to have generated £6.2 billion of notional lifetime bill savings to 31 December 2015 in homes most likely to be occupied by fuel poor people. However, the NAO report points out that there are significant gaps in DECC’s information on costs, making it difficult to gauge how well its schemes did in meeting its policy objectives.

Amyas Morse, head of the National Audit Office, said: “Improving household energy efficiency is central to government achieving its aims of providing taxpayers with secure, affordable and sustainable energy. The Department of Energy and Climate Change’s ambitious aim to encourage households to pay for measures looked good on paper, as it would have reduced the financial burden of improvements on all energy consumers.

“But in practice, its Green Deal design not only failed to deliver any meaningful benefit, it increased suppliers’ costs – and therefore energy bills – in meeting their obligations through the ECO scheme. The Department now needs to be more realistic about consumers’ and suppliers’ motivations when designing schemes in future to ensure it achieves its aims.”

In an accompanying investigation into DECC’s loans to the Green Deal Finance Company, the NAO also found that the department was expected to lose out on over £30 million in stakeholder loans and accrued interest in addition to other funds spent on the scheme. The department based its stakeholder loan on forecasts of significant consumer demand which failed to materialise.

The NAO has followed several commentators since the Green Deal was closed in July 2015 and concluded that the scheme was unsuccessful due to the Department for Energy and Climate Change failing to persuade householders that energy efficiency measures are worth paying for.

Richard Twinn, policy advisor at the UK Green Building Council, said: “The Green Deal was a pioneering attempt to bring private finance into the home retrofit market, but poor management ultimately set it up to fail. High interest rates limited the amount that could be borrowed under the scheme, and a lack of long term incentives meant there was insufficient demand from householders. This was compounded by constant policy changes which made it very difficult for the industry to invest.

"However the Green Deal was never going to be a silver bullet for improving all the UK’s draughty homes. Rather than relying on piecemeal individual policies, the Government needs to set out a long term vision for improving the housing stock and then work with the industry to develop a suite of policies which provide a compelling offer to every household.”

Despite this criticism, DECC has remained positive over the fate of its failed policy. In response to the NAO’s findings, a spokesperson for the department said: “As the NAO itself has said, government schemes will deliver over £6 billion of energy bill savings to the most vulnerable and have already helped make more than one million British homes warmer.

“This government is clear about the need to have firm financial controls in place to protect consumers, which is why we took action last July to address the issues in this report – stopping funding to the Green Deal Finance Company and setting up an independent review of the energy efficiency sector.

“We are now designing a new scheme that will help make even more homes warmer and bring people’s bills down.”

This is referring to a new version of ECO due in April 2017, which will target the fuel poor with a budget of £640 million per year. The government has said this will deliver energy saving measures to 200,000 homes a year to 2022; the NAO report claims there are currently 2.3 fuel poor households in England alone, with around half not benefiting from the new policy.

There has been no update on a new able-to-pay scheme similar to the Green Deal which would incorporate technologies like solar which are currently left out of ECO. DECC’s own Lord Bourne announced during a select committee meeting in January that the department would likely publish a set of principles for a new scheme by the end of the year, but that any new scheme would fall behind the implementation of the new supplier obligation scheme - DECC was unable to elaborate on this further.