As we anxiously wait for DECC’s blue print for reforming the UK’s electricity market it seems an opportune moment to question the likely prospects of the Government’s other (potentially) game-changing ambition for the country’s energy market.
When passed by Parliament, the Energy Act 2011 provided for the most comprehensive energy efficiency scheme ever to be introduced in the UK. While it took the Green Deal another nine months of legislative scrutiny for Parliament to sign-off the last of the accompanying regulations, the scheme, is now ready to hit the market this autumn.
The deal, described by the Coalition Government as “a flagship piece of legislation, which will deliver energy efficiency in homes and buildings across the land,” seeks to deliver a mass energy-efficient retrofit to the UK’s properties. From this autumn, households and business properties* will be able to borrow funds for energy-saving home improvements (cavity insulation, solar PV, heating controls etc) with repayments collected through their gas and electric bills.
It was introduced in the context of rising fuel poverty, legally binding carbon emission reduction targets, and criticisms of existing energy efficiency schemes.
Encouragingly the aims of the scheme and the principles underpinning the Green Deal received broad cross-party support. Sure, Labour moaned at the Government’s overreliance on secondary legislation (making it harder for Labour to have a say) and the Liberal Democrats’ called for more consumer protection measures (which they got). But opposition to the Green Deal never amounted to much more than a whimper. By recent parliamentary standards this was definitely a ‘consensus bill’.
So why then after all the good intentions and good will is the Green Deal on course to flounder?
The answer lies in the likely outcome to one of the first questions raised over the scheme: what would the interest rate for the initial loan be? Alongside the public’s awareness of the scheme, the loan’s interest rate will be a key driver of consumer take-up.
Ministers have now proffered 7.5 per cent as the most likely rate. This is worrying for two reasons. 1.) This high ‘commercial’ rate will determine that certain technologies will not qualify under the “golden rule”, whereby the loan repayments made by the homeowner must be less than, or equal to, the savings on their energy bill; and 2.) with rates as high as 7.5 per cent potential participants of the scheme are likely to question the attractiveness of the investment. How many people will be prepared to pay perhaps 7.5% interest for up to twenty-five years for improvements that, if they pay up front instead will cost significantly less? To retrofit an average sized home enough to lower bills probably costs around £10,000 but will cost £23,000 over the life-time of the deal. It was perhaps ominous that a number of potential Green Deal providers lost interest in the scheme when modelling showed that at 7 to 9 per cent interest rates, energy bill savings after repayments were likely to be relatively modest.
To be fair to DECC, who recognised the problem from the beginning, ministers have managed to extract £200 million out of the Treasury with the aim, apparently, of throwing it at early participants of the scheme in the form of ‘cash-back’. But as Alan Whitehead MP has dryly asked: what happens when the cash-back runs out?
The possibility that the Treasury would back Caroline Flint’s proposal to use the Green Investment Bank to help push the interest rates down were scuppered when her counter-part, the Green Deal Minister Greg Barker, said the proposal amounted to a “subsidy” that would cost tax-payers the earth and “stifle competition” in the process.
A sign that the Government has caught on to the scale of the challenge came earlier this month when DECC announced its intention to cough up for a multi-million pound national communications campaign to promote the scheme to the public. At a time when the government has cut its communications budget in half, this development is significant – not least because the Government had hitherto said it was the role of the private sector to sell the scheme to the general public.
Faced with the imminent launch of a flag-ship policy the sign-off to an expensive marketing campaign suggests that the Government has recognised that it must play a significant part in driving up awareness of the energy efficiency scheme. Ministers know they need to secure sufficient levels of public engagement to ensure that the scheme remains a viable project after any initial spurt of public take-up.
So it appears the national communications campaign has its work cut-out. Not only will the general public need to understand the intricacies of the financing mechanisms better, consumers will want to know the scheme will deliver lower bills and reduce emissions before they let anyone near their attic.
Despite the scheme’s noble intentions there is a real risk that the chance to transform Europe’s most inefficient housing stock may be passed up.
Is there light at the end of the pre-legislative tunnel?
For those who fear for the Green Deal’s viability but want more demand-side measures in the UK’s energy policy armoury it might – just might – be worth looking to the current draft energy bill for some of glimmer of hope. Tucked away neatly in the preamble to the draft legislation you can find the Bill’s only demand-side mention:
“We are currently reviewing the potential for incentivising further demand reduction in the electricity sector. This work will report over the summer, in time to fit legislative time tables, should it be required”.
Fingers crossed then.
* Since then the government has positioned the scheme as an almost exclusively domestic scheme but it is open to businesses who wish to participate.