How to finance energy efficiency in buildings – Green Deal – ahead of its time? or never to rise again?

We are still waiting for the UK climate plan (aka the emissions reduction plan), it’s now well overdue.  Government are struggling to find a plan to fill the carbon gaps in the 2020s. Green Deal (GD) should be relaunched and the energy companies forced to back it. That could kill two birds with one stone: forcing the Big Six to redistribute some of their profits and driving forward the carbon mitigation agenda.

The GD policy was ahead of its time, it was let down by poor planning, poor evidence and poor implementation; can we learn the lessons and relaunch it?

The UK Government put in place a framework to enable private firms to offer consumers energy efficiency improvements to their buildings at no upfront cost.

GD formally started in January 2013, then pulled in July 2015.  At the heart of the Government’s proposals was a new financing mechanism which allowed consumers to pay back through energy bills. Consumers were to see the energy savings on the same bill as the Green Deal charge. Accredited assessors and installers and GD providers were going to liaise with potential clients to identify and install the appropriate energy efficiency measures. Those residential consumers less able to pay were to be supported by the Energy Company Obligation (ECO).

Poor planning, evidence and implementation:

  • Evidence about consumers’ energy behaviours is poor and the effectiveness of energy efficiency measures is often obscure. So assumptions about consumers’ choices are usually highly uncertain. Unfortunately, this wasn’t reflected in Ministers’ and officials’ thoughts and pronouncements.
  • An earlier post suggested that perhaps consumers are rationally sceptical about energy efficiency investments, because, in practice, the savings have, in fact, turned out to be well below the claimed levels, although usually still significant.
  • Another problem for the Green Deal was the supply-chain shambles that prevented many consumers signing up. GD assessors could: neither agree on floor area of properties, nor its thermal properties, nor what measures were required!
  • All that could have been handled if the energy companies (the big six) had got behind the scheme to support the parallel Energy Company Obligation (subsidised energy efficiency and fuel poverty measures). However, the big six managed to argue that their targets were too expensive (Ed Milliband surprisingly had a role in this!) and got them watered down, so did not need the Green Deal to support their ECO targets.
  • Of course the GD 7% rate of interest was seen as too high by some consumers; it was undermined by monetary expansionism (which reduced wider interest rates). Case of one hand not knowing what the other was doing.
  • Another aspect of the fiscal squeeze was the poor and delayed marketing of GD. Incredibly DECC adverts were found to be misleading consumers! (by the ASA).

If a relaunch is to succeed, the new Green Deal will need to be much more streamlined – to make things simpler and more secure for consumers. It will also need to be backed wholeheartedly by the energy suppliers: to generate economies of scale, particularly for Green Deal finance.

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