Is the Green Deal a Red Herring?

As industry in all corners scrambles to position itself in readiness for a perceived retrofit bonanza provided by the Green Deal from Autumn 2012, and as we contemplate the impact of Government delaying the Energy Bill which drives it by 3 months, we thought it would be useful to sit back and really look at what is happening here.

What problems is the Green Deal trying to solve? Well, there is one key problem at its heart – that the interventions saving the most energy and CO2 emissions have long economic paybacks beyond their time in the house and householders do not have the upfront cash to pay for them. Full stop. It will achieve this by allowing a long term loan to be fixed to a property (not the owner) but in such a way that it ensures the total household outgoings (energy plus loan) will remain lower than the original energy bill.

The Calculation of Simple Economic Payback

Thereafter follow a wide range of secondary issues which the Government is seeking to address so that take-up of the finance packages is not hindered:

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• Accredited assessment procedures and assessors.
• Lists of approved measures.
• A quality control process for the approved installation army.
• FSA approved loan scheme attached to the house not the owner/resident.
• Insurance backed guarantees on certain measures.

So aside from the ‘loan’, the Green Deal is putting lots of building blocks together which instil quality processes into an industry which, frankly should be there already. This is great news of course and I will look at these in detail in later blogs.

Let’s address the core of this, that the key blockage to significant energy efficiency improvements is the long economic payback of those measures which give us the biggest savings i.e. that their cost of installation outweighs the relative annual benefit by say a factor of 10 or more.

1.       Years of offering free or heavily subsidised insulation measures with next-to-no payback and very disappointing take up. See page 110 of the Climate Change Committees latest budget report to underline this.

2.       As we proved 6 years ago with our Carshalton Grove demo house (link) it is the approach to the work which ensures that installed costs are minimised.

3.       Once the expected interest rates of 5 to 8% APR are added to the overall cost, we might expect the payback period of the Green Deal package to double. This may mean that we can only afford to go for those measures that will pay back quickly i.e. that the Green Deal will have missed its core aim.

Without being able to reduce the economic payback as low as possible through effective delivery, attractive interest rates and other incentives to pull customers in, there may be little take up of the measures. As we will go onto explain in a series of blogs, the concentration of effort in industry ought to be on offering the best possible economic payback by;

• thoroughly analysing all appropriate options for the home, including lifestyle guidance, then;
• creating a whole house plan such that each initiative has an energy saving benefit presented;
• industry logistics become such that those measures identified in the whole house plan are tackled when the most appropriate situation arises e.g. underfloor insulation when a floor is lifted e.g. insulating the wall behind a boiler when the new boiler is installed e.g. a social housing void or a new house purchase becomes available to tackle all identified measures at once

So to that end, the most effective adviser to a homeowner will select the most appropriate financial mechanism to suit the content and the manner of the house upgrade. The ‘Green Deal’ may or may not be appropriate, and as such ought not be touted as the answer to all of our prayers. As such I would contend that the focus on the Green Deal financing is a Red Herring. All of the excellent work on appropriate advice and installer competency currently being developed is the real winning outcome here.

To follow:

Blog 2 - Economic Payback as the Core Green Deal Calculation

Blog 3 - The Measures to be Carried Out

Blog 4 - The Green Deal Advisor and Their Report

Blog 5 - The Accreditation of Installers

Blog 6 - The Green Deal as a Red Herring….