Purpose of this paper
The genesis of this paper was the speech made by the Secretary of State for Energy & Climate Change, the Rt Hon Edward Davey MP, at a reception on the Terrace of the House of Commons on September 3 hosted by this Association.
In his speech, he challenged the Association, on behalf of our industry, to put forward recommendations as to how the effectiveness of the Green Deal/ECO programmes might be improved immediately. This paper sets out a series of practical proposals regarding ways in which a series of operational issues should be addressed.
1 The Green Deal
1.1 Improving the Customer Journey
Five of our members – SIG, Carillion, InstaGroup, Mark Group and Wolseley – are Green Deal providers. They have all raised issues about the length and complexity of the customer journey under Green Deal. There is a strong view that the journey for the customer is long, complicated and potentially off-putting. It is clearly understood that consumer protection is of paramount importance, but there is equally a widespread view that the process of taking a customer through from enquiry stage to the signature of a Green Deal plan needs to be simplified and made more consumer-friendly.
A particular concern on the part of Green Deal providers is that there is considerable confusion as to whether or not advice about the detailed provisions of the Green Deal credit agreement has to be read out to would-be borrowers in circumstances where the transaction takes place over the telephone. Lawyers for the Green Deal Providers’ Group believe that, in order to comply with the Office of Fair Trading’s Guidance for Creditors, this advice must be given orally (see para. 3.7 of the Guidance). Our Provider members are therefore currently reading out this advice over the phone, even though it serves to make the customer journey even more arduous than ever. However, lawyers for the Green Deal Finance Company say that a telephone transaction is in compliance with the Guidance if that detailed advice is sent out by post or email afterwards. Our own reading of the Guidance would suggest that this latter view is wrong. Urgent clarification is therefore needed from DECC.
A further overarching concern is that DECC have failed to produce templates for standardised customer journeys under both Green Deal and ECO. This has meant that each of the providers has had to create their own bespoke customer journeys, which has entailed considerable work and has still left them with areas of uncertainty, particularly as regards the requirements in relation to the ECO Carbon Emission Reduction and Carbon Saving Community Obligations. The requirements for the Green Deal Finance and ECO Home Heating Cost Reduction Obligation are better understood. Standardised templates – or at least clear guidance – are therefore sought from DECC.
Our Green Deal provider members have articulated a related concern – i.e. that while they, as large and well-resourced companies, have been able to put a lot of time and effort into tailoring their bespoke customer journeys, the smaller SMEs who comprise the majority of Green Deal providers are unlikely to have been able to devote the same amount of resource or time. There is a concern, therefore, that some of these providers may, in the absence of guidance, be inadvertently not following proper procedures, which may in turn lead to the Green Deal being discredited.
1.2 Private Rented Sector
Many factors have so far conspired to make the Green Deal all but ‘off limits’ for the private rented sector (PRS). A lot of these have to do with the interplay between the Consumer Credit Act (CCA) and the Green Deal Plan, which is a novel type of unsecured credit.
Particular confusion has arisen as to who is the ‘debtor’ for the purposes of the CCA. While this is straightforward for an owner-occupied property (where the owner will sign both the Green Deal Plan – as improver – and the CCA credit agreement – as electricity bill payer), with a tenanted property it is quite possible that the Green Deal Plan will be initiated by the landlord (as improver), but the instalments will be paid by the tenant (as electricity bill payer).
On 9 May DECC launched a 4 week consultation on whether to clarify the situation by amending the definition of ‘debtor’ in the CCA. On 6 August DECC published their response, confirming their intention to amend the CCA definition of ‘debtor’ to cover (a) the person who for the time being is liable to pay instalments under the Plan as a result of being liable to pay the energy bills for the property, and (b) any other person who has arrears under the Plan as a result of having been liable in a prior period to pay the energy bill for the property.
It is hoped that this will provide clarity and certainty to the market, especially Green Deal providers, as to who is responsible for Green Deal debt in the rented sector. However, until this amendment is made, there will be next to no Green Deal activity in the PRS. This is a real shame, as Green Deal providers had looked to landlords as representing a big opportunity for them, particularly in light of the upcoming PRS Minimum Energy Efficiency Standard that will come into effect in April 2018 at the latest. This amendment should therefore be made as soon as possible.
There are also a number of other problems in relation to the PRS. These include the following:
- Many landlords will be deterred from taking out a Green Deal plan because only accredited installers are able to install energy efficiency improvements and many landlords (especially the larger operators) prefer to have their own tradespeople carry out works. These may be small companies or even in-house staff. There is little incentive for installers to become approved Green Deal installers: not only does the process cost in the region of £900, but the Green Deal installer accreditation scheme (based on the Microgeneration Certification Scheme) is seen as unfriendly to installers, risk averse and over-complicated.
- A further uncertainty exists in relation to whether an individual landlord (especially a buy-to-let landlord with one or two properties) is in business or is a consumer. This is not helped by the fact that there is no clear definition of ‘business’ in either the CCA or the 2011 Energy Act. This matters because under the CCA, credit agreements are only regulated if the debtor is an individual, not a business. It is quite clear that if the debtor is a corporate body, then the agreement is unregulated – but, as stated, things are much less clear-cut where the debtor is an individual (or a partnership with no more than three partners). Hitherto DECC have said that Green Deal providers must make their own judgment as to a landlord’s status, but because of the uncertainties in both statute and case law, this is not a judgment which they find easy to make.
- Allied to this, if an agreement starts out as an unregulated one but subsequently becomes regulated (as a result of the Green Deal plan being transferred to the tenant), DECC state that a modifying agreement has to be signed by the tenant. However, many lawyers express doubt as to whether such an agreement is in fact legally permissible. There is also uncertainty whether, on the transfer of an agreement to a tenant, pre-contract information has to be given to him/her and whether or not the tenant is entitled to a cooling-off period.
In practice, these and other uncertainties have led to the PRS being virtually a ‘no-go area’ for Green Deal providers. The corollary is that landlords’ associations like the Residential Landlords Association have so far felt unable to appoint a preferred partner to provide a Green Deal service to their members. Until the uncertainties are resolved, this will continue to be their (regretful) position.
1.3 Level of Customer Deposits
There is widespread concern that the Golden Rule is being calculated in such a conservative way that it is deflating the possible level of energy savings that will meet the Golden Rule. This means that customer deposits (or up-front contributions) end up being unattractively high for a large number of would-be customers. A number of factors play their part in these conservative calculations. These include the fact that in-use factors (designed to cover any potential gap between theoretical energy savings and actual savings) are applied at standard rates, e.g. 33% for solid wall insulation and 25% for boilers. There is no credit given for higher quality solutions as regards either the product or its installation. In addition, Green Deal legislation only allows the Golden Rule calculation to account for future fuel inflation at 2%. In fact fuel inflation has been running at around 7% for the last ten years. Without a more realistic estimate of likely fuel inflation, the level of savings consumers can expect to enjoy through energy efficiency improvements is understated, adversely impacting the Golden Rule calculation and in turn the amount of funding that can be borrowed.
This is of particular concern in relation to solid wall insulation, where Green Deal Finance contributions tend to be extremely low in relation to its cost and the level of ECO contributions is in general nowhere near high enough to make up the shortfall. If the customer is not in a position to make up the shortfall through his/her own savings, he/she is highly unlikely to go on to install solid wall insulation.
This serves to highlight a wider point, which is that restricting the financial offer to one product only – i.e. Green Deal Finance – serves only to limit the attractiveness of the scheme. There should be a wider range of financing options, including smaller, short-term loans.
1.4 Green Deal Finance
The delays in introducing Green Deal Finance have been well documented and often rehearsed. However, there is an ongoing concern that there is still no standard Green Deal Finance plan in existence. There is also no clarity as to when one will be available, though the latest official estimates would appear to point to the end of this year. In the view of our members, this is completely unacceptable.
Related to this is the fact that the Green Deal Finance Company does not currently provide finance to the non-domestic sector. While this market is clearly very different from the domestic sector, our members believe that the Green Deal Finance Company should be able to provide finance to it using the same systems. Consideration should also be given to enabling non-domestic customers to borrow extra sums on top of the Green Deal finance and pay the whole sum back through the energy bill. This would be a considerably more attractive proposition to sell to the non-domestic sector.
1.5 Marketing, Public Relations and Customer Awareness
Many members have commented on the low levels of customer awareness about the Green Deal. There is also a feeling that the limited marketing that DECC undertook early in 2013 was too early in that the market was not then in a position to respond. A new marketing push as we approach the autumn would now be very helpful – with a view not only to engaging the general public, but also to providing greater clarity to delivery partners, e.g. local authorities and housing associations. The latter would also benefit from proactive support and guidance. Our members’ experience in Wales was that the Welsh Government’s support in raising awareness of Community Energy Saving Programme (CESP) with councils and housing associations significantly helped boost take-up.
In this regard, it is worrying that DECC confirmed (in a response to a Freedom of Information request on 15 August) that there is currently no future marketing budget for the Green Deal – something that has been roundly criticised by the industry in the press. More generally, we believe that there is a pressing need to build up consumer awareness of the benefits of energy efficiency retrofits, whether they are paid for through the Green Deal or by other means.
We also believe that there has been a serious failure on the part of DECC to combat, through effective public relations, negative media stories about the Green Deal. There should be a focused public relations effort throughout the coming autumn and winter to remedy this situation.
On a more general point, it is a matter of great regret that the network of Energy Saving Trust Advice Centres has been disbanded. They worked closely with local authorities and others and provided an invaluable source of information to the general public. In addition, the EST used to maintain a database of available schemes, offers and discounts, which was also very useful. In the absence of this readily accessible, hands-on advice, the general public is finding it harder than ever to obtain information about energy saving products and schemes.
1.6 Green Deal Cashback Scheme
We believe that the most significant barrier to wider take-up of the Green Deal cashback scheme is the fact that DECC are insisting that relevant installations be undertaken by Green Deal-accredited installers and signed off by Green Deal providers. This effectively prevents the vast majority of SMEs and sole traders from participating in the scheme. As official figures demonstrate, 85% of the cashbacks claimed so far have been via one Green Deal provider – British Gas.
In our view, this barrier must be removed forthwith. Not only is it effectively a constraint of trade, but it also ignores the everyday reality of the existing supply chain. If a householder wishes to get energy saving measures installed, they contact their local builder or heating engineer. These SMEs and sole traders must therefore be able to offer the cashback direct and not via a Green Deal provider. This would have a very positive impact on uptake – currently an installer is unlikely to pass a job lead on to a Green Deal provider for fear of losing that job.
On a related point, it is questionable whether it makes sense to require a customer to have a Green Deal assessment before they go on to make a distress purchase, like a boiler. In circumstances such as these, surely it makes more sense to allow for the installation to go ahead without delay, with the Green Deal assessment being done subsequently to enable the cashback to be paid?
1.7 Credit Brokerage
There is uncertainty as to whether an individual or organisation (e.g. a landlord or community group) that introduces someone to a credit agreement requires a Category C (credit brokerage) licence under the Consumer Credit Act. Given that such licences cost around £1,200 to obtain, this would be a disproportionately onerous requirement. After some pressure, the Office of Fair Trading has now produced guidance, but this guidance is far from clear. Further clarification is definitely required.
2 Energy Company Obligation
2.1 Solid Wall Insulation
Up till now, suppliers have been focusing on meeting their Carbon Emissions Reduction Obligation through the installation of cavity wall insulation. There is therefore a concern that the resulting lack of demand for solid wall insulation (which the ECO was designed to promote) is all but killing the solid wall insulation market. In the absence of a monthly or quarterly quota for solid wall insulation to spread demand, there is a worry in the industry that the market will not be able to ramp up installation capacity to meet demand, should that demand materialise in a rush towards the end of ECO (as is predicted). Such a minimum quota would help ensure the smooth delivery of the Government’s (and the Committee on Climate Change’s) longer-term ambitions for solid wall insulation, and ultimately help ensure statutory carbon targets are met.
2.2 Access to Data
As time passes, the costs of finding households – ‘costs of acquisition’ – become ever higher. There is a widespread view therefore that the Government should give greater access to the various databases which it holds. This would help to bring down considerably the costs of ECO delivery. We recommend the establishment of a cross-departmental working group to look at this issue in more detail and to make recommendations for the way forward.
2.3 List of Qualifying Products
There is some frustration that the ‘approved list’ for products used for the Carbon Emissions Reduction Target (CERT) and CESP has not been taken forward into the ECO. This has caused confusion for industry, who expected that the guidelines for ECO would be broadly similar to those in operation under CERT and CESP. A concrete example of this is the case of a British company and ex-ACE member, MGC Ltd, which has a unique solid wall insulation product that qualified under previous schemes. However, they found the process of qualifying under RdSAP so laborious that, even after high-level meetings with DECC to try to speed up the process, progress was still painfully slow. As a result, after six months of no business in 2013, they quit the marketplace altogether. We believe that this outcome was wholly avoidable.
Another important point is that the calculation tool (RdSAP) used to deliver both ECO and Green Deal does not have the same ability to differentiate by U-value as does full SAP. Given that RdSAP assumes that walls, roofs and floors will meet Building Regulations but do no better, there is no incentive for industry to innovate and produce better-performing products or systems as they would not be rewarded with a higher value under RdSAP.
2.4 Certification of Hard to Treat Cavity Measures
Ofgem are currently consulting on various requirements for demonstrating the characteristics of a cavity wall in which insulation has been installed. These include a proposal that all insulation installations in hard-to-treat cavities will have to be certified by a qualified chartered surveyor, who is also required to be independent of the supply chain (including the installer), but not of the supplier. Hitherto it has been considered entirely sufficient and appropriate to have the cavity wall insulation installation signed off by an in-house surveyor. Our members believe that the Ofgem proposal is wholly disproportionate and overly onerous. If implemented, it will add more cost to the delivery process, which will ultimately go on everyone’s bills.
2.5 Continuity and Certainty
An early announcement is needed from DECC on the shape of ECO post-2015. This will enable the utilities and the supply chain to gear up to delivering the measures that will be needed. Industry needs a long-term, stable scheme where changes to ECO do not result in interruptions to industry activity. Lack of certainty and clarity causes delays. There is a general view that changes to ECO should only be made where absolutely necessary in order to provide continuity.
2.6 Jobs, Training and Quality of Workmanship
The ECO scheme (and the Green Deal of course) offers an opportunity to create and nurture skilled jobs within UK industry, but there remains an urgent need to improve both skills and quality of workmanship. Integral to this process is the improvement of existing quality standards.
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