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Is this Green Deal the start of a revolution?

ImageA trip to Marks & Spencer may be the way energy efficiency services are provided in the future. But questions remain before this deal is finalised

There is no doubting the ambition of the Green Deal. “We are launching a revolution in energy efficiency,” says Chris Huhne, Secretary of State for Energy and Climate Change. “A once-in-a-lifetime refit of our outdated homes to make them fit for 2050.” It is the centrepiece of this entire strand of energy policy, itself regularly billed as his “number one policy priority.” His ministerial colleague, Greg Barker, adds that every home -there are 14m – must be retrofitted within the decade.

Those are the ambitions. What is the substance of the Green Deal? This month the government will publish its Energy Security & Green Economy Bill. A large portion of this legislation is given over to enabling the Green Deal to operate.

Access to capital

The Green Deal is based around providing access to capital to make improvements. Right now, it is perfectly possible to extend an existing mortgage to obtain capital to improve a home. Mostly this has been to fund an extension, or to pay for a kitchen or bathroom makeover. Just occasionally, the loans have funded larger energy efficiency improvements. The capital is then repaid as part of the standard mortgage repayment, with the implicit threat that defaulting imperils ownership of the entire home. Acquiring such a loan requires credit checks.

In contrast, the Green Deal legislation will permit the occupier to acquire the funds, without placing ownership of the home at risk. That is because the money is not to be repaid as part of the mortgage, is not backed by the house as an asset and does not depend on the credit status of the occupier. Instead the repayment will be attached to the fuel bill (usually, the gas bill). And repaid at the same time as that bill – quarterly, rather than monthly.

The new legislation enables anybody to offer an energy efficiency package to households, to organise installation of the relevant measures, and then to be repaid. The task of collecting the money owed would fall to the energy company. Which would then refund the Green Deal provider.

And who might these providers be? Ministers have over recent months cited various household names – Marks & Spencer and B&Q most regularly. So will anybody be able to declare themselves a Green Deal provider? The answer to that is firmly: no. So how will they obtain clearance, and from whom? This is where as yet the details become rather murkier. As indeed do quite a lot of other rather important issues.

There will definitely be a Green Deal imprimatur, as both a marketing device, and as a reassurance. How that dovetails with existing industry-wide guarantee schemes for windows, or boilers, or for cavity wall insulation (or the “under development” guarantee regarding solid wall insulation) is still to be seen.

There may (or may not) be a cash limit regarding how much can be spent on an individual building. Prior to the election, both coalition parties mooted maximum figures (of £6,500 and £10,000) each. But the current trials, initiated under the old Pay As You Save concept earlier this year, are frequently involving sums way in excess of these.

Chris Huhne has said he wants each home only to be visited the once between now and 2050. The inference is that, rather than installing just a few measures, the expectation will be that a “whole house” improvement will be the norm. Meanwhile, Greg Barker last month cited £6,000 as a possible maximum, far from the figure necessary to complete a whole-house refurbishment.

Guarantee returns

Then there are the various other facets still being explored. A “Golden Rule” is to sit at the centre of the “Deal”. The intention is to ensure that, once the measures have been installed, the subsequent combined fuel bill and charge must be lower than before. Will that mean that only those energy-saving devices that can guarantee returns within a few years will be countenanced? Or will there be assumptions regarding fuel prices over the length of a repayment contract, variously cited as lasting 20, 25 or 40 years? Equally, product guarantees are being sought to coincide with the length of that contract – which would rule out the vast bulk of non-fabric measures from the start.

The ambition behind the Green Deal is huge, albeit matched by uncertainties regarding its details. A few days ago, I shared a public platform with one of the directors of the Big Six. Far from a Neanderthal, this man is one of the most far-sighted and aware in that industry. He asked me this rhetorical question: “We have spent the last ten years heavily subsidising installation of the most cost-effective energy saving items: loft insulation, cavity wall fill. An increasing part of our costs have been finding people to take these offers up. The Green Deal is going to say to these previous refuseniks: pay for these same items at a full unsubsidised rate, plus others less cost-effective, plus a full interest rate. What on earth will make this package so much more attractive?”

It is a fair question. It is one that we will need to be able to answer convincingly by October 2012.

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