THE GREEN DEAL WON'T WORK

11/04/2012 13:09:56

Jill Kirby: The Green Deal Could Leave Ministers With A Giant Mis-Selling Scandal On Their Hands

The new Energy Secretary should halt the Green Deal and think again. Unless the government executes a rapid U-tun, it could have a giant mis-selling scandal on its hands.

Back in 2010 the Green Deal was one of the government's flagship policies: the latest big idea, getting everyone to take responsibility for “greening” their own homes and businesses at no upfront cost. By co-opting the big energy companies and DIY retailers, who would also provide the necessary consumer loans, the Deal would painlessly transform Britain into a nation of low carbon households. Energy Secretary Chris Huhne anticipated huge take-up of the scheme, creating up to 250,000 new “green” jobs over 20 years. All householders could benefit, reducing their energy bills whilst improving their homes. What could possibly go wrong?

Quite a lot, it seems. Two years later, the scheme is far from ready to launch and the Department of Energy and Climate Change is becoming nervous about potential take up. The 2011 Energy Act made provision for the Green Deal and placed the necessary obligation on energy companies (replacing their existing duties to offer poor or elderly customers free insulation, energy saving bulbs and the like). But the finer points of the deal, including the loan finance mechanisms and accompanying statutory duties, have yet to be laid down.

Consultations and pilot schemes taking place over the last 18 months suggest that the Deal may not be quite so popular with home owners as ministers expected. Liberal-controlled Sutton Council, in Surrey, was provided with generous government funding to carry out a trial scheme. Of the 400 householders applying to take part in the project, only 67 finally went ahead; the average spend per home was £13,000. Home owners who opted to pay back their loans in 10 years found that their repayments actually exceeded their prospective cut in energy bills by some £256 a year – so their notional energy savings were completely wiped out. This was despite the fact that, to encourage take up, Sutton Council provided 40% of the cost of the works through a non-repayable grant, and made the rest available on an interest free loan.

Given that the national roll-out of the scheme is intended to be self-financing, not grant based, and with loan repayments at commercial interest rates, it's hard to see how the average home owner can possibly be lured into participating in this racket. Hence the news this week that an element of compulsion may be introduced, with the necessary secondary legislation set out in the forthcoming Queen's Speech. As Monday's Daily Mail reported, householders who want to carry out unrelated home improvements, such as building a conservatory or an extension, would have to seek permission from their local council. As a condition of granting permission, the council would require the home owner to undertake energy-saving works at the same time, such as insulation or double glazing. Anyone unable to meet the cost of those additional measures would have to take out a Green Deal loan to pay for them.

Tim Yeo, chairman of the Energy and Climate Change Committee, supports the Green Deal but fears the coercion involved in this latest proposal will put people off altogether. It certainly smacks of desperation, and has worrying implications. Personal debt levels are already too high: in addition to mortgage debt, the average UK household owes a further £7,900 on credit cards and overdrafts and is struggling to pay it off. Advising households to take out Green Deal loans of £10,000 or more, with repayments attaching to electricity bills, hardly seems a responsible course of action; compelling them to do so is probably illegal. The necessary enabling legislation seems almost certain to fall foul of consumer credit regulation. Imagine the protests from consumer organisations if local authorities are able to browbeat householders into finance agreements by threatening to refuse permission for building works.

This is all a far cry from those optimistic announcements back in 2010. Several of the big-name retailers, energy suppliers and finance companies who initially showed enthusiasm for the project appear to have dropped out; others are demanding larger government subsidies to make the scheme more attractive. In January this year Danny Alexander lobbed an extra £200 million at the Green Deal, to be shared among early adopters, but the Sutton experience shows that sweeteners are not enough to sugar this pill: the patient will have to be coerced to swallow it.

This week's headlines should serve to expose the dodgy assumptions behind the Green Deal and to caution home owners to look very hard at the small print of offers that promise them big energy savings. Measures which will quickly pay for themselves – such as lagging a hot tank or putting a layer of insulation in a loft – do not justify the administrative cost involved in setting up loan financing. In any case, most of this “low hanging fruit” has already been picked, by home owners who have done their sums, or by energy companies for low-income and pensioner households. Expensive refits, such as solar panels, new boilers and new windows and doors, simply do not yield energy savings big enough to offset the cost over a realistic payback period. Householders who cannot afford such refits should not be lured, least of all coerced, into taking on debt to pay for them.

The new Energy Secretary should halt this project and think again. Unless the government executes a rapid U-tun, it could have a giant mis-selling scandal on its hands.

Conservative Home, 11 April 2012