The Green Deal is the government's flagship policy for improving the energy efficiency of the nation's housing stock and non-domestic properties. Although not due to start until late 2012, the broad outlines have already been set out, and these could be crucial for anyone deciding on installing energy-saving measures or renewable energy technologies in the near future.
Essentially, the scheme provides upfront finance for homeowners and businesses to cover the capital cost of installing an eligible measure, for example, a new energy-efficient boiler or solar panels. The loan is repaid from the projected saving in energy costs of the property, calculated over the lifetime of the loan, say 20-25 years. It is thus designed to overcome the major obstacle to take-up of such measures, namely the initial cost.
The loans will be provided by the energy companies and also by high street retailers such as Tesco and Marks and Spencer, many of whom already offer their own energy tariffs. Repayments will thus become part of the property's energy bill, although in theory the deal should see the householder better off at the end of the loan repayment period than if no measures had been installed.
How will it work?
Obtaining finance through the Green Deal involves three steps:
1. Is the measure eligible?
One principle of the Green Deal is that any measures attach to the property for the lifetime of the loan, and cannot be moved elsewhere. So, an eligible measure would be one that cannot easily be taken by someone when moving home, for example. The criteria for this are still being drawn up. However, measures that the government are considering are listed in the box below. Note that when a property is sold, the loan will transfer to the new owner.
| Measures being considered for eligibility under the Green Deal | |
|---|---|
| Heating, ventilation and air conditioning | Condensing boilers, heating controls, underfloor heating, heat recovery systems, mechanical ventilation, flue-gas recovery systems |
| Building fabric | Cavity wall insulation, loft insulation, flat roof insulation, internal wall insulaiton, external wall insulation, draughtproofing, floor insulation, heating system insulation, energy-efficient glazing and doors |
| Lighting | Light fittings and controls |
| Water heating | Innovative hot-water systems, water-efficient taps and showers |
| Microgeneration | Ground and air source heat pumps, solar thermal, solar PV, biomass boilers, micro-combined heat and power |
2. Is the measure suitable for the property?
Suitable measures are assessed according to the design and age of the property, and their potential rate of payback. A qualified and accredited Green Deal Assessor will survey the property and make recommendations on which measures are potentially suitable and most likely to attract Green Deal finance. For domestic properties this assessment is likely to be added to a beefed up Standard Assessment Procedure (SAP), performed when seeking an Energy Performance Certificate.
3. Does the measure obey the 'Golden Rule'?
Broadly, to qaulify for the Green Deal, measures should conform to the so-called 'GoldenRule' - i.e. their initial cost will be repaid from anticipated savings in energy bills over the lifetime of the loan. However, for certain measures, such as solid wall insulation, where the typical payback period of, say, 30 years exceeds normal loan terms (e.g. no more than 25 years), extra initial subsidy can be sought from another scheme called the Energy Company Obligation. Alternatively, the householder can chip in with some money up front to reduce the size of the loan required, and hence the repayments.
Safeguards
With government estimating that some 14 million homes will retrofit insulation under the Green Deal by 2020, the sums involved are massive, and so adequate safeguards and consumer protection are vital. A Green Deal Code of Practice is being drawn up to ensure the safety, reliability and performance of products, and the quality of installation work.
Will it work?
A major concern of commentators is that interest rates on Green Deal loans will be too high to make them attractive to householders. For example, at current commercial rates of around 8% interest, savings on energy bills would fall well short of the repayments required. It has been pointed out that a similar scheme in Germany achieved success by offering low interest rates of around 2.5%. The government plans to subsidize the scheme to the tune of about £1 billion annually, paid by the energy companies, but some reckon that a £3 to 4 billion annual subsidy is needed. Also, viability of the loans assumes that the cost of energy will continue to rise steeply in the next decades. The levels of interest have yet to be announced.