Energy and Climate Change CommitteeWritten evidence submitted by Which?

INDICATORS FOR TRACKING THE PROGRESS OF THE GREEN DEAL

Summary

1. Which? welcomes the Committee taking a watching brief on the Green Deal and this opportunity to provide our views on this important area. A successful Green Deal programme should be measured not only by the number of Green Deal plans taken up, but by the proportion of Green Deal customers satisfied with their plans, seeing value for money and the energy savings that they were promised.

2. Assessing the energy savings resulting from Green Deal is crucial. It is the only means of determining whether consumers are better off than they would have been without their Green Deal plan. The Golden Rule provides no guarantee of savings and some form of check is needed to ensure that consumers are getting the savings they were promised. This will show whether the Green Deal is providing a good deal for those customers and help identify any changes needed to the assessment procedure to ensure more accurate savings estimates.

3. However, assessing energy savings will not be straightforward. The evaluation will need to be carefully planned and Which? recommends establishment of an expert monitoring panel to assess a sample of Green Deal installations, report on energy savings and value for money of the Green Deal plans. Expert monitoring could be accompanied by a consumer satisfaction survey to inform a range of indicators we suggest below.

4. Government and a number of other parties already have Green Deal monitoring responsibilities. Which? recommends that DECC develop a monitoring framework to provide much greater clarity on who is responsible for what and how these bodies will work together to ensure a robust monitoring regime. It would seem sensible for the Green Deal Oversight and Registration Body1 to take the lead role.

5. The Energy Company Obligation (ECO), must be included in Green Deal monitoring, particularly the cost of the ECO on consumers’ bills. The ECO is inextricably linked with the Green Deal and its costs could be considerably higher than predicted. The less attractive the Green Deal to consumers, the higher the cost of ECO because the share of the cost of the measures that will need to be subsidised through the ECO, rather than through Green Deal finance, will be greater. This will lead to higher energy bills for all consumers. This makes it even more important to monitor the success of the Green Deal as it affects even those consumers who are not at all interested in the Green Deal.

What should be the key indicators for tracking the progress of the Green Deal?

6. We suggest a range of indicators below following the order in the Committee’s Terms of Reference, rather than in order of importance.

(A) Uptake—number of Green Deal plans, and number of Green Deal plans compared with number of Green Deal assessments

7. Clearly it is important to record the number of plans taken up. In addition, recording the number of assessments carried out enables determination of the percentage of interested consumers who did not proceed to take out Green Deal finance. It is as important to understand why households who have had a Green Deal assessment then fail to take up the finance. A short follow-up survey with these consumers would help identify why they did not take up the Green Deal and provide valuable learnings to feed into DECC’s “one year on” review (see paragraph 30 below).

(B) Assessing energy savings—comparison of energy consumption and energy bills pre- and post Green Deal

8. Which? agrees with the significant numbers of respondents to the Government’s consultation who wanted DECC to monitor pre- and post-actual household energy consumption to enable a full assessment of whether the Golden Rule2 is working. DECC stated in June 2012 that it will be monitoring actual energy consumption3 but has not yet, so far as we are aware, given further details on how this is to be done. A monitoring plan is urgently needed because whether energy savings are exceeding repayments is a key consumer outcome.

9. But, first, the consumer cannot be sure that the Golden Rule is being met because:

(a)The Golden Rule is not guaranteed, it is merely a principle.

(b)The amount that can be lent is determined by estimates based on typical, standardised households through the Energy Performance Certificate methodology, not the actual energy usage. For many consumers, particularly low energy users, estimates of savings could therefore be significantly different from actual savings post-refurbishment.4 This is one of Which?’s major concerns with the Green Deal.

10. Second, assessing the “before” and “after” to quantify the savings resulting from the Green Deal is necessary to determine whether the consumer is better off than they would otherwise have been. However, this will not be easy because calculating these savings is not as simple as comparing pre- and post-energy consumption from energy bills. The savings depend on wider factors such as:

Weather—for example the 201314 winter might be warmer than the 201213 winter. This cannot be looked at nationally but requires local data.

Changes in occupancy or circumstance—tenants may have changed, the owners might have retired, the owners might have had a baby. Sampling should be used to ensure that a subset of Green Deal customers can be identified with broadly similar before and after circumstances.

The “rebound” effect—such as where the occupier turns up the thermostat because they consider they can now afford to do so (direct) or where the money saved is spent on an overseas holiday (indirect). It might be possible to apply a broad, compensating factor but quantifying rebound effects is challenging.5

11. Energy bills may also have changed because of changes to energy tariffs or energy prices.

12. Expert analysis will therefore be required. Which? recommends that independent expert assessors be commissioned to monitor a sample of households including a reasonable number whose circumstances and occupancy have not changed. “Before” and “after” consumption from energy bills could be compared using tailored analysis. Monitoring will need to span at least the first year of the Green Deal plan to account for seasonal variation. Results could be used to inform any changes needed to the assessment procedure to ensure more accurate savings estimates.

(C) Value for money for Green Deal customers and for the taxpayer

13. Which? is concerned that the high rates of interest that have been mooted, with DECC’s June 2012 impact assessment estimating a range of 6.5% to 9.5%, may not be attractive to consumers. When Green Deal plans come out, Which? intends to assess them to compare them with other financing options that offer lower interest rates. However, comparison will be complicated by Green Deal cashback and ECO subsidy: it is not sufficient to compare the interest rate alone. The expert monitoring panel that we suggest could include financial experts who can evaluate this.

14. Additional monitoring of the impact (and merits) of the use of public money would be welcome, whether by the Public Accounts Committee or the National Audit Office. Public money to support this product that is (in theory but not in practice) market-based is significant and includes:

£200 million Green Deal launch incentives funding, including the cashback scheme of £125 million, with the first £40 million now available; £10 million for Green Deal pioneer councils and £12 million for seven cities to kickstart the Green Deal;

DECC budget of £30.4 million in 2012–13, £25.9 million in 2013–14 (indicative), £19.5 million in 2014–15 (indicative), ie £75.8 million over three years;6 and

Potentially, financial support from the Green Investment Bank—details and the amount of any loan are as yet unknown.

(D) Value for money for all consumers—the costs of ECO on people’s bills

15. The ECO is funded by the energy bills of all consumers but yet is inextricably linked with the Green Deal as key parts of it are designed to support the Green Deal. ECO subsidy will drive demand for solid wall insulation, in particular, through the Green Deal (solid wall insulation cannot meet the “golden rule” without ECO subsidy). DECC’s central estimate of annual ECO costs is £1.3 billion. However, DECC’s Impact Assessments recognise that there is considerable uncertainty here. In November 2011 DECC estimated that costs could be as high as £3.09 billion/year; a recent report by NERA for Energy UK estimated that costs could be £2.35 billion or even higher.7

16. The less attractive the Green Deal is, the higher the cost of ECO because the share of the cost of the measures that will need to be subsidised through the ECO, rather than through Green Deal finance, will be greater. Energy suppliers will pass on to consumers in the form of higher energy bills all the costs of meeting their ECO obligations. This makes it even more important to monitor the success of the Green Deal as it affects even those consumers who are not at all interested in the Green Deal.

17. DECC is currently considering what information requirements should be imposed on energy suppliers. Which? maintains that it is important that, in addition to reporting delivery costs, suppliers are required to report to Ofgem on the costs passed through to consumers on bills. Otherwise there is no way of knowing how much consumers are paying for the ECO. We would welcome the Committee highlighting this important issue and the importance of including ECO costs in key indicators.

(E) Whether the Green Deal packages offered are the optimum packages for the consumer

18. A successful Green Deal is one that provides the most appropriate package of measures for the consumer. However, the Green Deal framework only requires assessors to be impartial not independent. There is a real risk that assessors tied to providers may focus more on maximising profit for the provider, rather than ensuring the consumer is on the best package. For example, by selling other goods and services that the consumer may not want or need.

19. Which? recommends that the detailed, expert assessment of a sample of Green Deal customers include evaluation of whether the plans represent the very best package that consumer could have been offered in terms of energy savings (measured, where possible, against the preferred payback period of the customer). If possible, there should be a comparison between advice from tied and independent assessors.

(F) The percentage of Green Deal assessments provided by assessors who are commercially tied to Green Deal providers

20. Monitoring of how many assessors are tied and how many are independent should also be established. It is difficult to see how independent providers can make money from Green Deal assessments and, as such, we consider it likely that most Green Deal assessors are likely to have commercial ties to Green Deal providers. The assessor and the Green Deal provider’s representative could often be one and the same person creating a potential conflict of interest between the assessor and the consumer.

21. A survey of assessors could be conducted by the Oversight and Registration Body which is responsible for ongoing monitoring of Green Deal Participants against the Code of Practice (see further paragraph 32 below). Again, the Oversight Body has a key role in monitoring the Green Deal.

(G) Effective delivery—quality of installation

22. Monitoring the incidence of problem from poor quality installation is important. For example, Ofgem monitors failure rates of a sample of measures under CERT. We consider that the Green Deal Oversight and Registration Body, with installer certification bodies where appropriate, should monitor a sample of installations.

(H) Effective delivery—quality and accuracy of advice, sales and marketing and quotes

23. It is important that the Green Deal Oversight and Registration Body and the assessor certification bodies conduct robust mystery shopping of Green Deal assessors. This is the only way to test the claims made by assessors in practice. Assessor self-certification alone is not sufficient, particularly given the poor track record in the energy sector. Three recent Which? mystery shopping investigations (cavity wall insulation 2011, solar PV 2011, solar thermal 2010)8 have all found problems with the quality of advice, such as assessors recommending that the house was suitable for cavity wall insulation when our expert said it was not and overstating the savings from the solar thermal system. It is critical that mystery shopping is done early to identify and address any problems. Which? also plans to do some mystery shopping of our own.

24. Our concern at the risk of mis-selling is heightened by the inadequacies of the Green Deal rules on assessments (paragraph 9 above) and by the existence of many important terms that might be buried in the small print (hefty early repayment fees, warranties shorter than the repayment period, risk that repayments exceed savings etc).

(I) Proportion of Green Deal plans passed on to new buyers

25. Transfer of the charge between occupiers is a key part of the Green Deal’s rationale. Yet if new occupants are requiring the Green Deal to be repaid before they move in this brings into question the feasibility of one of the central tenets of the Green Deal which is that it is attached to the property not the individual to enable transfer between occupants. The consumer survey should identify a subset of consumers in this category even though the sample size is likely to be small.

(J) Consumer satisfaction—level of satisfaction of Green Deal customers overall, owner occupiers, private tenants and social housing tenants

26. It is important to survey private tenants and social housing tenants, not just owner occupiers. Our concern is that private tenants may end up worse off than owner occupiers. Where a landlord takes out the Green Deal their incentive to ensure that the assessment is accurate, that the Golden Rule is likely to be met and that the package chosen is appropriate is likely to be lower than for an owner occupier. The tenant may feel obliged to consent too.

27. Satisfaction could be measured by a survey of a statistically representative sample of Green Deal customers across geographical regions with questions including:

Whether consumers believe they are seeing the energy savings promised in the Green Deal Advice Report (Energy Performance Certificate and Occupancy Assessment). However, it will only be possible to measure consumer perception in this way, not the actual savings resulting from the Green Deal as that could be influenced by other factors (see paragraph 8 above). Nor may consumer perceptions be accurate. The Pay as You Save pilot review found that “most of the householders said they were not checking bill savings from energy bills against the predicted savings from their report”.9 For these reasons expert analysis is also required (see paragraph 10 above);

Whether consumers were happy with the sales and marketing practices eg whether they felt pressured into purchase, were pushed to sign up on the spot or to purchase other non-Green Deal products and services. This should preferably include a comparison between tied and independent assessors;

Whether consumers found the assessment, quote and installation process straightforward and easy to understand;

Whether consumers experienced problems with customer service, advice or installation, and whether issues or complaints were resolved to their satisfaction; and

New occupants’ attitude to fairness of Green Deal transfer in change of occupancy (owner occupiers and tenants) situations—whether or not the Green Deal was actually transferred (see paragraph 25 above). Questions could include whether new occupants were made aware of the Green Deal charge and its implications.

(K) Access to the Green Deal

28. We recommend that the main consumer survey identify a subset of low income and vulnerable consumers to assess the level of take up in this group and satisfaction with the outcome and sales and marketing practices. Our main concern is to ensure that the Green Deal is not sold inappropriately to fuel poor, low income and vulnerable consumers. In many cases it might not be a suitable product because:

It might not be appropriate to sell them a commercial, profit-making product at a high rate of interest, particularly when the risk of repayments exceeding savings is higher for consumers who use less energy than average (see paragraph 9 above);

Early repayment fees could be substantial for Green Deal plans of 15 years or more. Warranties are unlikely to cover a boiler breakdown after the first five years but yet the consumer would still have to make the Green Deal repayments. Low income consumers might not be able to find the money to pay for repairs or a replacement boiler; and

There are many ways through which the consumer could be overwhelmed with complex information. Many key terms could be hidden and/or not understood. This risk is greater for the poorest and most vulnerable in society.

(L) Impact of Green Deal and ECO on fuel poverty

29. Given our concerns above, the fuel poor may benefit little from the Green Deal. Also, the ECO could push more consumers into or further into fuel poverty, given the very uncertain scale of its costs and that it is likely to be regressive in nature, hitting the fuel poor hardest. Low users may well be charged the same amount as higher users, as the energy suppliers are free to pass on costs how they wish and this will be a larger share of their income too. Which? recommends that the ECO costs be passed on according to units of energy used, not as a flat rate per customer.

The Roles of the Various Monitoring Bodies—Greater Urgency and Clarity Needed

30. DECC clearly has an important role in monitoring. In June 2012 DECC stated that it proposed a One Year Review in the immediate period post-the framework becoming operational (“one year on”), ie end-2013 to mid-2014. DECC also proposed a medium term Interim Evaluation (2015–16) and then a Final Evaluation (2017–18) and stated that evaluation research in the first six months would cover a range of issues, but the consumer experience and value for money were not mentioned.10 We are not aware of DECC having announced more details and these are urgently needed.

31. This review is critically important given the huge uncertainty over how consumers and businesses will react to the Green Deal and the complexity of this novel financial product. Which? considers that the review should focus on whether consumers are being given good advice and sold appropriate and good value products and on the operation of key tenets such as the accuracy of Golden Rule estimates and fairness of transfer to new occupants. Which? would also welcome a commitment from DECC to make changes quickly if consumer problems are identified.

32. The Green Deal Oversight and Registration body is responsible for ongoing monitoring of Green Deal Participants against the Code of Practice and gathering evidence of non-compliance.11 It is required to produce an annual Green Deal report and DECC must use this as an important input for its evaluations. Green Deal certification bodies are responsible for certifying that installers and assessors meet certain standards. In turn, UKAS is responsible for assessing these certification bodies. The Ombudsman is responsible for investigating complaints and Ofgem has reporting and monitoring responsibilities as the administrator of the ECO. This is a complex set of responsibilities. It would seem sensible for the Oversight and Registration Body to play the lead role in monitoring and reporting to DECC. Which? recommends that DECC develop a monitoring framework to provide clarity on who is responsible for what and how these bodies will work together when appropriate.

Should there be annual take-up targets for the Green Deal?

33. No, not at this stage. It is hard to determine firm targets when demand is so uncertain. However, Which? would like to see a clearer indication from Government of what they consider to be a realistic aspiration. Previous aspirations expressed by Ministers in 2011, of 14 million homes by 2020, have clearly been unrealistic.

34. Rather than setting targets the emphasis should be on ensuring that the product is working for consumers and providing value for money. We welcome the Committee’s interest in helping ensure that this is the case.

January 2013