1 Introduction
1. The Green Deal was launched in January 2013 to
help Britain's households and businesses make energy efficiency
improvements. It is an ambitious 20-year programme designed to
ensure that consumer bills are reduced while carbon savings continue
to be delivered. The Government has called it "a long-term
and progressive programme, providing real opportunity for business
growth and with the interest of consumers at its core".[1]
2. We believe that increasing the energy efficiency
of the UK's building stock should be a priority for the Department
of Energy and Climate Change (DECC), as it will help to ensure
energy security, whilst meeting climate change and affordability
ambitions. Consequently, we have taken great interest in the implementation
and development of the Green Deal.
3. In December 2012, we launched our Green Deal:
watching brief inquiry, to follow the Green Deal from its
inception and monitor its debut on the UK market. We also investigated
the development of the Energy Company Obligation (ECO), a legal
obligation placed on the larger energy suppliers to install energy
efficiency measures for people who are most in need. We assessed
the aims and objectives of DECC's policies, identified areas of
uncertainty, defined opportunities for improvement and set out
a baseline for future scrutiny.[2]
We were concerned that DECC did not seem to hold specific means
to monitor the evolution of the Green Deal and that the then Minister
was not able to give us a clear idea of what success would look
like. This lack of direction was unsatisfactory, as it would become
extremely difficult to monitor the progress of the scheme and
assess whether its implementation was successful.
4. Our first report on this subject was published
in May 2013. We called for a clearer statement from Government
of the projected outcomes of the Green Deal and ECO and identified
a number of key areas in which continuing scrutiny would be beneficial:
(1) public awareness and communications; (2) take-up levels; (3)
energy and carbon savings; (4) financial savings and value for
money; (5) access to the Green Deal and ECO; (6) customer satisfaction;
and (7) supply chain and job creation. We also highlighted a number
of indicators that would help monitor progress under each of these
headings.
5. The Government accepted most of our "important
and helpful" recommendations and stated that it "has
and will continue to regularly publish information on progress
of the Green Deal, keeping the Committee and other stakeholders
informed".[3] DECC
confirmed that:
The Government considers that saving carbon is
the principal objective of the programme and has projected savings
of 4.5 million tonnes of CO2 per year by 2020 through
the Green Deal and the Energy Company Obligation (ECO). We recognise
that this is a long term projection and that the Committee will
want to understand progress in the shorter term. We can therefore
confirm that our expectation for March 2015 is to see one or more
energy efficiency improvement measures fitted in 1 million households
whether through the Energy Company Obligation, Green Deal finance
or other financing options (or, indeed, through combinations of
these financing options). Consumer choice, including around the
use of finance, is key to the success of Green Deal.[4]
6. We launched this follow-up inquiry Green Deal:
watching brief (part 2) on 18 December 2013.[5]
We received 56 written submissions and held four oral evidence
sessions between April and June 2014. A full list of witnesses
can be found at the back of this report. We are very grateful
to all those who took the time to contribute to this inquiry.
7. A brief overview of the Green Deal and the Energy
Company Obligation (ECO) can be found below. Chapter 2 then provides
an initial assessment of the Green Deal so far and considers the
main barriers to take-up of the scheme. Chapter 3 evaluates different
means by which these barriers can be addressed to make the Green
Deal more attractive to customers. Finally, Chapter 4 explores
the importance of communication and public engagement in promoting
the Green Deal.
How does the Green Deal work?
8. The Green Deal is a financing mechanism open to
any household with an electricity meter[6]
and is intended to allow individuals and businesses to make energy
efficiency improvements at little or no upfront cost. The installation
costs are attached to the property's electricity meter and repaid
in instalments through the electricity bill.[7]
According to DECC, the scheme "aims to overcome access to
capital, mismatched incentive problems and provide a trustworthy
framework of advice, assurance and accreditation for the energy
efficiency supply chain".[8]
THE GREEN DEAL PROCESS
9. The Green Deal process begins with an assessment
carried out by a registered Green Deal Assessor. The Assessor
visits the property, surveys energy usage and recommends appropriate
energy efficiency measures to be installed in a Green Deal advice
report. If the measures are to be paid for through the consumer's
electricity bill, a Green Deal Provider will set up a Green Deal
finance plan outlining the work to be done and the length and
amount of the repayments. Once a plan is agreed upon, the Provider
arranges for a Green Deal Installer to carry out the improvements,
and Green Deal repayments are automatically added to the electricity
bill.
THE GOLDEN RULE
10. At the heart of the Green Deal's "Pay-As-You-Save"
model lies the Golden Rule, which states that the expected financial
savings from installing energy efficiency measures must be equal
to or greater than the cost attached to the energy bill. In effect,
the "annual repayments on the loan shouldn't be more than
the savings you might make on your energy bills".[9]
GREEN DEAL CASHBACK
11. To encourage take-up of the Green Deal, the Government
offered cashback to Green Deal customers who had undertaken a
Green Deal assessment and went on to install energy efficiency
measures. The cashback scheme closed on 30 June 2014.[10]
The Energy Company Obligation
12. The Energy Company Obligation (ECO) works alongside
the Green Deal. It uses targets to drive action from the companies
who are subject to the obligation. ECO aims to:
provide additional support to deliver measures
that are part of a cost-effective strategy for achieving the UK's
carbon targets but which will not be fully financeable through
the Green Deal, and provides subsidised measures to low income
and vulnerable households to relieve fuel poverty.[11]
13. The ECO originally placed three obligations on
energy suppliers:
· Carbon
Emissions Reduction Obligation (CERO): to deliver total carbon
savings of 20.9 MtCO2 through the installation of measures
like solid wall and hard-to-treat cavity wall insulation, which
ordinarily cannot be financed solely through the Green Deal.
· Carbon
Saving Community Obligation (CSCO): to deliver total carbon savings
of 6.8 MtCO2 through the installation of insulation
measures in specified areas of low income. At least 15% of the
suppliers' obligation must go to hard-to-reach low-income households
in rural areas.
· Home
Heating Cost Reduction Obligation (HHCRO, also known as Affordable
Warmth): to deliver a total of £4.2 billion savings on energy
bills for consumers living in private tenure properties that receive
particular means-tested benefits.
The costs of installing measures under ECO are passed
on by energy suppliers to all energy consumers through their energy
bills. The ECO replaces two schemes, the Carbon Emissions Reduction
Target (CERT) and the Community Energy Saving Programme (CESP),
under which energy suppliers were previously required to deliver
emission reduction mainly through the installation of low-cost
measures such as loft and cavity wall insulation, partly focused
on low-income households.[12]
14. Together, the Green Deal and ECO were designed
to support the Government objectives to (1) reduce UK greenhouse
gas emissions; (2) address the drivers of fuel poverty; and (3)
maintain the security of UK energy supply.[13]
The move from CERT and CESP to Green Deal and ECO represents a
shift from schemes relying purely on supplier obligations to the
integration of a competitive market-based mechanism.
RECENT CHANGES TO ECO
15. Between 5 March and 16 April 2014, DECC consulted
on a series of suggested changes to ECO, as part of a set of proposals
designed to reduce pressures on consumer bills.[14]
The Government's response was published on 22 July 2014 and the
changes now due to take place include:
· A
33% reduction in the CERO target;
· The
introduction of loft insulation, cavity-wall insulation and District
Heating system (i.e. "low-cost" measures) as allowable
measures under CERO;
· The
extension of ECO until March 2017, with new targets imposed for
CERO, CSCO and HHCRO at a pro rata of the new March 2015 levels;
and
· The
possibility of overachievement against March 2015 targets being
carried forward to count against March 2017 targets.[15]
1 Department of Energy and Climate Change (GRE 052) Back
2
Energy and Climate Change Committee, First Report of Session 2013-14,
The Green Deal: watching brief, HC 142, para 3 Back
3
Energy and Climate Change Committee, Second Special Report of
Session 2013-14, The Green Deal: watching brief:
Government Response to the Committee's First Report of Session
2013-14, HC 607, p 10 Back
4
Energy and Climate Change Committee, Second Special Report of
Session 2013-14, The Green Deal: watching brief:
Government Response to the Committee's First Report of Session
2013-14, HC 607, p 2 Back
5
Energy and Climate Change Committee, 'Second stage of 'Green Deal: watching brief' inquiry announced,'
accessed 07 July 2014 Back
6
Department of Energy and Climate Change, 'Green Deal: energy saving for your home,'
accessed 04 September 2014 Back
7
Department of Energy and Climate Change, The Green Deal and Energy Company Obligation Consultation Document
(November 2011), p 31. In this consultation document, DECC suggested
that collecting repayments via a charge on the electricity bill
was operationally simpler as nearly all households are on the
electricity grid, whereas many are off the gas grid. Back
8
Department of Energy and Climate Change, Final Stage Impact Assessment for the Green Deal and Energy Company Obligation
(June 2012), p 1 Back
9
Department of Energy and Climate Change, 'Green Deal: energy saving for your home,'
accessed 7 July 2014 Back
10
Department of Energy and Climate Change, 'The Green Deal: Guide to cashback for energy home improvers,'
accessed 29 July 2014 Back
11
Department of Energy and Climate Change, Final Stage Impact Assessment for the Green Deal and Energy Company Obligation
(June 2012), p 1 Back
12
Committee on Climate Change, Meeting Carbon Budgets - 2014 Progress Report to Parliament
(July 2014), p 168 Back
13
Department of Energy and Climate Change, Final Stage Impact Assessment for the Green Deal and Energy Company Obligation
(June 2012), p 5 Back
14
Department of Energy and Climate Change, The Future of the Energy Company Obligation
(March 2014), p 8 Back
15
Department of Energy and Climate Change, The Future of the Energy Company Obligation
(July 2014), p 6 Back
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