3 Providing a more attractive proposition
Green
Deal finance
50. Although the interest rates offered by the Green
Deal Finance Company (GDFC) are competitive for the type of loan
proposed,[93] they are
not necessarily attractive to consumers.[94]
With the availability of cheaper means to finance the installation
of energy efficiency measures, such as mortgages or personal funding,
it is important to understand who truly benefits from Green Deal
finance.
51. The credit threshold required by the Green Deal
Finance Company to qualify for a Green Deal loan is lower than
that of many standard loans, making the Green Deal available to
over 80% of the population.[95]
Nonetheless, the loan remains quite niche,[96] as
households passing standard credit checks would often be able
to obtain other loans at a cheaper rate. Mark Bayley, Chief Executive
of the GDFC, recognised that Green Deal finance was aimed at those
who are unable to secure credit on decent terms.[97]
The Minister acknowledged that "the benefit of taking finance
is marginal compared to the benefit of paying for it all up front
and getting the savings immediately".[98]
52. Reducing the interest rates would make the loan
a more attractive proposition for a wider range of households,
but Mr Bayley told us that the interest rates were as low as feasible:
The only way to get the rate lower would be outright
subsidy to subsidise the rate and that is a completely different
debate. What I would say is, however attractive we make the rate,
we still come back to the problem that, however good the product
is, you have to get it into the hands of the consumer and I think
that is the challenge over the next 12 months, not necessarily
taking the rate very much lower.[99]
Reducing the interest rate seems unlikely without
a significant investment from Government to either subsidise or
guarantee the loans.[100]
53. Another way to make the Green Deal more financially
attractive would be to introduce some flexibility in the Golden
Rule.[101] John Alker,
Director of Policy and Communications at the UK Green Building
Council, suggested that:
you could reduce the overall amount paid by having
flexibility introduced in the application of the Golden Rule so
that that loan was not spread over such a long period and would
reduce the overall interest payments. You could also allow repayments
to vary over time for inflation, which would arguably make it
a more attractive proposition for investors. However, the issue
with either of those decisions would be that you have
to balance it out with consumer protection, which has been introduced
for very understandable reasons.[102]
Mr Bayley added that:
the Golden Rule is based on taking the laboratory
results of energy efficiency and applying a discount of, typically,
about 25% to what the energy efficiency would be like out in the
field. That needs to be looked at in the light of evidence to
see whether that is too much of a discount. It is also important
that the Golden Rule is calculated on the past three years of
energy prices and does not allow for the potential for energy
prices to escalate. I think that is another very conservative
factor in the calculation.[103]
54. Financial incentives, such as cashback and subsidies
have also been made available to customers. The Green Deal cashback
allowed households in England and Wales to receive money back
on the installation of energy efficiency improvements through
the Green Deal.[104]
Applications for the scheme closed on 30 June 2014 and cashback
vouchers must be redeemed by 30 September 2014. While it "has
a definite role to play in take-up of the Green Deal",[105]
the cashback scheme was generally viewed as being ineffective
in stimulating take-up.[106]
We also head that it was "not enough to reach customers who
have previously not shown any interest in the Green Deal".[107]
There were also concerns expressed that most of the cashback vouchers
claimed had been used for replacing boilers that would have been
replaced anyway.[108]
55. Separately to both Green Deal finance and Green
Deal cashback, the Green Deal Home Improvement Fund was launched
on 9 June 2014 and enabled customers to claim up to £6000
cashback for installing solid wall insulation, and £1000
for installing two measures from an approved list, amongst other
offers. The scheme proved to be very popular, and a surge in applications
in July resulted in the allocated budgets (£120 million)
being reached in just over 6 weeks.[109]
While the popularity of the scheme shows that an appetite exists
for energy efficiency installations, its sudden and unexpected
closure risks undermining confidence in DECC's ability to deliver
sustainable and consistent energy efficiency policies.
56. The introduction of tax-based incentives has
been suggested as another way of increasing demand for the Green
Deal.[110] Variable
stamp-duty and council tax rates might motivate customers more
directly and raise interest in energy efficiency measures more
quickly than the Green Deal has managed to do so far,[111]
and could prove "an encouragement to pursue Green Deal plans
through Green Deal finance".[112]
John Alker, Director of Policy and Communications at the UK Green
Building Council, suggested that "energy efficiency needs
to be structurally embedded into the housing market".[113]
Jenny Holland, from the Association for the Conservation of Energy,
suggested that offering top-up loans would be one way of improving
take-up:
Offering a top-up loan alongside the Green Deal
finance obviously covers that problem whereby the Green Deal finance
on its own can't cover the package of Green Deal recommended measures.
I think that is an important route down which to try to go more
generally.[114]
57. We were pleased to hear the Minister state that
the GDFC was looking into ways to offer top-up loans to allow
households to install measures not fully covered by the Golden
Rule:
One of the things that we are looking at with
the Green Deal Finance Company is top-up loans, because the whole
point of the Green Deal finance in its purest form is it is able
to be attached to the meter and you can move away and the next
person will pick up the tab. It will not act as a disincentive
to future purchases of that property because they will know that
netted out the savings are greater than the repayments.
If people want to go on and install measures,
which is fantastic if they do, and want access to finance, that
we want to be as helpful as possible. [115]
58. We welcome the Government's commitment to
introduce a financing mechanism available to those who would not
otherwise be eligible for a loan, but DECC's current offer is
burdensome and limiting. Unless the package is made more attractive
to a wider group of consumers, Green Deal finance is likely to
remain unappealing to many. We understand that DECC may be unwilling
to subsidise the loans in order to lower the interest rates on
Green Deal finance, but there may be other financial opportunities
available, which could prove more attractive to customers.
59. We recognise the need for consumer protection
in calculating the Golden rule, but DECC should be able to offer
a better deal for consumers. We recommend that DECC review whether
it is being too cautious in calculating projected energy savings
and in-use factors, so that the Golden Rule may become more ambitious.
Other financial incentives, such as stamp duty discounts and variable
council tax rates for more energy-efficient households, as well
as other measures and regulations, should also be experimented
with.
Streamlining the application
process
60. As it stands, the energy efficiency sector is
"a minefield for consumers".[116]
It is crucial that the current Green Deal process be simplified.[117]
Jenny Holland, from the Association for the Conservation of Energy,
explained that complexity of the Green Deal paperwork needed to
be reduced:
The Green Deal paperwork amounts to 20 pages,
which compares very unfavourably to about five pages when you
are just going to take out an ordinary bank loan. […]
It is very difficult for the average householder
who is not well versed in energy efficiency technicalities to
understand their Green Deal assessment report. It gets more complicated
because they also have an Energy Performance Certificate, an EPC,
at the same time. I think a lot of householders, quite reasonably,
are saying, "Why do I get these two reports? What is the
difference between them? Why do they give different figures for
my energy costs? Why do they give different figures for the savings
that I might get from installing energy efficiency measures?[118]
According to Claire Williams, Managing Director at
British Gas New Energy, "there is definitely opportunity
to make the assessment shorter, simpler, lighter and therefore
less expensive".[119]
61. Mr Bayley explained that the GDFC was "working
very hard" to simplify the process for customers:[120]
We have also done a lot of work simplifying the
process to on-board Green Deal providers in the use of our financing
systems as well. The process now takes three weeks for the fastest
providers, whereas the first ones took about three months when
we were inventing the process. All parts of the process we have
looked at, we have asked ourselves, "Do we really need this?
Do we really need that? How can we make it faster, quicker, better?"[121]
62. The Green Deal Oversight and Registration Body,
the ombudsman body dealing with complaints, is attempting to "demystify
those processes for providers and give them the knowledge and
the confidence to be able to operate in the Green Deal".[122]
DECC is also exploring how to simplify the Green Deal and is "in
the process of examining how it can streamline and improve the
Green Deal, particularly for those who choose to fund the installation
of measures through Green Deal finance".[123]
If effectively implemented, these changes could "remove some
barriers faced by the supply chain and consumers":[124]
The Department has already announced plans to
make Green Deal easier for consumers (including improved online
and call centre advice) and for business (including being able
to take consumers from a quote to a plan in a day).[125]
63. A "Green Deal in a day" process was
piloted earlier this year. It shortens the application process
for a Green Deal loan[126]
and allows customers to "have the Green Deal at the point
at which they make their financing decision".[127]
Mr Bayley explained that:
There is still a bit more backstage complexity
that we need to get sorted to make that happen as swiftly as we
possibly can […]
I want to ensure the Green Deal in a day process
can be made available to all our providers. It requires quite
a lot of technological interaction from one end of the process
to the end of our systems and I think automation too can make
it better.[128]
64. The Government should set out in its response
the extent to which (a) improvements in consumer advice and (b)
the offer to take businesses from quote to plan in a day have
increased the uptake of the Green Deal. DECC should bring together
the organisations working across the different stages of the Green
Deal process to develop a shorter, more streamlined process across
all parts of the Green Deal supply chain. We recommend that DECC
sets out a strategy to monitor the impact of the different changes.
The Green Deal Finance Company should develop the "Green
Deal in a Day" so that it can be offered by all providers,
while still ensuring that the process remains robust when moving
from an assessment to a plan in a shorter period of time.
Enabling access
65. We heard that the Green Deal was crippled by
the insufficient number of Green Deal providers available to consumers:
homeowners faced a limited choice and sometimes failed to find
a provider at all.[129]
RWE npower concluded that a vicious circle was developing:
Until there is sufficient demand from consumers
for more energy efficient homes and products, it remains less
likely that companies will invest in the necessary infrastructure
to deliver Green Deal (which could by extension) exacerbate any
existing deficiencies in geographic or distributional access.[130]
This issue is particularly difficult in rural areas,[131]
where householders are "much more limited in the number of
companies that come up".[132]
Mr Bayley, from the GDFC, acknowledged that:
We only have 137 Green Deal providers registered
[…], of which only 50 are on-boarded with us and able to
use our financing systems. There is a critical point here that
what needs to be looked at is a means of distributing Green Deal
plans to the consumer.[133]
66. Rural areas are particularly badly served, and
there have been "documented cases where consumers have not
been able to find assessors willing to travel to rural areas to
conduct Green Deal assessments".[134]
67. Access to ECO is also uneven. Calor Gas raised
"serious concerns regarding access to, and the delivery of
ECO in rural off gas grid areas, and in particular the delivery
of the Affordable Warmth and Carbon Saving Communities elements
of ECO":[135]
ECO-obligated energy suppliers have full discretion
to determine the extent of support they (or their contractors/agents)
provide to households and the measures they choose to install.
This is of great concern for rural off gas grid households as
there is already evidence that suppliers are only providing a
limited number of energy efficiency measures to eligible rural
households, if at all.[136]
68. Because access to ECO is competitive "there
is no automatic entitlement to funding":[137]
"different consumers represent different ECO value to the
energy supplier",[138]
leading some consumers to be targeted above others. RWE npower
acknowledged that "many properties are not cost-effective
to treat".[139]
Consumer Futures suggested that a data-matching system, for example
between the Department of Work and Pensions and the energy companies,
would help identify and target those most in need.[140]
69. More than half way through the first phases of
ECO (1 January 2013 to 31 March 2015), only 30% of the carbon
saving and 20% carbon reduction targets have been met by the energy
companies, but only 2% of the rural sub-obligation of CSCO has
been carried out.[141]
Furthermore, contributors suggested that the CSCO sub-obligation
definition of "rural" as a settlement with less than
10,000 inhabitants meant that isolated households off the gas-grid
rarely accessed this funding.[142]
70. DECC argued that the statistics on access to
Green Deal assessments were encouraging:
Around 13 per cent of all properties in Great
Britain are off the mains-gas grid, which is similar to the 12
per cent of properties which had a Green Deal assessment and were
off the mains-gas grid.
The large majority of Local Authorities
had at least 25 Green Deal Assessments, showing that Green Deal
Assessments were spread across the country.[143]
However, throughout this inquiry we have continued
to hear that finding a Green Deal provider or being selected to
benefit from ECO funding has proved difficult in many regions.
71. It is disappointing that customers wishing
to take out a Green Deal plan are either not able to find a provider,
or refused services by a provider on the grounds of distance.
Even more worrying is the lack of access to the Energy Company
Obligation for rural customers, who participate in paying for
the scheme but often fail to benefit from it.
72. We recommend that the Government should be
more proactive in identifying the households most in need and
ensuring that they are targeted by energy companies for the delivery
of energy efficiency measures under ECO. We also recommend that
the CSCO rural sub-obligation should ensure that isolated off
gas-grid consumers are not bypassed by energy companies delivering
their obligation.
73. Other consumer groups also face challenges. In
the Energy Act 2011, two sets of regulations were put forward
to address energy efficiency in the domestic private rental sector,
by empowering tenants to request consent for energy efficiency
measures that may not unreasonably be refused by the landlord,
and introducing a minimum energy efficiency standard for domestic
properties. DECC recently consulted on proposals relating to the
implementation of these regulations, including the provision that
landlords can refuse a tenant's request where the funding route
proposed by the tenant entails net or upfront costs to the landlord.
Funding options available for tenants to ensure that no net or
upfront costs are incurred by landlords include "Green Deal
finance, ECO, local or national grants, the tenant's own sources
or a combination of these".[144]
74. We welcome DECC's initiatives to encourage
energy efficiency in the domestic private rental sector. DECC
must ensure that the widest range of options is available to landlords
and tenants to carry out the installation of measures.
93 Q3 [Jenny Holland], Q14 [Peter Broad], Q139 [Holly
Sims], Citizens Advice (GRE 018) para 3.5 Back
94
UK Green Building Council (GRE 003) para 10.3 Back
95
The Green Deal Finance Company (GRE 010) para 23, Q231 [Mark Bayley] Back
96
Q14 [Peter Broad] Back
97
Q230 [Mark Bayley] Back
98
Q318 [Gregory Barker] Back
99
Q238 [Mark Bayley] Back
100
UK Green Building Council (GRE 003) para 4.7 Back
101
British Gas (GRE 030), RWE npower (GRE 024) para 38 Back
102
Q44 [John Alker] Back
103
Q244 [Mark Bayley] Back
104
Department of Energy and Climate Change, 'The Green Deal Cashback for energy-saving home improvers,'
(accessed 26 August 2014) Back
105
British Gas (GRE 030) Back
106
Heating and Hotwater Industry Council (GRE 007) para 8, RWE npower
(GRE 024) para 3, ScottishPower (GRE 054) para 13 Back
107
British Gas (GRE 030) Back
108
Q57 [John Alker], Mark Group (GRE 017) para 14, Which? (GRE 019)
para 8, Carillion (GRE 028) Back
109
Department of Energy and Climate Change, 'Green Deal: Energy saving for your home,'
(accessed 26 August 2014) Back
110
Q5 [Peter Broad], Consumer Futures (GRE 026) para 13 Back
111
Q27 [Peter Broad, Jenny Holland], Q190 [Dr Dorte Rich Jorgensen],
Edge (GRE 045) Back
112
Electrical Contractors' Association (GRE 020) Back
113
Q37 [John Alker] Back
114
Q5 [Jenny Holland] Back
115
Q347 [Gregory Barker] Back
116
Consumer Futures (GRE 026) para 48 Back
117
Q37 [Time Moore], Heating and Hotwater Industry Council (GRE 007)
para 12, Local Government Association (GRE 013) para 9.5, Mark
Group (GRE 017) para 4, Consumer Futures (GRE 026) para 48, Insulated
Render and Cladding Association (GRE 027), Carillion (GRE 028),
British Gas (GRE 030) Back
118
Q3 and Q25 [Jenny Holland] Back
119
Q70 [Claire Williams] Back
120
Q218 [Mark Bayley] Back
121
Q299 [Mark bayley] Back
122
Q227 [Jonathan Harley] Back
123
Department of Energy and Climate Change (GRE 052) Back
124
ScottishPower (GRE 054) para 34 Back
125
Department of Energy and Climate Change (GRE 052) Back
126
Q70 [Claire Williams], Q261 [Mark Bayley] Back
127
Q299 [Mark Bayley] Back
128
Q261 and Q300 [Mark Bayley] Back
129
UK Green Building Council (GRE 003) para 7.1, Anglian Home Improvements
(GRE 004), ScottishPower (GRE 054) para 23 Back
130
RWE npower (GRE 024) para 17 Back
131
Q20 [Jenny Saunders] Back
132
Q134 [Holly Sims] Back
133
Q215 [Mark Bayley] Back
134
Heating and Hotwater Industry Council (GRE 007) para 39 Back
135
Calor Gas (GRE 001) para 1.2 Back
136
Calor Gas (GRE 001) para 1.3 Back
137
RWE npower (GRE 024) para 16 Back
138
EDF Energy (GRE 053) Back
139
RWE npower (GRE 024) para 16 Back
140
Consumer Futures (GRE 026) para 43 Back
141
Ofgem, Energy Company Obligation (ECO) Compliance Update (July
2014), p 2 (approved measures) Back
142
Calor Gas (GRE 001) para 2.5, National Energy Action (GRE 009)
para 5.7 Back
143
Department of Energy and Climate Change (GRE 052) Back
144
Department of Energy and Climate Change, Private Rented Sector Energy Efficiency Regulations (Domestic) (England and Wales)
(July 2014), p 13 Back
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