Could the Green Deal work for you?

The chorus of criticism was to be expected, but now it is up to government and Green Deal providers to make the financial case for home improvements

29 Jan 2013, 00:05

The Green Deal launched yesterday to an all too predictable and yet still rather disappointing reception. Almost every aspect of the launch came in for criticism from media outlets and the Twitterati. Barbs were aimed at everything from the Photoshop-happy print adverts to the somewhat aggressive "Green Deal With It" tagline and the seven per cent plus rates of interest.

As I argued yesterday, much of this criticism contains a fair degree of validity. The interest rates are almost certainly too high for the scheme to have the kind of transformative impact the government hopes for and the advertising campaign is undoubtedly lacking in sophistication. The scheme could of, and should have been better.

However, households, businesses and the press would be completely wrong to write the whole thing off at this stage. The basic principle of shifting away from grant-based energy efficiency schemes to a financing model remains sound. The simple fact is that without an unexpected national windfall of unprecedented proportions the UK will never be able to deliver the much needed overhaul of our building stock through ever greater use of grants or impotent pleas for people to take efficiency seriously. An attractive financing model is the only way to make national scale building improvements a reality.

And for all the justified reservations about the scheme the Green Deal could yet prove attractive. The over-arching consumer principle of caveat emptor obviously still applies - the small print needs to be checked, the potential impact on any resale value needs to be considered, a number of competitive quotes need to be sought - but there are still plenty of good reasons to at least consider getting a Green Deal package.

Firstly, all serious projections for energy bills suggest they are going to rise over the next decade. So a £5,000 Green Deal loan being repaid at the Green Deal Finance Company rate of 7.67 per cent may mean the £480 a year you save on your energy bills is immediately redirected to pay for the interest payments, leaving you neither better or worse off. But if the cost of energy increases so do the savings, while at the same time Green Deal repayments remain the same leaving you better off. Admittedly, this calculation could work in reverse if your circumstances change (the children move out for example) and you find yourself using significantly less energy than the base line calculation. But for the vast majority of people the scheme's golden rule will hold and they will find themselves better off as energy prices rise.

Secondly, it is worth stating yet again that Green Deal packages are an unsecured loan attached to the property rather than the individual. Some critics have raised questions over whether taking out a Green Deal package will make it harder to sell a property, given that repayments will be attached. But if the "golden rule" holds and net savings are delivered then most people will find that Green Deal improvements should add to their value of their home. After all, would you prefer to buy a house with appropriate double glazing and insulation, or one where you have to go through the hassle of getting it all fitted?

Thirdly, the wide range of technologies on offer under the Green Deal provides people with the chance to install an array of genuinely exciting clean technologies. The phrase "eco-bling" might be rather crass, but here is an opportunity for those people who love the idea of solar panels and heat pumps to potentially install these technologies at no upfront cost. At the moment the link between the Green Deal and both the feed-in tariff incentives and the promised Renewable Heat Incentive is as clear as mud. The Energy Saving Trust FAQ states that "you will not be able to use expected income from the Feed-in Tariff to help you meet the Golden Rule", while "Renewable Heat Incentive payments will be conditional on making 'Green Deal-able' thermal efficiency improvements to the property, so that renewable heat is not wasted".

It sounds as if you will not be able to use renewable energy incentives to then repay your Green Deal loan, but there are circumstances where you will be able to use the Green Deal to deploy these exciting clean technologies and generate energy bill savings in the process. I am also told by DECC that the department is in talks with the EU about getting state aid approval for tighten links between the Green Deal, the feed-in tariff and the RHI. The possibility remains that the scheme could get more attractive still.  

Finally, and most importantly, the government's cashback offer is promising households that take undertake Green Deal upgrades offers worth over £1,000. Currently, you can get £250 for installing cavity wall insulation, £650 for solid wall insulation, £100 for loft insulation, £320 for double glazing will get £320, and £270 for condensing gas boilers. It is reminiscent of the previous government's highly successful scrappage scheme, and if I were the wannabe Don Draper tasked with developing the government's communications campaign I would have made these generous offers the central component of the adverts.

Of course, once you have considered these benefits you might still decide the Green Deal is not for you. You might not have the appetite for the risks the high interest rates have introduced into the scheme, you might still not want to undergo the hassle of significant home improvements, or you might decide that paying for the work yourself, extending your mortgage to cover the costs, or taking out a standard loan will offer better returns (this last point is particularly important for business customers, who are likely to be able to access energy efficiency loans at a significantly lower rate of interest than seven per cent). But if you are interested in curbing your carbon emissions, potentially reducing your exposure to rising energy bills, and making your home more comfortable then the Green Deal should not be dismissed out of hand.

Meanwhile, those businesses looking to offer Green Deal services need to take the unsurprisingly negative response to the scheme's launch on the chin and redouble their efforts to get the positive message about the Green Deal's potential benefits out to prospective customers. They need to look at the government's Green Deal adverts, and ask themselves if they could do better. They need to consider which customers are most likely to want Green Deal services, and work out how best to target them. And most of all, they need to demonstrate how the cashback offer and the "golden rule" will make early Green Deal adopters better off.

The Green Deal is far from perfect and should have been made more attractive to consumers, but it is both unfair and counterproductive to write it off altogether at this early stage.

  
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Previously known as the BusinessGreen Blog, James' Blog features musings, observations and occasional rants from BusinessGreen editor James Murray

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