The industry has heard of it, but have consumers? Without their orders the flagship policy could come unstuck. Kallum Pickering from the Construction Products Association takes a look at Green Deal
Two years after its confirmation in Whitehall, advertising is finally starting to appear for Green Deal, the flagship policy standing at the forefront of the coalition’s ambition to create a ‘dynamic new energy efficient market’. According to claims made by the Minister of State for Energy and Climate Change the Green Deal will improve the energy efficiency of 14 million homes in 10 years. The Government and industry has prepared, but how likely is it that these efforts will be met by significant consumer demand for the deal which launched on 28th January?
The Green Deal employs a ‘pay as you save’ model; households and businesses make energy-saving renovations which are paid for through the savings made on utility bills. Underlining the policy is the ‘golden rule’ principle which aims to ensure that installation payments do not exceed the savings made. By packaging the loan and refurbishment together, and using only certified companies, the model provides a financing method and guards consumers against cowboy installers. However, despite the attractive practicalities of the policy, it has been overshadowed with criticism.
The main criticism is the cost of the deal which could have been reduced had the Government implemented loan guarantees on the refits. As a result the Green Deal provider has been left exposed to the credit default risk of the consumer. To mitigate the risk, providers have set interest rates which reflect the probability of utility bill defaults. Compared to the rate an individual can get on the high street or the rates obtainable by large house providers the provider rate of 8% doesn’t make the cut. Critics have advocated the use of the Green Investment Bank as an underwriter to bring down these interest rates, but this has not been pursued.
“You can have the most wonderful product in the world, but if people don’t know about it, it’s not worth much”- The Art of the Deal.
The second major criticism is that although policy makers focused heavily on the finance package, the development of the supply chain and the integration of energy providers, they did not direct enough effort to advertising. This was illustrated late in 2012 when a survey by Rexel claimed that 60% of UK adults had not heard of the Green Deal, in addition to headlines a week before the scheme was launched when DECC revealed that only 5 applications had registered. In response, a £3million marketing budget was allocated to raise awareness of the policy, undermining earlier statements by DECC deputy director Charles Philips that marketing of Green Deal should be left to the providers. In reality, if the deal is to take off it is unlikely that a £3 million campaign will be enough to generate large scale demand.
Furthermore, it has been speculated that the Green Deal will be less effective at meeting carbon targets than previous measures. According to theUniversityofOxford, the combined effectiveness of the Green Deal and ECO will generate a carbon reduction rate 75% below the policy status quo i.e. what was achieved under CERT.
In an attempt to invigorate demand, £125 million of cashback vouchers were made available to early takers, which did not exclude those who choose to use conventional finance methods. The highest sums have been allocated to solid wall insulation which qualifies for up to £650. Good news for insulators is that those who are recommended insulation by their EPC are obliged to have it fitted in order to be eligible for vouchers for other upgrades.
Despite the criticism, the scheme has the potential to unlock a very large market, but, is it has more than teething issues to overcome if the efforts of the Government and the supply chain are not to be rendered fruitless. Overall, the underlying concern is that too much effort has been steered toward the technical intricacies of the deal, whilst overlooking the more general demand aspects that would ultimately underlie any successful mass retrofit programme.