Is the Green Deal the right deal?

Ever since the Government indicated that it was committed to improving energy efficiency and reducing fuel poverty through the Green Deal initiative, sections of the media and other commentators have lined up to highlight aspects of the Green Deal which they do not believe will work or deliver the expected benefits. So who is right? Is Green Deal the real deal? Is it even the right deal?

28/01/2013

Ever since the Government indicated that it was committed to improving energy efficiency and reducing fuel poverty through the Green Deal initiative, sections of the media and other commentators have lined up to highlight aspects of the Green Deal which they do not believe will work or deliver the expected benefits.  So who is right?  Is Green Deal the real deal?  Is it even the right deal?

A variety of issues have been flagged by a series of commentators.  These include:

  • Awareness – Green Deal was given a ‘soft launch’ in October 2012 and even some supporters of the initiative believe that this was a mistake and that a national awareness campaign should have been supported by DECC to highlight the need and the benefits of Green Deal
  • Assessment – queries have also been raised by certain commentators regarding the cost of the Green Deal assessment and whether this is an upfront cost (i.e. to be paid by the Green Deal bill payer regardless of whether they enter in to a Green Deal Plan).  Not all Green Deal Providers are, however, expecting to charge for each assessment
  • Availability of finance – one of the reasons for the soft launch was the lack of third party finance to support Green Deal Plans last autumn.  The market has been anticipating the launch of the Green Deal Finance Company (TGDFC) for some time as the means of accessing finance but this has not been an easy passage to date.  The lack of third party finance to fund the Green Plans has, naturally, impacted on the marketing of and interest in Green Deal Plans; and
  • Cost – the lack of third party finance since October 2012 and confusion regarding the APR to be charged to Green Deal bill payers has given rise to uncertainty over the actual cost of the Green Deal and concerns that the APR may be too high.  Further, and under certain circumstances (e.g. spreading the costs of the Green Deal over a 25 year period) the costs of repayment may be double the initial costs of installation.

Clearly, if this was the complete picture, the prospects for Green Deal would look quite bleak.  It is, however, important that elements of Green Deal are not viewed in isolation.  The Energy Company Obligation (ECO) is a fundamental part of Green Deal and is recognised as central to its success.  If you were simply relying on recent news reports, you may not know that this has been available for a few weeks and that some local authorities and registered providers have already engaged directly with energy companies to secure much needed ECO for their properties. 

Further, recent reports have not clarified that, under certain circumstances, ECO will fund 100% of the costs of the Green Deal Plan (for example where the occupier is in receipt of certain benefits).  TGDFC is, therefore, an important source of finance for Green Deal.  It is not, however, the only way to finance much needed energy efficiency works to target properties and with energy prices predicted to rise sharply over the short to medium term, the case for energy efficiency measures appears compelling. 

ECO is, therefore, a ‘game changer’ for energy efficiency regardless of social status and whether in rural or urban areas and it can benefit different property types.  Further, because the six largest energy companies have ECO targets to meet (or face a fine of 10% of their global turnover should they fail to do so) ECO offers an immediate route to deliver energy efficiency measures.  There are, therefore, a number of key benefits that a Green Deal can deliver to occupiers, property owners, local authorities and registered providers including:

  • Reducing fuel poverty – in austere times and with energy prices expected to rise sharply, the numbers of people in fuel poverty will increase unless decisive action is taken to meet the challenge head on. The state of Britain’s housing stock is such that ‘doing nothing’ may not (in most cases) be a viable option
  • Enhancing social value – the incidences of fuel poverty often correlate to those communities with reduced economic opportunities.  What if Green Deal brings social value to an area and becomes a platform for generating opportunities for the long term unemployed?  What if Green Deal provides scope for local businesses to deliver key services to their own communities and create jobs for those communities?  What if Green Deal provides a platform for registered providers with existing delivery functions to provide new work streams for their employees – perhaps in partnership with the private sector to deliver to their own stock and the wider local community?
  • Energy security – Green Deal is not the beginning and the end of securing Britain’s energy requirements moving forward and yet this has been one of the principal complaints about Green Deal.  Already there has been a step change in perceptions among a number of local authorities and registered providers who have correctly identified the potential to secure ECO funding to support district heating schemes.  Suddenly linking tower blocks with schools and leisure facilities in one location to achieve both energy efficiency and energy security is a real possibility not a pipedream.

So there are positives associated with Green Deal but are they just ‘theoretical’? 

Green Deal is already up and running.  Birmingham City Council entered in to contract with Carillion Energy Services Ltd (CESL) to deliver Green Deal measures to the citizens and businesses of Birmingham and the wider West Midlands in November 2012.  We advised Birmingham City Council on their ground breaking procurement and the Birmingham Energy Savers – Delivery Partner scheme represents a truly innovative approach to partnering with the private sector and aims to deliver far reaching and long lasting change to the lives of local people through a variety of different metrics.  Birmingham City Council have identified a variety of routes to market and are working with CESL to deliver improved outcomes measured against clear, measurable key performance indicators – and all this at net nil cost to Birmingham City Council.  Indeed, Birmingham City Council is rightly proud of the way it has challenged itself and CESL to deliver as quickly as possible and initial signs seem to be extremely positive.  Birmingham City Council entered in to contract with CESL on 27 November 2012 and a significant number of assessments had been completed and Green Deal Plans agreed in principle within three weeks of the Contract Date.

It is not just the nuts and bolts of Green Deal that are being delivered – the assessments and the commitment to Green Deal Plans.  CESL and Birmingham City Council are, in partnership, already delivering tangible added social value.  Local assessors and installers have been appointed to CESL’s supply chain.  A number of local new starters have already been appointed by CESL and pre-employment training is being rolled out in Birmingham.  Economic opportunities are being delivered.  Lives are being changed for the better.

Whether Green Deal is the right deal for a local authority and its citizens or a registered provider and its tenants will depend on a number of factors including the:

  • State of the relevant domestic stock
  • Level of senior support in the local authority / registered provider;
  • Desired outcomes and commitment to a commercially viable deal; and
  • Level of commitment to work with the private sector (assuming self delivery is not an option).

The nature and the level of criticism aimed at the Green Deal initiative has often been over the top and, to an extent, this is unsurprising given the scale of the problem Britain faces and the ambitious nature of the Government’s approach. 

For local authorities and registered providers looking at delivering Green Deal to their areas and/or properties, care needs to be taken to identify the role they want to play in delivery, the outcomes they wish to achieve and the added value they can bring to the table as partnership works best as a two way street.  DECC has identified potential roles as provider (which we consider unlikely), partner or promoter.  We have undertaken detailed options appraisals for clients to identify how they may best take advantage of the opportunities Green Deal can give rise to and our team would be happy to talk through your options with you.

Birmingham City Council’s approach may not be the solution for all procuring authorities.  Nevertheless, the innovative approach they have adopted clearly sign posts what is possible for a sophisticated procuring authority with senior support and clear objectives.  Birmingham is already reaping the benefits of Green Deal.  Can you afford not to?

Over the coming weeks, we will issue series of updates and articles on our website addressing:

  • How Green Deal can drive economic benefits;
  • The impact of HECA;
  • What to look out for from energy companies offering ECO monies;
  • Procurement issues; and
  • the links with the wider opportunities including district heating and RHI. 

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