Fuel poverty is defined as a household that spends more than 10% of their income on fuel. In 2010 this comprised 3.5 million households across the UK. Ironically, those who would benefit most from the savings brought by lower energy bills are often those who can least afford to improve their properties. The Green Deal targets those unable or unwilling to fund the required capital outlay.
In essence, the Green Deal is a structure to facilitate unsecured low cost loans to homeowners, tenants and businesses to reduce their energy expenditure. This can be achieved by either enhancing the energy efficiency of their buildings/equipment, or by installing microgeneration plants. The government does not provide the financing but administers and oversees the scheme. It operates as follows:
The property owner will arrange for an assessment from an assessor who holds the Green Deal Quality Mark (listed on the Green Deal Oversight and Registration Body website). Called a “Green Deal Advice Report,” the assessment comprises two parts – an Energy Performance Certificate (EPC) stating the building’s energy efficiency from A to G, and an Occupancy Assessment (OA) which profiles how energy is used. ‘Recommended measures’ will be identified by employing standardised software to quantify what energy efficiency or microgeneration measures are appropriate. Not all recommended measures will meet the Green Deal criteria.
Armed with the recommended measures the property owner can approach Green Deal Providers (lenders) and request a loan offer for eligible measures.
Once a ‘Green Deal Plan’ has been agreed, quotations can be obtained from suppliers/installers. These suppliers must be both certified by a Green Deal accredited certification body and hold a PAS 2030:2012 certification for the specified measures. It is anticipated that many Green Deal Providers will have relationships with suppliers/installers.
Work is completed (work cannot commence until 28 January 2013). The supplier is paid by the Green Deal Provider. The Green Deal Provider will then pass responsibility for collecting the loan repayments to the building’s electricity supplier who adds the repayments to the electricity bill. As utility companies suffer a lower incidence of write-off than conventional unsecured lenders (<2%) it is intended that lenders will offer preferential rates (6%-8%). Consumers in default of Green Deal repayments will be treated as if they had defaulted on an energy bill, however electricity companies will receive wider powers of disconnection for non-vulnerable customers.
Various companies will join forces to offer some or all of the above services. The assessor must inform the building owner if they are affiliated with other Green Deal companies (such as installers) and/or if they are receive commission from any company – “free” assessments might be conditional on using a particular supplier. Inducements offered to the original loan applicant must not exceed 5% of the loan or £150, whichever is less. This is to avoid the original applicant enjoying a sizeable inducement after which they vacate the property, leaving subsequent occupants with artificially high repayments.
The Green Deal has certain key features:
a) The “golden rule” underpinning the whole Green Deal is that the total loan charges must always be less than the energy savings achieved on an average energy bill1, in any given year – and over the lifetime of the loan.
b) The loan period should not exceed the serviceable life of the improvements.
c) The loan attaches itself to the property, not the occupant. An incoming occupier assumes responsibility for a pre-existing Green Deal loan, including any arrears. Green Deals are disclosed via the 5th page of the EPC.
Previous government energy initiatives (such as loft insulation) have generally taken the form of cash grants. It is uncertain what uptake there will be for a long-term self-funded loan.
1 Parliament briefing standard Note: SN/SC/5763 23 August 2012