What is the Green Deal?

The Energy Bill includes provision for a new “Green Deal” which the Government believe will revolutionise the energy efficiency of British properties.  Put simply, the Government is establishing a framework to enable private firms to offer consumers energy efficiency improvements to their homes, community spaces and businesses at no upfront cost, and recoup payments through a charge in instalments on the energy bill. 

At the heart of the Government’s proposals is the “Green Deal plan”, an innovative financing mechanism which allows consumers to pay back through their energy bills. This means consumers can see the Green Deal charge alongside the reductions in energy use which generate savings on their bill. It also means that if they move out and cease to be the bill-payer at that property, the financial obligation doesn’t move with them but moves to the next bill payer: the charge is only paid whilst the benefits are enjoyed. In this way, the Green Deal differs from existing lending – it is not a conventional loan since the bill-payer is not liable for the full capital cost of the measures, only the charges due whilst they are the bill-payer.

This is a market mechanism, funded by private capital, which the Government believe will deliver far more to consumers than any sort of top-down Government programme.

The role of the Green Deal provider is to offer a Green Deal plan to customers, which enables them to finance work recommended by an accredited adviser and undertaken by an accredited installer. These functions might be done in-house by the provider, or shared amongst other organisations, but the customer’s contractual relationship is with provider.

The Government’s proposals are centred on the Green Deal plan but are also more ambitious.  For example, they are looking at how best to use the accredited, objective advice which is required in advance of the plan to give consumers a wider range of information about steps they can take to improve the sustainability of their homes, such as water efficiency.

There are a number of important consumer protections which will be embedded into the Green Deal which are detailed in the document.  These include the following prerequisites for all Green Deal plans:

1. The expected financial savings must be equal to or greater than the costs attached to the energy bill, known as “the golden rule” of the Green Deal.

2. The measures must be approved and the claimed bill savings must be those accredited through this process.

3. The measures installed must have been recommended for that property by an accredited, objective adviser who has carried out an assessment.

4. The measures must be installed by an accredited installer.

5. For householders, the Green Deal provider must give appropriate advice within the terms of the Consumer Credit Act and take account of the individual circumstances of the applicant.

6. The Green Deal provider must have consent from the relevant parties, including the express consent of the current energy bill-payer.

7. The presence of a Green Deal must be properly disclosed to subsequent billpayers (e.g. new owners or tenants) alongside energy performance information.

8. Energy suppliers must collect the Green Deal charge and pass it on within the existing regulatory safeguards for collecting energy bill payments – including protections for vulnerable consumers.

To qualify for the Green Deal, expected savings in typical properties consuming a normal amount of energy must be equal to or greater than the cost of the measure. However, actual cash savings cannot be guaranteed by government since no-one except individuals and businesses themselves can control how much energy they actually consume in their own property. Whilst the consumer has ultimate responsibility for reducing consumption after the Green Deal measures have been installed, we will give energy users advice on how to change behaviour to maximise the benefits of better insulated, less wasteful properties.

Not every household will be able to save on their energy bills by taking up a Green Deal plan, so there will be additional help for those who need it most. Lower income and vulnerable households may not save money through energy efficiency because many do not have the heating turned on long enough to heat their homes sufficiently, so increased efficiency may mean they will enjoy warmer homes rather than cash savings. Likewise, homes which can only be made energy efficient through major measures which are currently more expensive will need additional support to bring down costs enough to meet the golden rule. Alongside the Green Deal, the Government is planning to replace the existing energy company obligations. The new Energy Company Obligation (ECO) will focus energy companies on improving the ability of the vulnerable and those on lower incomes to heat their homes affordably, and on improving solid wall properties, which have not benefited much from previous schemes.

The Government  are designing the Green Deal with the aim of making it available for businesses as well as households – enabling smaller businesses to access funding for energy efficiency improvements, and larger businesses to meet their obligations under existing schemes at lower cost, such as Climate Change Agreements or the Carbon Reduction Commitment Energy Efficiency Scheme. The complexity of energy use in the business sector means that there will be a number of differences in the Green Deal for this sector, though the key principles set out here will apply to both businesses and households.

For further information visit the website for the department of Energy and Climate Change at www.decc.gov.uk