The Green Deal was supposed to transform energy efficiency policy by providing pay-as-you-save loans attached to the property that allowed households to make energy efficiency improvements at no upfront cost. Households paid back their loans through savings on their energy fuel bills, which were reduced through the improvements made. Government funding for the scheme has now been cancelled, having failed to attract the number of households needed to make it a success.
The Public Accounts Committee’s inquiry followed a highly critical report by the National Audit Office published earlier this year that concluded that the Green Deal had been a substantial set-back for UK energy efficiency policy.
“The ambitions for the Green Deal were certainly high - 14 million homes were supposed to be retrofitted through the Green Deal by 2020. “If you compare that to the actual take up, then it was a failure,” said Rosenow.
Meg Hillier, Chair of the Public Accounts Committee, agreed. “It was not a great success,” said Hillier in her opening remarks. “The CO2 savings are significantly lower than previous schemes. Only 14,000 households took out a Green Deal loan worth £50 million in total compared with the forecast of 1.1 billion. Tax payers stand to lose, especially as the government only expects to recover £23.5 million of the £48.5 million that was loaned to the Green Deal finance company,” said Hillier.
The Panel were asked what they thought went wrong and why.
Rosenow said that the concept wasn’t necessarily flawed, but that the way it was designed led to its failure. While the high interest rates charged might have seemed reasonable to households already facing high interest rates, said Rosenow, there were too high for most households. “7.5 % is attractive for a niche segment in society, for those on low credit ratings who wouldn’t get access to credit elsewhere… but for the vast consumer market, 7.5% isn’t an attractive interest rate.”
The way the scheme was promoted was another key problem that led to low levels of adoption, according to Rosenow. “It was purely promoted as a financial proposition – you can save money, you can save energy. But it wasn’t promoted as something that could increase the value of your property, or increase your comfort levels, which are the messages used across the world to promote these schemes,” said Rosenow. “I think the focus on finance was misguided.”
The panel also discussed the Energy Company Obligation (ECO) scheme, a subsidy from energy suppliers to provide energy-saving home improvements for those households most in need and for harder to treat properties. Rosenow said that the ECO had been more successful at meeting its objectives. “ECO hasn’t failed. The intention of ECO was to treat hard-to-treat solid wall properties. So it was always going to be more expensive.”
The ECO scheme will focus on households experiencing fuel poverty in future however leaving “a big void” said Rosenow, as the ‘able-to-pay’ households have no schemes helping to make them energy efficient. “How do you deliver on the able to pay market? That’s the challenge,” said Rosenow. “The Green Deal was supposed to deliver that – it didn’t.”
No cost-free, regulation-free silver bullet
“The only options that we know will work are to subsidise and pay taxpayer’s money, put it on bills or regulate. All three options aren’t popular at the moment. …Ideally [there would be] a mix depending on the sector you are targeting. That’s the dilemma we are in. There is no cost-free, regulation-free silver bullet that will solve all the issues. That was supposed to be the Green Deal, but it didn’t work.”
The Department of Energy & Climate Change (DECC)’s business case for the loan at the time suggested that there was no realistic risk of insolvency, the risk that the loan would need to be written off was unlikely and would only happen in an ‘extreme downside scenario’. Stephen Lovegrove, former Permanent Secretary of the DECC, admitted when giving evidence that the impact assessment made assumptions that were “woefully inadequate”.
Jan Rosenow and Nick Eyre predicted in 2012 that the Green Deal would fail. They suggested it would deliver carbon reductions at a much lower rate than the policies it was replacing and that “there is a risk that the attractiveness of the Green Deal approach is being overestimated as commercial rate loans may not prove attractive to households.” The Committee Chair, Hillier, asked why Ministers and the DECC hadn’t heeded concerns raised by researchers and organisations about the Green Deal at the time.
“We did listen to those concerns,” said Lovegrove. “Obviously we listened to those concerns but the judgment was made at the time, ...that this equity was worth investing in this company. Now that has turned out to be wrong. I have not got a problem with accepting that it is wrong.”