The Green Deal

The Department Of Energy and Climate Change has created what they call the Green Deal which is to be officially launched in 2012. It allows consumers to get energy efficiency improvements done to their homes by private firms without having to pay upfront costs.

The idea is to allow people to get the home improvements done that will save them money on their utility bills. Unlike the previous solar panel grants the cost of the work is paid back over time through instalments through your energy supplier. So this means that you may have some insulation fitted in your roof. Rather than paying the cost straight away you will pay it back in instalments. The theory is that the savings made due to the improvements will subsidise the cost.

Green Deal Plan

Under the Green Deal they have set in place their golden rule that means that the savings must be equal to or greater than the amount paid back through the householders bill. Essentially ensuring the householder does not lose out. The system will work through accredited advisors and installers who will have to show that the improvements are saving the customer money.

The most controversial part of this deal is that the repayments stay with the house rather than the people living in it. This means the new homeowner will take on the repayments. The seller has to disclose any Green Deals that are attached to the house when they sell it. Whether or not a potential buyer will see this as a burden that they may not be willing to take on is another matter.

In theory under this new scheme the customer should not be paying any more on their bills. The cost savings due to the improvements will go towards the cost of the installation.

Energy Suppliers Act As Middle Men

It will be the energy companies that will collect the instalments to then pass on to the private company that carried out the improvements to the home. It appears that if the consumer does not save money then they will not be repaying the instalments. In fact it appears that unless the potential savings can be proven in the first place by an unbiased accredited advisor the improvements will not be able to be funded through the Green Deal anyway. Unlike with the feed in tariff where private companies offered free solar panels and claimed the tariff for themselves under the Green Deal there would be no scope for this type of innovation.

Energy Company Obligation (ECO)

Under the energy company obligation it appears that lower income and vulnerable households will receive additional funding to allow the Green Deal to be implemented where it would otherwise not meet the golden rule.

The scope of the deal is to reduce carbon emissions by 80 percent by 2050 and reduce demand for imported energy. It is also envisaged that this will create more jobs nationally as the number of installers and accredited assessment advisors needed will increase.

It is not just private sector housing that will benefit, private rented accommodation, social and council housing will benefit also. Landlords will have to accept reasonable energy efficiency improvement. Their will be no cost to the landlord as the repayments will be made through the tenants energy bill.

How The Green Deal Works

Information about the energy efficiency rating of homes will be made available so that private companies can target the least well performing homes. Initially a property assessment will be made by an accredited advisor. The advisor will be able to recommend changes in energy saving behaviour and any Green Deal finance approved measures that could be implemented in the home under the scheme.

Energy efficiency measures will only be able to be implemented if they meet the golden rule.

The Golden Rule

The expected financial savings must be greater than the costs attached to the energy bill. The key principle, or golden rule, for accessing Green Deal finance is that the charge attached to the bill should not exceed the expected savings, and the length of the payment period should not exceed the expected lifetime of the measures.

Currently this rule is only set for guidance and is not backed by any government guarantee should the advice be incorrect. This may leave consumers open to paying out costs for measures that do not save them any money or indeed reduce carbon emissions.

How A Green Deal Is Repaid

Once improvement measures have been advised, accepted by all parties and installed a finance agreement will be set up to repay the cost of the improvements. This means the bill payer of the house will be responsible for paying the instalments for the agreed length of time. Defaults on payments are to be treated the same as not paying your gas or electricity bill.

The actual payments may include finance or interest charges. The length of the deal will not be able to be any longer than the lifetime of the improvements. This means that the loan must be repaid before the effective lifetime of the improvement comes to an end. For improvements such as loft insulation this could potentially be a very long period of time.

Additional financial support in the form of subsidies will be provided by the energy company obligation (ECO) scheme that is in place to ensure the low waged and less well off can benefit from these energy efficiency improvements.