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Why did the 'Green Deal' fail?

26 July 2016

why the green deal failedAt the risk of using 20:20 hindsight, to the casual observer of the day the Green Deal didn’t sound that appealing. You probably wouldn’t save money, the loan was expensive and your house could fall in value. Some deal then...

That the Green Deal was not such a good one was recently confirmed by Government watchdog the National Audit Office (NAO), which found that it did not represent value for money because it failed to persuade householders that energy efficiency measures were worth paying for.

Or we might say: not worth paying for at any price.

The now-axed scheme from the more recently axed Department of Energy & Climate Change (DECC) saw a mere 14,000 households buy into it; and at a net cost of over £17,000 each. Which cost the Great British Taxpayer £240 million.

For more information head to nao.org.uk

To compound this, the mechanism of the Energy Company Obligation (ECO) scheme increased the costs of energy suppliers to the extent whereby energy bills to the consumer – in receipt of energy efficient home improvements – were likely to actually increase; rather than deliver overall savings!

As we expect energy efficiency to be important to the consumer, why did the Green Deal fail to capture the imagination of homeowners?

The idea behind the Green Deal was obviously a good one. Old houses waste energy but people were either too hard up or too indifferent to do anything about it; so if they were given an easily manageable loan, rendered invisible by burying payments in their utility bills; they could make their homes more energy efficient – and more comfortable too.

The only caveat was that the improvements had to pay for themselves over the period of the loan, usually 10 to 25 years.

So what could go wrong?

First: the interest rate was too high. The Green Deal Finance Company (GFDC) was providing finance at 7% APR. Add administration costs to that and it could be nearer to 8%. 8%!! Compare this to Germany, where a similar Government-run programme offers loans closer to 2%; and you can get a 10-year fixed term mortgage deal at 3%.

(If really interested in the detail of the GFDC, read this helpful PDF from nao.org.uk)

Second, there was a perceived risk to house values, with loan repayments being added to a property’s electricity bills – and the Green Deal loan attached to the property itself rather than an individual.

As a potential house buyer, how would you feel about taking on a house with someone else’s loan already attached? Exactly.

Thirdly, a Green Deal loan was not really for families struggling with their finances – the people who would perhaps benefit most from some form of energy cost reduction scheme. Which is where the ECOs came in, with 75% aimed towards hard to treat properties and 25% aimed towards vulnerable people. But again: it didn’t really happen and the burden upon utility companies meant an overall increase in costs – both to the businesses and ultimately to their customers. As talking about reducing carbon emissions now seems almost quaint – let alone how a wholesale retrofit of existing housing stock would contribute – we must then consider different narratives both in the context of energy efficiency and home improvement sector sales.

In the real world, beyond perhaps very specific performance requirements in some public sector or PassivHaus projects, a high level of energy efficiency is taken as a given. Almost without exception, all modern windows exceed the performance criteria required by regulation and we dance on the head of a pin vying with competitors to shave 0.001 off here and there, when that has little to do with how lifestyles are chosen and bought these days.

The life-cycle, energy efficiency and low maintenance arguments have been established for decades, yet extrusion technology developments in the past few years mean that discerning homebuyers – as they seek more differentiation in their choice of products – can source the engineered quality and high aesthetic they demand.

White squares to fill voids and keep the rain out aren’t good enough anymore for the customer.

To this end, the focus must be on comfort, style, choice, colour and lifestyle trends. None of these ‘success factors’ rely on energy efficiency to appeal to home improving or energy conscious homeowners; while delivering it regardless. So with the right focus on consumer drivers; it certainly doesn’t take a Green Deal to go green – and certainly not necessarily at £17,000 a pop.

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