Green Deal - flawed?

March 1, 2013

The Green Deal: changes must be made

ENERGYLINX: Five months on, the Department of Energy & Climate Change's Green Deal initiative has continued to evolve in an effort to provide a cost-effective means of reducing the UK's carbon emissions; however, there are still several unaddressed issues with regards to the way in which it is funded.

In essence, the Green Deal aims to fund domestic improvements using the short-term savings that customers stand to make on their energy bills after increasing the energy efficiency of their home. These improvements include cavity wall insulation, loft insulation and new boiler systems; however, the DECC is also offering subsidised loans for improvements such as double glazing, microgeneration technologies and small, domestic renewables.

This pay-as-you-save model ensures that energy customers receive money up front in order to make the required energy efficiency improvements to their homes; however, in truth these payments actually take the form of a capped loan - which is subsequently repaid in instalments, with 7% interest, by adding money onto the energy bills associated with the property in question. The DECC has vowed that these regular instalments must not exceed the potential associated cost savings for the property, based upon an average energy bill. In turn, the Green Deal loan's repayment then becomes the liability of the bill payer of the property for the duration of their responsibility to meet the cost of said bill.

A major issue then becomes as follows: how are these loan repayments affected by those who move properties or let to others? In short, the loan simply changes hands - as it is attached to the property rather than the individual who took out the loan. The DECC feels as if this is an adequate arrangement, as the current tenants will enjoy the savings of the Green Deal's energy improving measures; however, the capped loan with which incoming residents receive consequently serves as a 25-year sentence where higher energy bills are concerned.

It's worth noting that the Green Deal offers the much-needed financial push homeowners vitally need to make their homes more energy-efficient - and, in truth, the legislature has actually evolved in order to help customers reduce the cost of their energy bills after signing on to the programme. Initially, the legislature was unclear regarding whether Green Deal participants had the ability to switch their energy supplier after taking on a loan repayment scheme - fortunately, the government acquiesced, and customers are now free to switch between the UK's Big Six suppliers, and their Green Deal repayment scheme will transfer with them. That said, by being restricted to only the UK's biggest energy suppliers, customers are actually missing out on the market's cheapest deals.

Indeed, the UK is home to 19 domestic energy suppliers with 24 different brands - and the cheapest deals for customers are increasingly not being offered from the UK's Big Six suppliers. Moreover, although the DECC maintains that no loan repayments can exceed the amount of money that should be otherwise saved, said repayment cap is to be set based upon 'an average bill' - presumably industry-regulator OFGEM's generally recognized definition for a medium average user. Because customers aren't aware of these cheaper deals available from smaller suppliers, the average homeowner is already left overpaying their energy bills by at least £213.06* via the choice to remain with overpriced, mainstream tariffs. Worse yet, Green Deal property occupants don't even have that choice, and therefore end up repaying for energy efficiency measures they didn't even approve by hundreds of pounds more than they should have to.

By restricting Green Deal customers to just a quarter of the energy market, homeowners are effectively signing on to a 25-year sentence of substantially higher energy bills, with 7% interest to boot. At a time when energy prices are predicted to go nowhere but up, it's absolutely vital that something be done in order to prevent an otherwise proactive and beneficial government initiative from becoming nothing more than a 25-year contract condemning customers to a quarter-century of ridiculously overpriced energy bills - because by signing on to the Green Deal as it currently stands, that's exactly what customer can expect.