30th September 2015

The Green Deal: a post-mortem

Earlier this year, the government ceased funding the Green Deal Finance Company, essentially bringing the Green Deal to an abrupt and unceremonious end. 

The Green Deal: a post-mortem

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Earlier this year, the government ceased funding the Green Deal Finance Company, essentially bringing the Green Deal to an abrupt and unceremonious end. Once the flagship green policy of the coalition government, the Green Deal never lived up to expectations, but the sustainable building sector was understandably dismayed when the scheme closed. No replacement initiative was announced. With the retrofit sector mourning the loss of the Green Deal, and the future of the green building sector in the UK looking bleak, let’s take a look back at why and how the Green Deal failed.

The problems

You could write a thesis on the various problems that beleaguered the Green Deal. Here’s a summary:

  • • High interest rates. The core of the Green Deal was to provide finance for insulation and other household energy efficiency improvements, with payments made via energy bills. However, interest rates for Green Deal finance had typical rates of 7-10% - much higher than plenty of other finance products including personal loans. This put consumers off, and led to…
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  • • The failure of ‘the golden rule’. The central tenet of the Green Deal was that no improvement should save more money on energy bills than the repayments cost. However, with such high interest rates and long term (10-25 years) repayment periods, it seems that the golden rule didn’t hold true in many cases.
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  • • Transfer of liability. Green Deal debt is linked to the property, not the occupier. That means that anyone buying a property with a Green Deal improvement that hasn’t yet been paid for will have to shoulder the repayments. Again, with the minimum repayment period set at 10 years, this part of the deal dissuaded homeowners from signing up, in fear that the debt would make their property less attractive to buyers.
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  • • Upfront costs. To qualify for Green Deal finance, Green Deal assessments were required. These typically cost around £100. With no guarantee that an assessment would find any worthwhile energy efficiency improvements, many homeowners balked at the cost.
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  • • Rental properties. The private rental market continues to expand, and the Green Deal didn’t really work for either tenants or landlords. Both parties had to agree before an deal could be signed. Landlords might be reluctant to get into debt if it’s the tenants who benefit from reduced energy bills, and it’s highly unlikely that tenants would be able and willing to sign a finance deal if they might only reside in the property for months rather than decades.
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  • • Technical issues. The Green Deal was relaunched in 2014, providing grants rather than loans for certain energy efficiency measures. The demand for these grants was so high that the website crashed under the load. First come, first served hardly seems the most efficient way of refitting our housing stock.

Lack of replacement

Green Deal grants were wildly popular, but we’re in the midst of austerity, so it’s hardly likely that the government will pump billions more into a replacement scheme. The government have stated that they will work with businesses in the sector to support the provision of energy efficiency measures, but with the scrapping of the zero carbon homes target and no details on future government initiatives in the sector, the industry remains pessimistic.

For more analysis on the UK construction industry, keep checking back to the Integrity Software blog.

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