of harder-to-treat houses, and to stimulate
private investment. The lack of consistency
in the Government’s approach during the
schemes could increase the long-term costs of
improving household energy efficiency.
In the NAO’s accompanying investigation
into DECC’s loans to the Green Deal Finance
Company, also published last month, it found
that the Department expects that it will not
recover its £25 million stakeholder loan to the
finance company, plus £6 million of interest
that has accrued on it.
The Department based its stakeholder
loan on forecasts of significant consumer
demand for Green Deal loans. But demand
for Green Deal finance was lower than the
Department forecast from the outset, meaning
the finance company could not cover its
operating costs. The Department agreed
a second loan worth up to £34 million
in October 2014, of which the finance
company has drawn down £23.5 million. The
Department still expects to recover this loan
in full as it will be repaid before other investors
in the finance company.
Amyas Morse, Head of the National Audit
Office, said: “Improving household energy
efficiency is central to Government achieving
its aims of providing taxpayers with secure,
affordable and sustainable energy.
“The Department of Energy and Climate
Change’s ambitious aim to encourage
households to pay for measures looked
good on paper, as it would have reduced
the financial burden of improvements on all
energy consumers. But in practice, its Green
Deal design not only failed to deliver any
meaningful benefit, it increased suppliers’
costs – and therefore energy bills – in meeting
their obligations through the ECO scheme.
“The Department now needs to be more
realistic about consumers’ and suppliers’
motivations when designing schemes in future
to ensure it achieves its aims.”
David Thorpe, independent consultant and
author of several books on energy efficiency
in buildings, commented: “The Green Deal
was an example of a ‘pay-as-you-save’ type
scheme, where loans are taken out to pay for
the energy efficiency measures, and repaid
over time from the financial savings created by
these measures.
“It seems like a no-cost solution and
an obvious winner. But not the British
government’s version of it. One of the
reasons for this failure was pointed out
right at the start by critics, but ignored
by Government officials responsible for
designing the scheme.
“This was that the seven to 10 percent
APR interest rate on the loan to householders
was too high – in fact several percentage
points higher than ordinary loans available on
the high street. It was simply not affordable.
“It also made many measures
unaffordable within its own context – the
‘Golden Rule’. This rule was embedded into
the legislation and stipulated that the savings
generated by energy efficiency measures
must lie within the cost of the measures.
The Green Deal was initiated in 2013 under
the 2011 Energy Act.
“It came with no target or grants. It
combined accredited energy advice and
installation with finance to be repaid in a
period up to 25 years. Finance was attached
to the property, and recouped through extra
charges on the electricity bill (even if the
savings were made on a different fuel, say gas).
“The result? 300,259 total Green Deal
assessments resulted in only 1,815 ‘live’ plans
– a conversion rate of just 0.6 percent.
“Contrast this with the ‘EnEv’ programme
in Germany, implemented from 1 February
2002 then amended in 2007 and 2009,
and replacing the flagship CO2 Building
Rehabilitation Programme. Here, the interest
rate on the loan of up to € 50,000 from the
public bank KfW for the replacement of the
heating and domestic hot water systems of a
residence (and ventilation and cooling systems
installed earlier than 2009) was between one
and four percent.
“The goal here is to use public policy
to refurbish the entire housing stock and
all public buildings in Germany by 2030. A
million old homes have been retrofitted and
400,000 new highly efficient homes built (this
is not just a retrofit scheme). Annual energy
consumption was reduced by 900GWh as well
as energy costs of participating companies by
€150 million per year.”
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