There are worrying gaps opening up in the government’s flagship green scheme

I very much welcomed the government’s commitment to energy saving initiatives and supported the Green Deal and ECO from the outset.

It’s a chance to finally sell tailored low cost home solutions rather than single measures like loft insulation or a new boilers, and the best opportunity to realise bill savings for homeowners while forcing the various energy efficiency supply chains to come out of their respective silos.

Add in the opportunity through Green Deal to unlock private sector pension funds and bond market money and it seemed we would have a scheme to rival the oft-quoted KfW scheme in Germany. In other words a programme with the ability to leverage multiples in private funding from the public pound it invests.

However, the recently published response to the consultation has not addressed the cliff edge in the number of loft and cavity wall insulation jobs the industry pointed to when the original draft consultation was published. Opportunities for transition into a growing solid wall insulation market now also appear limited with 2013 numbers showing no growth against 2012 activity.

Using the government’s own numbers in the impact assessment, it’s glaringly obvious that for Green Deal and ECO to deliver against the stated ambitions of retrofitting 14m homes and creating 60,000 jobs, then some additional nudges to drive demand, whether they be tax incentives or building regulations requirements, are required.

However, while making Green Deal and ECO work is one challenge that both government and industry must face over the next decade, the issue of immediate concern must now be whether Green Deal will be ready to offer affordable interest rates to all households when the current Carbon Emission Reduction Target (CERT) and Community Energy Savings Programme (CESP) schemes end in December 2012.

The government has recently stated that the framework required to place Green Deal charges on a property will not be ready until 28 January 2013. More worrying is the government’s acceptance that there is no single credible organisation indicating it will be willing and able to offer finance under the Green Deal from January – or any time soon after. The question then remains: who will pay for Green Deal measures in Green Deal?

The Green Deal Finance Company Limited (TGDFC) appears to be the only organisation willing to take long term Green Deal debt on to their balance sheet, yet it has put a halt to any current activity, awaiting government start up funding. A recent letter to government from a group of members indicated TGDFC would need up to nine months from the time of receiving funding before they were able to start providing finance to Green Deal providers.

A lack of affordable Green Deal finance will also impact on the Energy Company Obligation (ECO). The majority of the ECO was to provide a subsidy for householders to cover the cost of certain measures which didn’t meet the golden rule. The rest of the cost would be placed on the energy meter; not an option when there is no finance. 

Until Green Deal finance is available, will Green Deal providers even invest this upfront time in carrying out assessments?  The assumption is no, meaning ECO funding will be under exploited.

Fuel poor households that don’t fall into the affordable warmth category are likely to suffer most as they are the least able to source any gap funding between the ECO subsidy and the total cost. 

Conversely, if energy suppliers are forced to drive ECO eligible work, such as solid wall and hard to treat installs, in the absence of Green Deal finance it will add a significant cost per install, as householders are unlikely to finance the work themselves. The knock on effect is that everyone’s energy bills would rise. 

A relatively straightforward solution to the short term issue could be to introduce a new 12 month CERT/CESP target to drive all measures during the gap between the two schemes.  

As far as the long term success of the Green Deal is concerned, if the government is serious in its ambitions, then additional tactics around tax incentives must be put in place to drive demand. However, for the insulation industry the key question remains - when will these incentives be available and will they be enough?

John Sinfield, managing director at Knauf Insulation will be speaking at a Parliamentary Renewable and Sustainable Energy Group event on 4 July.