Six tests for the Green Deal

With close to 1,000 pages of analysis and policy published by DECC as part of the Green Deal consultation last month, it’s easy to get lost in the detail.

However, I think it is possible to set out six fundamental tests that any policy for delivering large-scale energy efficiency to the UK building stock must pass.

Sadly the Green Deal currently fails all six.

1. Does it start from customer desire?

If you want people to fly on aeroplanes, you don’t spend time telling them about the technical details of the machine, or asking them whether they are more likely to pay for the wings or the tail or the seat pockets. You focus on encouraging and supporting their desire for holidays in hot places.

In a similar way, the Green Deal should be focused on finding ways to motivate people to want to improve the fabric of their homes. This can be achieved through effective and thoughtful intervention in the property market and encouraging powerful community and individual aspirations.

Verdict: Fail. The Green Deal consultation recognises customers may be important, but still treats them all too much as policy targets rather than policy enablers. 

2. Does it leverage the power of competitive markets? 

There are nice words in the consultation about encouraging small firms. But the reality of the Green Deal is that it is creating a complex and difficult market space for small firms to enter, controlled by a small number of very large finance-based ‘Green Deal Providers’ who will extract significant value, and with the major energy utilities still exercising significant market power through their control of at least 50% of the £1.3bn ECO subsidy fund.

The UK construction industry currently supports more than 100,000 small and medium enterprises (SMEs). The Green Deal is an opportunity to give these firms a context in which they can compete, innovate and grow.

Verdict: Fail. SME growth and success is still not possible in the current design of the Green Deal because it is designed to keep small firms small and large firms large.

3. Is it based on sound business economics? 

Energy efficiency and microgeneration projects are investments for building owners, with long-term returns over time. We should be encouraging them to act as investors, not consumers. The economics make sense, and will make even more sense as time passes, fuel prices rise and energy security becomes a critical issue.

Target government support and charity for vulnerable people and the fuel poor, certainly, but that should be completely separate from creating an energy efficiency market.

Verdict: Fail. The Green Deal can’t make its mind up whether it is going to be running a charity or a commercial market, and offering investments or consumer products.

4. Does it engage those with most influence on policy outcomes? 

The person with most control over the energy performance of a building is the occupant. No matter how much you invest in fabric improvements or microgeneration, a disengaged occupant can easily eliminate any benefits from the investment. Conversely, there’s plenty of research showing that 10-25% energy savings can almost always be made through behavioural change.

So creating policy frameworks which fail to engage with building occupiers is inherently very expensive and inefficient, and probably futile.

Verdict: Fail. There is too much emphasis on supply side analysis and support, and too little power and control given to building owners and occupiers.

5. Does it match risk to reward?

Matching risk and reward is fundamental to a healthy economy. The biggest risks in the Green Deal will fall on installers, who are least protected and most regulated by the design of the scheme. Yet this group has the least opportunity for meaningful reward after all the financiers and assurance bodies have taken their cut. The link between doing a good job and reward is completely lost.

Verdict: Fail. There are too many parties and too many accreditations. Quality installers may not engage at all and the whole deal will become peripheral to economic market development.

6. Is it as simple as possible?

This is a critical final test. The so-called ‘Golden Rule’ in the Green Deal is an elegant and simple formulation which should provide the foundation for a relatively simple policy framework. The Green Deal has correctly identified and tackled key issues in enabling investment liabilities to be attached to buildings not occupants, and payments for energy efficiency measures to be recovered through electricity bills.

But the consultation should have stopped there. Instead the Green Deal knits a very complex system of assessment, monitoring and financial control on top of these simple principles, most of which is redundant and should be abandoned.

Verdict: Fail. It should be possible to conceive a scheme which I could explain to my 15 year old daughter: this one is too complex.

Matthew Rhodes is managing director of Encraft, an independent consulting engineering firm specialising in microgeneration, on-site renewables and low carbon buildings.