This is what we need more of to save money and energy and reduce CO2 emissions: closed cell foam insulation installed between the rafters of this roof will keep the occupants warm for many years to come. Photo: Bryn Pinzgauer via Flickr (CC BY).
Set up for failure and corporate profit? The rotten core of the Green Deal
18th May 2016
The UK's 'Green Deal' energy efficiency scheme was a massive failure, writes Sue Roberts. But few knew just how bad until the NAO's report - which reveals that its main effect was to line the pockets of the Big Six energy companies, load the public with expensive loans, create a tangle of red tape, and engineer the collapse of the UK's nascent energy efficiency sector.
It is extraordinary that DECC expected this expensive infrastructure, often inflating the costs of energy-efficiency projects two to three-fold, to be borne by house-holders, while the profits went investors in the finance company including the Big Six.
Distasteful, too. At least that how I felt when I read that the Department of Energy and Climate Change (DECC) wanted energy suppliers "to benefit financially from households using Green Deal finance."
Reading these two reports it rapidly becomes clear that the Green Deal was set up by, and for, the 'Big Six' Energy Companies - British Gas, EDF, E-ON, Npower, Scottish Power, and SSE. Let's call them the 'Hex'. Their interests were paramount from start to finish.
The Green Deal, launched in January 2013, was a pay-as-you-save scheme set up to improve our 27 million homes. And it's a job that badly needs doing. Over a quarter of the UK's greenhouse gases come from our homes, which are the worst in Europe for energy efficiency. Around 12 million have completely uninsulated walls.
Under the scheme homes were to receive insulation, efficient heating systems, glazing and renewables at no up-front cost via a loan repaid through the electricity bill, but covered by fuel savings. These loans were administered by the Green Deal Finance Company.
As solid wall insulation is so expensive, the Hex were to provide grants both for this, and for other measures for the fuel-poor, amounting to a total value of £1 billion under the Energy Company Obligations (ECOs).
The Green Deal had failed utterly by the end of 2014 (see chart, right). But was held in suspended animation for five months to hide its shameful failure from public view until after the general election. It finally closed in July 2015.
Hiding the failure was achieved with a £34 million loan from DECC to the finance company to keep it operational.
'Nothing will come of nothing'
The Green Deal was devised as a monumentally complex supply chain of advisors, providers, installers, auditors and accreditors. It was expected that small private companies and individuals would 'contribute' £422 million towards the Green Deal.
These suppliers did expect their investment in training and accreditation to lead to some work. However, they were never given the opportunity to engage. Worse still, the unfortunate householder was to be exploited, with the loans handled by the Green Deal finance company set at the astonishingly high interest rate of 7-8% depending on the loan duration, plus additional charges.
And DECC's self-proclaimed "golden rule" that interest payments would never exceed the savings to households was in fact an aspiration, not a rule. If the interest payments did exceed savings, the interest had to be paid anyway. And householders who default on their Green Deal loan payments are liable to have their gas and electricty cut off.
What the NAO report reveals is that investors in the finance company, due to benefit from this interest, were the Hex and the Department of Energy and Climate Change (DECC).
It is extraordinary that DECC expected this expensive infrastructure, often inflating the costs of energy efficiency projects two to three-fold, to be borne by householders; while the profit were going to investors into the finance company; and that these investors included the Hex themselves.
Those of us working in alleviation of fuel poverty, or in insulation or renewables, 'stakeholders', were worried about complexity and high interest payments. But Greg Barker, junior minister for the Green Deal, said it would "become the biggest home improvement scheme since the Second World War."
DECC also chose to ignore the advice of its own consultants and of stakeholders. Although it had "concerns that the design of the Green Deal would not generate demand" DECC went ahead, because a "market-led design meant the financial risk to government of the scheme not working was acceptably small."
DECC's focus then, was on avoiding using any government funds, and creating profit for investors in the finance company. DECC had a starting stake of £25 million, the Hex were among the remaining 16 investors who lent £34 million. This initial loan was made at a massive 14% interest.
Why would DECC have made the arrogant assumption that householders would choose to take up loans at 7-8% at a time when mortgage loans were running at 3%?
There is a mismatch between the viewpoint of ordinary people and those in power. A DECC official argued to me that 7% is a low rate of interest. She seemed unaware that she was speaking from the point of view of the lender not the borrower.
Out of your league
Among those not set up to benefit were the many small companies supplying Green Deal services. Indeed they were callously disregarded or purposely sidelined, wiping out enormous investments they had made in setting the companies up and receiving all the certifications and accreditations they needed to participate.
ECO grants from the Hex were accessible only through Green Deal providers under an arcane bidding system. Loans were available only through providers. But it was very difficult to get accredited. Green Deal Together, a co-operative owned by 14 district councils took two years to be become a provider. It went bust five months later.
Providers, installers, advisors ... all had to undergo long-winded and largely meaningless training; suffer months of delays to launch; and have constant new hurdles erected, creating whole new layers of bureaucracy, expense and time-weasting.
Those who made it through to existence were then made invisible to potential customers in the areas in which they operated by the listing directory, which (deliberately?) obscured the geographical location of suppliers.
In practice, only the Hex, three of whom had set up as providers, were able to function within the Green Deal. Under the scheme they sold boilers, administered their own grants, provided advisors at knock-down prices - and sold yet more boilers.
Wolf in sheep's clothing
Energy suppliers are not the natural point of call for reducing your energy use. One might have thought that a government obsessed by the free market would notice that it runs entirely counter to their interests. NAO recommends that DECC be "realistic about the motivations of energy companies in fulfilling their obligations."
The Green Deal was guided with a steely-handed determination by the Hex, to ensure that they monopolised the industry and clawed back advantages to themselves at every turn. This is not hard for them to do, as DECC is peppered through with staff seconded at no cost from energy companies. As Naomi Klein, author and journalist, wrote, "it has become increasingly difficult to discern where the oil and gas industry ends and the British government begins."
And they kicked against the ECO grants, EDF blackmailing our government to reduce the obligation. The most specious reversal for the Green Deal was the denouncement of ECOs by David Cameron as "green crap" - an abrupt change in tone from his earlier speeches on his "greenest government ever".
ECOs were reduced just 15 months after their launch, halving the annual costs for the Hex. To offset this loss, the Treasury assigned £0.5 billion to DECC for direct grants to householders, chiefly for solid wall insulation, under the Green Deal Home Improvement Fund (HIF). Rather than the Hex paying for their obligations, the tax-payer would!
Administration of these grants was farcical. They were repeatedly released, abruptly halted, and re-introduced at a lower rate, causing surges in activity and then nothing. They were wildly desired by householders and installers, who had been flummoxed by Green Deal complexity.
But for all these problems the HIF worked - in that it succeeded in getting money to where it was needed. But of course, that would never do - the Treasury pulled the plug after only one-third of the money had been spent, having changed its "wider government priorities".
Our money for votes
One priority was to permit a £34 million loan from DECC, taken from the HIF, to keep the finance company afloat for five months from December 2014, ensuring it survived "until just past the 2015 General Election".
And thus was the one successful element of the Green Deal sacrificed for political expediency - with money diverted from hard-working families desperate to get their walls insulated, to financing a party political interest in hiding the failure of its disastrous Green Deal scheme from voters.
"I don't believe the Green Deal has failed, Sue", said Wantage Conservative MP, Ed Vaizey at a hustings for the May 2015 general election.
"It has", I answered. "It has been declared as failed by the Select Committee on Energy and Climate Change."
"Oh, I haven't heard that", said Ed. "I will look into it."
The finance company struggled on, on borrowed time, until the Conservatives were safely back in power. In July 2015, Amber Rudd, Minister for DECC, closed the finance company with the sanctimonious statement that "it did not provide value for money for hard-working families."
Brave new world
We are to continue to rely on the recalcitrant Hex who have the power to change government policy. ECO is to shrink again in April 2017, and focus only on the fuel-poor.
And now any future energy efficiency strategy will be likely to cost more, according to NAO, as assessors and installers will be more wary of engaging with it given the "lack of continuity in government energy-efficiency policies".
Now there is no plan to help ordinary householders with energy efficiency, and the supply chain of assessors and installers has collapsed.
We cannot meet our required carbon emission reductions without improving household energy efficiency, according to the Committee on Energy and Climate Change. In fact, emissions will grow. All the more so now the energy efficiency standards for new-builds, where all our building effort is going, have been reduced.
The NAO recommends that DECC "regularly validate its assumption that market forces ensure cost-effectiveness." In the skewed market created to benefit only the Hex, I would say they should pay particular attention to with this advice.
Dr Sue Roberts is a domestic energy advisor and erstwhile Green Deal advisor. She still manages her energy efficiency organisation (formerly a Green Deal Advice Organisation), Ecomorph. Sue blogs at www.drsueroberts.co.uk.
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