Lack of public awareness and cost of loan repayments pose threat to success of Green Deal scheme, says expert

Infrastructure law specialist Jeremy Chang of Pinsent Masons, the law firm behind Out-Law.com, said that whilst the Government "should be applauded" for pursuing an "ambitious" energy efficiency-saving policy, he warned that a lack of public awareness of the Green Deal as well as the cost of loan repayments under the scheme could undermine its potential to meet Government goals.

Established by the Energy Act 2011, the Green Deal allows property owners and occupiers to fund the installation of energy efficiency measures such as double glazing or insulation at no up-front costs. Repayments will be met through subsequent energy bills.

The Government announced the launch of the scheme on Monday and has said that, over time, property owners would make savings on the basis of ongoing reduced energy bill costs. Businesses that want to be involved in providing services, such as the installation of the energy-saving technology, are required to register under the scheme.

The Government has pledged £125 million in funding under a cashback scheme which it said would enable those investing in the Green Deal scheme from the outset to make savings of up to £1,000 on that investment, on top of future reduced bills.

Chang, though, questioned whether the Government's efforts at raising public awareness through advertising initiatives would be sufficient to spark a significant take-up of the Green Deal. He added that the 'wait and see' attitude of major retail brands had not inspired public confidence in the scheme either.

"If successful, the Green Deal and the Energy Company Obligation (ECO), which will require the Big 6 energy companies to fund a range of improvements targeted at fuel-poor households, will help save customers money on their energy bills and tackle fuel poverty, deliver efficiency upgrades to our leaky building stock and reduce emissions and boost the economy by creating new jobs," Chang said.

"Although there is widespread welcome for the Green Deal and its aims, concerns still remain," he said. "Take-up will be key to the Green Deal's success. However, commentators flag that public awareness of the Green Deal remains low. According to a YouGov poll last week, four out of five people have not heard of the Green Deal and critics have wondered whether the Government's £2-3m advertising campaign will be enough to encourage take-up of Green Deals."

"This is not helped by the fact that a number of major retailers (such as B&Q, Marks & Spencer and John Lewis) - who the Government had hoped might participate in the Green Deal from the outset - have adopted a 'wait and see' approach. At a time where public trust in energy companies is low, the involvement of such brands would have helped secure the long-term success of the scheme," Chang said.

Chang said that the interest rates set for taking out loans to pay for the energy efficient measures – announced last Friday as 7.67% for a 25 year loan to 7.96% for a 10 year loan through the Green Deal Finance Company – a was also a barrier to take up of the Green Deal.

"Over the life of the loan, this could result in customers paying over twice the initial loan amount," Chang said. "Coupled with the fact that the loan attaches to the property rather than the customer and given the impact this may have on customers' ability to sell their properties, the worry is that customers may be deterred from taking up Green Deals."

Environment and Energy law specialist Linda Fletcher of Pinsent Masons said that the cost of loan repayments under the Green Deal would have to be factored in by providers under the scheme when projecting  the savings that could be made on energy bills.. Each Green Deal plan must pass the 'Golden Rule' test, which requires Green Deal providers to price the total cost of the measures, the installation work and the interest on the loan, which then must be less than the savings that could be made on the energy bill for that property  by proceeding with the work.

"According to reports, so far only 24 companies have registered as Green Deal providers and it will be interesting to see if commercial businesses find the whole deal for funding the 45 approved energy efficiency measures more attractive than just obtaining a straightforward loan,"

Fletcher said. "A key issue will be the interest rate being offered by the Green Deal providers as this will be crucial in determining if the Golden Rule is satisfied for the package of proposed energy efficiency measures."

Chang added that there were also unresolved concerns about how the Government had pushed forward its Green Deal and ECO schemes.

"The impact on jobs being lost and work being cancelled as a result of the shift from concentrating on loft and cavity wall insulation to solid wall insulation has been well documented," Chang said. "Further the lack of transition from CESP and CERT, the previous schemes aimed at tackling fuel poverty, to ECO has resulted in a position where certain players may be at risk of a financial penalty being raised against them."

"Nevertheless, the Government should be applauded for its hopes and ambitions for the Green Deal. If stakeholder concerns can be addressed and if the teething problems which will inevitably arise can be ironed out, the Green Deal may yet turn out to be one of the important energy policies implemented by the Coalition," Chang added.