The Green Deal in 2017

28-06-2017 Back

Green Deal SchemeGovernment backing for the Green Deal ended in July 2015 when it withdrew financial support for The Green Deal Finance Company - a not for profit organisation that was set up to manage the scheme.

The company has now been sold to private investors, Greenstone Finance and Aurium Capital Markets, who have started to finance loans through a select number of Green Deal Providers.

What was the original Green Deal scheme?

Launched in 2013, the Green Deal was originally a Government scheme that provided Pay-As-You-Save loans for energy-saving home improvements such as insulation and new boilers.

It was intended to help householders spread the up-front cost of these improvements to make energy saving more affordable. It worked differently to an ordinary loan:

        -     Repayments were made through your energy bills.
  Repayments were set to never exceed the savings made on energy bills as a result of the improvements being installed. This was known as the “golden rule.”
  The loan was attached to the property, not the person. If you sold your house the loan would be passed on to the new owner.

Interest rates were between 7.9% APR to 10.3% APR and lasted between 10 and 25 years depending on what improvement was installed in the property.

Who was involved in the original Green Deal?

Only Green Deal approved organisations could help householders access a Green Deal Loan and install the recommended energy saving home improvements.

To become authorised they needed to complete a detailed assessment and gain their accreditation from the Green Deal Oversight and Registration Body (Green Deal Orb).

Some organisations gained multiple accreditations so they could be involved in every part of the Green Deal process.

Green Deal Participants:

Green Deal Assessors – carried out detailed surveys and highlighted which energy saving improvements were suitable for the property.

Green Deal Providers – created the Green Deal Plan for the property (based on the Assessors survey). This enabled them to process the loan with the customer and submit the application to The Green Deal Finance Company.

Green Deal Installers - did the actual work like installing insulation or a new boiler.

The Green Deal Finance Company – approved each loan and issued the finance for the work to go ahead. The company was originally funded by a range of private investors and the Government. The company has since been sold with its loan book to Greenstone Finance and Aurium Capital Markets who have started to issue loans through certain Green Deal Providers.

Why did the original Green Deal scheme end?

There were a number of reasons contributing to the demise of the original Green Deal scheme. In summary these were:

  -     Perceived inherent flaws in the scheme including:
      o    Its complexity
      o   High interest rates on the loans
      o   Initial cost of assessments
      o   The fact that the loan was tied to a property rather than a person
  The inability to meet the “golden rule” whereby repayments were never meant to exceed energy cost savings
  The Government bailout after private investors pulled out, meaning it was costing tax payers more to run the scheme

  A lack of customer demand despite initial bold claims that the scheme was going to revolutionise the energy efficiency industry

Flaws in the scheme

The loans had higher interest rates than most rates on high street loans making them unattractive to the consumer. Some companies were also charging customers an initial assessment fee of around £150, which was arguably another turn-off.

Moreover, the loans were tied to a house rather than an individual, meaning it could actually make it harder to sell a house since buyers may be reluctant to take on repayments they never agreed to.

There have also been questions about the protection for those who inherit a Green Deal loan by buying a property. If the Provider does not issue a transferable warranty for the original works then the new occupiers cannot get compensation or repairs done if there are any subsequent issues with the Green Deal installation.

Loan repayments were never meant to exceed energy cost savings, this was known as “the Golden Rule”. However, sometimes the term of the loan (which varied depending on what improvements were installed) wasn’t long enough, meaning that the Golden Rule could not be achieved.

    What was wrong with the “golden rule”?

Loans were only issued to the maximum value of the savings that could be achieved over the set time period. So if a measure was more expensive to install than the maximum loan value, the householder would be required to pay the difference.

For example, expensive measures like external wall insulation were given a 25 year payback period. However, in most cases the estimated savings over the 25 years was lower than the cost of the installation. Householders could only borrow the amount of what the savings added up to, so were required to pay the outstanding balance up front before any work could take place. This turned off a lot of customers that didn’t have the money to invest.

The Government Bailout

The scheme was originally funded by both the Government and private investors including the Green Investment Bank. However, low uptake of the scheme meant that many private investors pulled out, meaning the Government had to make up the short fall and bailout the Green Deal Finance Company to stop it from going under. £34M of tax payer’s money was invested.

However, this lifeline was short lived. The extra cost to the Government, coupled with the varied flaws in the scheme meant the Government also pulled out of financing the company in July 2015, despite the fact that there had been some signs of the scheme growing in the months preceding this decision.

Lack of Demand

When the scheme launched, the then Climate Change Minister, Greg Barker announced: “The Green Deal will be the biggest home improvement programme since the Second World War.” However, in reality it failed to gather momentum with only 14,000 loans approved before the scheme shut in 2015. This is in stark contrast to the Energy Company Obligation (ECO) programme, another Government backed scheme offering certain householders grants for energy efficiency works, which installed around 1 Million improvements during the same period.

Are there still Green Deal Providers?

Yes, there are many Green Deal Providers as this is also the accreditation required for organisations to access and distribute funding via the Government’s ECO scheme.

During the original Green Deal scheme, only a small number of Providers offered Green Deal Loans.

There are only a few Providers who are actively working with Greenstone Finance and Aurium Capital Markets to provide loans under the newly launched Green Deal scheme. This is in the very early stages however, and has only been soft launched as recently as 19th June 2017. It is likely that more Providers will be invited to offer Green Deal Finance towards the end of 2017.

YES Energy Solutions is a Green Deal Provider (as well as a Green Deal Installer and Assessor) and we work with a number of energy suppliers as part of the ECO scheme. Currently we are not offering Green Deal Loans, but will keep this decision under review as the relaunched scheme develops.

What alternative financial help is available?

The main alternative funding route for energy efficiency improvements is via grants. Grants are currently available under the ECO scheme.

In most cases they will need to be topped up to cover the full cost of energy-saving measures.

Other possible financial options to support installations include: an unsecured loan, an increase in your mortgage, a 0% interest credit card or a local finance scheme through a Credit Union of your Local Authority (if available).

What if I still have a Green Deal loan – do I need to do anything?

If you still have a Green Deal loan you are unaffected by the closure of the original scheme and the re-launch of the new Green Deal programme. Your loan agreement will stay the same and all legal obligations remain on both sides.

However, you can choose to pay off your loan early but you may be charged.

If you took out a Green Deal loan after May 2014 you will not incur a fee if you pay it off early. If you took it out before this date, then you may incur a fee.

More Information from YES Energy Solutions:

-    Funding Options and Grants for EWI
-    Other Energy Saving Grants and Schemes