October 2, 2012 by Nash Riggins
As the Department of Energy & Climate Change (DECC) finally begins to kick off various regional activities surrounding its new Green Deal, critics within the energy industry have begun to raise questions regarding its potential impact upon the domestic energy market.
As a provision of the Energy Act of 2011, the aim of the Green Deal is to “reduce carbon emissions cost effectively by revolutionising the energy efficiency of British properties.” The plan itself is based upon a sound a purposeful goal; however, there may be several unaddressed issues with regards to the programme’s funding.
In essence, the DECC aims for domestic developments via the Green Deal to be funded by using the short-term savings that customers stand to make on their energy bills after improving the energy efficiency of their home. These improvements will most typically include cavity wall insulation, loft insulation and new boiler systems; however, the Green Deal will also be applicable to microgeneration technologies and small, domestic renewables.
This pay-as-you-save model ensures that energy customers receive money up front in order to make the required energy efficiency improvements to their homes; however, these payments actually take the form of a capped loan – which is subsequently repaid in instalments by adding money onto the energy bills associated with the property in question. The DECC has vowed that these regular instalments must not exceed the potential associated cost savings for the property, based upon an average bill. In turn, the Green Deal loan’s repayment then becomes the liability of the bill payer of the property for the duration of their responsibility to meet the cost of said bill.
A major issue then becomes as follows: how are these loan repayments affected by those who move properties or let to others? In short, the loan simply changes hands – as it is attached to the property rather than the person who took out the loan. The DECC feels as if this is an adequate arrangement, as the current tenants will enjoy the savings of the Green Deal’s energy improving measures; however, what tenant would knowingly wish to enter a property in which their energy bills will be substantially higher based upon a loan agreement that they did not arrange in the first place?
The DECC has asserted it is “essential” that each new property owner or occupier is made aware of their liability to repay a Green Deal loan prior to any property changing hands. Yet the government has yet to establish any viable legislative protection that will serve to defend the rights of customers who are wrongfully sold a property attached to a Green Deal repayment scheme without full disclosure – effectively leaving missold customers to fend for themselves.
Moreover, although the DECC maintains that any loan repayments are not to exceed the amount of money that should be otherwise saved, said repayment cap is to be set based upon ‘an average bill’ – presumably industry-regulator OFGEM’s generally recognized definition for a medium average user, which is ‘a customer using 3,300 kWhs of electricity a year and 16,500kWhs of gas a year’. Yet given the fact that the ‘average’ energy user could be overpaying their energy bills by around £127 per year, Green Deal property occupants could actually be repaying for the energy efficiency measures they did not approve by hundreds of pounds more than they should have to.
Indeed, critics have called into question how these contractual obligations and loan caps will affect the UK’s energy comparison industry. Energy suppliers themselves are already compelled to help subsidise energy-inefficient homes via the Green Deal’s Energy Company Obligation (ECO) clause; however, any inclusions of Green Deal financing are currently unavailable to energy comparison services – meaning that said organisations will not be able to provide energy customers who reside within Green Deal properties with accurate quotes regarding their energy consumption.
Because energy brokers are not currently able to access the Central Charging Database, said services are then unable to accurately quote energy comparisons for Green Deal customers – as these customers’ energy rates will currently be skewed by Green Deal repayments that are debited directly onto those customers’ electricity bills. As the DECC and OFGEM have yet to address this lack of accessibility, many Green Deal customers will consequently be discouraged from switching energy suppliers – subjecting thousands of UK energy customers to extraordinarily high energy bills that are difficult to reduce until such a time that their Green Deal loan has been repaid.
The DECC’s Green Deal undeniably has the best interests of both UK customers and their environment at the core of this legislature; however, justifiable arguments regarding the protection of unknowing tenants and customers who are overpaying for their energy have yet to be answered for. Taking into account that around £200m has already been allocated across the UK in order to make these loans on the DECC’s behalf, the government may do well to halt any additional funding before fully accounting for the ways in which this programme may be cornering customers with up to 25 years’ worth of otherwise unnecessary increases onto their energy bills.