The Green Deal is failing, but there’s a way to solve the problem

It is ludicrous that the government’s solution to high energy bills is to chop off at the knees the only policy that is delivering the support bill payers need.

Reg Platt is Senior research fellow at IPPR

As news broke yesterday that the government would be asking the big six energy firms to hold prices until the middle of 2015, barring any major increase in wholesale fuel costs, it became clear that politicians on both sides are beginning to see energy policy as a crucial battleground, with Ed Miliband due to make announcements today on his proposed 20 month energy bill price freeze as he reveals Labour’s green paper on energy.

On Wednesday’s Newsnight, energy minister Greg Barker MP played fast and loose with the facts to dodge a grilling from Jeremy Paxman on why the government’s flagship energy efficiency policy, the Green Deal, is failing, and made no mention of the new proposal.

The Green Deal could provide the government with the solution it needs to cut energy bills at next week’s Autumn Statement.

But, astonishingly, instead of improving their energy efficiency policies the government wants to slash them.

The Green Deal enables households to take out loans for energy efficiency improvements that are repaid directly from the bill savings the improvements produce. The impact assessment published alongside the consultation on the policy reveals that the government expected 130,000 households to take out a loan in 2013. So far only 816 households have. The government will struggle to achieve 1 per cent of its projection.

Responding to this evidence, collected by IPPR, Barker deflected Paxman’s usual interrogation by claiming that 80,000 households had installed efficiency measures through the Green Deal. But this figure is misleading because it is based on a survey that captures people who have installed measures through another energy efficiency policy called the Energy Company Obligation (ECO). The ECO obliges the Big 6 energy companies to provide subsidized efficiency measures to low-income households and to people who live in properties that are expensive to improve.

It’s not possible to tell apart the survey responses that relate to the Green Deal and ECO. But the government’s impact assessment shows that the projected figure for households taking up improvements under the combination of the two policies was around 440,000 households – 360,000 more than the 80,000 the minister was happy to claim.

Moreover, just 14 per cent of respondents had put some of their own money towards an efficiency measure, suggesting at most 14,000 have taken action without some form of subsidy. It’s unclear if that action was part funding some improvements alongside ECO, paying outright for something substantial like a new boiler, or just something cheap like draught excluders.

Rather than evading the obvious problems with the Green Deal, the Minister should have considered how best to boost the scheme. He committed to rolling it out street-by-street, an approach IPPR has recommended, which will create demand for the programme and is to be welcomed. But it’s not enough.

The interest rate for a Green Deal loan at 8 per cent is simply too expensive. It negates all the bill savings a household can achieve by making efficiency improvements. A typical household could make savings on their bill of around £180 by making efficiency improvements, but if they finance these improvements with a Green Deal loan the repayments are £180.

It’s no wonder nobody wants a Green Deal if it doesn’t cut energy bills.

The government has the tools and the cash to slash the interest rate at next week’s Autumn Statement. It should adopt the approach used for the ‘Help to Buy’ homebuying scheme to underwrite the loans to create ‘Help to Heat’, which could be funded by reallocating existing energy efficiency funds. By bringing the interest rate down to zero the typical household would save £136 off their annual energy bill by taking out a Green Deal, which is a substantially more attractive offer.

Instead of helping bill payers by boosting energy efficiency policies, the government wants to cut them. This is a direct result of lobbying by the Big 6 energy companies.

Reports out today suggest that ECO will be extended by two years, which would cut annual spending on energy efficiency in half. That means 40,000 fewer of England’s 2.6 million vulnerable fuel poor households will receive support each year.

In addition, support for high cost efficiency improvements like solid wall insulation is to be radically cut back, leaving those on low incomes who live in solid walled properties high and dry. There would be fewer funds available to underwrite the cost of Green Deal loans and the energy efficiency industry estimates 10,000 jobs will be lost. All of these negative impacts to save just £25 or so off the average energy bill.

It is frankly ludicrous that the government’s solution to high energy bills is to chop off at the knees the only policy that is delivering the support bill payers need. Official statistics showed this week that there were 9,300 excess winter deaths in 2012-2013 due to cold homes, a 29 per cent increase on last winter.

If next week Green Deal is left out to rot and ECO is cut, expect more deaths next year.

Green deal

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