Introduction to the Green Deal
The Green Deal is a finance mechanism to enable people to make improvements to the energy efficiency of their house without having to bear the up-front cost.
At the heart of the Green Deal is the 'golden rule': as long as the expected financial savings in lower energy bills are equal to or greater than the costs of the energy efficiency measures installed, you are eligible.
The loan to cover installation costs will be in the form of a charge on the property. It will be repaid over a period of 10 - 25 years (depending on what measures are installed) through the property's electricity bill.
A complementary initiative, the Energy Company Obligation, is available for vulnerable and hard up individuals, low income communities and homeowners with solid wall or other hard to insulate properties.
The Energy Saving advice line was set up to provide a central point of contact for inquiries about energy saving and questions about the Green Deal. You can phone the Energy Saving Advice Line for the best deals in your area on 0300 123 1234.
How the Green Deal works
1. An accredited Green Deal adviser will assess the energy efficiency of the building, using a system that is based on an improved energy performance certificate (EPC). They will draw up a list of measures that can be taken to improve the energy efficiency and indicate which ones meet the golden rule. To find a local Green Deal advisor, put your postcode into the search box here. (All GDAs must belong to a Green Deal Advice Organisation. They can be independent, or tied to a Green Deal Provider.)
2. Domestic properties will also get a green deal occupancy assessment, which will look at your current energy use, and how that varies from the national average (which is what is used in the EPC calculations). If your use is higher than average you will benefit more than calculated by the golden rule; and if your energy use is lower than average, you will see less benefit. Green Deal assessments for non-domestic properties will automatically take current energy use into consideration.
3. You can then invite Green Deal providers to give you quotes for any of the improvements mentioned on the report that you would like to go ahead with. If you are applying for a Green Deal plan of £10,000 or more, you must get at least three quotes. (Even if you are not, it makes sense to get three quotes as different providers will offer different products and approaches).
4. If you wish to install measures that don't meet the golden rule you can use the green deal up to the level of estimated savings, and pay the rest yourself.
5. Your chosen supplier(s) installs the measures.
6. The Green Deal provider arranges for the repayments to be taken through a charge on your energy bill.
Green Deal Finance
In January 2017 Greenstone Finance and Aurium Capital Markets acquired the business and assets of the Green Deal Finance Company Ltd (GDFC). Financing of new Green Deal loans recently commenced through a select number of Green Deal Providers for the first time since July 2015. Set out below are some questions and answers they have provided us with about the new scheme.
How do people get a GDFC loan?
Customers can register their interest in getting a loan via the website at www.gdfc.co.uk, by going to the “Consumer” section on the homepage, selecting which category they fall into (homeowner, landlord or tenant) and entering their contact details along with any comments relating to their Green Deal requirements. A member of the team will then get in touch to connect them with their local GDP.
We commenced financing loans again on 16 May 2017, but we are still in the soft launch phase of the business working with a select number of GDPs, ahead of a company rebrand which we are planning for later on in the year.
Have the interest rates increased compared to the Government run scheme?
The APR on the existing loan book is 8.3% and the new loans’ APR is expected to be 9.5%, so close to what was being charged before.
Why should homeowners get loans from GDFC rather than another finance provider?
As well as being competitive compared to traditional unsecured credit, the loans have a number of added benefits that you wouldn’t get from a payday loans provider, or even a high-street finance provider:
• The loan stays with the property rather than individual, and so the homeowner only pays for the loan while they live in the property.
• The term of the loan is longer than most unsecured consumer loans as it is designed to match the estimated life of the energy efficiency measure installed (for example a Green Deal boiler loan lasts c. 12 years). The advantage of this is that it lowers the monthly payments, and it is estimated that the savings generated by the measures installed will pay for the cost of the financing, making it cost neutral for the borrower (the cost of financing is offset by the energy savings generated).
• The financing is attached to homeowner’s electricity bill, meaning they do not have to deal with another direct debit, reducing the administrative burden of dealing with the loan.
• There are no late payment or early pre-payment fees associated with a Green Deal loan.
• The acceptance rates will be higher than many forms of unsecured consumer credit, because of the low default rates on the loans (energy bills tend to have a low default rate).
• The loan comes as a package with the installation and the guarantee – so the borrower doesn’t have to search around to find a credit provider who is prepared to finance the measure they want to install. The guarantee is for damage to the property caused by the installation as well as the measure itself. There are no ‘sign up’ fees and the interest is fixed for the length of the loan – which can be up to 25 years.
What has changed compared to the original project? What has stayed the same?
We are developing the GDFC based on the experience gained from the first incarnation of the business. This includes investing in marketing (we will be changing our name and rebranding later this year), investing in the customer journey to make it better and faster, improving our website (the website was previously receiving 200 – 300k hits per month but was unable to connect people directly to a GDP in their area), and offering top-up financing to customers where the Green Deal does not cover 100% of the costs. However, we have taken the decision to start slowly as our focus is on quality control and providing high levels of service to our customers and installer partners. We want customers to receive very high quality work in their homes.
Our initial focus is on financing the boiler market in the UK, but a range of other products will be available from day one, including insulation, ground source heat pumps and air source heat pumps. Eventually we will be offering all 45 products currently allowed under the Green Deal legislation, the Energy Act 2011. Over time we will look to add other appropriate measures to this list, for example battery storage.
The hassle-free financing mechanism has remained the same, so repayments will be taken via your energy bill, meaning you don’t have to worry about another direct debit. It is estimated that the repayment cost will be offset by the energy savings that result from having a more efficient home. The Green Deal process will remain the same too (in terms of assessment and installation), however, we are working with a much smaller number of Green Deal Providers to begin with, to ensure our partners are adhering to the highest standards. We hope to offer finance through a wider number of GDPs over the coming months.
The benefits and pitfalls of the Green Deal
For the home or business owners or tenants the main benefits are to have warmer, more comfortable buildings, while paying the same (or lower) energy bills, with no up front cost.
For landlords it is to improve their buildings with no upfront cost.
An additional benefit is lower carbon emissions, and this is the main driver for government in developing this scheme. It also wants to improve energy security, mitigate fuel poverty, increase productivity and reduce the costs of meeting the UK's renewable energy target.
Could I end up paying more?
The golden rule is based on average energy use. If you currently use less than the average amount of energy, the savings on your energy bills may be less than estimated in the assessment. It is possible that they will not cover the cost of the repayments, and you will end up with higher bills.
If you currently keep the thermostat low to keep bills down, then installing energy efficiency measures means that you will be able to heat it to the current temperature for less. The temptation then is to turn the thermostat up, and get more comfort for the same amount of money. This means that, when the repayments are taken into account, your overall spend will have increased.
Are there any safeguards against paying more?
If a lower than average user wishes to take out Green Deal finance, the green deal provider must obtain a written acknowledgement that they are aware that, based on their energy use, the green deal charge may not be fully offset by their energy savings. This covers the first scenario above, but not the second.
What happens if I move?
The premise that the people benefiting from the installation of Green Deal measures should be the ones who pay is at the heart of the scheme. This means that when you sell or rent out a property with a green deal charge in place, the new owners or tenants take on the repayments via their energy bill. It remains to be seen how potential buyers and tenants will view the green deal charge.
As current owner or landlord, you must disclose that there is a Green Deal charge attached to the property via an EPC, and get written acknowledgement from the buyer or tenant that they are aware of the charge and understand that they are liable to pay the charge.
If disclosure is disputed the new bill payer has just 90 days after receiving their first electricity bill at the property to complain. After that they will have no recourse and will be liable to pay the Green Deal charge.
Managing your property improvement programme
Many of the measures that improve the energy efficiency of buildings are easier to install in new properties than to retrofit. Some improvements can be very disruptive. When planning energy efficiency improvements it often makes sense to phase them, and to combine them with other work you might be doing.
For example, if you are replacing your kitchen or bathroom, that would be an ideal time to add internal wall insulation. You could then do other rooms when you decorate them.
If you decide to do a major project, it might be wise to think about who is going to manage the project. Energy efficiency measures are not always understood by all the trades, which have traditionally worked in silos. It is important to know who is going to be responsible for making sure that everything works together.