The Energy Act 2011 was granted royal assent in the United Kingdom on October 18, a move that will pave the way for the Green Deal to come into effect within the year. Under the plan, households will be encouraged to install energy- and cost-saving efficiencies to their homes without having to bear the full cost up front.
Through the Green Deal, the government will encourage financing that will be repaid slowly through savings on energy bills, a measure that David Cameron’s Conservatives hope will help homeowners overcome prohibitive financial barriers. The Guardian notes that “the scale of the ambition is impressive,” aiming as it does to “reach millions of homes, and is expected to play a major role in meeting national carbon-reduction targets.”
“As well as helping people save money through home energy improvement, the Green Deal will be a massive business opportunity” notes U.K. Climate Change Minister Greg Barker in Energy Efficiency News. Barker adds that “it’s expected to attract capital investment of up to £15 billion in the residential sector alone by the end of this decade and at its peak, the Green Deal could support around 250,000 jobs.”
The government expectation is that utility companies and retailers will come forward to offer competitive loans to home owners, but that the loan will be tied to the property, as opposed to the home owner. This protects an owner in the event they conduct a retrofit and then sell the property so that the debt will not follow them.
The Act also “establishes a new obligation on energy companies to help certain groups of consumers, who need extra support, with saving energy,” and introduces the roll-out of smart metering systems. The Act will also introduce “measures designed to help improve energy security and to encourage low carbon generation” which, its proponents hope, will go some distance towards improving home energy efficiency.
But not everyone is convinced that the Green Deal will be as beneficial for homeowners as Chris Huhne, the U.K. Energy Secretary, argues it will. Sam Arie, also writing in the Guardian, argued that this is a classic case of government doing all the wrong things for all the right reasons before highlighting five aspects of the program he feels are inadequate or misguided. Arie notes that ‘the cost to the taxpayer will be counted in the billions, while the beneficiaries, by definition, will be households who already have money.”
Arie believes that if the government offers the loans at competitive interest rates, middle income households will be less inclined to participate in the program for fear of failure to repay the loan on time, not to mention the hassle of home retrofitting. But if the government opts to subsidize the cost of the loan by offering it to the public at zero per cent interest, it will be wealthier families who would take advantage of the offer, secure in the cost savings and the ability to repay the loan.
Adding to the complexity of the figures is a recent study conducted by Green Alliance and E3G, think-tanks that have shown that “interest rates on the loans would have to be far lower than any commercial company is likely to offer – almost zero, in fact – for households to make a saving on the deal.”
This may make sense to politicians,” Arie argues, “offering as it does the prospect of a large handout to the middle classes just before the next election. But for the taxpayers who will foot the bill, it is a much less appealing prospect. Far better to forget about the green deal and focus instead on a simple rethink of energy pricing for high and wasteful users.
The responsibility of ensuring the Green Deal’s success now falls on the government to incentivize the program and encourage public participation. BusinessGreenalso warns that a considerable amount of secondary legislation will be necessary to have a competent program in place before September, 2012 when the program is set to start. The deadline, they argue, will be incredibly tight. It appears that Huhne will have his work cut out for him re-tooling the Green Deal before next Fall.
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