The Green Deal Explained
What is the Green Deal?
The Green Deal is a government initiative launched at the start of 2013. The purpose of the Green Deal is to provide funding to home-owners (and soon, businesses) to help them make energy-saving improvements, reducing carbon emissions and fuel poverty. The idea behind the Green Deal is that it eliminates the need for householders to pay the up-front costs of installing energy-efficiency measures. Instead, this cost is paid for via instalments on the consumers’ electricity bills. The guiding principle (known as the ‘Golden Rule’) is that the energy saved by the new energy-saving measures must be at least sufficient to cover the cost of their installation.
What is the Golden Rule’?
The principle of the ‘Golden Rule’ is that the financial value of energy savings due to the measures taken must be equal to or greater than the cost of installation. Green Deal Providers are legally obligated to ensure the package offered meets the Golden Rule. See below for a theoretical example of the Golden Rule in practice.
- Let’s say your energy bills are currently £100 per month.
- You agree to install energy-saving measures costing £7,500.
- The cost is spread over 25 years (300 months), resulting in monthly Green Deal payments of £25.
- Your energy saving measures result in a reduction in your energy bills to £70.
- The result is that your total fuel bills after the measures is £95 per month (£70 + £25). As this is less than before the Green Deal, the Golden Rule has been met.
What happens if I don’t meet the Golden Rule?
There is additional finance available for situations where households do not meet the Golden Rule. You may be eligible for to receive this extra finance in the following circumstances:
- Properties where the energy-saving measures are more costly (such as solid wall homes or those with no access to mains gas).
- Owner-occupiers or private tenants on means-tested benefits.
In such situations, you may be eligible for additional funding through the ‘Energy Company Obligation’ (ECO). Find out more about ECO here ECO requires all large energy companies to provide financial assistance through a grant or subsidy for properties that qualify. The provider of the gas and electricity is irrelevant and the provider of the Green Deal can be a different organisation to the energy supplier.
How does the Green Deal work?
There are four stages to the Green Deal:
An assessment is carried out by an accredited Green Deal Advisor or Assessor and may be subject to a charge. The assessor will:
- Visit your property to assess your current energy efficiency and usage.
- Produce an Energy Performance Certificate (EPC), showing current and potential energy efficiency ratings and the environmental impact of your property.
- Use software and calculations to establish which energy efficiency or microgeneration improvements can be made and their consequential energy savings.
- Identify which energy-efficiency measures will most likely be cost-effective.
- Offer advice on the repayments process.
- Produce a Green Deal Advice Report, setting out your options.
- Declare any links they have with Green Deal Providers.
- Require full access to your entire property.
- Look at some of your recent energy bills to see how you use energy.
- Take photos of your property to show where energy-saving improvements are needed.
- Advise you of consents you may need to obtain before the recommended measures can be installed.
Once you have received your report from the Green Deal Assessor, you can then take it to a Green Deal Provider who will arrange and fund the improvements. If you decide to take up a Green Deal offer you will then sign a ‘Green Deal Plan’, which is a contract between you and the Green Deal Provider.
Although the Green Deal finance is offered in the form of a personal loan, it is different from a conventional loan in that the bill payer may not be liable to repay the full amount. If the bill payer leaves the property, the loan will be transferred to the new bill payer..
The Green Deal Provider will arrange for an accredited Green Deal Installer to carry out the works you have agreed to. The installer will have been vetted to ensure they meet the standards required for the Green Deal.
You will make repayments for the installation over the agreed time period through your electricity bill and your energy supplier will then pass on these payments to your Green Deal Provider. The repayment amount will be no more than the amount saved on your heating bills (see Golden Rule).
This is different from a personal loan in that you don’t necessarily have to repay the entire amount. The Green Deal loan is instead attached to the property’s electricity meter, meaning that the loan will be transferred to the new bill payer if you move out.
You will be charged interest on your Green Deal loan repayments, but this will be detailed from the outset in your Green Deal Plan. Your Green Deal Provider will decide on the interest rate, so it may be worth shopping about to find the best deal.
What Improvements will the Green Deal cover?
There are currently 45 different energy-saving measures which are approved to receive funding under the Green Deal. The main categories of improvements are:
- Insulation (lofts, cavity walls, solid walls, tank and pipe lagging)
- Heating and hot water (such as boiler upgrades)
- Glazing and doors
- Micro-generation (generating energy using renewable sources such as solar panels, heat pumps and biomass boilers)
In due course, this list will be extended to include improvements in the commercial sector, including lighting, mechanical ventilation and heat recovery measures. This list is expected to grow further as technology develops.
Can the Green Deal be used with Feed-in Tariffs (FiTs) or the Renewable Energy Heat Incentive (RHI)?
Yes. Green Deal packages can provide for energy-efficiency, renewable heat and energy generation systems combined. However, income earned through the Feed-in Tariff or Renewable Heat Incentive cannot be used to help you meet the Golden Rule. RHI payments will be conditional on householders makingenergy-efficiency improvements to the property under the Green Deal, ensuring that renewable heat is not wasted.
Are there guarantees that savings will be achieved and the Golden Rule will be met?
No. However, the savings estimates used by Green Deal Providers to calculate the amount of finance they can offer a customer will be reduced by a set percentage (called an ‘in-use factor’). These in-use factors have been recommended by a team of experts and are different for each energy-efficiency measure.
Is there a cap on the amount of Green Deal finance available?
No. However, the total amount available will be subject to the Golden Rule.
What is the Green Deal Cashback Scheme?
The Green Deal Cashback Scheme is a government incentive designed to encourage early take-up of the Green Deal. It is a first-come, first-served offer where householders can claim cash back on their Green Deal Plan. The more energy-saving measures carried out the more cash can be claimed back and this could amount to over £1,000.
What is the Green Deal Finance Company?
The Green Deal Finance Company is a private-sector consortium whose purpose is to provide Green Deal finance. Members of the Green Deal Finance Company include British Gas, Carillion, Clifford Chance, Eon, EDF Energy, Goldman Sachs, HSBC, Insta Group, Kingfisher, Linklaters, Lloyds Bank Corporate Markets, Mark Group, npower, PWC, RBC Capital Markets and SSE.
What Protection is in place for customers?
The government has implemented a number of measures to protect consumers, including:
- New accreditation requirements and standards to give people taking up the Green Deal confidence in Green Deal suppliers.
- Enhancing cold-calling protection by introducing a cooling-off period of 24 hours.
- Cross-selling is only permitted with prior permission from the consumer.
- Assessors are required to disclose any commission they receive and make it clear at what point they are moving from impartial assessment to a sale.
- Green Deal Providers are required to offer minimum periods of mandatory cover: 5 years for warranties, 10 years for building damage cover and 25 years for cavity or solid wall insulation.
- Assurance that the Golden Rule has been met in all cases.
Can customers on pre-payment meters take out a Green Deal Plan?
Yes. However, the current design of pre-payment meters does not allow for the collection of the Green Deal payment as a standing charge, therefore the charge will be collected in the same way as arrears are collected.
How does Green Deal finance work?
If you wish to finance your improvements through the Green Deal, your Green Deal Provider will first carry out a credit check to confirm your eligibility. Although the finance is provided by way of a personal loan, Green Deal finance is different to a conventional loan in that the bill payer may not be liable to repay the full cost
of the improvements, only the charges due whilst they are the bill payer. If you move home, responsibility for the repayment of the loan transfers to the new bill payer.
What if I don’t want to take out Green Deal finance?
If you want, you can install energy-saving improvements by sourcing your own funding. However, in this case, you would pay for the improvements up front, rather than instalments with your energy bills.
I’m a landlord and would like to make energy-saving improvements to my property – do I need the tenant’s permission?
If your tenants are responsible for paying the energy bills, you must seek their permission prior to making any changes.
What happens to my Green Deal Plan if I move house?
If you move house and will no longer benefit from the energy-saving improvements, you will not need to continue paying for them under the Green Deal. The finance deal is linked to the property, meaning it will pass on to the new bill payer.
What top-up funding is available?
Not all energy-saving improvements meet the Golden Rule due to their initial cost. In which case, under certain circumstances energy companies can provide top-up funding to help householders install these improvements. This is done because they have to meet a set of targets set out by the government under the Energy Company Obligation (ECO).
Who can I contact for further (impartial) advice on saving energy and the Green Deal
For free and impartial advice you can contact the Energy Saving Advice Service (England & Wales) here or on 0300 123 1234, Energy Saving Scotland on 0800 512 012 or visit www.gov.uk/greendeal.