The Green Deal: New Financing for Energy Efficiency and Generation

The Green Deal is billed by the government as a ‘revolutionary programme to bring our buildings up to date’ and is due to come in force in October 2012. It offers UK residents (specifically ‘bill payers’) a chance to have 100% of the upfront costs related to certain energy saving and energy generating equipment funded by businesses. This is in effect a loan which is paid off over the lifetime of the installation by the money derived from savings on monthly bills. The golden rule of the Green Deal is: ‘estimated savings on bills will always equal or exceed the cost of work.’

The Green Deal sounds great and, in theory, Solar PV technology is potentially covered! Solarjuice take a closer look…

The Green Deal is a response by the government to its legally binding national carbon emission targets and is part of the new Energy Bill 2010-11. The British Government first committed to cutting UK carbon emissions by 60% by 2050, compared to 1990 levels, but in October of 2008 increased its commitment to an 80% reduction by 2050. UK homes contribute 27% of the UK’s total carbon emissions and it is estimated that 85% of our existing housing stock will still be around in 2050. Therefore, if the UK is to achieve its target, it is imperative that homeowners improve their energy performance.

The Green Deal is the coalition government’s main incentive to convince bill payers to ‘do their bit’ and is a key component of the Energy Bill 2010-11. The Bill has three principal objectives: tackling barriers to investment in energy efficiency; enhancing energy security; and enabling investment in low carbon energy supplies.

The Green Deal loans help pay for energy saving/generating technologies but the government is keen to stress that it is not a loan in the typical sense as consumers are asked to see it as a form of financial incentive, a way of removing the need for large upfront capital outlay, effectively a ‘pay-as-you-save’ scheme. The golden rule means that you will never pay back more money that you are saving on your monthly energy bill. Let’s illustrate this with a Solar PV example:

If we assume that your monthly electricity bill is £50 a month and you save 30% after installing solar PV you will save £15/month. Therefore under the Green Deal the ‘loan’ for your PV system should not cost you more than £15 a month in repayment (if you haven’t already done so, try our Juice-o-meter to check how much you could actually save on your bill). Solar PV panels are usually guaranteed for 25 years but can operate for over 40 years. If the green deal states that the maximum loan period is 25 years you would only be able to pay back £6,500 in this period (assuming a modest 3% annual energy inflation rate). Although PV installation costs are steadily decreasing, this amount is unlikely to cover PV system costs for sometime. However if the Green deal was to allow you to take the loan for 40 years you would be able to pay back £13,500 (@3% inflation) and be able to repay the initial costs. If you are allowed to take a higher inflation rate – e.g. 8% – you would be able to payback over £13,000 in 25 years! 

So in theory funding is possible for Solar PV but it depends on the cap on any finance deal imposed by the government. For example a householder may be limited to a loan of £6,000 in which case installers may be able to offer complimentary financing. The finer points of the Green Deal for solar PV will be announced by DECC (Department for Energy and Climate Change) in the run up to October 2012. Solarjuice will be looking for the conditions relating to the maximum loan amount, the maximum loan term for PV, the inflation rate and conditions surrounding compatibility with the existing Feed-in Tariff scheme for solar PV. So far the government have said “Other financial incentives such as Feed-In-Tariffs and the Renewable Heat Incentive will complement the Green Deal. Green Deal Providers may wish to promote all these options with customers. However, DECC does not intend to create a mechanism for combining these financing streams.”

Green Deal Finance is set to cover the following technologies:

Heating, ventilation and air conditioning Condensing boilers. Heating controls. Under-floor heating. Heat recovery systems. Mechanical ventilation (non-domestic). Flue gas recovery devices.
Building fabric Cavity wall insulation. Loft insulation. Flat roof insulation. Internal wall insulation. External wall insulation. Draught proofing. Floor insulation. Heating system insulation (cylinder, pipes). Energy efficient glazing and doors.
Lighting Lighting fittings. Lighting controls.
Water heating Innovative hot water systems. Water efficient taps and showers.
Microgeneration Ground and air source heat pumps. Solar thermal. Solar PV. Biomass boilers. Micro-CHP.

 In practice, an accredited ‘Green Deal Assessor’ will examine your property and will recommend the most suitable energy saving measures to reduce your energy bills (loft or cavity insulation, double glazing etc). Should you wish to implement any recommendations, the assessor will issue you with a quote for a Green Deal Plan.

There is one other aspect in which the Green Deal truly differs from a traditional loan: you are not ultimately responsible for the loan, your house is and when you sell your house the obligations (and benefits) will be passed on to the new owner.

Solarjuice welcome the Green Deal and look forward to further developments to the scheme.

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Category: Buildings and PV, Feed-in Tariff | Tags: , , , | 1 Comment
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One Comment

  1. Posted May 14, 2012 at 8:58 am | Permalink

    None just want updates

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