On the 28th January the UK Government launched the Green Deal, aimed at making UK homes more efficient and helping households reduce their energy bills. Ever since the scheme was announced it has divided opinion; some people have lauded the scheme as a step towards UK-wide energy efficient homes, others criticised the workings of the deal as not being in the best interests of the consumer. Rather than debating the merits and criticisms of the Green Deal, this post summarises five arguments for and against the scheme.
1. Incentive to make homes more energy efficient
The UK has some of the most inefficient housing stock in Europe. It is estimated that 19% of UK householders (4.75 million homes) spend over 10% of their income on heating. This is classed as fuel poverty, and the number of people affected grows every year. The Green Deal will help people invest in their homes, making them better insulated and more energy efficient.
2. Savings on bills
The Green Deal is essentially a long-term loan, with repayments taking up to 25 years. The difference between the scheme and a regular loan is that the repayments are made through people’s energy bills. Having a more energy efficient home should result in a lower bill, thereby saving people money.
3. Customers protected by the Golden Rule
The Green Deal has a ‘Golden Rule’: the repayments made through the energy bill will never be more than the savings achieved by undertaking the improvement works. This protects the customer from expensive repayments that would cost more than the benefits gained.
4. Long-term benefits
Energy prices are set to rise in the future. As heating and electricity become more expensive, reducing costs by improving the efficiency of the home is key. Although the Green Deal should reduce bills from the get go, it will be even more important in the long-term, with savings increasing as energy prices rise.
5. Finance available
The Government has pledged £40million as part of a cash back scheme as an incentive for householders.
1. Based on average, not tailored to households
Before signing up to the Green Deal an Assessor will make suggestions that will lead to greater energy efficiency. Their calculations, however, are made using UK-wide data and are not tailored specifically to the house in question: the actual savings could be less than those predicted. Furthermore, the mean temperature suggested is 21⁰C for main living areas. If householders choose to maintain their homes at a lower temperature they will still have to pay back the loan equivalent of keeping their houses at a higher temperature.
2. Relies on predictions of future energy prices
Although the scheme should save householders money off their energy bills in the short-term, the cost of energy in the future has been a key part of the Green Deal. This relies on estimations of energy prices in the future, something we cannot predict.
3. Early re-payment fees
In most circumstances it should be possible to pay back loans early. However, Green Deal providers may be able to charge an early repayment fee as compensation for the loss of interest they would have accrued over time.
4. The interest rate
The interest rate for repayments will be market-led, but estimates have placed the average at around 7.5%. Depending on the amount borrowed and the length of time taken to pay it back, householders could end up paying double what was originally spent due to the interest rate level.
5. Cost of an assessment
The Green Deal scheme encourages householders to have more than one assessment done of their property before deciding what improvements should be made. Most Assessors will charge a call-out fee of up to £150, reducing the number of plans a householder can choose from.