How not to promote energy efficiency
David Thorpe | 8 September 2015
The Green Deal, a British government program supposed to assist the uptake of energy efficient retrofits and recently cancelled, was a disaster.
Households in Europe are responsible for 26 per cent of total final energy use. Reducing energy use has multiple benefits, not just saving money for consumers, and carbon emissions, but improving comfort, health and creating jobs. So clearly it is a desirable thing, but you wouldn’t think so from the British government’s attitude.
To see why, let’s compare it to an extremely successful German version of the same scheme.
Pay as you save
The Green Deal was an example of a “pay-as-you-save” type scheme, where loans are taken out to pay for the energy efficiency measures, and repaid over time from the financial savings created by these measures.
It seems like a no-cost solution and an obvious winner. But not the British government’s version of it.
One of the reasons for this failure was pointed out right at the start by critics, but ignored by government officials responsible for designing the scheme. This was that the 7-10 per cent interest rate on the loan to householders was too high – in fact several percentage points higher than ordinary loans available on the high street. It was simply not affordable.
It also made many measures unaffordable within its own context – the “Golden Rule”. This rule was embedded into the legislation and stipulated that the savings generated by energy efficiency measures must lie within the cost of the measures.
The Green Deal was initiated in 2013 under the 2011 Energy Act. It came with no target or grants. It combined accredited energy advice and installation with finance to be repaid in a period up to 25 years. Finance was attached to the property, and recouped through extra charges on the electricity bill (even if the savings were made on a different fuel, say gas).
The result? 300,259 total Green Deal assessments resulted in only 1815 “live” plans – a conversion rate of just 0.6 per cent!
The government’s goal for the first 12 months of the scheme alone was 10,000 installations.
After seven months and 58,124 assessments, only seven households had taken out plans.
Upfront high property assessment costs (up to £100) made the scheme inaccessible to lower income households and those uncertain of their eligibility for measures.
The German experience
Contrast this with the EnEv programme in Germany, implemented from 1 February 2002 then amended in 2007 and 2009, and replacing the flagship CO2 Building Rehabilitation Programme.
Here, the interest rate on a loan of up to €50,000 from the public bank KfW for the replacement of the heating and domestic hot water systems of a residence (and ventilation and cooling systems installed earlier than 2009) was 1-4 per cent.
The goal here is to use public policy to refurbish the entire housing stock and all public buildings in Germany by 2030.
A million old homes have been retrofitted and 400,000 new highly efficient homes built (this is not just a retrofit scheme). Annual energy consumption was reduced by 900 gigawatt hours as well as energy costs of participating companies by €150m a year.
Here’s how the two schemes compare:
|UK Green Deal (2013–present)||German EnEv (2006–2010)|
|Interest rate on loan||7.9–10 per cent APR||Publicly subsidised low interest rate (1-4 per cent)|
|Accessibility||Low – high customer dropout rate – 0.6 per cent successful conversion rate||High – extensive marketing campaigns|
|Main target market||Homeowners||Landlords and public bodies|
|Total cost of scheme (annual)||Value of investment: €380–€525 m||Average of €1.4 bn. Value of loans and grants: ~€3bn|
|Attachment point of loan||Electricity meter||Person or organisation|
|Outreach||1,815 homes in total||200,000 homes per year|
|CO2 emissions savings (Mt CO2 per year)||0.3 total||19|
Source: Unlocking the Energy Efficiency Opportunity, Element Energy for the SEAI, 2015
The scale of the problem
Now compare the UK scheme’s failure to the scale of the job required. To achieve 2050 carbon emission reduction targets, the UK’s 28 million domestic properties would need to be renovated to a high energy efficiency standard at a rate of 700,000 a year in order to have renovated them all by the year 2050. They also need to be renovated to a high standard, what is called a “deep retrofit”.
Neil Morgan, who was the project director of Retrofit for the Future, set up several years ago by the UK government to find the best ways of meeting this challenge, is on record as saying that around £60-£70,000 is needed for such a renovation. The typical amount under the Green Deal was one-tenth of that.
In Germany under the EnEv scheme, costs in the region of £20,000-£40,000 per property were common.
Given that most homes are only renovated once every 30 years on average, not to do a complete job while the builders are in is a wasted opportunity as total costs would be lower.
But the Green Deal was only meant to take care of the low hanging fruit – efficient boilers, cavity wall and loft insulation. The German scheme goes much further.
Of course, in the UK there is still the Energy Company Obligation program, which requires energy suppliers to undertake retrofits for those in fuel poverty. But this again is only aimed at low hanging fruit.
Meanwhile the country is waiting for an urgently needed replacement for the Green Deal to help bring down exorbitant energy bills.