Posted by: Nick Duxbury17/02/2012
Time for some positivity I think.
First of all, despite the hammering that the green deal has received over the past few months, there is evidence of some latent enthusiasm among social landlords.
In the past two weeks I have spoken with three landlords that are looking very seriously at becoming green deal providers – and I know of at least two major players that are running rule on the idea in a major way.
One will come as no great surprise to many in the sector as it is a mid-large sized organisation that prides itself on leading from the front on the sustainability agenda.
It has received board approval to carry out a series of feasibility studies and is in talks with a number of contractors – again likely to be the ‘usual suspects’ such as Willmott Dixon and Keepmoat that have made it clear they are committed to trying to make the green deal work.
This is significant. In the slow moving, red-tape heavy housing sector, getting board approval for anything is an achievement not to be sniffed at. Just look at the feed-in tariff saga where the majority of associations were on course to miss the April deadline for the tariff degression anyway because they simply had not sorted themselves out quick enough (a point that often is conveniently forgotten when attacking the government for cutting the FIT in December). Maybe, this is an example of some lessons being learned.
But I digress. Who else is looking? One is one of the UK’s biggest players with a reputation for never missing a commercial opportunity.
Another is a huge landlord that again is known for having its finger set firmly on the private sector pulse. And the other one? Well it’s also one of the largest and most commercially hungry associations in England… See a theme here?
BIG and commercially minded. These two attributes have been widely assumed to be a prerequisite for any would-be green deal provider. How else could they achieve the scale needed to secure green deal finance and make a worthwhile return after the cost of accreditation, building a supply chain, and then administering the works?
As I revealed last week, perhaps size doesn’t matter as much as previously assumed. Alliance Homes, a smallish Somerset-based association only has 6,500 homes to its name. It’s not tiny, but it is surely by no means big enough to be a green deal provider?
Not so. Despite its size, or lack thereof, it is the first organisation to nail its colours to the mast and attempt to become a green deal provider. The association is looking to invest its own cash into forming a legal accreditation framework that other landlords could then join for free. In doing this it hopes to be able to achieve much greater scale than it would otherwise be able to command and will also be able to drive down prices accordingly.
At the moment it intends to create a supply chain and try to become a standalone green deal provider. But if this proves to be too expensive and difficult, then it will badge over a green deal offer from an energy company and become a green deal partner body instead. Either way, Alliance Homes is the first social landlord to commit to the green deal.
The Alliance Homes approach to green deal echoes what the organisation has already done for FITs by setting up one of the only successful PV procurement frameworks that had the nod from lenders and had successfully negotiated very low cost PV so other organisations didn’t have to.
Much bigger landlords gratefully accepted Alliance’s invitation to benefit for free from their £250,000 investment in the procurement process. By sharing to combining scale, muscle and borrowing capacity the social housing sector may stand a chance of making a compelling green deal offer in what could be a very competitive market dominated by the big six energy companies and some of the larger retailers.
That said, on the borrowing front, landlords may not be such a magnate for cheap lending as once they were having received something of a reality check from a ratings agency this week.
Moodys downgrade on the outlook of 14 housing associations yesterday may have been about as welcome as a spoon full of bronchial balsam medicine to a healthy child (trust me, it is disgusting), but it’s better now than later down the line when green deal business plans turn out to have been based on overly optimistic assumptions around borrowing powers.
This week will be a wake up call insofar as landlords’ ability to work green deal off their own balance sheets is not as robust as they may have previously assumed. Cheap debt through the bond markets is likely to become less cheap. The fact is housing associations can only ever be as safe a bet as the sovereign that underwrites their considerable debt.
If the UK loses its coveted triple A ratings then so will housing associations.
With this in mind, the need for low cost green deal finance has never been greater. The government has to make sure that the Green Deal Finance Company is granted seed cash from the Green Investment Bank, otherwise the whole scheme will be in peril.
But I digress again. Alliance Homes’ approach to the green agenda generally seems to be underlined by good business sense. Based on the long term liabilities facing the organisation around cutting carbon and protecting tenants from fuel poverty, Steve Drew, director of assets at Alliance, also makes a good case for installing PV regardless of the cut to the FIT outlined last Friday. He welcomes the new FITs degression plan that will see the FIT pegged to the falling cost of PV by introducing a 10 per cent cut to the FIT every six months (after an especially savage cut in July) and believes that it is workable.
This is because, as long as landlords can make it pay for itself so that PV is cost-neutral then the social benefits to tenants make it a good investment. Furthermore he argues that the cost of reducing carbon emissions by 34 per cent has not been considered by most associations. PV offers a cost neutral way of slashing emissions even before the green deal. Mr Drew therefore calls for a change to the way PV is viewed.
‘It should never have been about getting big returns and satisfying investors in the first place,’ he says. ‘This is the right thing to do – it’s got to be. It is a sensible response to what has been a bloody muddle and it should be workable. We need more clarity before landlords have the confidence to commit their cash back to PV after being burned last time. But it should work; we have calculated that under the new tariffs it may take us 13-14 years to pay back the upfront capital cost rather than 7-8 years – but that’s not bad as long as it does pay back. We are a lot better off than we were a few months ago.’
You might be thinking ‘well, he would say that wouldn’t he – he has a ruddy great PV framework in place with spare capacity!’ Maybe so. But I still feel that, as with the green deal, his attitude is right on PV.
This week Inside Housing has embraced the news that the government is consulting on social landlords being exempt from the extra 20 per cent cut to the FIT for multiple installations as a win for our Green Light campaign that so many of you backed.
It is more than we could have asked for and demonstrates that the government has listened, and understand that social landlords are different to other organisations. Climate change minister Greg Barker has recognised that PV has the potential to rescue vulnerable people from fuel poverty, that it would be unfair to deny social tenants cheaper bills when they pay for the FIT, and also that social landlords are not looking to profit from the FIT.
These are messages that translate through to the green deal. The logic is the same around access to affordable warmth ECO funding; social tenants must be able to benefit from what they pay for and social landlords must be given the opportunity to protect their tenants from fuel poverty.
If they are the plans and ambitions of forward thinking organisations big and small for delivering green deal then a government desperate for stronger take-up is even more likely to listen – and this is some cause for hope.
In a market where it seems even those that should be throwing their weight behind the green deal seem to be set on talking it down (I accept it is littered with significant problems) and becoming despondent, Alliance Homes has kept its eye on the bigger picture. And I welcome a bit of positivity.
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