Capital gain

For almost as long as the green deal has been conceived, those that have been considering taking part have had one principle concern: the cost of capital.

While there are many concerns and hurdles that the government have to overcome to get their £7billion a year flagship retrofit programme off the ground in a year’s time, it is this issue that will be an immediate deal-breaker.

From a banking perspective, Inside Housing has reported strong interest in the green deal.

According to experts, like Conor Hennebry, director of global capital markets at Deutsche Bank, the green deal is considered a safer proposition than offering mortgage finance.

The credit risk around energy bills will merely be costed into the price of the finance they are prepared to offer green deal providers.

At the moment the cost of capital available for the green deal is unknown. Depending on who you speak to, it will fluctuate between 7 and 9 per cent.

Assuming the position of the green deal - which hovers around 9 per cent - bears, this means that green deal is priced in a similar arena to personal loans – which will not achieve much in terms of energy efficiency works on homes.

Well, this week there has been a step in the right direction to overcoming the concerns around the cost of capital.

Some of the biggest names in banking, finance, retail and energy have come together and signed a deal that will see the launch of a cross-sector not-for-profit company that will reduce the cost of green deal finance.

The aptly named Green Deal Finance Company will work at scale in a genuinely unique way insofar as it will be open to any company or local authority.

Aside from the fact that many of its members are commercial rivals, it is interesting because it allows each of them to ensure the green deal loans do not appear on their balance sheets.

Crucially it hopes to be able to reduce the cost of finance from 9 per cent to as low as 6 per cent.

According to Price Waterhouse Coopers which is leading the consortium, each percentage point could equate to a 7 per cent increase in energy efficiency refurbishments possible.

That would really make a difference.

Furthermore, it is looking to build up a loan book of billions of pounds a year that could get an AA credit rating.

The consortium is in talks with the Department of Energy and Climate Change the European Investment Bank, and local authorities.

In the coming months it expects social landlords to join the 16-strong list of blue-chip members already on board.

In short, then, the people at DECC will be thrilled that the private sector is responding with such hunger to make the green deal – specifically the ‘golden rule’ whereby the cost of works can not exceed the resulting energy savings – work so that it is an attractive, viable and even lucrative proposition.

It remains to be seen whether or not TGDFC will be successful in its aims of reducing the cost of capital to the extent it hopes, but either way, progress is being made.

Now it is time for would be green deal providers in the social housing sector to get involved too.