Green paper

Testing times

Thu, 2 Feb 2012

The National Planning Policy Framework. Remember that? I did this week while wading though the government’s consultation on part L of the Building Regulations published on Tuesday.

‘How could you have forgotten?’ I hear you ask. Well, the NPPF is probably not at the top of everyone’s minds right now. After six months of unprecedented furore between the government and two of the most unlikely opponents of a Tory-designed planning policy – the National Trust and The Telegraph – most people were grateful the consultation had closed and were sufficiently sick of it to turn their outrage other government green bungles such as the feed-in tariff saga.

The rest time is over and it could be time to get outraged again.

Just a recap for anyone who needs one: the main source of contention – and there were lots – in the NPPF was the presumption towards ‘sustainable development’. This, the government claimed was key to ‘creating a positive, pro-development framework, but one underpinned by the wider economic, environmental and social provisions in the National Planning Policy Framework’. The presumption means that planners should ‘approve all individual proposals wherever possible’.

Of course, the problem is the use of ‘sustainable’. This was ambiguous, and its definition referred to economic and social sustainability as well as environmental sustainability as three pillars of, ahem, sustainability. In short, its critics screamed that ‘sustainable development’ doesn’t equate to sustainability in any meaningfully green way and that the government was hijacking the term in order to bulldoze through any development plan presented to planners with a default response of ‘yes’.

The government has maintained that the NPPF is not a ‘developers’ charter’ because of localism – the local plans each council will have in place will reflect the views of the local communities. This is a whole different argument, but the point is, under localism each council is supposed to have autonomy over its local plan and, therefore also, local development rules.

Well, reading the Building Regulations, I stumbled across a single paragraph that could throw fresh fuel on the NPPF fire.

Paragraph 196 on page 58 reads: ‘Where local planning authorities wish to set environmental targets for new homes at a level higher than Building Regulations, the National Planning Policy Framework requires that these should be subject to viability testing. Notwithstanding legitimate local aspirations to seek higher sustainability standards, this is to ensure that necessary development is not hindered through unrealistic policy expectations.’

Er, what? Viability testing?

Let me get this straight. If local people and their elected councils want to impose local environmental standards on housing developments in their areas, then they have to undergo tests to make sure said democratically established standards don’t cost the developer too much? What is ‘necessary development’? What is ‘unrealistic policy expectations’? And who decides what is necessary, unrealistic and, ultimately, viable?

It strikes me that not only does this undermine the principle of localism, but it also caps sustainability in the environmental sense. Under the proposals in the Building Regulations consultation, the target for the 2013 carbon cut on 2002 levels is just eight per cent. This is compared to a previous Labour target of 25 per cent. Most housing associations are already building code level three homes that meet this target anyway – and all those using HCA cash in London are exceeding it at around 17 per cent by building to code level four.

That means under the NPPF, those associations building in London would have plans for the minimum standard made subject to viability tests on associations. Were they exceeding Code 5 or six then you could perhaps understand the point about being realistic – but the building regs carbon targets are not ambitious. Come zero carbon in 2016 the lameness of these targets will be apparent as the building industry is forced to make a huge, expensive step up. Why should environmental aspiration be checked by the NPPF?

In effect it means there is a presumption towards ‘sustainable development’ – on the condition that it is not too sustainable. Economic and social (hence the word ‘necessary’) sustainability is checking environmental sustainability. In fact, to go further, the NPPF could end up forcing development to become less environmentally sustainability. Or so, my unqualified working of the logic of the presumption seems to conclude.

People in the housing world are increasing used to the way the government takes a word and assigns it a new meaning; just look at the way the government has appropriated the word ‘affordable’ to create a product that is, more often than not, unaffordable to those who were previously on a social rent.

You don’t need to consult books on Derrida to see how the newsnight journos are bamboozled by the language and fail to discern between social homes and affordable homes when housing minister proudly boasts how many ‘affordable’ homes he is building. It looks like the same could be soon said about all the ‘sustainable development’ the government has encouraged through its planning reforms.

Fool's gold

Thu, 26 Jan 2012

Call me old fashioned, but I think there is something to be said for at least trying to be the bigger person in an argument.

That means, if you are winning, not to crow and goad, and if you are wrong, to admit it. Right now neither the government nor the solar lobby seem to want to learn any lessons from their bitter clash.

First off, the government. Four judges have now ruled that the cutting of the FIT with just six weeks notice and before the consultation process was even complete was illegal.

That means it was wrong. Wednesday’s decision was, ahem, decisive. On both occasions – in the High Court before Christmas, and in the appeal yesterday - the government was told that, not only had it acted illegally in its retrospective action, but it also had no chance of appealing.

Were the government a private organisation, only the most stubborn/litigious challenger would continue pushing against the letter of the law.

Shareholders would put the brakes on very swiftly as the legal bills racked up. Well, it’s not private money – it’s taxpayers’ money. And Chris Huhne’s dismissal of £66,000 as ‘a few thousand’ next to the £1.5 billion he claims he is saving consumers by intervening demonstrates where the moral high ground starts to fall away into the low ground.

To date, even if you disagree with it, the government’s appeal is understandable. Yes tens of thousands of pounds of tax payers’ cash is a fair price to pay if the government has consumers’ bills in mind. But now, after it has been made very clear that the government was wrong it is very hard to justify continuing to appeal the decision.

The government is seeking permission to appeal in the Supreme Court, thus eking out the period of uncertainty in which potential investors will not know whether or not they would receive the 43.3p/kWh FIT or the 21/kWh rate. This is time wasting. It feels extremely calculated.

We report this week on several landlords gearing up to take advantage of this narrow window in which they might be able to claim the 43.3p rate before 3 March when the rate will definitely fall to 21p.

This is exactly what the government wants to avoid. Its budget is blown and if even one 100,000 home social landlord PV scheme goes ahead before 3 March it will slip further in the red. As we report tomorrow, Stockport Homes alone stands to make an additional surplus of £5.8 million if the government is denied an appeal in the Supreme Court. That is huge.

This scheme was designed to be viable at the 21p rate, so it was going ahead anyway.

But the 100,000-home Merseyside scheme will only go ahead if the FIT rate is 43.3p. Uncertainty is still holding it back. From the government’s perspective, maintaining that level of uncertainty will hold back the majority of opportunistic installations between now and 3 March.

Hence, the attempt to appeal in the Supreme Court. If they win, then they have saved a hell of a lot of cash and made a point of principle. If they lose, then, ah well – at least they prevented a gold rush of FIT seekers, and can always sleep soundly at night in the knowledge that they were acting in the best interests of bill payers. And if they are denied permission to appeal, then that is bad news.

But at least they have held back the tide for another valuable week.

It is hard not feel that the government is playing the legal system to fight a battle they never expected to win in order to save money in the long run.

If you accept this hypothesis of damage limitation (however short sighted that might appear given the huge damage inflicted on trust in the government and investor confidence ahead of the green deal) then it is even harder not to feel the pain of the solar lobby.

They have fought a good fight and are being frustrated by what appears to be extremely disingenuous tactics from the government. Just as, on the one hand climate change minister Greg Barker offers sound bites on Twitter such as ‘win, lose or draw today, important we move forward together, drive down costs and step up deployment’, on the other, he extends the period of uncertainty in the face of a strong legal slap down. I can only imagine how galling that must feel.

However, the solar industry must not legitimise the government’s arguments by acting foolishly.

Within an hour of the verdict, I was already receiving press releases from companies feverishly selling a second ‘gold rush’.

One release from a company that I will save the embarrassment of naming said: ‘CONSUMERS SET FOR SOLAR BONANZA AS GOVERNMENT LOSES RIGHT TO APPEAL OVER FEED-IN-TARIFFS’. Homeowners have been given a short-term window of opportunity to enjoy a solar power “gold rush”.’

A solar bonanza – is that really on the cards? And if it is, surely it’s not sensible? Is this not a bit like throwing fuel on a fire?

Another one: ‘In a swift u-turn the government has doubled financial incentives for installing solar panels following a successful court case by Friends of the Earth. Energy experts are advising to install panels now, as there will never be a better time.’

Er, what u-turn is this? I don’t recall seeing one of those?

First of all, it goes without saying this is hugely misleading and just as calculated as the government’s attempt to appeal again in the Supreme Court.

Until the legal battle is over, there remains considerable uncertainty over what the FIT rate will be between 12 December and 3 March. To promise returns at the 43.3p rate is mis-selling a product that should be about carbon reduction and saving energy bills rather than a potentially mythic return. In short it is unethical.

Secondly, regardless of your views on the way the government bungled the FITs saga to date, it is difficult to argue that the 43.3p rate wasn’t too high and that they were wrong to act. Even Friends of the Earth acknowledge the need for a cut to the FIT.

It is therefore irresponsible to begin hyping yesterday’s judgement as a ‘gold-rush’ to be taken advantage of.

Mr Barker has already warned that every home receiving FITs at the 43.3p level now will deny households of receiving it at the 21p rate after 3 March. Why would firms justify the government’s arguments? This kind of behaviour suggests that some elements of the solar industry have not learned from the last four months saga.

As tempting as it may be to lash out or do whatever can be done to retrieve some much needed business, it is important for the solar industry to continue to hold the moral high ground that it worked so hard to win – because that is the only way long term trust can be rebuilt.

Green around the gills

Thu, 19 Jan 2012

You can spot them a mile away.

The pallid deathly paleness, dark rings under their bloodshot eyes, yellow sweat stains on two day-old shirts, stubble, and twitching from too many nights knocking back Red Bull and necking coffee.

These are the sustainability bods; specifically the ones tasked with responding to the government’s green deal consultation before the deadline yesterday.

Yep – for the first time in a long while these folk are probably sick of discussing the green deal. You would be too if you’d had to wade through nearly 2,000 pages of consultation document and accompanying impact assessment before drawing together a considered, succinct reply.

It would appear to be a thankless task – so as I read through them all over the next few weeks, hopefully I will be able to give credit where it’s due.

It’s worth mentioning that no response I have come across so far has deviated from the basic sentiment of: ‘we want this to work but with out a series of changes we are concerned that it will not meet its fundamental goal of cutting carbon to 2020 and 2050 targets’.

You can read that as ‘green deal set to fail’ – it is after all an easy headline – but ultimately this is a consultation inviting criticism so we can only be so surprised when, shock horror, the green deal gets criticised. Yes, some folk will tear chunks out of it and call for a plan B, but it’s all part and parcel of the process, and if you didn’t voice your concerns in the consultation, then you effectively hand in your ‘I told you so’ card at the DECC front desk.

If every organisation warns of potential failure without considerable change then I would suggest, for the sake of your sanity, to focus on what the suggested changes are rather the consequences of ignoring them.

Despite all that, there is some doom ‘n gloom to vent. The British Property Federation’s response which said it is unlikely carbon emission targets would be met without further action and called on the government to provide additional cash incentives to help make the scheme more attractive.

The NHF has been doing a huge amount of work on the green deal – often working with the Local Government Association - and their response reflects this.

As you might expect, they flag up the issues around excluding social landlords from accessing ECO funding that I have written about exhaustively (and will return to in more depth later). Interestingly, though, is the way it does so.

The NHF response paints the government a picture of the woes facing housing providers right now: the end of grant funding, more highly leveraged as a result of the affordable rents programme, their income streams facing an uncertain future as a result of the government’s welfare reforms, and all in all, in no position to invest large sums of cash in energy efficiency works in lieu of ECO.

It also warns that the FITs saga has had ‘a very negative effect on the reputation of DECC in the sector and sentiment about government supported energy efficiency schemes’.

With this in mind, the NHF makes a helpful pitch for some of the government’s £200 million green deal funding announced by Treasury, arguing that making that available to landlords would go some way to improving ‘engagement’ with the sector (a stance backed by the LGA).

There is even a veiled warning: ‘we have also made clear that if social landlords did not have access to any of this funding there would be very serious further consequences for the sector’s sentiment about the green deal and DECC initiatives more generally,’ it reads.

In terms of its wider concerns about the red tape surrounding consumer protection and accreditation for green deal providers, it says that in some instances the mechanisms proposed on the basis of the owner-occupier scenario are ‘cumbersome, unnecessarily costly or unworkable in the social housing sector’. It suggests that the assessment cost of £75 is probably an underestimation.

And on ECO, well – we all knew what the NHF was going to say, and it has said it well. It points out that by only focussing on solid wall insulation for hard to treat ECO funding, 85 per cent of the social housing stock stands to miss out on ECO altogether.

Finally, and most starkly, is its conclusion centring on access to affordable warmth. It argues a higher proportion of social housing tenants are fuel poor than occupiers in other tenures, and at least a million social homes need subsidy to enable improvements which would take their low income tenants out of fuel poverty.

‘The Federation and its membership support the objectives and key principles of the proposed approach, but believe significant changes to the detailed policy proposals are needed to make the Green Deal workable in the social rented sector, with ECO subsidy where necessary.

Without this, as the government is aware, social housing’s potential to be both early and significant deliverers of the green deal will be wasted, with the associated huge risks to the supply chains and policy aims of the green deal in general.’

That is certainly a blunt warning.

Even the Chartered Institute of Housing, which to date has been relatively silent on the subject of green deal and ECO, has responded candidly. CIH does say it is ‘very concerned’ that the green deal will have an ‘insufficient impact’.

Interestingly, the CIH calls for a completely separate consultation on the green deal and ECO for social landlords on the basis that the one we have just had was ‘inadequate’ for social landlords and overly aimed at the private sector.

Part of this is the lack of provision over the problem of including green deal works alongside major repair programmes and extending it to whole neighbourhoods, and the problem of getting tenant consent.

It pushes a number of point on ECO – the way it could be regressive by increasing fuel poverty for low income households, and that exclusion of social landlords from ‘affordable warmth’ subsidy is unfair.

It states: ‘Measures such as [difficult cavity walls, sloping ceilings, flat roofs and suspended timber floors] which discriminate against social tenants are inequitable in two senses: first poor households are concentrated in the social sector (47per cent of households in the lowest income decile are in social housing), second, all households pay fuel bills, from which ECO is funded, and therefore all sectors should have an equal right to ECO funds, subject to meeting the criteria.

As an aside, Inside Housing put this point to Energy Secretary Chris Huhne yesterday during an online question and answer session organised by Which?

He responded: ‘I just don’t agree that social landlords have little to gain from the hard to treat allocation, as our figures show that there are similar amounts (proportionally) of solid wall homes in the social housing sector as elsewhere. Because most social homes are now up to decent homes standard, it makes sense to concentrate affordable warmth where the biggest problems are.’

That could change soon, though. Issues around ECO being flagged up elsewhere in the nation media over the last few weeks. The Times’ Tim Web has been covering it – and more recently, The Guardian’s George Monbiot (who originally flagged up the inequitable way the FIT works) has been blogging on green deal and ECO.

When I first revealed about landlords exclusion from affordable warmth (denied by the government at the time) and the findings in the interim results of the Hills review it didn’t strike me as a topic that would ever be sexy enough to capture the imagination of rest of the national press. Hopefully now that it has, Inside Housing’s Green Light campaign can step up a gear to make sure that ECO is not regressive, that the mistakes from CERT and CESP are not repeated, and that the most vulnerable people are protected.

Unsurprisingly, the Association for the Conservation of Energy has beef about the transition from CERT to ECO which could cause a slump in the insulation. It has also published its timely Dead CERT report into the transition to ECO. This flags up the long discussed problem the introduction of ECO (focussed mostly on hard to treat solid wall insulation) will pull the carpet out from under the feet of the loft and cavity insulation market as the expected uptake of the green deal which takes over from the CERT measures is low.

The report does not recommend a ‘son of CERT’ approach to smoothing the transition; instead it suggests aligning the green deal to ECO by allowing lofts and cavity walls delivered through green deal to contribute to ECO. It also calls for ‘fiscal incentives’ such as a VAT cut for green deal measures, use of the £200 million from Treasury to incentivise the take up of green deal packages, and linking stamp duty and council tax to home energy ratings.

It recommends increasing the ECO for low income and vulnerable households and widening the eligibility group (although it’s not clear whether this means making it tenure blind), the introduction of more regulatory standards, and the inclusion of more costly cavity wall insulation as eligible for ‘hard to treat’ ECO. The executive summary has some very interesting pie charts.

They outline some scenarios based on ACE alternative proposals in the first four years of ECO up to 2016. These include 500,000 homes insulated with loft and cavity wall insulation a year, an additional 75,000 harder to treat cavity walls to be insulated, and more than 140,000 solid wall insulations a year.

ACE claims under their proposed scenario, more than twice the proportion of ECO will be spent in the homes than need it most, saving 55 per cent more carbon and seeing 80 per cent of solid wall insulation numbers delivered under the DECC scenario installed at a rate of 140,000 a year. And all at a lower cost to bill payers than DECC are proposing.

Now, I am no sustainability bod, so am unable to properly asses the merits of these proposals.

But I am hoping that better qualified (albeit more sleep deprived) people than myself will be able to respond to this and let me know – once they have recovered from the trauma of the green deal consultation, that is.

Wise old owls

Fri, 13 Jan 2012

Friday 13: a diary date that is usually associated with colossal misfortune.

As the legal teams representing the government and the solar consortium fronted by Friends of the Earth filed into court 69 (a number loaded with very different connotations of its own) of the High Court at 9.30 this morning, the question running through their minds must have been: unlucky for whom?

Despite what many thought, today was not quite the judgement day for the government we expected over its decision to slash the feed-in-tariff in half from 43.3p/kWh to 21p/kWh from 12 December – four months earlier than planned.

Before Christmas the High Court found that that this was an unlawful move because the cut came into effect before the accompanying consultation closed on 23 December. Last Wednesday, the government lodged its inevitable appeal on the grounds that Justice Mitting was plain wrong.

This morning, after months of uncertainty, sniping and waiting, the court was to decide whether to allow the government to appeal and also wrap it up into an appeal hearing. Confused? Well, it doesn’t get any clearer from here on in.

First of all, if you were expecting a firm conclusion from today, then I am sorry to disappoint.

Yes, today will be remembered as the day when one party emerges a loser, but the chances are the actual judgement is unlikely to return next week. As I predicted this morning, today will not be drawing a line under all that uncertainty.

But that is not to say it was not an interesting hearing. Upon arrival it had all the makings of a classic clash. On the left hand side of the court was the wigged team representing the big bad penny-pinching government. On the right was the wigged team of learned colleagues for the plucky green underdogs.

The pantomime set up was hard to ignore given they were surrounded by a bizarre collection of personalities from across the green sector, from solar companies (often wearing fleeces with corporate logos on, but one boss proudly wearing tails and a Hull scarf), and, of course, journalists like myself camped out on the floor. A lack of government cheerleaders wasn’t going to affect the judges though.

Justices Moses, Lloyd and Richards faced us – all three grey haired and wise – sitting on their red thrones, owl-like in their unblinking, stern focus on the techy legal details of a subject that could bore the biggest green enthusiast at the best of times. When they threw in the occasional suggestion of joke there was a disproportionate response of hilarity from the room, as everyone pretended that, in true English style, for a few minutes we weren’t witnessing an incredibly awkward culmination of months of bitterness and resentment.

The government kicked off. Its argument was long, complicated and took a long time to get to the point, but when it did, it appeared to capture the sympathy (or at least the understanding) of Justice Moses. The gist of it was as follows:

• The costs of PV have dropped substantially in a short space of time (more than expected), and the step down in the tariff rate, though significant, broadly matches this.
• The issue of fairness is not relevant to the argument over legality – but were it to be considered, the six week period provided was in fact a fair amount of notice for those schemes that had ‘crossed the starting line’. This is evidenced by the fact that 102,000 installations went ahead in that period compared with 126,000 over 18 months.
• The case should rest of the issue of purpose: the secretary of state was entitled to make the proposals (and they are just proposals being consulted on rather than a firm decision) – and given the circumstances, he was clearly acting in an administrative capacity for the best interests of the scheme, the government and bill payers.
• The secretary of state does have the power to make these modifications. Justice Mitting misunderstood the ambit of a frequently referenced Section 41 of FITs scheme documentation which enables him to act and modify.
• There was ‘a false notion of vested rights’ for generators of solar electricity. The right to payment is only subject to the lawful decisions the secretary of state may make. For those that had not made the decision to push ahead with PV, they have no rights in this respect. The principle of fairness wouldn’t limit Section 41.
• The point about retrospective changes is a ‘red herring’.

These arguments were met with a series of shaking of heads and furtive murmuring from the solar legal team. Meanwhile Justice Moses mused on the government’s problem of having to do it like you would if you were building a railway with a full consultation, ‘or you act like you might with a budget – before the days of leaks’.

After a refreshment/tweet break (@nickduxbury if you’re asking), it was back in for the second half. The solar legal team came out fighting. Extensive evidence was heard that looked to undermine the picture of reasonable actions taken under extreme circumstances painted in the morning.

A witness statement from the chair of the Local Government Association was read out telling of the inadequacy of the six week window leading up to the 12 December cut. Stories I have written time and time over were told to the three owls about the thousands of local authority and housing association installations that were abandoned as a result of the cut.

Then the impact on the many thousands of social tenants (I have previously reported this to be a conservative 38,000) who had expected to see their eye watering fuel bills cut back as a result of PV schemes was explained. Schemes such as Wrexham’s 3,000 panel plans that were left by the wayside were listed.

Next, the impact on investor confidence was emphasised. The CBI’s claim that the FIT cut has ‘evaporated’ confidence was reiterated – and, significantly it was claimed that banks are devaluing existing PV schemes because they do not trust the government. No evidence for this was given – and clearly I will try and find it – but the suggestion is deeply concerning; that banks do not believe the government will treat the FIT like a bond-like income stream it is supposed to be, and expect the government to intervene and change the FIT again in the future. This bodes very badly for the green deal and renewable heat incentive if it is true.

The argument went: ‘It shows an expectation that the government can use statutory powers to change existing payments – how that can tie into encouraging investor confidence is irreconcilable.’

It was then argued that:

• The afore-mentioned section 41 and 42 does not allow the secretary of state to amend the FIT rate. The language used is general. And, although I was not present when the argument was made that generators of renewable electricity did have vested rights, the powers were not sufficient to overturn said unproven rights.
• Anyone who installed PV after the 12 December and before 1 April has converted their potential entitlement into an actual entitlement because the law has not yet been changed (the consultation conclusions have not been published).
• The point was made that all the companies that have bought PV and built up supply chains as well as spending cash on legal fees etc have effectively suffered a confiscation of assets (this confused me, but a series of old cases were referenced that made this point and referred to the legalities of acting retrospectively).
• The FIT is supposed to be a fixed payment – ‘not the payment the secretary of state chooses to make from time to time’. A comparison was then made to government bonds: ‘It’s like the government is issuing a 25 year fixed gilt bond and changing the bond rate after a year’.

Then, on the news it would take a further hour and a half to complete the evidence process, lunch was called and I dashed back to the office to report the above to you. Apologies for not being there for the full evidence, but my escape was justified on the basis that the government’s grounds for appeal are more important than the solar lobby’s grounds against - given we have already heard them and most people are familiar with the arguments around fairness.

Also, FOE warned this could go to the Supreme Court if the government loses so it could rumble on and on and on.

So who feels luckier on this day of fabled misfortune? One solar boss watching the case told me he was pretty confident of another victory. ‘They are just waffling aren’t they?’

Maybe. But by reframing the argument completely to three separate and especially sober judges, the government’s appeal is likely to, at the very least, get careful consideration.

As for the solar lobby – well, they have waited this long, what’s one more weekend of uncertainty and irritation?

FIT fight

Thu, 5 Jan 2012

Hold the front page: the government disagrees with the High Court’s ruling that early cut to the feed-in tariff was illegal. Wow. So no one saw that coming?

It might not have sounded like news that the government was of a different opinion to the judge when, on the 21 December, he ruled that the cut to the FIT from 43.3p/kWh to 21p/kWh on the 12 December was ‘legally flawed’ due to it being implemented before the accompanying consultation closing on 23 December – but it was.

The only thing more inevitable than the government lodging an appeal yesterday, was the reaction of Friends of the Earth, Solar Century, and HomeSun and the rest of the solar lobby to the decision.  

A spokesperson from FOE said: ‘The [High] court says the government has no realistic chance of winning, and it will prolong uncertainty among solar companies just when they need reassurance.’

The organisation called for the government to extend the reduction period into February, claiming that the scheme could be expanded at no cost to bill payers.

Hmmm. Similarly, on the grounds of costs, shadow environment minister Caroline Flint rallied herself to put the boot in over the cost to the taxpayer. So, all in all how could the government possibly defend its decision (apart from a case of pride and principle) to return to the courts after its first very decisive defeat?

The Department of Energy and Climate Change released a statement that shed a bit of light around the government’s grounds for appeal. It said the following: ‘The overriding aim of the proposed reduction in tariffs for solar PV (as set out in the recent consultation) is to ensure that over the long term as many people as possible are encouraged to install small scale low-carbon generation (including other technologies as well as solar PV) and benefit from the funding available for the FIT scheme.

‘Without an urgent reduction in the current tariffs, which give a very generous return, the budget for the scheme would be severely depleted and there would be very little available for future solar PV generators, or for other technologies. Our view is that the urgent steps we have proposed to protect the scheme for the future are fully consistent with the scheme’s statutory purpose.’

One of the more bizarre points their statement made was that the High Court’s decision was premature as ‘no decision has yet been taken, and a decision will only be taken after a full analysis of the responses to the consultation’.

That will surely leave many in the solar sector confounded.

Being a journalist rather than a legal expert I have no idea whether this logic will wash with the courts, but either way there can have been little in the way of surprise here.

Climate change minister Greg Barker had already warned, via his new favourite medium of Twitter, that for every house that receives the FIT at the higher 43.3p/kWh rate, there will be two that don’t receive it at 21p/kWh. The suggestion here was that his hands were financially tied and the shambolic cuts were a result of urgent action to protect the general public.

The underlying, and quite scary, implication was that the FITs budget has already been blown. And this was today confirmed by Mr Barker speaking to Business Green.

He said: ‘For the current year we are in the red and there is the potential that next year will be in the red. There’s some flexibility in the levy control framework [spending cap] on a year-by-year basis… But we have our budget and the Chancellor is not going to reopen the spending review.’

This may explain the government’s otherwise inexplicable approach to the whole FITs saga: someone hit the panic button when the Treasury refused to come to the rescue. But how on earth did this happen? Surely it was so, so preventable?

This will need to be answered in time, because, right now, as we report tomorrow, regardless of whether the government is granted the right to appeal, it is too little too late for social landlords.

Even if the FIT is returned to the 43.3p level for another few months, most boards have already made their decisions regarding PV schemes at the higher rate (almost all to abandon). There is not enough time or certainty to take advantage of this potential window. In short, confidence is shot to hell and the damage has been done.

If appealing is a delaying tactic from a desperate government with no cash left in the kitty then it has worked as far as social landlords are concerned.

As a departing aside, it is worth mentioning that despite the awful mess he has overseen of late, Mr Barker has become my favourite MP users of Twitter – if only because of his willingness to engage with his critics on it.

Unlike his boss Chris Huhne who only tweets the most mundane 140 characters he can about local surgeries, Mr Barker simply can’t stand by and see the twittersphere attacking without having the last word.

His arch nemesis seems to be Solar Century chair, Jeremy Leggett – one of the main figure behind the legal showdown.

Fuel for doubt

Fri, 16 Dec 2011

When secretary of state for energy Chris Huhne defended the earlier than expected cut to the feed-in tariff that came into effect on Monday, he did so on the basis that the FIT had become too expensive and was set to increase energy bills.

‘Each week’s delay leads to additional annual cost of £400 million,’ he claimed, addingthat if the government did not act now, the subsidy could add £80 to energy bills by 2020.

There has been a fair bit of back n’ forward over this figure. But regardless of whether it is correct, the point was clear: the government was taking a stand to protect consumers from rises in energy bills. For the government to shoot a fledgling, but rapidly growing industry in the face at a time when jobs and economic growth – not to mention investment in the green sector - is so badly needed, there must have been real and genuine fear that consumers will turn on the coalition’s green policies as their bills increase. To put it mildly, the government is bricking itself on the impact of rising energy prices. A perfect storm is gathering and right now the green deal is the only policy to hand that the government has to combat it. But there is an inherent mistrust about to what degree the government’s own green policies are contributing to the rising costs.

And to some extent it is easy to see why. Were I a journalist writing for a more climate sceptical publication than Inside Housing – naming no wind turbine hating papers in particular – the government’s green subsidies would seem like a gold mine of stories. Open goals everywhere. You say energy company obligation: I say outrageous green stealth tax. You say FIT: I say levy on the poor to pay for eco-bling for the rich (there is something to this line of interpretation as we will reveal here). And green deal? What’s that? Oh, it sounds like green regulation and red tape.

The fact is most consumers don’t have a clue that money from their energy bills are paying for anything other than their energy bills. And to be fair, it is far from transparent. There are legitimate questions to be asked about what kind of tabs are kept on the way energy companies spend these green levies. Can you imagine what will happen when the tabloids get their teeth into how CESP and CERT money is being spent – or not spent.

We have seen the mass give away of light bulbs by energy companies in the past, now as they all start to panic about the possibility of not being able to spend all of it in time we are seeing front page adverts in the Metro about insulation giveaways. Surely this is a ‘green scandal’ waiting to happen.

Interesting then, that yesterday the government’s green watchdog, the Committee on Climate Change, published a report showing that green policies are not responsible for energy bill hikes.

‘The committee’s findings disprove often repeated claims that recent bill increases are due to environmental policy costs, and that major investments in low-carbon power capacity will drive dramatic bill increases over the next decade,’ the press release claims, rather smugly. And why not? What a relief for the government. In short, gas prices rather than their policies are responsible for energy bill increases. End of. Ish.

The report also projects bills will increase by around £110 over the next decade to support investment in low-carbon power capacity and energy efficiency in homes. The all-important latter is worth £10.

To me, that seems like a price easily worth paying for what will effectively be a hedge on bills. But tell that to a wind turbine hating paper that shall not be named – and indeed the likes of the Telegraph which kicks off with ‘Green policies to add £110 to bills’, before then conceding that claims that investment in wind farms and other low carbon technologies will ‘dramatically’ hit household bills are untrue.

An interesting, and potentially important aside has been dug up by my colleague Jess McCabe who attended the launch of the report. It says that the FIT has had a ‘negligible’ impact on the typical household’s dual fuel bills. Subsidies for renewables added £16 to the average electricity bill in 2010 of £430, of which FITs account for less than £1. By 2020, the report predicts renewables support will make up £58 of the typical electricity bill, of which the FITs could account for about £7. This doesn’t quite chime with Mr Huhne’s claims regarding a feared £80 hit for consumers by 2020.

The government can’t have it both ways regarding the impact of green policies on energy bills. Its messages are mixed and confused, and there is a fundamental lack of transparency around the levies and how they are then spent – as demonstrated by the ongoing FITs saga. Until this changes, it is hard to criticise other publications scepticism around the government’s green policies.

Out of the ashes

Fri, 9 Dec 2011

For most landlords, installing photovoltaic panels after the 12 December is off the cards.

The cut in the feed in tariff from 43.3p to 21p has been such a body-blow to the viability of PV schemes – especially rent a roof models – that almost none are still going ahead.

As for the prospect of schemes going ahead under the 16.8p FIT rate coming in to play in April, well, that is less than a pipe dream.

Unless you are extremely cash rich and risk-happy then it will be near impossible to deliver a large scale FITs programme. And few have even considered that solar firms would ever be able to resuscitate a rent-a-roof model that could work for landlords at the 16.8p rate.

This week, we reveal that one energy company claims to have managed to do just that. In the same week that Carillion announced it plans to exit the PV market that its energy services division largely led from the word go, Strategic Energy is rising like a phoenix from the ashes and returning to the PV market with vengeance.

The company claims to have come up with a lease model that will be ‘cost neutral’ for landlords. It has worked with Ernst & Young, the Council of Mortgage Lenders and five leading law firms to develop a legal framework that is compliant with lenders demands around obtaining their consent for schemes, is quickly accessible, and, most importantly, free for landlords to use.

No funders’ fees and no legal fees – yet documentation from top firms (the likes of Towers & Hamlins, Addleshaw Goddard, Cobbetts, Croftens and Hammonds) as well as backing from lenders including HBOS, Santander, Barclays and Dexia.

So many landlords are licking their wounds after having wasted hundreds of thousands of pounds each in legal fees and procurement costs for schemes that never happened, that this offer can’t fail to tickle interest. In fact, how many boards that have been burned once by PV schemes would return to the bargaining table without the concessions of no outlay and an assurance of lenders’ consent.

Now, unlike many of the rent a roof models previously, there is not going to be much money for landlords to make here.

But if they can cut their tenants’ energy bills and carbon at the same time, then there can only be very limited ground for complaint. Strategic Energy is going to offer a ‘kicker’ which will be worth around £10,000 for every 1,000 installs that can be used for community purposes.

So how can it possibly offer a ‘free’ PV model when no one else can make the returns stack up? According to its managing director, Andy Watson, the trick is to have an all-equity model.

This means that it is not confronted with the same problems of having to cover the cost of capital and claiming a return. Somehow, while most investors have been running to the hills, Strategic Energy has received £10 million backing from Hazel Capital.

This will last the window until April at the 21p rate, and then after that it has another mystery investor waiting in the wings that is happier with low, but secure returns at the 16.8p rate. This investor is institutional – i.e. a pension, life or insurance fund – and is exactly the type of investor that we have been told has had its confidence shattered in all things green at the moment.

It is currently working with St Vincent’s Housing Association where it is installing PV on 400 roofs. This will be the test for many of its claims, which, on paper appear quite impressive.

Two of these is that they can install in half the time of their rivals (having agreed with the Tenant Services Authority that it can carry out the Tenant Liaison Officer role) and get on site far quicker than anyone else as a result of the legal framework.

Assuming this works, it is hard to see this not being attractive to landlords that have been complaining about the FITs cuts on the grounds of the impact they will have on their ability to protect tenants from fuel poverty. That said, it is still quite a big if. There could well be plenty of compromises that landlords need to make in order to take up this offer. But more generally, whether their model works or not, it is refreshing to see a company taking a proactive route to carving out a niche in a market that only two months ago was saturated with entrants.

Their niche is simply that instead of trying to sue the government, they are still trying to make it work when, apparently, no one else is.

Presumably, others are doing the same.

But it is also likely that the company will come under some fire from the industry for leaving the PV picket line and taking advantage of it.

Leap of faith

Thu, 1 Dec 2011

And so it starts: the solar fallout. We have already seen social housing PV schemes being abandoned en mass, we have seen companies pulling out of the market, we have seen the legal challenges, and we have seen last ditch Labour parliamentary motions defeated.

Only now, finally we are seeing the warnings of swathes of job losses – which previously must have sounded to the government like the hysterical cries of protest from an industry fighting the tide of inevitability – become a chilling reality. This week we saw the first major economic casualty of the government’s early cut to the feed in tariff; Carillion Energy Services announced yesterday that 4,500 jobs were under threat.

Clearly not all these jobs will go – but it is a case study that exposes the massive contradiction between the rhetoric of the self-appointed ‘greenest government ever’ and its actions. By this I don’t simply mean ‘how can they say they are green and push forward any policies that seem to damage the green sector’. While there is considerable mileage in arguing that the government’s shambolic FIT policy has undermined its claim to be the greenest government ever, the real contradiction is to be found in its economic ambitions.

Never has the UK economy needed jobs and entrepreneurialism more badly. As chancellor George Osborne revealed on Tuesday, things are bad. Really bad. Growth is starting to flatline. Mr Osborne revealed that growth next year would fall back to just 0.7 per cent – a big fall from the 2.5 per cent originally predicted by the OBR. Furthermore, the current forecast is premised on the assumption that the Euro-crisis is resolved – without that the UK is likely to return to recession. As a result, the Autumn statement was a shopping list of measures to encourage growth and help business; and, there was little mention of sustainable measures except in the context of cutting red tape and relieving regulatory burdens.

Reminding taxpayers that he was the chancellor that had introduced the first Green Investment Bank, and reiterating his support for ‘sensible’ green policies, he proceeded to explain how he would relieve businesses of green levies to encourage growth. ‘We are not going to save the planet by shutting down our steel mills, aluminium smelters and paper manufacturers,’ he said. ‘All we will be doing is exporting valuable jobs out of Britain.’

Well, what about the British jobs that are being crushed across a whole industry as a result of a change in policy that confounds both investors, businesses and environmentalists alike?

As Friends of the Earth’s energy campaigner Donna Hume warned today: ‘This is just the tip of the iceberg - if Ministers push ahead with plans to slash solar subsidies tens of thousands of jobs could be lost. A fraction of the cash the Chancellor set aside this week for more roads and dirty energy would throw a lifeline to the solar industry and the thousands of skilled workers currently facing unemployment.’

Carillion Energy Services is exactly the kind of company that Mr Osborne should be bending over backwards to support. It is also a case study in exactly what the government has done to green business – a new UK sector creating jobs and skills that was booming despite the economic gloom until two months ago.

When it was still Eaga, as revealed by Inside Housing, it was the first to convince the City in any meaningful way to invest in the green sector on the back of the future of government policy. It must have taken some convincing to get £300 million of cash from the leading banks and institutions – but Eaga managed on the basis of expected returns and a long-term political commitment to the FIT. That is £100 million more than the Treasury was able to scrape together as a green deal incentive package.

Eaga had taken the risk of doing most of the work in getting landlords on board its ‘free PV’ scheme on its own balance sheet – because they needed to prove to investors they believed in the business model.

Despite having agreed many deals in principle they were unable to spend much of the cash. Firstly because none of the associations’ banks were granting consent for the deals to go ahead due to concerns about how they would impact the value of their security, and then because the FIT cuts meant few of them would be viable anyway.

So what message does this send out to all the investors that rolled the dice and decided that green investment was finally more than a corporate social responsibility tick box, but an attractive proposition? Their belief that the government will stand by any of its future green schemes will have been shattered. And what has been the reward for CES’s entrepreneurial spirit and their trust in the government?

Many of the thousands CES staff going through the 90 day consultation will remember that this is the second time that their jobs have faced uncertainty as a result of a coalition policy change. Only last year Eaga was badly burned by Mr Osborne’s slashing of Warm Homes funding in the comprehensive spending review. This was a major source of revenue for the company and its share price tumbled. When it was bought by Carillion for £306 million at the beginning of this year, it looked like a very fortunate escape for Eaga.

Perhaps some staff at the time might have wondered: ‘we’ve been hurt once by this government – maybe we should think twice about trusting them on FITs’. Well, now those same staff might not take too much comfort from the fact that the business is restructuring itself to shape up ahead of throwing itself at the next major green government schemes: the renewable heat incentive and the green deal.

Why? Because, like hundreds of other enterprises – many much smaller and far more vulnerable - despite being let down by this government, they have little choice but to trust their government to do what it says it will.

Landlords are being asked to take something of a leap of faith too on the green deal. As we will be reporting tomorrow, landlords are telling government that in its current form, the green deal won’t work for social housing. Exclusive figure from consultancy Camco suggest that social housing will only be eligible for between 0.5 per cent and 1 per cent of energy company obligation funding a year – simply not enough to deliver the green deal at scale. The 2050 targets look unachievable at present. And fuel poverty in social housing could well be exacerbated.

Yet the Department of Energy and Climate Change has cast confusion about the extent to which social landlords access to ECO under current proposals. At a UKGBC event yesterday DECC officials disputed claims by Affinity Sutton’s Jeremy Cape and Willmott Dixon’s David Adams that landlords are being largely excluded from ECO and that as a result green deal would be difficult to roll out. Indeed they said that Mr Cape had ‘misinterpreted’ the content of the consultation document which states affordable warmth funding will be just for private landlords. Upon second and third reading (see page 125) there is no way I can see that you could mis-read their intention to make affordable warmth funding only available to private tenants. But climate change minister Greg Barker also was of the opinion that social landlords were not being excluded from any part of ECO. The DECC press office just told my colleague Jess McCabe that what was in the consultation document was correct – so we are none-the wiser.

According to sustainability consultant Martin Wheately the DECC impact assessment for green deal actually assumes that landlords will be able to access affordable warmth funding – contradicting the consultation itself. Mr Wheatley maintains that DECC are not intentionally excluding landlords from ECO and so all is still to play for. As he put it: ‘We have to assume that this is by accident rather than design given their [DECC’s] aspirations around fuel poverty.’

‘I am reading between the lines and assuming that this means that ECO is not yet a done deal and there is an opportunity to change what is currently proposed – this really could be one we could win,’ concludes Mr Cape.

Fingers crossed he is right. I don’t want to be in a position of ever having to blogging something along the lines of ‘And so it starts: the green deal fall out…’

Green monster

Thu, 24 Nov 2011

When you are on press deadline on a Wednesday afternoon, how do you start to get your teeth into a 238 page document?

The executive summary alone of the much delayed, eagerly anticipated, and biblically long green deal consultation is 43 pages. Given the planning policy framework document was 52 pages that is crazy. Only a few weeks ago, our web editor Tom Lloyd was told that the consultation was 176 pages but was being hacked back. Well, that clearly didn’t happen. Somewhere in the editing process an additional 62 pages were accumulated. Give the amount of paper required for the printing of this leviathan across the country, this could very well be the least green green policy consultation ever. I would like to make a disclaimer that there is no way I can do the consultation justice in one blog. It will probably fuel at least 10 posts.

Indeed, the majority of green bodies, have not yet made up their mind how to react to the consultation. There is a vacuum of reactions from the usual green bodies other than stock ‘we welcome the publication’ press releases. The fact is that the sector is still digesting its considerable contents and will be forced to do so for some time before being in a position to respond. And to many people’s dismay they are being given just eight weeks to do so – an extraordinary demand.

What chance did I then stand of dissecting it on a press day afternoon – the same week in which the government announced its housing strategy, its consultation of councils’ self financing debt allocations, its TSA standards and the new build figures?

Very little – so instead I went straight for the section that interested me most: page 125 which explores the design of the Energy Company Obligation.

Firstly, a moment of rare smugness (sorry). We revealed that ECO was to be split in to two pots – one for hard to treat homes and another for fuel poverty called ‘affordable warmth’ – it is. We revealed that ECO would be £1.3 billion a year – it is. We said that it would be split between these two pots at a ratio of roughly 25:75 respectively – and it is. We were also the first to reveal social landlords would be excluded from the ‘affordable warmth’ pot of ECO – they are (even if Chris Huhne publically rubbished this at the EEPfH conference last month). We also warned about the narrow emphasis of hard to treat funding on solid wall properties – this is the case. And we reported that a brokerage scheme would be introduced so that energy companies would not have an unfair monopoly over ECO – there is such a system being proposed.

So, on that ECO section: the relevant section states: ‘Some social housing providers have argued that households on the proposed eligible benefits in social tenure homes might benefit from Affordable Warmth support as not all social landlords have easy access to the resources needed to make these improvements, therefore Affordable Warmth should be “tenure blind”. We will welcome evidence on this point. However, in the light of the discussion above, the Government is minded to restrict Affordable Warmth eligibility to properties in private tenures.’

This call for evidence is something that Camco and the NHF are working on – but the sector needs to address properly and coherently if it is to convince the government to change its mind.

At the moment the government argues that the majority of fuel poor live in the private sector (81 per cent in private tenures); that the private sector has the lowest average standards of energy performance; and that in private housing alternative support is less likely to be available after Warm Front has come to an end (it also says that social housing has benefited ‘disproportionately’ from measures through CESP and CERT and from Decent Homes work). These are compelling arguments. And, in terms of getting the best bang for the government’s buck in tackling fuel poverty is hard to disagree that this might be the most efficient way to do so – but that doesn’t mean it is the right way. Based on the current design of ECO, the government might be able to reduce fuel poverty by between 350,000 and 500,000 by 2022 but that doesn’t mean it is helping the people who need it most.

Social tenants are a generally more low income and more vulnerable section of society than private sector residents. They are also in their homes for more of the day as many are retired, unemployed, ill or disabled, meaning they are more likely to be hit hardest by fuel poverty. ECO should help these people – even if it makes the use of ECO less efficient.

As National Housing Federation chief executive David Orr said in his response to the consultation today: ‘the document contains the unhelpful and misleading claims that social housing has benefited disproportionately from subsidy up to now and that the Decent Homes programme has largely sorted, or will sort, energy efficiency in the sector. We will be arguing strongly both that social landlords should have access to the fuel poverty element of subsidy, since fuel poverty has a higher prevalence in social housing than any other tenure.’

Bravo.

This is hammered home when you look at the way they propose to distribute affordable warmth funding. Page 122 of the consultation states that the government plans to target the affordable warmth cash at low income households that ‘include an older person, a child or someone with a disability and who do not have access to alternative sources of support to improve their heating arrangements’. To find these people this it suggests using benefits status as a guide. This, it says, is because the benefits system is an effective and accurate means of targeting households on low incomes in a way that can easily be verified and regulated. This mean a link to the DWP’s planned Universal Credit IT data base that comes in to effect in 2013

Another way it suggests distribute the funds would be through an area-based approach as it used for CESP funding. It says that it anticipates that energy companies might use benefit status to work out eligibility when distributing funds. This could be tricky for the first year of the scheme when the Universal Credit system has not yet begun.

But aside from these details, if the government believed its own rhetoric surrounding the social sector being far more benefit driven than any other sector then it would seem odd to exclude it from fuel poverty funding.

In among all the bad news confirmed in the consultation, there was also some good news. Green Party MP Caroline Lucas this week championed the social tenant’s cause. She tabled an Early Day Motion to parliament calling for landlords to granted access to vital green subsidies as part of our Green Light Campaign. Since going to press we have received the backing of seven other MPs after just one day – including one Conservative - and counting. Please get your local MP to sign it here.

Another piece of good news is that during the FIT debate last night Chris Huhne showed then first signs he might support one of our two main campaign aims: that social housing solar photovoltaic schemes are classed as ‘community projects’ rather than as aggregated schemes which will be subject to the especially debilitating FIT rate of 16.8p/kWh.

On the same day that Caroline Flint led a Labour attack on the cuts to the FIT (which was defeated) Mr Huhne was asked specifically whether social housing PV schemes would count as community projects. He replied: ‘On social housing, I have already said that we will consult on whether it is appropriate to have a separate tariff for genuine community projects.’ This is clearly very good news. However, to balance it out he also said that the design of the scheme, which was introduced by the Labour government, means it is currently not legally possible to introduce a special rate for not-for-profit organisations such as social landlords. Hmmm. Well, we will see.

Something we can not claim to have predicted ahead of our rivals was the size of a government package of green deal incentives. Today Danny Alexander announced that there would ‘a special time-limited ‘introductory offer’ to kick off the green deal: £200 million. This, aside from being sold in the language of a market trader by the Treasury which clearly insisted that if there was to be any new money announced then they, not DECC, would do the announcing (see also David Cameron AND Nick Clegg stealing Grant Shapps’ thunder for the housing strategy announcement because there was new money involved) is a welcome move. Although vague on detail, it was met with enthusiasm by WWF et al. The next round of ‘nudges’ should be unveiled very soon so I will reserve judgement until I have heard the whole package of carrots and sticks before comment.

In the mean time, I have the remaining 200 pages to return to.

Green dealing

Thu, 17 Nov 2011

I will endeavour not to mention our Green Light campaign in this week’s blog.

Despite the fact that we have garnered more than 400 signatures and have the support of many more associations, consortia and bodies like Shelter – as well as the Labour Party and Green Party - I am going to quit banging on about the campaign.

I am sure you all have better things to do than hear about how it takes less time to sign up than it does to visit the water cooler. (Much less, actually).

So, even though you definitely should back Green Light if you haven’t already, instead I am going to steer you towards my favourite other subject, the green deal.

Many of you, like me, will be itching to read a copy of the long awaited green deal consultation.

For some time you will have heard the expression ‘shortly’ or ‘forthcoming’ or, maybe, you might have heard someone prick your excitement with the word ‘imminently’.

Perhaps, like me you have been told as many as five different dates for when it is expected. Well, I am now feeling moderately confident that next week we might actually have a physical document in our hands with tangible detail on how the green deal will work.

At the very latest I am assured it will be the 29^th of this month, but in all likelihood it will be sandwiched as part of the bumper package of other government announcements scheduled for next week; on Monday we have the housing strategy with the right to buy consultation, and on Friday the growth strategy.

Both of these (especially the latter) are more eagerly anticipated and pressing than the green deal consultation – and therefore the contents of the green deal consultation could well get lost in the media wash.

Clearly, Inside Housing will be all over the design of ECO and the nitty-gritty of the green deal like a rash. But there are some bigger questions – like what can landlords actually do with the green deal? – which few are really asking right now.

One organisation that is renowned for its holistic outlook and is in fact asking that very question is Bioregional. As we report this week, the options are limited without considerable ECO funding.

The charity has found green deal finance alone will only cover £4,000 of energy efficiency work at a typical home, with a further £10,000 of work for flats or £20,000 of work for houses falling outside the scope of the scheme.

This was based on research and modelling for a scheme to retrofit 2,500 homes in the south London suburb of Hackbridge.

The green deal measures that were covered included loft insulation, cavity wall insulation, lagging and boiler exchanges – all things that most providers have already undertaken to some extent through CERT and CESP.

For many this research will confirm what we already know: that in order to achieve major savings in social housing, more difficult – or expensive – measures will need to be undertaken.

Much of the ‘low hanging fruit’ measures have already been picked. And to meet the ‘golden rule’ and achieve savings in social homes landlords will need MORE not less ECO funding.

In the words of Joanna Marshall-Cook, energy project manager at Bioregional: ‘I’m not sure what scope there is for social housing providers to use that [green deal] unless they are going to go down the solid wall insulation route, and that would need ECO funding.’

Without improved access to ECO, many landlords may well look at the green deal and wonder what the point is. Why should they bother?

Which, awkwardly brings us back to our Green Light campaign to ensure landlords are not excluded from any ECO funding.

But I said I wouldn’t loiter around this, so moving on…

In other news, we this week reveal exactly what the hit of the Carbon Reduction Commitment could be for councils.

The scheme, which was made a far blunter tool by Chancellor George Osborn this time last year, is effectively a tax on carbon emissions complete with a league table to name and shame the biggest green sinners.

The table was published for the first time last week and Inside Housing put in some leg-work to find out what the impact of the CRC is likely to be for cash-strapped authorities. The result is an eye watering £86 million hit. Given how little green funding is available to councils, and taking into account that the feed-in tariff – which was previously an easy way of cutting emissions while generating a tidy income – has been slashed back, this is actually not an insignificant sum.

If you need evidence of what £86 million could do to improve social tenants’ lives, just look at the £4 million that was today distributed among 24 social housing providers from across Britain under the Renewable Heat Premium Payment scheme. Despite being a small amount of money, the government received 125 bids from landlords. It all counts.

The Local Government Association has hit out against the scheme for creating unnecessary admin and distracting councils from investing in worthwhile carbon reduction measures.

They are certainly not alone – the scheme has been widely attacked for being laborious and overly complex. But ultimately it is too late for complaining. Big businesses are feeling the sting – but should tax payers be paying the costs of their local government’s inefficiencies? I am keen to hear what you think on this.

Either way, it will be a welcome stimulus for councils to adapt and change with the private sector.

Fighting FIT

Fri, 11 Nov 2011

You can imagine that Greg Barker had been dreading today for some time.

The climate change minister this morning stepped into a two hour meeting with a room of furious solar sector representatives desperately seeking some grain – even the slightest shard – of hope that their years of work and investment was not all about to go down the drain. He had none for them.

It was always going to be awkward coming face-to-face with the people hit hardest by your policies.

But today must have been especially awkward given a number of the people in the room have this week instructed their lawyers to begin legal action against the minister’s Department of Energy and Climate Change.

Solar Century, which is leading a consortium of other solar companies, said that it is seeking an interim injunction to stop the Department of Energy and Climate Change from using the 12 December as the cut-off date for the current tariff.

It describes the date as being ‘illegal, irrational and unreasonable’. The group, which has not yet named its other members, wants to stop any cuts to tariff levels being made until DECC has completed a ‘proper, review and followed the correct processes’.

This follows the example set by Friends of the Earth which laid down an ultimatum to climate change minister Greg Barker on Monday warning him to amend the proposed cuts by 4pm on Friday or face a judicial review.

Now an expensive and potentially bitter legal clash looks inevitable. It is hard not to sympathise with a sector that has just had the rug pulled out from under it with just six weeks notice.

As Jeremy Leggett, chair of Solar Century, said: ‘The banks get eight years to change, we get less than eight weeks.’

However, past experience of private companies combating policy reforms of this coalition suggests that this is not the best way of gaining traction.

Legal action smells of desperation and signifies an abandonment (however justified) of negotiations.

Past examples (think developer Cala which was eventually swatted aside by Communities Secretary Eric Pickles in its opposition of the scrapping of the regional spatial strategies), and the fact that the government will have taken water-tight legal advice before making the announcement, would suggest this latest effort might be in vain.

That said, there are rumours that local authorities are also considering some form of challenge.

If this is true, although lawyers doubt it is likely to happen, few could blame them. As we report this week, the fall out is massive.

Social landlords are facing abortive costs of £5 million and contractors like Mears have been very badly burned, limping away from the market without a deal to show for their efforts - just an expected £2 million write off and a £2.8 million hit to their annual profits.

Ironic then, that among all the gloom, there was the one deal sealed yesterday that three weeks ago would have been mega news.

The first – and possibly the last – rent-a-roof deal was completed by West Country Housing with PV company Anesco to install 1,400 panels.

After months of lengthy negotiations with banks not a single deal had been signed due to concerns about how the complicated third party contracts could reduce the value of lenders’ security in the unlikely event of a housing association loan default.

Well, somehow law firms Trowers & Hamlins and Eversheds have worked with their clients to overcome these difficulties at a time when nearly every other rent-a-roof deal has been abandoned.

It will stand as a testament to what could have been. Or, more optimistically, what could still be for the rest of the sector if our new campaign Green Light is successful.

We launched it last week with the aims of getting social housing FIT schemes categorised as ‘community projects’ rather than ‘aggregated schemes’ so they get help from the government, and that social landlords are given equal access to ECO funding for the green deal.

So how is our attempt to ensure landlords are not excluded from vital green subsidies going? Pretty darn well, if I may say so myself.

In our first week we have received unprecedented support for Green Light with over 300 signatures on our petition and pledges from across the sector.

As we will reveal today, we have the backing of some major Labour heavy-weights including shadow energy secretary Caroline Flint, and shadow housing minister Jack Dromey – not to mention the support of groups representing around 1.4 million social homes (and that is not including the millions of homes represented by members of the National Housing Federation and the Chartered Institute of Housing.

While the government doesn’t look likely to back down over the FIT cut coming into effect on 12 December, we believe there is scope to negotiate a fairer more equitable settlement for social tenants.

It is the voice of these tenants that will make the difference for Green Light – which is why we were so pleased to receive the support of the TPAS this week, which represents 1,700 tenants groups, and energy giant E.ON which represents millions of customers across the UK.

If E.ON, a company driven by profit can see the logic to our campaign, then the government should too.

There is huge pressure on the government to tackle rising fuel bills. When red top papers like the Daily Mirror take a leaf out of Inside Housing’s book and launch a campaign called ‘Fair Price for Power’ on the back of the FIT cut you know that the government will be concerned (note: it reported on Monday that the cut to the FIT means more than 100,000 housing association properties won’t have PV installed – hence the campaign).

As a further bellwether of the mounting consumer concern, if you need one, even the BBC’s Panorama set its sights on an investigation into how government policy was impacting bills earlier this week.

There is a row underway over the statistics cited about the impact on bills by climate change minister Greg Barker - but even ignoring that, as long as the poorest are protected then that is what should matter.

As it stands they have, subsidised the FIT but only home owners have benefited from it.

Leeds City Council had hoped to save their tenants a massive £30 million over 25 years through a 5,000 home PV scheme that has now been shelved as a result of the government’s announcement.

That equates to around £120 a home a year for the people who need it most. This is the big test on whether the FIT cuts are about getting votes or common sense.

While Inside Housing is not disputing the need for a cut to the FIT, we struggle to see how it can make sense to hit the poorest people the hardest if it is the impact on people’s energy bills that matters.

A similar dilemma will emerge if the government makes them pay for the ECO but not let them benefit from affordable warmth funding.

With your continued support, we are confident we can persuade the government that social tenants need more, not less, help if they are to avoid falling into fuel poverty.

Green light

Fri, 4 Nov 2011

‘Apocalyptic’. That is how one major PV provider described the news of the government’s cut to the feed-in tariff.

Everyone had expected bad news for weeks. In fact, as I wrote last week, a careful campaign of expectation management through what appeared to be strategic leaks from the government meant that the halving of the FIT from 43.3p/kWh to 21p/kWh was not a major surprise to anyone.

What was a massive shock was the government’s decision to hit social landlords harder than any other sector and slash the FIT to just 16.8p/kWh for multiple installation ‘aggregated’ PV schemes.

This was a worse than worse case scenario for most landlords. The move has effectively shattered the solar dreams of the social housing sector – and with it, any prospect passing on the benefits of reduced bills to their tenants, many of whom are low-income vulnerable people, and all of whom have paid for the scheme through their energy bills to date.

As I have blogged in past weeks, this is an increasingly familiar story: owner occupiers reaping the rewards of green schemes ahead of poorer non-home owners.

The government is planning to exclude social landlords from accessing the fuel poverty pot of the Energy Company Obligation – or ECO – funding which is paid for by energy companies through consumer’s bills to subsidise retrofit works in the forthcoming green deal.

The National Housing Federation has warned that this could have a devastating impact on landlords’ ability to deliver energy savings through the green deal for their tenants.

In both cases the end result is the same: an increased risk of the most vulnerable people sliding into fuel poverty and their landlords having no funding to help them out.

That’s why Inside Housing has launched its new campaign - Green Light. The campaign has two simple aims.

The first is to ensure landlords get equal access to ECO funding – all we ask is that social landlords are on an equal playing field to other sectors. Already, as we report this week – and following my analysis of Chris Huhne’s rhetoric last week – there appears to be a softening on the government’s position on this, so a win is achievable.

Second, that social housing schemes are classified as ‘community projects’ rather than aggregated schemes.

The only ray of light so far, as tipped in last week’s blog, is that the government is considering helping PV schemes that can be demonstrated to have a community, rather than commercial purpose.

It said on Monday it would consider helping ‘genuine community projects to be able to benefit from the FIT’.

This is vague – but it is the best we can expect to win. Once again, we are not calling for special treatment; we simply don’t think it is fair that the most vulnerable and poor are hit the hardest.

If you agree then we want to you sign up to our campaign.

In only a day and half we already won the backing of figures like Green Party MP Caroline Lucas alongside energy giants E.ON, the UK Green Building Council, Sustainable Homes, Chartered Institute of Housing, National Housing Federation, Northern Housing Consortium, PRP Architects, a host of contractors and solar providers such as Carillion, and landlords including Peabody and Affinity Sutton.

We need cross sector support to fight for the right to protect the fuel poor and get the support the sector needs to deliver the government’s carbon reduction targets. Please sign up.

So now the fall out of the FITs cut. As we report this week, rent-a-roof schemes, in which third party PV providers offer free PV in exchange for a portion of the FIT, have been stopped in their tracks.

None have taken place so far because of ongoing wrangles with lenders over the impact the deals could have on the value of bank’s security.

But progress was being made on this front. The first deals were coming to the fore – indeed there is one deal on the brink of completion that could end up being a testament to what could have been; a solitary product of millions of pounds and months of resources that now look to have been wasted.

Trowers & Hamlins warn landlords face an expected £5 million of wasted ‘abortive costs’. That spend equates to a lot of retrofit measures – or homes for that matter.

For self-funded schemes, now is the time to return to the drawing board and hope that the returns needed to pay for the cost of capital still add up.

For many it won’t.

The government is now claiming that it warned to expect a return of 5 per cent and that should still be obtainable under the new tariff.

However, already landlords such as Peabody - which had plans to invest a massive £23 million of its own cash into PV - say otherwise.

Having done their maths, it says that based on government guidance, it anticipated a return of 7 per cent against a 5.3 per cent cost of debt. A 5 per cent return will not let its scheme wash its face so this means a major rethink.

There are other unintended repercussions of the FIT cut.

One point that should really concern the government is that a growing number of experts are warning that the sudden policy change has rocked investor confidence to the point that now the green deal, which is heavily reliant on private sector finance, is at risk.

I will be speaking to banks, institutions and private equity investors over the coming weeks to find out what the true cost of this week’s ‘apocalyptic’ FITs cut for landlords will be.

Sustainable spin?

Fri, 28 Oct 2011

Welcome to the week of green smoke and mirrors.

A week that - for me - will forever be etched into memory by the looping words ‘…the details of which will be published in a consultation shortly’.

Name a query about any area of sustainable concern – the feed-in-tariff, the green deal, energy company obligation, energy performance certificates – and the government will inform you that the answer to question will be out ‘shortly’ in a forthcoming consultation.

We know that. We are used to it. But when the consultation is delayed, it doesn’t make it any less frustrating.

Before I go any further there is something I want to make clear.

Behind the scenes there appears to have been a series of u-turns, leaks and contradictory statements that the government would like to characterise as the rumour mill spinning out of control.

The reality is that many of the stories that have emerged this week have come from official briefings and documents (admittedly ahead of a final decision being made).

This means that either there are healthy disputes between the Treasury and DECC or there is spinning to manage expectations.

Take the saga that has caught the headlines most this week: the news that the government is intending to carry out an early review of the FIT.

In short, there isn’t much left of it as uptake has massively exceeded government projections and there is a very real threat that the pot will be empty by the end of the year without a government intervention.

First of all, rumours were flying that the FIT would be slashed back to 9p, which would have been devastating.

Then, in an apparent accidental leak, a fact sheet conveniently posted on the Energy Savings Trust website today showed that the 43p/kW FIT level is to be halved for PV at 4kW or smaller as of 8 December to 21p/kW.

DECC tweeted that this was neither final nor accurate.

Taking us from apocalypse to a kind of purgatory within the space of a week to me feels calculated.

We find out on Monday what the reality is, but regardless of the extent of the cuts damage has already been done.

The solar market has been rocked by uncertainty - a word that sends investors running to the hills.

As we report, one company has frozen a £175 million investment in PV on social housing roofs as a reaction – and warns that the social housing sector will be hit hardest by any cut to the tariff.

This many well be as few landlords have come close to installing as much PV as they would have hoped – in part due to the ongoing troubles in getting bank sign off for their rent-a-roof deals.

It was a major subject of discussion at the fourth annual Sustainable Housing Awards at London’s Park Lane Hilton last Friday where one provider told me: ‘solar PV on social housing is like sex when you are a teenager: everyone is talking about it but no one is actually doing it’.

Fingers crossed this scenario will change soon because, otherwise social housing could die a solar virgin compared to other sectors.

Millions of social tenants funding the subsidy will not benefit from it at all.

On top of the existing problems facing the sector in hauling their rent-a-roof deals across the line, this investor uncertainty combined with a halving of the FIT could be the final nail in the coffin for landlords’ PV aspirations.

One rumour that crossed my path was that there had been some talk in government circles about exempting ‘socially focussed’ PV schemes out of the crosshairs.

Were this the case, then social landlords may well be exempt from an early FITs cut.

It would also compliment the government’s more thoughtful ‘fabric first’ approach to the FIT and renewable heat incentive tariff outlined by climate change minister Greg Barker yesterday whereby homes will only be eligible for the FIT if they have undergone energy efficiency works first.

Don’t hold your breath, though. All eyes will be on the announcement in parliament on Monday.

So, on to the next area of uncertainty. Yesterday, many in the sector had been led to expect that the government would release its long-awaited consultation document on the green deal.

In fact, the Energy Efficiency Partnership for Homes even held their conference around it.

An impressive line up of speakers including policy leaders from the Department of Energy and Climate Change, Secretary of State Chris Huhne and junior housing minister Andrew Stunell turned out to an equally promising catalogue of delegates – many of which were potential green deal providers including retailers like M&S, B&Q, BSkyB.

Unfortunately, many of the questions they had about the green deal remained unanswered because the consultation has been pushed back.

The press office at the Department for Energy and Climate Change contend that there was never a formal date announced so therefore it can’t have been delayed. Hmmm.

Tell that to the National Housing Federation, which, also expecting the consultation announcement, attacked the government over its plans to exclude social landlords from affordable warmth funding in ECO subsidy this week.

Their argument is that social tenants – many of which are the worst hit by fuel poverty – will be paying for ECO through their fuel bills but they won’t stand to benefit.

Following the publication of the interim report on fuel poverty from Professor John Hills last week, the NHF published figures from consultancy Camco that warn around 1.03 million social homes - the equivalent of 2.5 million people - will be vulnerable to fuel poverty if landlords miss out on the affordable warmth cash.

As Inside Housing reported last week, the Hills review has already warned the government that ECO could exacerbate fuel poverty and have a regressive impact on the poorest families if it’s not carefully designed.

As we report this week, the NHF, which has been explicitly briefed by DECC that landlords will be excluded from affordable warmth, pulls no punches:

‘Housing associations are ready, willing and able to play a key role in delivering the government’s Green Deal,’ begins NHF chief executive, David Orr.

‘But if ministers do exclude social landlords from the ECO fund set up to tackle fuel poverty then millions of the poorest and most vulnerable people in the country will miss out on warmer homes and lower fuel bills. 

He builds momentum: ‘To make this even more difficult to stomach is the fact that these hard up tenants will still have to contribute to the fund even though they will not benefit from it.

‘We’re not asking for any special treatment. But if low income social tenants have to pay a levy to fund these improvements then they and their landlords should have fair access to the fund.’

Given there is no other funding available for tackling fuel poverty, this is an understandable reaction.

Certainly the logic in the context of the Hills review stands that everyone should access the benefits of ECO if they are paying for it.

At the EEPH conference yesterday there were very mixed messages emerging about the government’s thinking on this.

When asked about the plans to exclude landlords from the affordable warmth element of ECO, Chris Huhne appeared to poo-poo the idea.

‘I am absolutely astonished, being on the inside of many of these discussions, to see some of the rumours that have managed to get some traction out there,’ he said before explaining that he wanted the green deal available for everyone regardless of tenure and ending with the words ‘wait and see, but I think I have given you as much as an answer as I am able to ahead of the consultation.’

One landlord asked me ‘did we just get what we want or was Mr Huhne just badly briefed?’

Another ran up and claimed that he had just directly contradicted a senior civil servant.

A shell-shocked Andrew Warren, deputy chair of the EEPH, took Mr Huhne’s apparent u-turn as a clear win for the sector and pointed out that he makes the policy decisions.

However, a closer look at his exact words makes for less convincing reading than his enthusiastic delivery might have implied.

He actually spoke more about the green deal than ECO and there is considerable ambiguity in what he said: ‘The reality is that we want this to be a programme that extends right across the country.

‘The ECO subsidy is essential for both hard to treat and fuel poverty homes because it’s also what makes the green deal a universal offer.

‘We want people to be able to market the green deal for everyone and anyone regardless of their tenure and their region and their personal circumstances… ‘

And then a civil servant, asked the same question later, sounded much less convinced stating ‘there were questions’ to be asked’.

Clear as mud, then.

Regardless of the situation with affordable warmth funding, there is another problem, though.

As we report this week, the NHF also warns that landlords could find themselves largely excluded from the larger portion of hard to treat funding too because of a narrow government definition that focuses on solid wall properties.

At the moment it is understood ECO is likely to be around £1.3 billion and most people expect it to be split roughly 70 per cent hard to treat, and 30 per cent affordable warmth.

Landlords can’t make green deal work without ECO – more in fact than the private sector – so this could undermine the sector’s ability to deliver savings for its tenants and the government.

The government has the problem that it needs to get the best value it can for the limited ECO pot.

Affordable warmth was previously for private homes, and the social sector is perceived to have already benefited from CERT and CESP as well as Decent Homes funding, and therefore are warmer and more efficient already.

Backing this up, Grant Shapps called on social landlords to undertake their own ‘pay as you save’ schemes ahead of green deal’s launch in a year’s time.

Cheeky, if the government does exclude social landlords from fuel poverty funding.

Either way, this does show two things that the sector should be aware of: that the government is a) sensitive to the political fallout of being seen to get poor people to subsidise the wealthier (those who can own their own home) and so wants to be seen to acting, and b) it feels that that the social housing sector can adjust rents and service charges and use surpluses to invest in protecting their tenants from fuel poverty instead of using public funding.

Tempering these two points is a third; the government needs the social housing sector to make the green deal work.

As we report this week, the NHF has been in talks with DECC over signing a pledge in which the sector would deliver retrofits to an agreed number of homes.

For the government this would be a terrific early win; landlords offer retrofitting at scale and could attract bulk finance to the green deal giving it the early kick-start it will certainly need.

Therefore, the sector has leverage. It should use it.

The decision to exclude social landlords could see fuel poverty rise to unprecedented levels and leave elderly and vulnerable people with little choice but to risk their health or even lives by leaving their homes unheated during the cold winter months, according to the National Housing Federation. 

Out in the cold

Fri, 21 Oct 2011

This week the Energy Bill received royal assent. That is an important milestone; the green deal has taken another important step towards becoming a reality in a year’s time. What still needs to be done is considerable and for a different blog post.

However, the significance of this is that on 27th of this month, assuming there are no delays, the Department of Energy and Climate Change will release a consultation document outlining more detail on the green deal and also on the structure of the Energy Company Obligation, more commonly known as ECO.

This is effectively a levy on all our fuel bills that is collected by energy companies and used to tackle fuel poverty and improve energy efficiency. Right now it is still being designed by DECC and will replace existing suppliers obligations such as carbon emissions reduction target – CERT - and community energy saving programme – CESP.

ECO is a deal breaker for the social housing sector – especially as far as the green deal goes. Without considerable ECO funding, landlords will simply not be able to meet the ‘golden rule’ which the green deal is based on in which savings on energy bills must exceed the costs of the works. Research from Affinity Sutton’s FutureFit programme and BioRegional’s Pay As You Save pilot show that social landlords need more, rather than less, ECO if they are to make the green deal work because social homes are already more energy efficient than the private sector thanks to the decent homes programme and CESP and CERT works. As many in the sector would say, the so-called ‘low hanging fruit’ has already been picked – so the savings needed to meet the golden rule in social housing is harder to achieve.

Inside Housing has revealed not only what ECO is set to look like, but also that social landlords are set to be excluded from some of it.

The government is planning to split ECO into two pots; one for hard to treat homes, and another to tackle fuel poverty. The government is planning not to allow social landlords to access this latter pot, which is to be called ‘affordable warmth’ – despite there being 17 per cent of the 4 million fuel poor in England living in social housing.

So how bad is this news? Until we know how big ECO will be and what the split between the two pots is likely to be, it is going to be very difficult to quantify the impact on landlords.

WWF reckons that ECO needs to be between £3 billion and £5 billion to make the green deal work – but also fear the eventual sum is likely to be between £1 billion and £2 billion. In terms of the split, sources suggest that the affordable warmth element of ECO will be much smaller than the hard-to-treat element, so perhaps, from a green deal perspective, being excluded from this pot won’t hinder landlords too badly.

That said, from a fuel poverty perspective, this must be a huge blow. For many social landlords, their main motivation for undertaking energy efficiency measures is to reduce fuel poverty. Given it is a major part of their social purpose, it could be considered quite short sighted to exclude them from funding on the basis they have already done good work. While it is easy to understand the government’s thinking that they can get more bang for their buck by tackling the private sector, it is also worth looking behind the fuel poverty figures. Just because social tenants homes are generally have better average SAP ratings than those in the private sector, doesn’t mean they necessarily require less help. Social homes, contain some of the most vulnerable people on low incomes – many of whom are elderly, unemployed or requiring care. This means they also spend much more time in their homes than in other sectors.

A household is considered fuel poor if it spend more than 10 per cent of its household income on fuel bills. Within this, there are various measurements that can be used. The current method is modelled on consumption in specific property types. While there are strengths to this approach, there are also drawbacks insofar as it ignores a lot of the human variables – some of which would find social tenants are much more heavily impacted by fuel poverty than the current statistics might suggest. Groups like the National Housing Federation are interrogating the government’s figures and methodology as well as lobbying for equal access to ECO on the basis that all groups pay for it – so it is unfair if they don’t see the benefits.

Adding weight to this concern, on Wednesday Professor John Hills announced the interim findings of his independent review on fuel poverty and in it, warned that if ECO is not distributed fairly, it could exacerbate fuel poverty for the lowest income homes. Echoing the concerns of the NHF, he said lower income households needed higher levels of ECO funding and pointed out that for low income families, the green deal would not provide any short term relief from fuel poverty.

Professor Hills also said more needed to be done to tackle fuel poverty and suggested other means of measuring it: ‘The way we have measured fuel poverty painted a false picture about how well we were addressing it,’ he said - adding ‘things are hardly on track for the problem to be eradicated in just a few years’.

He also delivered a stark warning about what is at stake here. His report, which was commissioned by DECC, found that 2,700 people die every year in England and Wales as a result of fuel poverty – more than in road accidents. Time then, for the sector to buckle up, because as energy bills continue to soar along with inflation at the same time as unemployment rises, without full and fair access to ECO, many of these victims will undoubtedly be social tenants.

Hit the roof

Wed, 12 Oct 2011

With just five months left until the government cuts back the feed in tariff, despite rent a roof deals on hundreds of thousands of homes having been agreed between landlords and providers of solar photovoltaic panels, not a single one has been signed off.

That is a poor statistic – especially given the level of hype as companies flocked to the market over the last year.

The furious effort that has gone into getting these agreements sorted before the April deadline – after which, the drastically reduced FIT will no longer be enticing enough to make many of these deals viable – could well go to waste if lenders’ consent is not obtained for these deals soon.

With potential £250 a year savings for each tenant with PV on their roofs at stake, it is easy to see why PV providers and associations alike have levelled their frustrations at the perceived source of their problems: their lenders.

Banks, somewhat unfairly, have been accused of jeopardising these deals. The hold-ups, associations, PV providers and their respective irritated lawyers claim, is a result of their being overly cautious and tabling ‘apocalyptic scenarios’.

They have been asking what impact the deals could have on values if an association defaults on a loan and the bank has to sell, the properties it is holding as security. In this unlikely event they are concerned that the PV deals in place could significantly devalue their security.

Well, the shoe has been put on the other foot now.

As Inside Housing reports this week, guidance published by the Council of Mortgage Lenders means that many landlords could have to return to the drawing board and enter eleventh hour renegotiations with their PV providers.

The guidance spells out the minimum requirements of lenders that landlords must meet in order to obtain their lenders’ consent to push on with these deals.

At the core of the recommendations is the advise that most banks will require the power to terminate contracts with PV providers ‘without compensation and without liability for any costs of removal’ in the event of a default by an association.

This is bad news for PV providers. But then again, if they really believe that this default scenario is so very unlikely then they will surely have no problem signing up to taking on the risk that the banks were previously concerned about.

Of course, they will also have their own risk adverse funders to please. Lawyers warn that many agreements will need to be amended in the wake of the CML guidance. However, they also say that when push comes to shove, PV providers will probably will accept this, but they may well try and factor the risk into their own pricing – hence possible renegotiations with housing associations.

According to Richard Petty, director at Jones Lang LaSalle, the impact these deals could have on the value of banks security is actually huge; up to 15 per cent.

On a £500 million portfolio this would mean a bank stands to lose up to £75 million in the event of a default on the value of the security simply because of the contracts in place.

‘But surely having an income producing piece of technology installed on home that reduces bills and increases energy efficiency of the property can only be a good thing for property values?’ I hear you ask. The answer is possibly. But the impact on values that banks are concerned about has nothing to do with the PV itself.

The potential loss of value is a result of the contractual arrangements with third parties that could then make the properties harder to sell.

Mr Petty explains that if a bank finds that potential buyers don’t want PV on the roofs of the properties under the same terms that the HA has signed up to originally, then in many cases they face the prospect of paying a substantial termination fee to break and buy out the agreement, so that they can either sell unencumbered or remove the panels to achieve a sale.

In this scenario, banks would have to pay PV providers significant sums to break the rent-a-roof contracts, which have been drawn up to protect the PV providers’ security – which is the PV panels and equipment.

On top of this there is the prospect of long drawn out negotiations with lots of third parties, all with their own credit committees and sets of lawyers to appease.

When trying to sell huge portfolios, the prospect of legal wrangling is enough to kill a deal; hence the banks have said they want this get-out clause.

So housing associations are piggy in the middle right now. With no time left to start out entirely from scratch, they are at the mercy of their funders and their chosen PV providers.

The truth of the matter is that many associations probably should have approached their funders much sooner than they did. What on paper appeared quite simple has turned out to be painfully complicated.

Their complaint that banks have not acted with the urgency they required is may fall on deaf ears because, not only are these deals all different and immensely complicated, but also, banks – risk adverse profit driven organisations – are essentially being asked to take on more risk without any obvious reward. A big ask.

The CML guidance therefore should be considered good news. A line has been drawn. Everyone knows where everyone else stands.

Now that the CML has clarified lenders position, as unpalatable as it may be to PV providers and associations, changes can be made to contracts and the way is paved for the first deals to be done.

Watch this space.

Capital gain

Tue, 4 Oct 2011

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.

Carrot and stick

Tue, 20 Sep 2011

With the green deal proving a harder sell than expected there are indications the government may take a tougher line in its quest for carbon cuts.

Two stories emerging in the last week present different sides of the pictures.

The first, a report from the Energy Saving Trust on its pay as you save pilots, adds to the mounting evidence that the green deal may not be as popular as expected.

The partners in the five pilots had to work a lot harder than anticipated to get households to sign up, despite offering them free energy efficiency improvements paid for using fuel bill savings.

This is unsurprising, given the mounting evidence that extra incentives may have to be offered if the green deal is to be a success.

If the green deal doesn’t go as well as hoped the government will have to look elsewhere for carbon reductions, and a hint of where it might turn is contained in the speech communities minister Andrew Stunell gave to the Liberal Democrat conference today.

Mr Stunell talks about the ‘need to do much more on compliance’ and reveals the Communities and Local Government department has set up an advisory group on the subject to feed into the next review of building regulations, due in 2013.

It could be the first sign that the government is prepared to use the stick if the carrot does not allow it to fulfil its promise to be the ‘greenest government ever’.

Fit for the future

Tue, 6 Sep 2011

The Autumn issue of Sustainable Housing went to press last night. It is set to be a cracker, overflowing with essential reading for anyone with an interest in all things sustainable: exclusive news on what the Energy Company Obligation will look like, an interview with the outspoken Jonathon Porritt, early lessons from the Technology Strategy Board’s Retrofit for the Future programme, a look at the eco-credentials of prefab development, and how to get tenants on board the green deal.

My production editor was flitting through and remarked: ‘the green deal has had a bit of a rough ride in this issue’. In retrospect, I suppose it has. The green deal is the common theme in nearly all the articles because it is one of the most important policy areas in housing. As a result, we have given it something of a constructive grilling. And right now, there are some major hurdles emerging to overcome.

FutureFit

The most interesting recent example of this were flagged up in Affinity Sutton’s£1.2 million FutureFit retrofit pilot results which Inside Housing exclusively revealed on Friday. The implications of these findings for the social housing sector are huge. Effectively the report shows that for social housing the green deal will fail to meet its target of reducing carbon emissions by 80 per cent by 2050.

The report identified a 26 per cent ‘carbon black hole’ in the green deal. It also flagged up a massive funding gap of around £3,000 per home between the net cost of the works and the value of the energy savings. This means that just under half of the savings in social homes will need to be subsidised and plugged by Energy Company Obligation funding – and if the green deal ‘low package’ of £6,500 was rolled out across Affinity Sutton’s 56,000 homes, would equate to a minimum funding gap of £130 million for the housing association. Ouch.

Another major problem – one that is perhaps more worrying for the government and would be green deal providers in the private sector – is the very low initial take-up rate. Just 4.8 per cent of the 800 residents approached showed initial interest. This is even worse than the findings of the Pay As You Save pilot carried out by BioRegional, B&Q and Sutton Council which saw 126 homes receive a home energy audit – yet only 67 eventually went ahead with the measures. If social landlords struggle to give away free energy efficiency works to tenants then the private sector is in for a rude awakening when it tries the same thing.

The findings from both schemes show that the government’s market-led assumption that residents will take up the green deal on the rational of potential bills savings alone may be somewhat flawed as residents appear to motivated as much by the prospect of increased warmth as they are financial benefits. That said, with massive bill hikes anticipated from energy companies, this may well change over time.

Either way, FutureFit points to an incredible level of apathy from residents towards energy saving. This attitude is summed up by a comment under our story from a reader (probably a tenant) who says: ‘For me, this is very good news indeed, and shows people are not duped by this green deal BS [Bull Sh*t]’.

Positive thinking

Last Friday, I chaired a fascinating question and answer session on the implications of FutureFit for the green deal. No one wanted to be unduly negative, but the fact is, the results were actually much worse than they looked. Affinity Sutton and consultancy Camco made some bullish assumptions underlying their results. Had they been more pessimistic, the savings achieved may very well have been negated.

For instance, they assumed only a 2 per cent default rate, and a 0 per cent comfort take from tenants. This means the carbon savings achieved did not take into account any potential ‘rebound effect’ – when tenants choose to take the increased comfort over possible energy savings – which can range between 10 and 30 per cent. Past studies, such as Gentoo’s Retrofit Realities have flagged this up as major problem.

Duncan Price, director at Camco told delegates that landlords acting as green deal providers may well need a return of 9 per cent in order to cover the risk from default in the green deal. Given how hard it is already proving to achieve savings and reduce the cost of capital this looks like a big ask.

Another generous omission that would have impacted savings, was that the scheme did take into account the costs associated with resident engagement. This effort cost the association £450-£1,350 per home – which could have potentially widened the funding gap even further had the costs been added into meeting the golden rule.

There is also the added cost of residents that drop out of the green deal at any stage in the works that was not costed in – which in the case of FutureFit equated to 23 per cent of residents who dropped out because the prospect of works appeared ‘too inconvenient’.

While this may sound rather doom and gloom, there are factors that had a negative impact on results that were not taken into account by Affinity Sutton’s financial assumption. For example, when FutureFit was launched, the government still had a £6,500 ceiling on the cost of green deal works for each home. Since then this cap has been lifted, however FutureFit has retained it. This meant that there were many areas where measures that were not necessarily the most suitable for the home were chosen in order to meet the funding criteria. As Camco’s Mr Price explained: ‘if you design to a budget, then you receive perverse outcomes’. With more flexibility the savings could have been increased.

Had there been more time and a greater scale of retrofits, then the costs could have also been pushed down. FutureFit would also have benefited from being integrated with ‘trigger points’ for other maintenance and refurbishment works in order to achieve best value on the cost front.

Some of the other conclusions that are worth highlighting are:

• The housing sector needs a new way to measure energy efficiency. As a tool, the current SAP model is not adequate to accurately assess homes for energy improvements.
• Some of the Energy Savings Trust’s costing models for retrofit measures could do with a re-evaluation. Overall, the majority of measures cost more than initially anticipated. Even the well established measures like cavity, floor and wall insulation were ‘significantly higher’ than the EST model suggested.
• All properties are different and will require bespoke packages of works. This may sound obvious, but Affinity Sutton found that the air-tightness of the 102 properties they retrofitted (nearly all of which had residents in situ) differentiated massively without any particular pattern.  
• There is no ignoring or escaping the green deal. In the words of Jeremy Cape, director of investment at Affinity Sutton: ‘there is no do-nothing fall-back position. You are in for a shock if you haven’t started on looking at what your organisation is going to do on this yet.’

On that note, I will add that there was one final message that resonated from FutureFit: the massive potential here for social landlords. No other sector is better placed to take advantage of the green deal. But there are some major hurdles to overcome before landlords are in a position to cash in.

Next month the government is publishing its consultation on the green deal and what ECO funding will be available. If this report shows anything, it is that social landlords need access to a lot of ECO subsidy if they are to make the green deal work – so make sure you all read the FutureFit report and respond to that effect.

Ultimately, the green deal is happening next year and it will be made to work. Whether or not it will meet the government’s 2020 and 2050 carbon reduction targets is a moot point. So apologies if our interrogation of the green deal gives the government’s flagship retrofit scheme a ‘rough ride’, but it is only by identifying where it is failing at the moment that it stands a chance of doing so. Tough love if you will. So, hats off to Affinity Sutton for bringing these findings to the sector – let’s use them constructively.

The Autumn issue of Sustainable Housing is out on Friday

Brewing a saving

Tue, 23 Aug 2011

Last night I returned to my house around 9pm sweating profusely and ravenous having run home from work.

First thing I did was to boil the kettle so I could cook some pasta, pre-heat the oven and then traipse downstairs for a much needed second shower of the day.

By the time I had showered and returned for the kitchen I needed to boil the kettle again and the oven had been on for 10 minutes.

Then the phone went. Oops; while speaking on the phone I missed the kettle again – one last boil.

This kind of behaviour is wholly ungreen. Me and my housemates know that we need to make a change – but we need a hand.

The answer we have settled on is to get hold of a smart meter and a home energy management kit.  

The government wants every home in Britain to be fitted with a smart meter by 2020 at a cost of £11.7 billion.

We are told that this bill is to be footed by energy companies. The reality is that, like most things we are told energy companies pay for, after chinning the installation costs, this gets actually tacked onto our ever rising energy bills, and it is of course the unknowing consumer that ultimately pays.

On paper this is still supposed to be a good deal. The impact assessments the government published indicated a substantial total net benefit for the domestic and non-domestic markets of over £7.3 billion from the £11.7 billion original investment.

By 2020 smart meters are expected to reduce household energy bills by £23 a year, and £42 by 2030.

This saving of £23 a year only equates to only 2 per cent of the current average household energy bill of £1,132.

It will save the energy companies an estimated £11 billion (almost twice what it will save consumers) through digital operating, but is it really great value for consumers?

A press officer from Department of Energy and Climate Change happily explained ‘it is a win-win’ for consumers and energy companies.

For the energy companies they can accurately monitor exactly what their customers are using and charge correctly as a result.

They can buy electricity at the right price and protect their margins with more accurate data which also allow them to measure their energy savings.

For consumers this means that finally they can forget about being over (and occasionally under) charged for their energy use and end the era of meter inspectors.

Most significantly, it is hoped that by seeing exactly what energy is being used, and where, consumers will adapt their behaviour to become more efficient and live in a manner that will help the UK achieve an 80 per cent carbon cut by 2050.

As we reported this week, charity Citizens Advice has warned that proposals for the roll out of smart meters could leave consumers vulnerable to exploitation by energy companies.

Many of the most vulnerable people live in social housing. These are the same tenants who are frequently targeted by unscrupulous doorstop lenders and con-men – and now potentially energy companies.

It is unclear what products the charity is concerned energy companies might try and sell, but the savvy ones such as British Gas have already invested heavily in smart meter related companies so that they can be sure to profit from the new era of energy efficiency that the government hopes the technology will beckon.

Consumer protection is important though. Social landlords should therefore start thinking now about how they might go about protecting their tenants.

Perhaps there is a means of landlords playing a role in the roll-out of smart meters? Ideas on a post card please.

The way I see it, the first line of protection is to make sure the technology will lead to energy savings.

One way of increasing the 2 per cent savings of a smart meter is the use of a home management kit which is intended to strip away all my bad living habits.

While it may take me a while to get a smart meter, I am getting a management kit next week and look forward to kicking off an anecdotal experiment to see just how much digital technology can impact on my behaviour.

I shall be downloading iPhone apps, plugging myself in and asking my housemates to join me in tweeting the results.

Look out for blog posts documenting whether or not I am adjusting my lifestyle according.

My days of the double shower and liberal boiling of the kettle could be numbered.

Heat incentive is lukewarm

Tue, 16 Aug 2011

It’s encouraging to see the Department of Energy and Climate Change recognising the needs of the social housing sector, but some more support would be useful.

Yesterday the department announced details of how £3 million that has been set aside to encourage social landlords to install renewable heating equipment will be allocated.

Landlords in England, Scotland and Wales can bid for up to £175,000 from the ‘renewable heat premium payment’ budget, which is designed to finance ‘at least’ 17 projects. The money subsidises the installation of certain types of renewable heating equipment – solar hot water panels, biomass boilers, and heat pumps – and is aimed at households that don’t have access to mains gas.

The £3 million is a fifth of the overall budget for the premium payment scheme, so is roughly in line with the proportion of the population in social housing, but it isn’t going to go far. It is also a very small chunk of the £860 million the government promised to spend on renewable heating between 2011 and 2015.

One concern is that the bulk of this cash will be swallowed up by industry and business before any money filters down to housing. Another scheme, the renewable heat incentive, is due to launch this autumn and will offer payments for heat generated from renewable sources, in much the same way as the feed-in tariff does for electricity.

Businesses will get access to the RHI a year before households become eligible, so if it proves as popular as the feed-in tariff a decent chunk of the money could be gone before housing even gets a look in.