All posts by Nick Duxbury
Reports from the BBC suggest that the prime minister has chosen the worst possible route in his mission to ‘roll back green levies’ and (allegedly) get rid of all that ‘green crap’. The £1.3 billion-a-year energy company obligation that only weeks ago was facing the chop, has now supposedly been granted a reprieve in the form of a two-year extension.
Great news, right? Well not necessarily. So far it looks to be far from good news. There are strong hints that the ECO targets may not be increased pro-rata in line with the extended deadline – a move that would half the amount of cash available to landlords to retrofit homes. Less of a reprieve for the insulation and retrofit industry which claims to have 10,000 jobs at stake, and more of a massive reprieve for the energy companies who would have their targets halved.
This is exactly what the big six have been lobbying the government to do since ECO was first announced. Indeed, it was rumoured as far back as the Tory Party conference in September that senior Tory ministers were pushing to relax the targets by two years – and, with the benefit of hindsight, it was the only viable course of action for the coalition to take.
An insulation subsidy programme couldn’t be dropped entirely. The government’s ailing green deal relies on its existence, national carbon reduction targets still have to be met, and the coalition’s already shaky track record on fuel poverty would be in tatters. It is no exaggeration to say that there are lives at stake; ONS figures published this week showed that excess winter deaths are up 29 per cent to 31,100 and each year more people die as a result if fuel poverty than in road traffic accidents. Early resistance from the Liberal Democrats, and this week from a group of senior Tory MPs embarrassed about their leader’s soiling of the credibility of their party’s hug-a-husky ‘greenest government ever’ claims, cemented the impossibility of doing away with ECO altogether.
So this has left few alternatives. Initially, to quell fears that ECO works would be abandoned altogether, there were reassurances offered that it would simply be paid for through general taxation instead. This would be the ideal outcome.
As I have blogged previously, ECO, which is paid for through a levy on everyone’s fuel bills, is a regressive means of paying for energy efficiency works. It is simply not equitable to charge everyone – poor or rich - the same, and then only grant works to some. The poor get poorer if they don’t have works done. But, realistically, a Tory-led government that hates taxes was never going to take £1.3 billion per year from the electorate through a means-tested tax. However much fairer and more logical it might be, George Osborne would simply never allow it.
So, only one real option remains on the table: reforming the current ECO. The current programme is expensive, insanely complicated, and is devoid of accountability so desperately needs reforming. There are several ways you could make it more efficient. Indeed, in October I reported DECC’s preferred approach (dubbed ‘ECO 1.2’) whereby ECO is extended by two years, but the targets are also increased proportionately. The logic behind this is that it would allow the green deal to gather momentum so that it reduces the cost of delivery for energy companies. It might not halve the cost (which energy companies already claim is double the £1.3 billion a year the government expects), but it would certainly reduce it, as well as ironing out the boom and bust cycle of uncertainty surrounding short-term targets that are delivered inefficiently.
The signs are that the government is leaning toward the simplest and worst approach: give the energy companies twice as long to meet the same targets, thus releasing them from fines of 10 per cent of their global turnover.
Right now the energy companies are way behind on these targets – in part because of the archaic way that the incredibly complex ECO targets work. But where a month ago there was a hint of desperation in their keenness to get deals done with housing associations, now I am already hearing anecdotal reports of the polar opposite. Hundred Houses Society, a 1,000-home association in Cambridge had all but stuck a deal with a contractor and British Gas to fund 40 per cent of the costs of insulating 75 hard-to-treat homes. It had even informed its tenants they would be having works carried out. But last Thursday, after three or four months of negotiations it was told that the carbon savings were not sufficient. A coincidence? It is unclear whether this was a result of the ongoing uncertainty about the future of ECO, but the organisation is far from being alone in observing a change in attitude.
Last week Sally Hancox, director at Sunderland-based housing association Gentoo, told the BBC: ‘Since 23 October, when the prime minister talked about rolling back green levies, we’ve seen a number of energy companies who we’re in regular conversation with, basically, pause their activity, and a couple of them have suggested to us they are waiting to see what will happen in the chancellor’s autumn statement. That’s 100 homes that aren’t going to be treated this winter.’
There are some deals still being done – this week Southampton Council completed one of the biggest deals to date, a £30 million pound contract with Mitie to carry out works on 2,000 homes over the next 18 months – but the message across the piste is that talks are grinding to a halt. As a result, this week 140 housing associations and contractors wrote to Mr Cameron (for the third time no less) calling on him not to scrap or trim back ECO.
Similarly, Andrew Warren, director at the Association for the Conservation of Energy, has gone on the attack. ‘It is absolutely disgraceful that the big energy companies have orchestrated this unscrupulous campaign, that appears to be succeeding in blackmailing the UK government into cutting by half its established policy to require energy companies to help customers stop wasting money by wasting fuel.’
Similarly, Paul King, chief executive of the UK Green Building Council, is not mincing his words: ‘If ministers think they have “saved ECO” by allowing energy companies longer to deliver the same amount of energy savings, they are in for a real shock. Diluting the ambition of the scheme, and dramatically reducing the amount of solid wall installations, would increase winter deaths and fuel poverty in cold homes, and put 10,000 people out of work in the energy efficiency industry.’
This may be too little too later, though. Word on the street is that a letter was sent from the cabinet office on Wednesday to the big energy providers outlining the coalition’s intention. This would make the likelihood of a change of heart before next Thursday’s autumn statement slim.
But five days is a long time in politics, and the influence of the Lib Dems could still count for something. And even the less astute spin doctors in Tory ranks will realise that granting such a huge gift to energy companies that he has pledged to get tough with will be perceived as weakness by voters facing big bills. While Ed Miliband has pledged heavy handed action in tackling the energy company’s monopoly through a price freeze, Mr Cameron is letting them off their targets in the hope they play ball – his big talk will lack credibility if he relents to their wishes.
Indeed, many of the green campaigners are choosing to focus on this as their main line of attack. Mr Warren, at ACE, says that retrofit works paid for by ECO can save households £400 a year on household bills, permanently. Therefore, he claims is that energy companies are resisting schemes like ECO because large-scale savings resulting from works will hit their profits.
Of course, energy companies would robustly refute this. But either way, Mr Cameron’s quest to reduce the cost of fuel bills by 10 per cent by rolling back green levies such as ECO is increasingly looking like bewilderingly short-term thinking given the long-term savings that are ripe for the picking and the energy companies are still hiking bills. Reports by the BBC today (strenuously denied by Number 10 and the Treasury) that the government is ‘urging’ energy providers to hold back from any further price increases for the next 18 months as the ‘quid pro-quo’ for relaxing ECO targets make Mr Cameron look equally weak. The government can ‘urge’ all it likes, but the big six simply won’t commit to holding prices unless they are forced to – and the coalition can’t force them because it is effectively what Labour has already proposed.
Even assuming this is not on the cards, the prime minister still looks weak. If he pushes ahead with watering down the ECO targets he will be perceived to be either to be in the pockets of the big six, or at their mercy. From a landlords’ perspective, the impact of reducing the ambitions of the ECO targets will be severe: half the amount of subsidy funding available. Simplistically, this could mean half the number of homes will be retrofitted, and half the number of people (many of which also being hit by benefit cuts) in fuel poverty are helped. But, in all likelihood, it would mean that social landlords would simply receive much less subsidy to carry out the same amount of works. In the current economic climate, in which government grant funding has been slashed and welfare reforms are threatening income, it is far from certain that landlords would be prepared to make larger investments into retrofit.
If this government is weak enough to let the energy companies off the hook to save £50 per household on bills in the lead up to the election then it will be tenants missing out on savings worth hundreds of pounds a year that will pay the price.
The logic is baffling. Energy bills are too high… so let’s cut back green levies.
The ‘big six’ energy companies are too powerful and we need to inject more competition into the energy market…. So let’s let them off their carbon emission reduction targets in order to reduce their cost burden in the hope they won’t pass on hikes to the consumer.
This, as far as I can tell, is David Cameron’s line of short-term thinking right now. Flailing in prime minister’s question time on Wednesday, the leader of the so-called ‘greenest government ever’ pledged to ‘roll back some of the green regulations and charges’ as an answer to Ed Miliband’s plan to introduce a price freeze. He also announced that there would be a ‘proper competition test’ for the energy sector and that there is to be a review of whether the government’s environmental policies could be delivered in a more cost-effective way. His proposal to roll back ‘green charges’ including the £1.3 billion-a-year energy company obligation was branded ‘short-sighted’ and ‘potentially very damaging’ by the UK Green Building Council and was attacked as a ‘panicky U-turn’ by Lib Dems.
It is difficult for anyone looking further ahead than the next election not to agree with both statements. The government claims that ‘green levies’ make up 10 per cent of fuel bills – about the same as the recent hikes by all of the energy giants in the past few weeks. It is an easy target, but not the right target.
Half the problem stems from the term ‘green’ – a word which often translates as ‘red’ to many Tory MPs; unnecessary red tape introduced by Ed Miliband and a red flag to a free-market, tax cutting, environmentally skeptical, true blue Conservative voter. These levies are not used to plant trees, set up badger sanctuaries or buy energy saving light bulbs (ahem). The £1.3 billion-a-year energy company obligation is used to pay for essential energy efficiency works in homes that ultimately reduce bills. It is a hedge against energy price inflation that the government – and most importantly consumers – can’t afford not to make. Insulation saves money and the savings exceed the cost on bills. Indeed, the flagship flop, the green deal was set up on the premise that the government prioritises these retrofit works as crucial means of cutting fuel bills and tackling fuel poverty.
With more people dying as a result of fuel poverty than road traffic accidents each year, it would not be an enormous stretch to say that ECO saves lives. On top of reducing bills (which is, after-all the main point here), ECO creates documented savings for the NHS and for local government as seen here.
Of the £112 cited by the PM as being ‘green levies’ to be rolled back, government data show that only £50 is spent on ECO. Given how few ECO deals have been done so far, it is likely far less is burdening energy bills. It is generally thought energy companies have only spent around a third of what they should have this year on ECO – meaning it is actually incredibly disingenuous to claim that levies like ECO have contributed in any meaningful sense to the energy price hikes they have just announced.
Of course, they could in the future. Many energy companies argue that it will cost double what the government says it will to deliver their obligation targets, and after missing some of their previous obligation targets under CERT and CESP, it is hardly surprising they are resisting continuation of ECO. As I reported recently, the favoured solution within the Department for Energy and Climate Change is to do ‘ECO 1.2’ under which the deadline for the targets would be extended by two years – along with a proportionate scaling up of the carbon reduction targets. The benefit of this is that it would give energy companies longer to get momentum behind deals and for the green deal to also gather pace, and reduce the cost of delivering ECO back to the £1.3 billion anticipated by the government originally.
Scrapping ECO altogether nine months in would be a complete farce. Landlords, energy companies and contractors would be mired in uncertainty, jobs would be lost, and once again under the coalition’s watch (think feed-in tariff cuts saga), investor confidence in the green sector would be shattered.
As apocalyptic as this sounds, I was marginally reassured by the Lib Dem response: ‘We will not allow a panicky U-turn during prime minister’s questionss to dictate government policy. The way to provide stable fuel bills now and in the future is not to make policy up on the hoof. Liberal Democrats in government will not allow the Tories to undermine our commitment to the environment, hurt the fuel-poor or destroy our renewable energy industry.
‘We will discuss the means but we are not prepared to compromise on the ends – protecting the environment, helping the fuel-poor and safeguarding our green industries and jobs.’
The indication is that if ECO was scrapped and green levies ‘rolled back’, then the cost of delivering the same energy efficiency works would be met through taxation instead. As long as they are still met, arguably, this is a better and more honest means of achieving the same goals. ECO is regressive insofar as everyone, regardless of their financial means, pays the same – yet not everyone benefits. This would not have to be the case under a transparent, means-tested tax. But we all know how the Conservative Party feels about introducing taxes…
Party conference season is over. No more finger food, small talk and dad-joke speeches.
So, now the bunting – yellow, red and blue – has been packed away and the bar tabs paid off, how has energy efficiency fared over the past few weeks and where does it now sit in the political hierarchy? On paper it would appear that energy prices have become the most hotly debated topic of the conference – but I would argue this doesn’t necessarily bode well for the energy efficiency agenda.
The Lib Dems backed the Energy Bill Revolution campaign calling for carbon revenue to be used to fund an energy efficiency programme to insulate all the homes of the fuel poor as official party policy. The plan is premised on there being enough carbon revenue to make over half a million fuel poor homes super energy efficient every single year. This was a promising start.
Then, far more significantly, Labour leader Ed Miliband hauled energy prices to the top of the political agenda (alongside housing). He announced that a Labour government would help people deal with the rising cost of living by freezing energy prices for 20 months. On top of this, there would be a review of the struggling green deal – in all likelihood, a very similar ‘pay as you save’ model but with lower interest rates.
It is fair to say that this caught the Tories entirely offguard. The rising cost of living is a battleground that has proven extremely popular with the electorate – and energy bills and house prices are two of the most obvious areas to garner quick wins. How, then could the Conservatives respond one week later to be seen to address these issues?
Inevitably, the first reaction was an attack on the creditability of Ed’s proposal. ‘Ed – you keep your shirt on, and I’ll keep the lights on,’ joked David Cameron as he rubbished the idea that Mr Miliband’s price freeze plan would save consumers money. Cost of living cropped up in most ministerial speeches as the Tories attempted to frame themselves as the friend of enterprise and hard-working people who wanted to get on.
Climate change minister Greg Barker told delegates that the price freeze was ‘reckless’ ‘con’ and would cost bill payers more than it would save.
‘Ed Miliband’s energy proposal has already started to unravel,’ he said. ‘He has been forced to admit that he would break his promise if there was an oil price strike or a gas price spike. And he has also admitted that energy companies could get past this by increasing energy prices beforehand. [Mr Miliband’s] price freeze is worse than a gimmick – it’s a con.’
In an attempt to be seen to clamp down on the big six energy companies, Mr Barker instead announced he wanted to encourage ‘a vast army of disruptive new energy player to rise up and challenge the big six’.
This ‘decentralised power to the people energy revolution’ sounded pretty optimistic – and incredibly vague. Populist sentiment without much in the way of quantifiable impact. Effectively it entails encouraging consumers and companies to generate, buy and sell energy. A great idea – but hardly one that energy companies will lose sleep over.
Nonetheless, on the face of it you could be forgiven for thinking that the mounting pressure on the coalition to tackle fuel poverty and energy prices as an election priority was almost certainly a good thing. Sadly this may not be the case. The government has to be able to show voters that it is cutting – or at least capping – their bills. Neither the ‘Red Ed’ back to the 70s rhetoric or cobbled together energy revolution will do this any time soon.
So, it was therefore worrying to read in the Sunday Telegraph that the government is considering reducing bills by cutting ‘green taxes’. The paper reported that the chancellor is mulling granting energy companies an 18-month reprieve on their energy company obligation targets. The idea of this is that, because billpayers fund the £1.3 billion-a-year ECO, by extending the deadline dates, energy providers will also reduce bills.
This line of thinking is worrying – especially as George Osborne has already teed up the idea that Britain can’t be seen to be ahead of other nations on the green agenda when there are bigger fiscal fish to fry.
If energy companies are granted an extension on their ECO targets then that sets a dangerous precedent. First because it sends out a message that energy efficiency is not important. Second, it is short termist in the extreme. Yes, the boom and bust cycle of ECO requires reform, but lifting targets is not the answer. It is a false dawn that would con the electorate into thinking they are having their bills cut. To deal with bills properly requires proper action. If you accept Ed Miliband’s argument that the energy market is broken, then at some point – either through increasing competition in a meaningful way, or through state intervention – then it requires fixing. But it is clear that a quick-fix extension of ECO targets is not going to do very much to hit the energy company market monopoly.
A commitment to reduce energy bills does not necessarily equate to greener policies. The energy debate and the green debate can be divorced in a short-term electoral argument – a race to the finish. When it is clear that savings must be made, it would seem the government is open to it being energy efficiency rather than energy companies’ profits being sacrificed.
Today we revealed that Solihull Community Housing has just secured the biggest Energy Company Obligation deal so far. The ALMO has agreed a deal with energy giant British Gas to fund energy efficiency works worth £27 million over the next two years to retrofit 35 high-rise blocks in a move that should help more than 2,000 tenants save on their fuel bills.
In striking this deal, Solihull has narrowly exceeded the only other similarly large ECO deal to date – Plymouth Community Housing’s £26 million scheme with British Gas. The latter agreement, however, is spread over eight years and therefore topped up using more funding from the yet-to-be-decided next round of funding to replace ECO. It is also linked to a council framework, meaning it will total £50 million and eventually improve 10,000 homes across the city (so is arguably bigger, albeit over a longer period).
The point is: the Solihull deal is notable by the absence of comparisons beyond Plymouth. ECO has been running since January (with plenty of lead up) and still eight months in, there is little sign of an avalanche of deals being signed. Time is already running out for energy companies which have to collectively spend £1.3 billion a year. British Gas claims to have ‘committed’ to (not spent) £300 million of ECO cash in the first six months of the scheme. This is a drop in the ocean given that it is likely to cost at least a third more than the £2.6 billion projected by the government to meet the targets.
As OFGEM decides the fates of those suppliers that failed to meet their obligations under CERT and CESP, energy companies will be more than aware of the fact that the next deadline of March 2015 is creeping ever closer – indeed, some might say galloping.
ECO spending is incredibly opaque. There are no figures from DECC or OFGEM to show how much has been spent to date in order to track progress and value for money for the bill payer. But I am confident that if the figures were published tomorrow, they would show energy companies are way off their £1.3 billion target this year.
So given the urgency, why are more deals not being signed? After the experiences of CERT and CESP - where initially energy companies only offered very low grant rates, but, as the deadlines approached offered 100 per cent subsidy rates - many had hoped that energy companies would be consistently generous with ECO to avoid a repeat. Landlords have been somewhat surprised to see that energy companies are not offering the 100 per cent funding packages seen under CERT and CESP with ECO. The thinking then, has been the longer landlords wait the better the deal they are likely to get. This is only half true.
Yes, as demand from energy companies grows carbon prices will increase and they will pay out a higher grant rate. But the longer they wait, the fewer properties there will be time to retrofit. It takes up to 18 months to carry out large scale, hard to treat, works. If landlords haven’t yet started negotiations for ECO then they may well have already missed the window of opportunity.
Behind the scenes, there is growing concern from housing bodies that landlords (many of which take a painfully long time to make a decision at the best of times and have mostly sorted their business plans for the next year) will miss out on what is essentially free cash at a time when grant funding is all but a distant memory.
It is true that ECO is far more complicated than its predecessors so will take longer to get off the ground. But it is also true that, at the same time as consulting on the replacement for ECO after 2015, the government is still trying to work out who is eligible to use the ECO brokerage. This is madness.
The cycle of boom and bust as energy companies race to meet deadlines and are forced to (sometimes unwisely) spend as a result is about to be perpetuated and repeated without lessons being learnt. This is something that lobbying bodies need to campaign hard to change for the benefit of bill payers, energy companies and landlords. But in the meantime, landlords need to take a leaf out of Solihull’s book.
The government’s long-awaited building standards review was finally published this week, and its reception from all sides of the industry was muted. Variations of ‘we welcome this effort, but…’ were rolled out – mostly on request from journalists. This was a good thing. It means that nearly every industry body – from the Home Builders Federation through to the Local Government Association and the National Housing Federation have had to compromise to get this far.
The Communities and Local Government department proposes ditching more than 90 per cent of the current standards – culling them down from more than 100 to less than 10 – and reducing 1,500 pages of guidance down to less than 80. In principle, getting representatives from across the building industry with very different agendas round a table and reaching sufficient consensus to scrap swathes of regulation is an impressive achievement. It demonstrates that, at the very least, there was a problem and the government has pushed hard to tackle it.
But, as with all bloody culls of red tape, there have been some casualties along the way. The most notable is the code for sustainable homes. The consultation paper, published on Tuesday, stated: ‘Where there are significant issues for carrying forward [in the code], these have been reflected in the consultation proposals.
‘In the light of that, and the outcome of this consultation, the government proposes to wind down the role of the code. We will put in place transitional arrangements to ensure that contractual commitments under the code can be properly covered.’
The code has been on the chopping block for some time and the news of its demise is unlikely to surprise many – although it will frustrate some.
The UK Green Building Council was deeply unimpressed. It argued the consultation excluded key sustainability requirements such as the responsible sourcing of materials and ecology. Paul King, chief executive of UK-GBC, warned: ‘with the demise of the code for sustainable homes and big omissions around materials and ecology, we risk losing a momentum that has transformed the way homes have been built over the last seven years.
‘[The] government claims its plans will take off the bureaucratic handbrake that holds back house building, but it is in danger of letting key sustainability considerations roll away completely.’
Mr King was not alone in his criticisms of lack of emphasis on sustainability in the review. But, the news being the news, what has grabbed the most headlines has been the government’s suggestion of bringing in a national minimum space standard. As we have reported, there are splits between coalition partners about this. The Tories want a market-led approach to continue. The Lib Dems are intent on house builders – which have benefited massively from the government presenting them with an open cheque book for a catalogue of initiatives (most notably help to buy) to boost building rates – chinning the costs and building to minimum size standards.
On paper, most people who care about the environment are likely to support this proposal as it more space makes for happier, healthier living. But it is worth some scrutiny because the benefits for the environment are not clear. Bigger homes mean using more bricks and mortar, meaning it becomes more resource heavy, and uses more carbon and requires more land to build on – which is in short supply, meaning greater pressure on the green belt. In short, a space standard could potentially mean a greater impact on the environment. Also, bigger homes are more expensive to build. How house builders would pass these costs on to consumers should be of major concern.
To date, most of the review has focused on deleting overlapping and ineffectual regulation – a streamlining and simplification rather than a bonfire. By introducing expensive new standards, this could change. The government’s ‘one in two out’ policy for regulation could mean that any introduction of a space standard will lead to removing a regulatory burden of a similar cost on house builders elsewhere. What could go? Could it be sustainability standards?
This week I have penned a feature in Inside Housing that effectively closes the book on the green deal for the social housing sector. This was not a mindless hatchet job. But, nonetheless, I feel some guilt for kicking a scheme when it is, so clearly, down. Accordingly, I’m going to try and give it a hand back up.
First, though, some context. The fact is that even the green deal’s most loyal supporters in the social housing sector have become disillusioned with it. Gentoo ended up being the only housing association to throw its weight behind the programme. Yesterday it was delivered a blow when it emerged the 30,000-home association it had missed out on winning a contract to deliver £200 million of retrofit works through the Warm up North framework right on its door step. It is not clear what this will mean for the green deal aspirations of the only housing association to have kept the faith to date. But either way, it is worth noting that the framework, which was originally evening balanced between the energy company obligation and green deal, has tipped in firmly in favour of ECO after social landlords have effectively shunned the green deal.
More than not becoming green deal providers, most housing associations have decided to withhold consent from tenants that request green deal works because they are not convinced their tenants can achieve the savings they need to repay the interest on the loans. In short, they are concerned that the green deal will worsen poverty.
As we reported last week, and explore in my feature, Affinity Sutton’s Future Fit report found that the failings of SAP to make accurate predictions meant that only one in four of their households would benefit from green deal works. Or, more dramatically, three quarters would be worse off if they took up green deal works.
I don’t want to get into a big debate about the merits and failings of SAP. I don’t pretend to have proper understanding of its workings. But many who do have compelling arguments on both sides. SAP’s detractors will point to a massive 77 per cent over-prediction of average savings in Future Fit and state that the scale of variance makes the golden rule unreliable.
SAP’s supporters point out that Affinity Sutton’s research did not take into account in use factors or the occupancy assessment which is part of the green deal’s golden rule and would have considerable mitigated the performance gap – and that it was never designed to be an investment tool.
However, the consensus between both parties is that a) some kind of standard assessment model is required (at the same time as acknowledging there is no standard home or energy user) and b) SAP, while far from ideal, is the best one out there.
Even if you take Future Fit’s findings with a big pinch of salt, the unarguable fact is that social landlords can have no confidence in the scheme’s ability to secure savings for vulnerable people – many of whom are under-heating their homes. There is a catalogue of well-worn reasons why the green deal doesn’t work in social housing on any meaningful scale. The cumulative erosion of confidence combined with mounting red tape means that the scheme is unattractive to social landlords – and has a long way to go to capture the imagination of the private sector.
But there is hope for the future.
As Nicholas Doyle, project director at Places for People, puts it, ‘the green deal is dead. But long live the green deal’.
So, here are five reasons why the green deal may yet work for the social housing sector:
1.) It has to. Landlords can’t afford to pay for the works themselves. Similarly, ECO can never pay for all the works because of the impact it will have on increasing energy bills – by at least £500 per household. In the long term there is only really one game in town and that’s the green deal.
2.) It will. Energy price inflation will inevitably make the scheme more attractive over time as savings are more easily realised.
3.) Political pressure. After promising to be the ‘greenest government ever’ the coalition has a lot riding on the success of the green deal. It needs to look less like a failure before the next election. If only to avoid embarrassment, the government may well look at what it can do to further incentivise take-up. Already, as my former colleague Isabel Hardman at the Spectator reports, Tories are already blaming their Lib Dem partners for making the green deal too market-led and not allowing social landlords to build up critical mass in the market first. Sources say that the doors at DECC have never been more open to suggestions about what needs to be done to make it work. This may well create the opportunity to make alterations that would favour social landlords.
4.) Political consensus. Tories, Lib Dems – even Labour agrees with the pay-as-you-save principle that underpins the green deal. In fact, it was conceived while Ed Miliband was at the helm at DECC. With that kind of political consensus, in the long term, the problems the scheme is experiencing now could be dismissed as mere details.
5.) The markets. A bit of blind faith in the power of capitalism should not be underestimated. When energy giants like British Gas and a catalogue of private sector companies have invested cold hard cash in the future of the green deal, they are not going to let it die without a fight.
This week the Department for Energy and Climate Change went some way towards answering a vital question that has been begged of the retrofit sector for the last decade: does improved energy efficiency of homes increase their value?
A report published by DECC on Monday asserted that it does. The DECC research was carried out by the University of Cambridge, University College London, and University of Reading examining 300,000 property sales in England between 1995 and 2011. It found in the north east increasing the energy ratings of a property from a G rating to A or B had the potential to add 38 per cent to the value. The average potential increase in price across England for moving from G to A/B was 14 per cent and the average increase in value for a property moved from G to E or from D to B was £16,000.
These findings should, as climate change minister Greg Barker says, be ‘huge’. If this is hard evidence that buyers are prepared to pay more for homes that have had energy efficiency works carried out on them, then this should create a major boost to the retrofit sector. Most significantly for the government, it should offer a clear economic driver (aside from saving money on bills and being warmer) for households and private landlords to take up the green deal.
The question then, is do property valuers and lenders agree with buyers? There have long been concerns about whether, contrary to increasing property values, the green deal may in fact reduce them. This is because lenders have been wary about being tied into long-term contracts to repay the green deal finance that could make a home harder to sell if a household defaults on a mortgage. Lenders have to pick up the green deal payments tab if they are left with property, so there concerns are understandable. In the social housing sector this has been a much bigger potential problem because of the amount of properties held as security against loans. Any fire sales would be in portfolios, meaning green deal contracts could cause major difficulties to a potential buyer.
The latest Council of Mortgage Lenders’ briefing note shows that lenders are taking a more positive approach to the green deal (although much of the guidance is still couched with terms such as ‘generally’ and ‘check with your lender’ if in doubt). It states that ‘in principle, the green deal presents no obstacle to lenders – and should not affect mortgage affordability for customers’.
Indeed, if the value of the properties lenders are holding as security against loans increases under the green deal, that could make them more comfortable with the potential contractual liabilities. So, are they convinced buyers will pay more for homes that have had retrofit works as suggested by the research – in short, is this the evidence lenders have been waiting for?
A spokesperson for CML said they didn’t have data on values themselves to corroborate the findings. However, he did point out that ‘one would imagine that the houses that had that work done on them could have other work done too’. Ah. So maybe the DECC research only shows that people are prepared to pay more for homes that have had refurbishment works (that happens to include energy efficiency measures that improve EPC ratings along the way). Perhaps energy efficiency is not the main driver at all.
Today Greg Barker could be excused for walking with a bit of swagger. To most of us, it’s just another relentlessly grey day of April drizzle. But today, for the climate change minister, the sun is peeking out from behind the clouds and the birds are singing. Why? Because, after a cruel two year winter for the green deal it appears that public opinion is starting to thaw – and maybe spring is around the corner.
First of all, the latest green deal assessment figures released by the Department of Energy and Climate change show an increase in interest from Joe Public. There have been more than 9,000 assessments carried out since the green deal launched properly at the end of January – and there were 7,400 in March compared to 1,803 in February. Sure, these are largely government subsidised and may not be converting to actual green deals, but it is promising nonetheless.
Best of all, though, the finance for the scheme has been secured. The Green Deal Finance Company today confirmed that it has raised £244 million of funding. Wehay. What a relief for Mr Barker. In the words of Paul Davies, partner, PwC Corporate Finance which has been overseeing the GDFC, the significance of this is that ‘finance is no longer a barrier’ to the success of the green deal.
‘The green deal’s success will ultimately be judged by its take up from households, landlords and housing associations, but the availability of TGDFC finance to all of them at a long term low rate is a huge catalyst to uptake,’ he says.
‘The scale of the combined buy-in from industry, government, and the Green Investment Bank to arrange this finance is unprecedented. We share a common view of the importance of long term low cost finance to underpin the green deal. The involvement of the Green Investment Bank has been critical. As one of the largest investments it has made, it’s a strong signal of their ability and willingness to underpin low carbon development and green growth.’
This is true. But as revealed by Inside Housing, only around half of this cash has come from the government’s Green Investment Bank. The GIB has put up £125 million of senior debt – by no means an insignificant sum (indeed, its biggest loan to date) – but less than half what Mr Davies was hoping to secure last year.
In addition to the GIB loan, the GDFC has raised £69 million from its members – mostly private blue chip companies, but also councils and housing associations - and ‘other stakeholders’. This is a combination of stakeholder loans and junior capital. On top of this, Mr Barker has managed to persuade his own department (DECC) to part with £50 million: £20 million as a junior capital facility and £30 million as a contingent capital facility for the GDFC. A big win in tight times.
On top of all this – and previously unreported by me or anyone else – the GDFC is hoping to secure a separate loan facility with the European Investment Bank to bump the overall package up to the £300 million Mr Davies had been targeting.
Next stop the capital markets. But that’s not Mr Barker’s problem. His work in getting the green deal off the ground is largely done. All he has to do is iron out the creases and make sure that momentum for the green deal keeps building – or at least that is what he will be telling himself as he struts down the street bathed in a beam of light, largely oblivious to the misery around him. Let’s just hope the coming days continue to bring good news for Mr Barker and the green deal.
Landlords are, broadly speaking, banking on using the government’s £1.3 billion energy company obligation cash to retrofit their stock instead of the green deal. In fact, many are caught in a gold rush to strike lucrative ECO deals with energy companies as I type. The reasons for this are simple: the green deal simply isn’t attractive to social landlords because they have carried out many of the basic measures before, the high interest rates risk burdening already stretched social tenants, and there are a catalogue of potential liabilities and issues with lenders that come with it. Given all these problems, of course landlords are going to chase what is effectively free money instead. But as we have revealed today, there is a bloody great spanner in the ECO works.
Landlords have been planning to use cash from the £760 million carbon saving pot to install hard-to-treat measures such as solid wall insulation in their properties as they become empty. The idea is to take advantage of the natural turnover cycle of their stock and carry out the measures between tenancies when other refurbishment works would otherwise be carried out anyway. This way it is cost effective and causes minimum disruption to tenants or income. I mean, it would be pretty much impossible to install solid wall insulation into a home while people were living there. And clearly it will be horribly expensive and impractical decanting tenants en-mass to temporary accommodation while the works are being carried out…
Unfortunately, the government doesn’t see it that way. Recently revised guidance issued by energy company watchdog Ofgem states that landlords must have a tenant signed up to live in the property for the ECO money to be spent on the property. Technically, that tenant doesn’t have to live in the property, but nonetheless, they have to have the works ‘promoted’ to them. According to the British Property Federation there must be a tenant in the property within a month of the works.
The response from the Department of Energy and Climate Change doesn’t really explain the reasoning for these rules – but it does explain them a bit more.
A spokesperson told me: ‘The ECO Order states that ECO measures must be promoted to a domestic householder or tenant.
‘The tenant does not need to be living in the property at any specific point in the process, but a tenant (either outgoing or incoming) will need to sign off on the installation of ECO eligible measures within a suitable timeframe to enable the relevant energy supplier to then notify Ofgem according to the deadlines for monthly compliance requirements.
‘It is possible to recommend and score measures in multiple properties of a similar type (like a block of flats) on the basis of an appropriate assessment conducted on only one or some of the properties.’
All in all, this is a big problem for social landlords.
Suddenly the ‘free money’ is not so free. The rules around spending ECO mean hidden costs and liabilities that could mean the subsidy is much less attractive.
With this in mind, a coalition of big hitting bodies across the housing sector has been formed to lobby the government. The Local Government Association, British Property Federation, National Housing Federation, and the National Landlords Association are in talks with officials with the Department of Energy and Climate Change to overhaul the guidance.
It is unclear whether they will be successful. On the one hand it seems like a fairly minor point of red tape. On the other hand, presumably the point of ensuring there is a tenant in place is so that energy companies can be certain they are actually meeting their carbon reduction targets. If this is the case, then it will be a difficult argument to win.
Common sense dictates this is a self-defeating clause. Looking at the situation logically, there is no incentive for landlords to have properties empty any longer than they have to. It reduces their income and leaves them unable to carry out their social purpose. However, by not allowing them to retrofit at scale, energy companies will be the ones to suffer. They are the ones facing eye watering fines from OFGEM if they are unable to meet their ECO carbon reduction targets. Many are already expected to get badly stung in the summer over their failure to meet the CERT and CESP obligations. By not allowing landlords to retrofit untenanted empty properties, OFGEM have made it much harder – and crucially, more expensive – for energy companies to meet their obligations.
But common sense alone rarely wins the day. To win this battle, landlords are going to need to get energy giants on board too.
Today could have been deeply embarrassing for environment secretary Ed Davey and climate change minister Greg Barker.
The Department of Energy and Climate Change was scheduled to unveil take-up figures for its green deal one month in – and Labour were poised to pounce on any signs that it had fallen at the first hurdle.
As it happens the figures are not embarrassing. Or, at least, they don’t appear to be. Between the green deal launching for the second time on 28 January and the end of February there were 1,803 green deal assessments lodged. Mr Davey was quick to herald the figures as proof of the success of scheme in its formative month as an ‘excellent start’.
To some extent fair enough. The green deal has had a very difficult birth, not helped by a barrage of complaints that it is too complicated and expensive to be attractive to consumers. For a long time, even within Whitehall, the green deal was treated like the Lib Dem fart in the coalition policy lift; if everyone pretended it wasn’t there, then any embarrassment it would otherwise cause could be minimised. That was before it launched. Much of the criticism since then has focused, rightly, on the high rates of interest that will be charged on the green deal loans. As I revealed in this blog last month, the underlying rate – before any of the costs are added – is 6.9 per cent. As Labour and others have repeatedly pointed out, that is expensive – especially when high street lenders like Nationwide have waded into the market and are offering energy efficiency loans which, at a glance, appear much more competitive with interest rates as low as 2.29 per cent. The irony, of course, is that the more people who take up the green deal and show interest, the cheaper it will become over time, meaning much of the negative publicity has been deeply damaging to its immediate future. Hence the interest in these figures and Mr Davey’s determination to talk them up as much as possible.
So is the data good news for the green deal? In the context I have outlined above, there will be many who think so and are simply grateful that nearly 2,000 households have heard of the green deal and think it makes enough sense to get their homes assessed. You could argue either a) you would expect high early interest in a major new government scheme that was all over the papers and well publicised, and it could be downhill all the way from here; or b) you would expect low early uptake if you actually read what the papers said about it, and it will take a while to take off. Of course, as one green expert on Twitter surmised this morning the maths don’t actually look all that promising… @MartynWilliams2 tweeted: ‘2000 assessments in a month. Call it 24,000 a year. At that rate, all UK homes will be assessed by around 3013.’
Either way, the DECC figures only show a selective snapshot of the picture. Mr Davey did not provide any stats on how many of those that have undertaken green deal assessments on their homes then went on to secure green deal finance. Presumably this is pretty low – especially as the Green Deal Finance Company has only this week achieved its first close, raising £244 million from a range of lenders including the government’s £3 billion Green Investment Bank. As Inside Housing revealed last Friday, the first close is somewhat lower than the £300 million the GDFC had been seeking from the GIB alone.
Additionally, as is pointed out by the UK Green Building Council, much of the assessments in today’s green deal figures can be accounted for by DECC-funded local authority projects. Moreover, the bigger point about the take-up is that it may not be sustainable once the marketing budget has been spent and the early £125 million cash-back scheme runs dry. Because we don’t know how many people at this early stage have actually taken up green deals and taken advantage of the cash back scheme – in which you can claim up to £1,000 – it is impossible to judge how effective this incentive actually is. Regardless, it is perhaps no surprise that, on the back of today’s figures, the UKGBC has called on the government to use next Wednesday’s budget as an opportunity to create longer-term structural incentives that will drive take-up of the green deal.
The real green deal take up figures to watch will be in three months time, when it would seem more reasonable to expect assessments to convert into deals. That’s when fear may creep in – and, of course, embarrassment. With this in mind, it might be wise for the government to downplay the usefulness of the figures altogether for the first year of the scheme. It may not be how the government’s home energy efficiency ‘revolution’ was supposed to take off, but it is, at least, a start.
Today I spoke with a friend of mine who has recently left the army. He is job hunting. As an army officer he was always told that he had a broad range of skills that he would be able to apply in other sectors and now he is putting that to the test – but in what field? In the last few weeks my friend has considered nearly every career path out there as an option: training as a doctor, lawyer or accountant through to digital marketing and farming (not at the same time). The criteria for his future is simple: whatever job he takes up, it must be potentially lucrative and challenging for the right reasons. So, I was somewhat surprised when he today told me that he was considering attempting to get into the solar sector.
This being a once booming sector that I understood to have been decimated by a series of government cuts to the feed-in tariff and seen investor confidence shattered as a consequence. The same sector that is suing the government for more than £100 million as a result. So, yes it could be described as ‘challenging’. But lucrative? Surely it is slashing jobs?
‘Erm, how much research have you done,’ I asked him.
More than me, as it turns out. My friend is meeting the boss of middle-sized solar firm in the coming weeks that is seeking a competent individual to persuade farmers to allow solar companies to install PV on their land. There are investors in place, and the FIT is obviously at a sufficiently high rate to provide the returns they would need to give a share to farmers too. My understanding was that the schemes were off the table – completely unviable. Indeed, the solar press have been reporting disappointing installation rates across the sector, meaning that the FIT is not digressing as quickly as some had predicted.
But this is isn’t a one off example. Social landlords appear to be returning to the idea of solar PV as a way of cutting their tenants bills.
At the end of last month, Welsh association RCT Homes carried out what is thought to be the biggest domestic solar project since the government cut the FIT last year. The landlord installed PV on 1,000 homes across its 11,000-home stock at no cost and expects to supply up to 40 per cent of the households’ electricity requirements for free. The deal was done with Empower Community and contractor Nationwide Solar. Overall, profits from the scheme will be shared with RCT Homes and the wider Rhondda Cynon Taff community and ownership of the assets will revert to RCT Homes at the end of the 20-year FIT period.
So why is it, that if the market is on its knees this deal was done?
Malcolm Wilson, RCT Homes’ deputy chief executive, says it is because the landlord’s focus has shifted from profits to tackling fuel poverty. ‘We had always been interested in solar PV but we didn’t have the funds to go it alone,’ he said. ‘When feed-in tariffs were first announced in 2010, we had to fend off potential suitors with a big stick. Most were predicting an income stream running into hundreds of thousands of pounds a year but they were mainly companies that were in it only for profit. The offers disappeared overnight when feed-in tariffs were cut.’
‘We were never in it for the money. We are more interested in attacking fuel poverty. Empower Community Solar has a community-focused, ethical approach.’
This refreshing approach could become more common. Last week I understand that climate change minister Greg Barker hosted a round table meeting between solar providers and social landlords. I don’t know whether deals will be brokered off the back of this meeting, but it does reveal that the relationship between solar companies and social landlords is not yet dead.
I cannot speak for the relationship between solar companies and farmers, though.
The so-called ‘bedroom tax’ has dominated the headlines over the past few days. In prime minister’s question time yesterday, leader of the opposition Ed Miliband went to town on David Cameron about the fairness of this controversial welfare reform. Much of the argument revolved around the terminology. Amusingly a visibly frustrated Mr Cameron was forced to state that ‘the bedroom tax is not a tax’. Oops. I suppose it rolled off the tongue more easily than the ‘social sector size criteria is not a tax,’ or ‘under-occupation penalty is not a tax’. Whether you accept it as a tax or a benefit cut, the effect is the same for the people who will be hit by it. So, what’s this got to do with sustainability? Well, potentially a lot.
The government’s green deal, which has had a slow and slightly turbulent birth over the last week, is premised on households achieving energy savings to repay the cost of retrofit works. As with the bedroom tax, there is a debate between the government and its critics as to whether or not the green deal packages constitute ‘free’ energy efficiency works or whether it is a loan.
The government points out that unlike a traditional loan, green deal finance is attached to the property rather than the individual – and that the interest rates are covered by the resulting savings due to the ‘golden rule’. However, to obtain green deal finance, households will need a basic credit check. While the green deal finance company that distributes the finance states that, unlike a traditional loan, 80 per cent of the population will be eligible for green deal finance, it is hard not to conclude that the 20 per cent that aren’t are also likely to be social housing tenants.
This 20 per cent are likely to have a poor credit history, to be receiving benefits and struggling more than most to pay their energy bills. These people are more likely to be in fuel poverty and, consequentially, are also more likely to be under-heating their homes, making it difficult for them to achieve the energy savings they require to be able to afford the interest repayments on the green deal finance.
A potential lose-lose scenario emerges: if tenants are unable to take up the green deal by the credit checks then this means the most vulnerable people are being excluded from the policy and are stranded in fuel poverty. If they do take up the green deal, they may end up being pushed further into debt and fuel poverty because they end up using the energy savings to take comfort from heating their homes properly. This is one of the reasons that the majority of social landlords are, for now, not granting their tenants consent to take up the green deal.
So, even before any external financial strains on social tenants are considered, the green deal is not a compelling sell to social tenants who may struggle to achieve the savings they need to repay green deal loans. But when you take into account the external strains like the government’s welfare reforms, it is even clearer why social landlords are far from sold on the government’s green policies.
Welfare reforms such as the bedroom tax are likely to make it far harder for some households to pass green deal credit checks in the first place. Landlords expect the bedroom tax, along with the benefit caps and the end of direct payment to landlords will increase rent arrears and dent landlords’ income. Why then, would they want to add into this precarious situation the additional strain of a green deal loan? Apart from the fact it risks pushing some of the most vulnerable people in society further into debt, it also threatens to further damage landlords’ rental income, their relationships with lenders, and therefore their cost of borrowing and eventually, their ability to develop housing. Of course, that is before you even start to get into concerns about how lenders will react to green deal charges reducing the value of the properties held as security against loans.
The point of the green deal is to save people money over time – and this could become more compelling as a result of energy price inflation. But for now, in the social housing sector at least, this is an example of one government policy undermining the potential success of another. For many landlords, the government’s welfare reforms are going to make schemes such as the green deal extremely difficult to work.
The green deal launches on Monday. Properly this time.
Chatting to the Department of Energy and Climate Change press office earlier this week I enquired what was planned to mark this auspicious occasion. It seemed that nothing was firmed up yet, but that climate change minister Greg Barker was going to be at a house attending a green deal assessment. He would be dealing with the techy elements of the scheme. Meanwhile his boss, secretary of state Ed Davey, is likely to be up in Leeds to demonstrate the employment benefits for the insulation industry that the green deal will bring (an areas of the policy that has taken a bit of a kicking of late). There will be the first advertising prints from the £2.5 million marketing campaign. But as far as I can tell from DECC there will be no new news to announce, and no big launch party or fanfare. No cava, canapes or dips.
The most significant news won’t come from DECC on Monday. It is instead expected to come from the Green Deal Finance Company tomorrow when it is set to unveil the interest rate for green deal finance. Now that actually is big news. Two people independently told me this week that they have heard stories about the interest rate being between 8 and 10 per cent. At the top end, this would make the green deal a pretty unattractive proposition to many households. The uncertainty alone of simply not knowing either way has been damaging. As the Mirror reported on Tuesday, ‘the launch threatened to descend into even more of farce as the interest rate owners will pay STILL hasn’t been announced’.
Furthermore, there were some concerns that the GDFC wouldn’t be fully up and running in time for the official launch. That would be embarrassing for the government, but more significantly, this would suggest that it had struggled to raise the seed capital it has called for from its members (£50,000 each) needed to secure backing from the Green Investment Bank. In turn, that would have suggested that the private sector, which is required to drive the green deal, did not have enough faith in its future to support a market enabler like the GDFC. That would be a fundamental failure on day one.
Well, I understand that these fears appear, in the short term at least, to be unfounded. Although I have had no straight answers about how much capital has been raised from members of the GDFC, I have been assured that sufficient funds have been raised and the GDFC will be up and running in time. In turn a deal has been struck in principle with the GIB. And most significantly, I understand that the underlying interest rate for green deal finance will be set around 6.9 per cent.
This would be good news for the fledgling market. Even some of the green deal’s biggest cheerleaders had thought it unlikely that, in the scheme’s early years, the rates would be below 7.5 per cent.
Don’t get me wrong. This is still too high an interest rate to make the green deal the ‘no brainer’ it should be. But at a glance it would seem better than the ‘pay-day loans’ that some had predicted, and certainly appears to be a reasonable starting point.
All that said, I must emphasise that this is the underlying interest rate - not the all in cost. On top of that rate there will be a small set up cost which has to be taken into account too. I don’t know what that cost will be, so we will have to reserve judgement as to whether it is low enough to make the green deal attractive until tomorrow. All I do know is that it is likely to be slanted so that the bigger the green deal loan, the better the interest rate on it. There could be little incentive for those looking to tinker around the edges of their homes with the scheme.
If I were in DECC’s marketing team, then I would be making a big song and dance about the certainty that this announcement should offer would-be green deal providers, investors, installers and households come Monday – because that is what will convince businesses to throw their weight behind the scheme. Right now, with the memory of the FITs saga still fresh in many minds, and a notable back-track in the rhetoric used by ministers about the ambitions of the scheme, it is time to inspire confidence in the scheme among those who will deliver it.
It is no surprise that the majority of housing associations are not sold on the green deal – especially when there is so much ECO cash on the table. But where the big trail blazing organisations lead, others follow; and as we reveal on Friday, in the housing sector, even those green-leaders that have ploughed a lot of cash into researching the scheme, require a lot of convincing that it will help social tenants.
It’s almost crunch time. There are just weeks to go until the door slams shut on the big six energy companies that haven’t yet met their CERT and CESP targets. As we report this week, over the past months they have been frantically throwing millions of pounds of green subsidy funding for energy efficiency works at any landlord that will pick up the phone. Recent examples include the likes of Nottingham City Homes striking a deal with E.ON which is providing 100 per cent of the £12 million funding – some of which is to be used for technology such as solar photovoltaic panels as well as traditional insulation products – at around £50 per tonne of carbon saved. As my colleague Jess McCabe points out, were E.ON to try and buy 240,000 tonnes of carbon on the European carbon market this would only cost around £5.70 a tonne. You do the math (s). That is desperation. And we are hearing that in the past few weeks some deals have been struck in which energy companies have paid as much as £90 a tonne of carbon.
Why? Because after the 31 December any energy company that has not met tough CERT and CESP obligations to save 293 million tonnes and 19.25 million tonnes of carbon respectively could be hit with fines of up to 10 per cent of their global turnover by regulator Ofgem. I am hearing that all but one (very large) energy company will hit their targets.
But regardless of what happens come 31 December, lessons must be learned for the £1.3 billion a year energy company obligation which starts in earnest in January. I can not see a more compelling argument for implementing the greatest possible use of the ECO brokerage mechanism – an Ebay style blind online auction where energy companies can bid to buy carbon savings with ECO cash – than the waste and poor planning seen in the frantic rush to the finish with CERT and CESP. It may be lucrative for landlords, but it is bad value for money for thousands of people who pay for energy obligation subsidy through their bills and defies logic. At the outset of the programme four years ago when landlords were reporting that energy companies were making deals very difficult to CERT and CESP deals – and companies were only offering to pay between 10 and 30 per cent of the funding at prices as low as £12 a tonne of carbon. This can’t be allowed to happen again. Already, in some of the first ECO deals being struck, such as Trent and Dove’s £3.5 million agreement with E.ON, the landlord is having to put up 25 per cent of the funding. Now, I know nothing about what constitutes good value in these type of deals under the new ECO regime – but surely the only way to measure it fairly is through an open brokerage system.
It is a shame then that the government has said social landlords will not be able to access the ECO brokerage in its early stages unless they are green deal providers. Given there are only a small handful of housing associations that are planning to become green deal providers, this means the vast majority of the housing sector is excluded from a mechanism which can ensure they get best value from energy giants in a transparent and competitive manner.
There is some hope, though. DECC says that the government will ‘look at options for expanding participation’ to social landlords as the brokerage develops and trading volumes increase. The National Housing Federation is continuing to lobby on this point. Hopefully responses to the consultation also deliver a blunt message that social landlords – many of which are relying on ECO funding more than the green deal – need access to the brokerage, and that as much ECO as possible should be mandatorily put through the brokerage.
Inside Housing has broken two huge green stories in the last two weeks, and both are deeply revealing about the government’s mindset on sustainability right now.
The first scoop was that the government is undertaking a review into the building standards regulation. It has has formed an industry-wide group made up of 16 groups tasked with rationalising existing standards on top of Building Regulations such as the code for sustainable homes, lifetime homes and Homes and Communities Agency design indicators to relieve the burden on the house building sector.
You may have seen the story again on the front page of The Guardian a day after we broke it with the words ‘exclusive’ unashamedly printed next to it. Whatever, I am not bitter… Aside from this minor point, their version of the story was extremely telling. It was framed as being the latest in a line of government announcements intended to slash red tape, cut regulation and boost house building as an economic stimulus package. Cutting costs and building more homes faster appears to the best motivation behind this latest push from to top of government, specifically enforcer Oliver Letwin – which follows behind similar moves on planning guidance and poor construction economic figures.
Now, few in the sector would argue against reducing the regulatory overlap on building standards. It is a problem and definitely needs simplifying. However, the goal of de-regulation to boost the economy is a flawed one. There are a host of reasons for this. For starters, house builders do not want to sacrifice building standards so they can build more homes – they simply want a level playing field with less duplication. Getting a lot of groups into a room and hoping they are going to sort this fiendishly complex tangle of regulations out is also massively wishful thinking. It would involve the industry wanting the same thing – which they don’t – and miraculous decision making. I am not saying this will be a talking shop, but… there are a lot of voices to be heard – many of which have very different priorities. Insiders are sceptical about whether any kind of useful consensus will be formed in the kind of time scale that the government is hoping for. Also, even if the board is successful, simplifying the web of regulatory standards will not boost house building in the short term – potentially quite the opposite. House builders need to get up to speed on the new standards, which involves delays and spending money on consultants to ensure they comply.
A big source of unease is how this review will sit next to the principles of localism. Some in the sector have expressed fears that some building standards could be locally enforced by planning authorities – a move that would make life a nightmare for developers.
Whatever the outcome, sources on the government’s board are fairly clear that the Communities and Local Government department want to see the end of the Code for Sustainable Homes. The writing has been on the wall for the code for some time, and moves have already been made to scrap it in Wales and Northern Ireland. It is hard not feel for the landlords that built exemplar code level six homes believing them to be ‘zero carbon’ only for the government to water down the definition of zero carbon to code level five. Now the code looks fully redundant – especially as from 2016 all homes will need to be zero carbon anyway.
The second major Inside Housing scoop relates to the green deal. Last Friday’s magazine splashed on the news that the Office of Fair Trading has ruled that the green deal should be treated as an unsecured personal loan, meaning that households wanting to take up the green deal will be subject to credit checks in order to get green deal finance. In order to keep the cost of finance low enough, the Green Deal Finance Company, which will produce around 80 per cent of the funding for the scheme is therefore having to insist that anyone taking a green deal loan undergoes a credit check. This is a big deal for several reasons.
For prospective green deal providers such as Keepmoat and Willmott Dixon, there is concern that it is a move that could further limit take up of the green deal. If people have to undergo credit checks it could scare them away from the green deal and add a layer of red tape to what should be a simple process. It also stands that a lot of people may well fail the credit checks, reducing demand further. At a time when the government should be throwing its weight behind incentivising take up, it is providing further roadblocks to consumers.
From a social housing perspective it means that low income households – which most social tenants are – may not pass credit checks and be unable to benefit from the energy efficiency measures. As a result the people who need the green deal most, those in fuel poverty who desperately need reduced bills and warmer homes, will be excluded from it. It is yet another blow to social landlords who are already excluded from vital fuel poverty subsidy funding. It could have an impact on combining green deal and ECO packages together for tenants. Furthermore, it will also make landlords negotiations with lenders who are yet to take a stance on whether the green deal poses a risk that will need to be priced into existing loans, even trickier.
Paul Davies, senior partner at Pricewaterhouse Coopers and the lead on the Green Deal Finance Company, has played down the impact this will have pointing out that the threshold for the checks will be much lower than getting a normal loan. However, this doesn’t address a more fundamental frustration that I have heard from a number of green deal providers: that DECC is not standing up for its own flagship policy.
The government has consistently insisted that the green deal is not a loan. Any mention of a loan or comparison to a green mortgage has been swiftly shot down by DECC officials who point out that the finance is attached to the property rather than the individual. The unique selling point of the green deal that separates it from simply getting a loan and installing insulation with it yourself is that if/when someone moves out of a property then they don’t take the debt with them. Given this hasn’t changed, why is DECC now conceding ground and calling this a loan? Someone else with a poor credit history could move into a house and take on the green deal charge – or debt – without a credit check, rendering the first one pointless. Landlords I have spoken to are of the mind that DECC should have made this argument more robustly to the OFT rather than rolling over and playing it safe.
In my opinion, the government needs to be as bullish about green deal as it is about the need to cut red tape around building standards regulations.
Last week I had something of a rant about the way that sustainability policies are treated in isolation by the government. My irritation was that policies that are bracketed as ‘green’ are only seen in terms of reducing carbon emissions.
Often they are also about reducing people’s fuel bills and tackling fuel poverty as well as creating jobs and boosting the economy. Yet there is often very little recognition among politicians that looming crisis such as the cost of energy are part and parcel of sustainability policy until the government feels forced to react to the latest headlines about soaring bills.
So, with this gripe in mind, it was a joy to break a ‘green’ story this week that shows just how sustainability can cross into other policy areas and have a measurable positive social impact.
Gentoo Group – a landlord that has an impressive track-record of putting its money where its mouth is on all things innovative and green – is attempting a remarkable tie-up with the NHS. In a nut shell, the Sunderland-based association is attempting to persuade its local primary care trust to allow GPs to prescribe boilers to their patients. How about that?
It is monitoring the number of hospital admissions to the South of Tyne PCT that are linked to living in a cold home. These will include ailments common among the elderly, such as respiratory problems and arthritis. Using the data, it hopes to be able to make a case to the PCT about the link between under-heated homes and illness – a case that many probably wouldn’t need too much persuasion on. Assuming the evidence is compelling, it intends to ask the NHS to fund energy efficiency measures in its tenants’ homes, including new boiler systems, to increase warmth and, in turn, reduce hospital admissions. The thinking is that prevention is better than a cure – or, more specifically, cheaper than a cure. The NHS has to save billions of pounds and maybe making homes more energy efficient is a step towards achieving some of those savings.
Clearly, this may not work out. But if it is more cost effective for the NHS to pay for green measures than to accept patients, then the implications are huge. Last week the government announced its green deal cash-back to incentivise take-up of the green deal. The amount being spent on this is actually pretty tiny given the scale of what needs to be done. Why should other departmental budgets not contribute to pushing the take up of the green deal given it could potentially save them a lot of money? Despite the fact that more people die each year of fuel poverty than from road traffic accidents, the arguments don’t seem to be being made.
Has anyone at the Department of Energy and Climate Change done the maths about how much cash the green deal could save the NHS each year? I certainly haven’t the foggiest, but I can’t help but feel that Gentoo is on to something here. They have asked a question no one else bothered to ask because they expected a ‘no’. But they might get a ‘yes’.
Either way, this example neatly illustrates why investment in green measures produces about much more concrete benefits than preventing climate change. It also demonstrates why perceptions that green policies mean applying the brakes on growth are anachronistic.
The man behind the till in the Canary Wharf branch of Runners Need clearly thinks I am an idiot.
Upon placing on the counter two knee supports, a pack of blister plasters, medical tape, extra-padded running socks, and a pile of colourful gels which may or may not prompt an uncontrollable bowel movement, the store manager politely enquired what it was all for. So, I told him.
This weekend I am off to Holland to run the Amsterdam marathon. Only, it is fair to say I am massively unprepared for this gruelling challenge. I have only trained in earnest for two months, and in this time my longest run to date has been 15 miles. If this weren’t enough of a problem, I also have a newly created hole in heel of one of my trainers (it is too late to buy a new pair without causing more problems) and I have collected some fresh cuts on my feet from a surf trip last weekend. Oh, and I have decidedly dodgy knee.
So why am I doing it? Some of you will remember that I was supposed to run the London Marathon for HACT in April. Unfortunately, after a long winter of training, an injury to my aforementioned dodgy knee meant I ended up having to pull out. My run on Sunday is to say thank you and sorry in equal measure to all those people who kindly sponsored me back in April. Your generous sponsorship went to a great cause, but I am more than a bit aware I owe you all some pain. So, here it is; my maxi-masochistic blank check for you to cash in at the pain bank; 26.2 miles on the road to hell.
Hopefully this is not quite as unfeasible as it sounds. Since April, I have been haunted by the memories of watching the London marathon from the sidelines as old ladies and disabled people shrugged aside their catalogue of ailments to hobble the last six miles. Then nearly everyone I met seemed to know someone who smokes 50 a day, drinks like a fish, had never run further than the off licence – but who with ‘no training and a hangover’, managed to get round. Then I heard Jedward managed to run a marathon without training. That pretty much sealed the deal for me.
All in all it was clear that I had to do a marathon, without injuring myself in training. Unfortunately, I am neither a naturally fit sportsman, and nor am I some kind of Eddie Izzard legend. But I am a bit stubborn and more than a bit embarrassed that I let a lot of people down in April. Hopefully that will get me round.
I have adjusted my expectations to meet the reality of my undertaking. Last time I was training with the goal of running the marathon in under four hours (as my fellow HACT runner Gavriel Hollander did). However, I over-trained, over-pronated, and ended up ruining myself. This time round, after spending a small fortune on physio over the summer until I was able to start a limited training programme, I am well aware I will be fortunate to get round. I have therefore scaled back my target considerably. On Sunday I want to a.) complete the marathon, and b.) do so in under 5 hours 30 mins. This could still be rather wishful thinking, though.
The man in Runner’s Need, a veteran runner as it happens, didn’t exactly fill me with confidence about my chances of success this weekend. He offered me a kind smile – the type reserved for the deluded and the dying – and told me that I am in for the worst Sunday of my life.
This is almost certainly the case.
So, to all the organisations and friends that have been so generous in sponsoring me already, thank you so much for your support. I am massively grateful, and extremely sorry for not updating you on my plan earlier. If you haven’t yet sponsored me, there is still time, so I would urge you to do so. http://www.justgiving.com/Nick-Duxbury
As an added incentive, I will tattoo (with a pen) on my face the name of the person or company that sponsors me the most before Sunday. There will be photographic evidence of this on the Inside Housing website next week in way of thanks.
See you on the other side.
If it sounds too good to be true, then it almost surely is complete cobblers rolled out as a populist jerk reaction to the previous weekend’s headlines. That certainly seems to be the rule of thumb for the government’s approach to energy policy at the moment.
On Wednesday David Cameron followed up a weekend of front page headlines about the latest hikes in energy prices by coming down hard and decisively on the energy companies. Campaign groups and housing providers were thrilled to see the prime minister making apparent steps to tackle fuel poverty by legislating to force the big six energy companies to offer customers the lowest possible tariff.
A spokesperson for the PM said: ‘We have asked energy companies to take action themselves and make clear what the lowest available deals are. The point is, in practice this market is not operating for everyone. A small minority of people are actually switching deals, therefore we need to push some of this responsibility on to the energy companies.’
Given that four of the big six have announced above inflation increases in their household bills, this is positive action. So far, so good.
But today the Department of Energy and Climate Change refused to confirm that the PM’s announcement was taking place. After an extraordinary exchange in the House of Commons earlier, no one was any wiser about what is going on.
I am not going to get into the failings of the government in dealing with fuel poverty – that is for another day – but this odd reaction does reveal how political pressure is building around energy prices and forcing the government to react very abruptly.
The green deal and energy company obligation policies are supposed to make some strides towards tackling the spectre of rising energy bills, and reducing the deadly impact of fuel poverty. The reason the government hopes these policies will be successful is that ordinary folk will see their bills soaring and it will make good financial sense to take up the scheme. But the government often seems to forget this. In its mind, green equates to expensive, unnecessary measures – hence there appears to be very little support for the ailing green deal at the time where it couldn’t be more crucial.
The government’s rather short-termist approach to all things green reflects an internal disconnect between the fact these policies are supposed to deal with energy prices as well as reducing carbon emissions. There is no recognition that sustainability and energy bills are two sides of the same coin.
Furthermore it is yet another example of the government’s farcical policy making on the hoof.
It seems that if the prime minister likes an idea – such as forcing energy companies to give the lowest possible energy tariffs – he will happily announce it to the British press in a manner that suggests it is a well-planned and fully-formed policy. If he dislikes an idea, however – even if it makes excellent sense and is a key component of a flagship government policy – such as the ‘consequential improvements’ plan (dubbed by the Daily Mail, the ‘conservatory tax’), then it can be binned on a whim.
In both of these scenarios it appears that number 10 is happy to act without informing the departments that should be dealing with the policies in question.
Regardless of whether it is inventing populist lines or over-ruling and sideling policy, it undermines entire governmental departments and sectors’ faith in them. Wave goodbye to credibility and investor confidence. Embrace instead almost comical breakdowns in communications between senior ministers. Witness bemusement and embarrassment.
We have seen this before on the ridiculous feed-in tariffs saga, where the long-running uncertainty decimated a previously booming market. We have seen it again in relation to the green deal where after six months of denying that there were any delays to the flagship energy efficiency policy, the government ended up denying that it had even launched on its launch date of 1 October. If this wasn’t enough, we have seen constant sniping behind the scenes from George Osborne and other figures in Treasury who appears to view green policy – most recently planning laws on development of green belt land – as little more than tick-box red tape. Once again, it has the effect of undermining confidence at every possible turn. All-in-all, the impression created is that green policy is disposable; something that can be picked up and put down depending on which way the wind blows.
The self-proclaimed ‘greenest government ever’ has been showing its true colours – and doubtless will continue to do so. But at least in this case – assuming there is no watering down or U-turn – it would seem that there might be a positive impact in starting to break the energy company monopoly.
A few months ago, I wrote that I would like to see the green deal revolution televised. Clearly I didn’t expect the launch of the government’s flagship energy efficiency scheme to be televised.
I didn’t even expect it to be advertised on bill boards. However, I did expect, as the bare minimum a press release. This launch was so embarrassingly soft that it was mute. The 1 October arrived, and the Department of Energy and Climate Change’s press office decided that the less written about the much hyped, and recently bruised, green deal the better.
Already, in its first week of existence, it feels like even its architects are treating it like a fart in a lift.
Many landlords appear to be losing interest in the green deal and instead forming a plan b. This plan b appears to heavily reliant on accessing the £1.3 billion Energy Company Obligation and using it, along with other income streams to retrofit their stock in a similar manner to the current CERP and CESP programmes. A few providers – London & Quadrant and Gentoo being the most notable – are on board with the green deal. But, as Inside Housing has reported, there are a lot of landlords that have fundamental objections to getting their tenants to pay a fixed charge for green deal works. In some cases, this is because landlords believe that it is yet another distraction from paying the rent and could lead to an increase in rent arrears. In other cases it is moral stance relating to not-for-profit landlords’ social purpose. In the majority of cases, it is because the green deal appears complicated and not overly applicable to social housing which generally requires hard-to-treat measures. This may prove to be a short sighted approach in time.
Either way, it appears the social housing sector is not enthusing about the green deal yet. But you would at least expect the government to be trumpeting about its potential and its future – especially given a.) it doesn’t cost the government anything and b.) it could boost the ailing economy by creating jobs and a new sector, and c.) it will help Cameron look the electorate in the eye when he next describes the coalition as ‘the greenest government ever’. Nick Clegg cited the green deal as being one of the Lib Dems’ big achievements in government at the Lib Dem conference last week – even if Ed Davey admitted it could take four years to take off.
For me, the big test about the future of the green deal will come next week at the Conservative Party Conference. A glance through the fringe sessions doesn’t fill me with hope. There are some about the green deal, but not nearly as many as you would expect for a live ‘revolutionary’ flagship government policy. If the green deal fails to get a mention in Cameron’s big conference speech (will he use notes?) and there is no big stage for Greg Barker to try and throw his weight behind the policy, it will be hard not to conclude that the government is back peddling away from the green deal, and hoping to pass it off as just another ‘crackers’ Lib Dem invention – just like they did with the so called ‘conservatory tax’.
All this is a shame. True, the finance mechanisms won’t be in place until late January; and there is no interest rate sorted yet; and, as Inside Housing revealed, lenders haven’t got their heads round it yet; and the Green Deal Finance Company hasn’t got state aid sign off yet; oh, and uptake is expected to be slow; and no consumers don’t know what the green deal is; and yes, there are only a few accredited green deal providers. But, despite all these problems, fundamentally, the green deal remains a good idea. Now is the time that the government needs to embrace the green deal and support it rather than distance itself from it.
Tenants wanting to use the government’s green deal to cut fuel bills may find their landlord has other ideas
‘A government accredited green deal provider offering you and your family the opportunity to slash your fuel bills and improve the warmth of your home at no upfront cost.’
‘Great – where do I sign?’
The punchline for all those tenants who do receive such knocks on their doors after 1 October is that they don’t. Most landlords will not grant their tenants consent to have these energy efficiency works carried out on their properties. Despite the government’s flagship energy efficiency programme, the green deal, launching (softly) in just one month’s time, the majority of the UK’s largest landlords do not intend to let their tenants make their own arrangements for carrying out green deal works on their homes.
We know this because this week we carried out a snap shot survey to get a taste for what the big boys were thinking. Only two out of 17 of the largest landlords would be happy for tenants to agree deals with providers which are not part of their own planned green deal programmes. This sounds reasonable, except for the fact that only two of the 17 actually have planned green deal programmes. A total of nine landlords ruled out allowing tenants to commission the work while five said they had not decided.
Our survey also confirms what I wrote last week: that most landlords have not yet formed anything resembling a policy on green deal. There is widespread ignorance and scepticism about what the green deal means for social landlords. Most see it as a potential liability: a financial liability for their tenants who already face financial burdens of rising rents, benefit cuts, the bedroom tax not to mention general pressure from the tanking economy; and a financial liability for landlords too. If tenants fail to make the energy savings predicted, then it is their rental income that could suffer. Who gets paid first? If works cause structural damage to the properties, or reveal the need for unplanned further work what then? Who is responsible for ensuring the measures are looked after? Most significantly is the unanswered question that most lawyers I speak to shy away from discussing in any depth: how will lenders view the green deal? Will they view the green deal charge attached to the properties (or at least the meters) as a contractual liability that could reduce the value of their security in the unlikely event of a loan default? In short, will the green deal contracts with third party providers make properties harder to sell. The indications are that banks may take the view that this is the case. I have written about this before, but landlords are becoming increasingly scared that lenders will use the green deal as an excuse to ratchet up interest rates and tighten loan covenants.
There are a catalogue of complex questions and very few clear answers.
As such, our survey shows only two of the largest landlords, Gentoo and L&Q have decided to become green deal providers. Another five are looking to form partnerships with green deal providers. As and when they do this, it seems only sensible that tenants are told to work with a provider landlords trust to tinker with their assets. However it does raise the interesting prospect of a rival green deal provider making a cheaper offer to a tenant, who afterall is liable for achieving the savings, and tenants being forced to accept works from a more expensive preferred partner provider of their landlord.
There are plenty of landlords such as Affinity Sutton that are still working out whether or not they will become green deal providers, but until they do, they do not want their tenants undertaking piecemeal green deal agreements with rivals – especially when they could probably carry out the works more cheaply themselves.
This means the majority of social tenants will be forced to wait some time before they can have green deal works carried out on their properties.
Now, clearly this snap shot is far from the full picture; there are other smaller landlords such as Alliance Homes looking to become green deal providers. And yes, this is only a ‘soft launch’, and yes, it is unlikely green deal providers will come knocking in any major way for a while. But nonetheless, these are the biggest and most commercially savvy landlords around. If they are not embracing the green deal then there should be alarm bells ringing at DECC HQ. This can’t be the response the government was hoping for from the social housing sector.