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.
The government’s inability to get its domestic renewable heat incentive scheme launched on time has turned out to be good news for social landlords.
The delays to the RHI have prompted the Department for Energy and Climate Change to extend its renewable heat premium payment scheme, including the £6 million element for social landlords that has been announced today.
The funding will come in the form of grant to subsidise the installation of equipment such as solar thermal panels, biomass boilers and heat pumps, and brings the total spent in the sector under RHPP to nearly £20 million.
The bad news is that this could be the last government funding for renewable heat that social landlords get.
Under proposals for the domestic renewable heat incentive published last September, social landlords could be excluded.
RHI will give households that install renewable heating equipment payments based on the amount of energy they generate. The scheme will work in the same way as the feed-in tariff for electricity generated from photovoltaic panels, with the government setting a rate designed to make the cost of the equipment and installation more appealing.
However the consultation paper issued by DECC in September said it was minded to exclude social landlords because they can get better deals on equipment by buying in bulk.
‘The proposed domestic tariff compensates at a rate for individual households, we believe that offering it to social landlords would over-compensate them and, given the scale some can operate at, this could result in significant profits,’ it stated.
While there is some logic to this, it ignores some fairly significant points. Firstly although very large installations of renewable heating equipment could attract bulk discounts, the likelihood is that most landlords will not be in a position to carry out such schemes initially. If the government wants a step change in the use of renewable heat, it will need to support small projects first.
Secondly, this is not just about economics. The purpose of putting in renewable heating should be to save people money on their fuel bills, and many of the people who most need to benefit are in social housing. Social landlords are best placed to make sure the RHI has the maximum social benefit, and the government should recognise this.
Housing providers have embraced renewable heating through the RHPP at a time when few other organisations or households have shown an interest. It would be a great shame if the government cannot be persuaded to allow this to continue when domestic RHI does finally get off the ground.
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.
There has been a flurry of green deal based news in the last week. On the face of it, much of it is good. Indeed, climate change minister Greg Barker tweeted as much when he yesterday tweeted ‘lots of progress on green deal today’. So there – it must be progress, right?
Firstly, the government announced that the green deal would be an ‘early candidate’ inclusion in the government’s UK guarantee scheme which is underwriting the risk on stalled infrastructure projects worth up to £40 billion. This doesn’t equate to actual cash for the green deal, but it is a sensible call from Treasury, and the prospect of government guarantees are a welcome boost. Certainly The Green Deal Finance Company indicated that inclusion in the scheme was very good news.
Of course, it is only an early candidate for these guarantees, and right now would be green deal providers will need the financing to stack up before they are reassured. But the government tried to provide some reassurance on this front too yesterday. The Department of Energy and Climate Change also yesterday agreed to make a £7 million loan to TDGFC so the organisation is able to start providing low cost finance early in 2013.
Again, this would appear to be good news. The TGDFC can crack on with its work after stalling some months back due to a lack of progress from central government. Paul Davies, partner at PWC told Business Green this loan would ‘see it through to Christmas’. He said it meant the organisation could get a credit rating and procure loan administration services. What he didn’t mention was that the organisation was supposed to have secured a credit rating by June. But no matter – progress towards getting cheap(ish) cash for green deal providers is underway again.
However, it does beg the question: what does it mean when the DECC – a department not known for its fondness of writing cheques – makes a loan to TGDFC? To me it does rather smack of desperation to reassure. If you wanted to read between the lines further, you could argue it also suggests that the crucial £300 million the TGDFC has been assured is heading its way from the Green Investment Bank is still some way from coming into fruition. Is this £7 million loan a plaster over a gaping wound? The GIB is reliant on receiving State Aid sign off. This can take a very long time – up to 18 months – and although for some time now DECC has been adamant that this laborious EU process is on-track, it is hard not to feel that there might be some delays in the pipeline. Fingers crossed not.
Uncertainty around financing is one of the biggest problems right now. It is having a palpable effect on investor confidence and appetite for risk. Just look at the Birmingham Energy Savers procurement framework where a bidder dropped out leaving just two still in the running. Speaking to Dave Allport this week, it was clear that he put this down to a general sense of uncertainty around the sector about the green deal. All eyes will then be Newcastle’s £200 million procurement framework which had its bids in last Friday to see how private sector investors have received the news that the green deal could be backed by government guarantees.
It is funny watching a craze take off. A few years ago, Passivhaus was a German build standard with a small, dedicated cult-following in the UK. Its fabric-first, ultra insulated approach was simple and attractive enough, but it was fiendishly difficult to deliver – in part because so few people were qualified to translate the complicated conversations about u-values and membranes into a viable scheme.
Today, Passivhaus seems to be increasingly normalised into the social housing sector’s consciousness as a viable and legitimate ambition for the future. Its disciples are no longer just a core group of enthusiastic architects and housing nerds focussed on new-build properties. Now housing bosses are getting on board too - and they are seeing its value, not just in developing new homes, but also in retrofitting their existing stock on a growing scale.
As we reveal this week, Manchester-based Eastland Homes has taken the decision to retrofit 32 maisonettes to Passivhaus standard. There have been plenty of expensive retrofit pilot schemes which have adopted the Passivhaus approach – most of these being funded by the Technology Strategy Board, and therefore costing up to £150,000. However, this is the UK’s first large-scale Passivhaus retrofit. And the cost is likely to be closer to £40,000 a property. This is in part because the process will involve adding one new skin rather like when large tower blocks are retrofitted, rather than having to tackle each property individually. Nonetheless, it is a huge challenge making 32 leaky old apartment blocks airtight and efficient enough to meet the Passivhaus standards – especially as it plans to carry out all the works with the tenants still living in the properties. It is also an expensive challenge.
Eastland Homes, an 8,000-home stock transfer organisation, is carrying out the retrofits as part of its plans to refurbish the maisonettes as part of its £180 million decent homes programme. It has effectively lifted the bar for decent homes – which usually costs around £10,000 a property – much higher than anyone had previously considered. Indeed, the scheme will hopefully meet the government’s 2050 targets of cutting carbon emissions by 80 per cent based on 1990 levels. The works should slash tenants’ emissions by 80 per cent, but also hack back their bills from £1,540 a year to just £270 a year. That is pretty a pretty compelling motivation for housing bosses who know have hundreds of tenants in fuel poverty – and rising fuel bills are yet another strain on tenants’ ability to pay their rent.
Phil Summers, director at developer R-gem, which is overseeing the work on behalf of Eastland says that he has other housing association clients that are also undertaking larger scale Passivhaus retrofits on their stock too.
On the new-build front, the Passivhaus is gaining serious momentum. As we revealed in March, Norwich-based housing association Broadland plans to build the UK’s largest new-build Passivhaus scheme. The 4,500-home landlord is looking to develop a 208 homes without government grant. It believes that although the costs of building to Passivhaus is £1,500 per square meter compared with £1,350 for code for sustainable homes level four home, the difference can be recouped over 30 years through savings in management costs, as well as the benefit of tenants being more easily able to pay their rent.
This approach has already been taken by Hastoe Housing Association which this week won an award from the Passivhaus Trust for its 14-home Passivhaus scheme in Wimbish, Essex, and is currently building a further 14 in Norfolk.
Other landlords are seeing Passivhaus as a potential money maker. Only this week Octavia Living, the development arm of Octavia Housing Association, which carried out the UK’s first certified Passivhaus retrofit a Victorian property in London’s Holland Park last year, announced it was launching London’s ‘first mixed tenure development to use a Passivhaus approach’. Its use of Passivhaus in an open market development (which even brands itself around the approach – ‘Greenhauses’) suggests it sees a niche for housing associations to build to the standard on a greater scale that will have commercial value. Octavia’s Grahame Hindes certainly sells the ‘green living’ merits of the scheme as being highly aspirational. His quote in the press release reads: ‘With sustainable living previously seen as a luxury reserved only for those who can afford it, Octavia Living is breaking new ground in London by using the Passivhaus approach in a mixed tenure development. We want to ensure that the environmental, financial and well-being benefits offered by the Passivhaus approach, are available not only to those on high incomes.’
For many the Passivhaus approach is still not cost-effective enough to adopt. But that doesn’t mean that they won’t change their minds over the next year or so. A few months back my colleague Jess McCabe interviewed the father of Passivhaus, Dr Wolfgang Feist. If you haven’t read the piece yet, make sure you do. It is his revolution, afterall.
This blog post is about sustainability - but in a much bigger sense than I normally write about.
This week we reveal the plans of Black Country Housing’s respected green expert Richard Baines to tear up the rule book on how to build homes in the UK. His idea is simple, but also radical. Starting with a premise that social landlords may no longer be able to receive government grant from the Homes and Communities Agency to develop with, Mr Baines is looking to challenge some very fundamental assumptions about how homes should be built.
The question he is posing is this: if the government is not funding the homes being built, why should developers build to the prescribed standards that they would otherwise have to meet to be eligible for grant? If they don’t then there is a rare opportunity to look at homes and start from scratch – only build exactly what is necessary and, in doing so, keep costs down to a bare minimum. This means sacrificing standards and comfort in order to allow landlords to build more homes and charge lower rents.
Mr Baines reasoning is, you are unlikely to build enough homes to meet housing need, but you can at least make sure that those you do build are the right type of homes to adapt to housing need.
With this in mind, he has decided that the house of the future needs a long-life ultra-energy efficient shell that would be fire-proof, noise proof and meet level five or six in the Code for Sustainable Homes. In contrast, Mr Baines wants a massively flexible interior. One that could be changed quickly and easily so that a house could become flats and vice versa, a decent homes programme upgrade could be carried out in the space of a day, and if the exterior cladding of the house was looking tired or tastes had changed, they could be simply replaced. This means flexible partitions so that the number of rooms and lay out of the house could be switched without difficulty in order to adapt to local housing need as it changes.
Key to his plans is the use of pre-fabricated interiors, such as kitchens, that could be easily detached, and replaced. No need for electricians etc. Indeed, this would also allow tenants to install amenities as and when they can afford to pay extra for them.
The aim is to try to build homes for £40,000 (not including land). By anyone’s standards that is cheap – £20,000 less than the government’s £60,000 home competition from years back. Mr Baines’ low-cost ambitions are based on stripping the house of many things that are taken for granted such as a bathroom and downstairs toilet, not to mention a bath itself. More than shrugging off Housing Quality Indicator standards, this approach is also sacrificing sacred cows for social landlords such as space standards.
Ultimately this plan is a case of dropping quality in favour of reducing cost – a move that many will balk at, and one that the affordable housing sector has long criticised the private house building sector for. Interestingly, this idea was well received by housing minister Grant Shapps when Mr Baines pitched it to him a year ago. However, less surprisingly, it was not embraced by the HCA. Mr Baines is the first to admit this is a pragmatic, rather than ideal, approach to house building. But with housing need getting ever worse, flexibility of low cost housing could be an essential weapon in landlords’ arsenal in a zero, or vastly reduced, grant era.
Questions about how important these standards are to enabling tenants to enjoy a decent quality of life must, therefore, be asked. Black Country Housing is working with Wolverhampton Council to find a site with existing infrastructure where he can pilot this new breed of house. Until the two organisations have tested the idea it will be difficult to get answers.
However, in the mean time, it poses a useful challenge to the housing sector to ask what difficult compromises it is prepared to make in order to meet housing need.
Since October social landlords have been baying for some certainty around the future of the feed-in tariff so that they can firm up their solar plans. Last week the government took the biggest step it has taken to date towards providing that certainty.
Last Thursday climate change minister Greg Barker announced that the FIT will be cut from 21p/kWh to 16.8p/kWh on 1 August. This has given landlords a welcome extra month to install PV before the next cut. Most importantly, the FIT will decline by an average of 3.5 per cent every three months – although, sensibly, there will be no cut if less than 200MW is installed. This is exactly the kind of response that will give investors some comfort and, frankly, something the government should have come up with six months ago.
Significantly for landlords Mr Barker has said that multiple PV installations will be able to claim 90 per cent rather than 80 per cent of the FIT. This is clearly good news for social housing schemes. However, the sector is still hanging on for the response to a second parallel consultation about introducing a community tariff that would recognise the benefits to tenants and communities in terms of tackling fuel poverty etc, that would allow landlords to claim 100 per cent of the FIT. It is difficult to know whether the change in heart on multiple housing schemes is ominous, though. Will it mean that the government feels more able to back-track on its plans for a community tariff if it has given some ground on multiple PV schemes?
Fingers crossed not. As Pippa Read, policy leader at the National Housing Federation this week argues: ‘While the new regulations do provide more certainty, they still do not recognise the social housing business model, where the electricity goes free to the tenant to help cut fuel bills and reduce fuel poverty. A higher tariff is therefore needed if some of the poorest in society are going to benefit at any scale from a scheme that they assist in paying for through their bills. We hope to see this reflected in the government’s proposed community tariff later in the year.’
While, the housing sector has cautiously welcomed Mr Barker’s reforms, the solar sector is characteristically unimpressed by the government’s slashing of its solar ambitions from 22GW by 2020 to installing 11.9GW. There have also been some grumbles about the reduction in the length of the FIT from 25 years to 20 years. At the heart of the matter is the improved investor certainty, though.
DECC reckons that the new FIT should offer investors a return of around 6 per cent. Not anywhere near the previous 10 per cent, but still not too shabby. Interestingly solar developers seem to think this should be sufficient to revive some of their ‘free PV’ offers.
As we report this week, Empower Community, which before November last year had deals with eight social landlords to install PV on 22,000 roofs, has agreed a deal with York Council to install on 700 homes before 1 August. Empower were hit hard by the earlier than expected cut to the FIT and ended up losing £175 million of institutional backing from Aviva Investors as a result of the saga. Now they are back with a new institutional investor and, albeit with slimmed down returns, have been able to make their ‘free PV’ model work. Under their offer, Empower share the profits from the tariff with the investor and the landlord through a community fund. The company says it is still in talks with the remaining seven landlords that put schemes on hold amid the uncertainty last year.
The real test is whether the company can continue to extend this offer to social landlords for free (and with a return for landlords) after 1 August when the FIT is cut. Alex Grayson, managing partner at Community Empower, is relatively confident that this is going to be doable. As he tells Inside Housing this week, the company is now in talks with a new institutional investor at 16p/kWh and with under the new FITs regime, ‘prima facie it looks like we are still in business’.
‘It won’t be as lucrative as it was going to be, but for most landlords it should still be worthwhile,’ he says.
Mr Grayson also suggests that investors have also reduced their expectations around returns from PV schemes as it has become less of a ‘novelty’ asset class and there is more experience around the solar and housing sector.
However, he warns that schemes further north than York could become a thing of the past due to the slimmed margins. Mr Grayson says there is a 16 per cent difference in the amount of sunshine between the north and the south. Given that fuel poverty is often more of a problem in the north than the south, this is a sad outcome.
Today climate change minister Greg Barker tweeted: ‘Terrific meeting with PM & DPM on #GreenDeal at No10. Strong support but lots more to do before launch in autumn, so full steam ahead!’
For me, this prompted the question: is the green deal in crisis? It hardly lacks problems, but do they present a collective crisis to the extent that the policy is really on the ropes? Against all the weight of headline-based evidence, and charged by blind optimism, I am going discard my usual journalistic scepticism, roll the dice and say no.
Looking at the media coverage, it is clear that the problem that has received the most attention in the past week is one that I have not covered in enormous depth in the pages of Inside Housing: the potential collapse of the loft and cavity wall insulation industry during the transition from CERT and CESP subsidies to the £1.3 billion ECO fund in January. Much of the headlines around green deal crisis have stemmed from the insulation lobby. This is absolutely understandable as, from their perspective, the green deal spells crisis – DECC’s own impact assessment predicts a 93 per cent fall in installation of loft insulation and a 70 per cent fall for cavity wall insulation. However, it does not constitute a life and death problem for the green deal.
A report today in Building magazine suggests that the government is considering extending CERT and CESP to smooth over the interim period. Although this would make an enormous amount of sense for a lot of people, it would also be problematic. Right now some energy companies are on track to meet their CERT and CESP targets while others are looking like they will miss them. It would clearly be unfair to let some firms off – especially when they had been threatened with fines of up to 10 per cent of their global turnover. Indeed, you can bet the family silver that were CERT and CESP targets to be extended, some of the big six giants would be on the blower to their lawyers pretty sharpish and the government would, in turn find itself in some very hot water.
The option Building reports is being mooted is an interim measure that could ‘smooth over’ the transition from CERT and CESP to the £1.3billion ECO in January. In short, this would be a CERT and CESP mark two – an extension or a bridging subsidy that would carry the sector over.
This would be equally unpopular with the big six. Energy companies are still lobbying for the current targets to be relaxed or dropped and ECO to be reduced in size – the chances are they would balk at the prospect of having to pay for a second target. In any case, they would simply pass on the costs to consumers through bills – a move that the government would oppose. As one source told me, ‘it is being discussed, but I haven’t seen any documents to suggest it is going to happen, though.’
It is true that interim measures are being considered. But it is far from certain that this is the route the government will go down. The problem facing the DECC is that for every action, there is a reaction. The more that energy company obligation costs people’s energy bills, the worse the regressive impact on fuel poverty. This might not be such a priority for the insulation sector, but it will be at the top of the list of concerns for the government which right now is realising that ‘green taxes’ on energy bills are not vote winners (see the ridiculous saga around ‘conservatory tax’ for evidence of how fickle it can be on this front). Indeed, the BBC’s green deal crisis story is much more closely bound to the fact that green deal will fail to tackle fuel poverty than it is to its failure continue subsidising the insulation sector sufficiently. The fundamental problem is that retrofitting homes to cut carbon does not necessarily mean reducing fuel poverty. This has long been flagged up by the Hills Report which was commissioned by the government. It strikes me the only change is that number 10 is now engaging with the sector with these concerns ahead of publishing secondary legislation next month.
There are plenty of other concerns that have barely received any page space that are all potential deal breakers: the absence of any State Aid sign off from the European Commission (which was only presented to the EC a month back and can take up to 18 months) for either the Green Investment Bank, the Green Deal Finance Company, or even some of the huge council tenders for green deal programmes, for instance.
All this said, I think that casting the scheme as being in a state of crisis is something of an exaggeration – perhaps an element of spin from industry bodies with vested interests is creeping in here. At the end of the day, the green deal is the government’s flagship energy efficiency scheme. While concerns will be taken seriously ahead of the introduction of secondary legislation, the idea that the PM is on the verge of binning the scheme lacks credibility. If anything, the sector should be pleased that number 10 is listening to industry fears rather than interpreting this as a green deal Armageddon. There are some massive hurdles still to overcome, but I am marginally enthused that the government appears to be making an effort to do something to overcome them.
What is still most disconcerting is the persistent grumbling from senior Tory ministers about some of the most fundamental aspects of the policy. It undermines a lot of the work DECC are putting into creating some sense of momentum for the policy.
So, it’s great to hear that the PM and his deputy have nothing but ‘strong support’ for their flagship retrofit programme – now let’s hear some similar sentiments from the PM himself who so far has been too quiet by far on the subject of green deal. Although, if he were to lend his voice it would doubtless be considered proof that the green deal really is in crisis.
How many green deal groups does it take to change an energy saving light bulb? There is no glib punchline to deliver on this (that I am aware of). But I feel like maybe someone has told a joke along these lines within the walls of DECC HQ at some point in the last year or so.
To date, within each sector, there have been several groups of organisations trying to make sense of the green deal for their respective industries. Many of these have been made up of existing membership bodies and lobby groups – all with their own agendas. Within these groups there have then been splinter groups and sub-groups.
This was inevitable and, to a large extent, positive (it reflected interest in the green deal). However, civil servants doing the rounds, spieling the same spiel, and answering the same questions must have laughed at the enormous overlap between the groups.
Then came the UK Green Building Council and Green Deal Finance Company’s efforts to unite cross-sector organisations in two heavyweight groups. This made sense. But finally, as Inside Housing revealed last week, there is now a new super group in town – a hybrid of both.
Enter the aptly titled Green Deal Providers Group. Members of this organisation are players hoping to make the scheme work – socially and financially. In the larger associates group there are some of the big boys the government have long touted as being the deliverers of green deal (M&S and Tesco etc) that are interested, but are not yet sold on its viability of its business case. And then within this are an especially committed selection of would-be green deal providers including energy companies, contractors and social landlords Gentoo Group and Affinity Sutton. These companies have each put £5,000 on the table to pay for project management costs over the next 10 weeks as they try to iron out the many creases that remain in the government’s flagship energy efficiency policy. Unlike previous groups, this one has the ear of DECC and is working with the Green Deal Finance Company and other associated parties so that the problems they work through have a constant sounding board to hand – one that can influence the final policy landscape accordingly with the top players all at the same table.
Ironically, on the same day that we revealed this group had been formed there was also another one. The Energy Efficiency Partnership for Buildings, was also launched. It is effectively a relaunch of the Energy Efficiency Partnership for Homes, run by charitable organisation the National Energy Foundation and features several of the same members as the Green Deal Providers’ Group. The overlap is clear, but this group will also form a different function. This one will link various parts of the green deal supply chain – from finance through to installers – in one network body. While the Green Deal Providers Group is intended to be a short term means of organisations helping DECC shape the final policy landscape before it launches, the EEPfB is a much more long-term proposition to help the industry hit the ground running.
It strikes me as excellent news that both groups have been formed. For the green deal to work, it needs to work for every party involved – all of whom are going to have to get used to building a working relationship rather than in sectoral silos. There needs to be detailed discussion that steers clear of hazy concepts and focusses instead on hard numbers and viability.
That said, there is still a place for individual sectors to have their own green deal groups too. As we reported last Friday, social landlords are also taking the bull by the horns and trying to work out how they can make the green deal work specifically for them. A group of landlords of varying size and location have come together to crunch numbers and turn the ‘theoretical into the practical’. They are finally working out what a social housing green deal provider would look like so that they will be in a position to start bidding for frameworks that are emerging from local authorities such as Newcastle, Nottingham and Manchester. Places for People, Gentoo Group, Southern Housing, Black Country Housing and Accord are all very different organisations. Each one will have different tenant needs and different housing stock – not to mention different financial muscle. By sharing their concerns and problems and working out solutions with practical cost impacts they hope to form at least three separate costed green deal provider models. Once again, they have a DECC representative sitting in – something that three months ago would have been a struggle to achieve.
While many are worrying about how the government will apply any stick to herding private sector households towards the green deal after the Prime Minister kicked consequential improvements into the long grass last month, these groups are thinking long-term and helping the government generate some answers. The likes of UKGBC and ACE are using the ‘conservatory tax’ saga to push harder than ever for VAT cuts for green deal measures. This is a message that the new industry bodies are especially well positioned to pile drive home with one clear and powerful voice.
This one issue, more than the many others out there, might answer the question of how many green deal groups it takes to influence change.
For all the attention focused on the green deal, it is easy to forget there is already millions of pounds of retrofit funding waiting in the wings. In fact, one particular £350 million pile is burning an increasingly fearful hole in energy companies’ pockets.
Right now energy companies are struggling to offload their community energy saving programme cash before December. If they fail to spend it all on retrofitting 90,000 of the most vulnerable homes then they will face fines that could be as much as 10 per cent of their global turnovers. This is a multi-billion pound hit that the big six desperately want to avoid.
Of course, it is extremely unlikely that fines would ever reach that level because the government knows that there is a reasonable chance that energy companies would end up passing the cost of penalties back to their customers, thus worsening fuel poverty. And this is probably the main reason that climate change Greg Barker has agreed to intervene. As we revealed last week, the minister is hosting meetings between energy giants and council bosses in order to marry their interests and ultimately broker CESP deals and get the cash out the door before December.
The race against the clock means that right now there are some incredible deals out there for landlords that are willing to work quickly.
To quantify this, one landlord told me yesterday that six months ago energy companies were offering to pay landlords £15 a ton for carbon savings. Now ‘you don’t have to shop around’ to get energy companies offering £48 a ton. Energy companies have gone from demanding landlords match fund CESP to the tune of 80 per cent, to now offering 100 per cent funding in the space of six months. You would probably expect me to be excited about the prospect of social housing retrofit schemes that have been gathering dust for the past two years are coming off the shelf. And I am. It’s a great opportunity for the fleet of foot to take advantage of these offers.
But, how can this approach be the right one? At the end of the day it is bill payers – i.e. nearly everyone in the country – who is getting a raw deal as a result of energy companies’ lethargic and somewhat greedy approach to meeting their supplier’s obligation to date. Schemes that get the green light now will be far smaller and less ambitious – not to mention riskier – than they would have been two years ago when energy companies were dragging their heels in an effort to off-load their delivery costs. This bodes especially badly for the newly unveiled £190 million pot of fuel poverty funding that was allocated from the £1.3 billion ECO fund last month. Like CESP, this pot is to work on an area wide basis targeting the poorest 10 per cent of households. Lessons have to be learned and learned well.
I have made a big fuss in the past about landlords having equal access to ECO and not being excluded from any aspect of it, on the basis that social tenants pay for it through their fuel bills. The same logic would suggest that only social tenants have benefited from CESP to date, and some will have got much better deals than others. Energy UK, the body that represents energy companies, says that its members have struggled to meet the ‘ambitious’ targets because it has proven especially difficult to identify the Super Priority group of households that are eligible for CESP. This largely explains why social landlords have received most of the subsidy: they know who is eligible, and can spend it at scale getting energy companies more bang for their buck.
This is understandable to some extent, but it doesn’t help the perception around Whitehall that social landlords gobble up a disproportionate amount of subsidy compared to the private rented sector so don’t need as much ECO in the green deal. Apart from the fact that this doesn’t take into account just how much of their own cash social landlords have already ploughed into these schemes, it sets a very bad precedent for the administration of ECO.
In this week’s news analysis we examine exactly what lessons need to be learned from the shortcomings of CESP to make sure they are not repeated for ECO – making it simpler and easier to access being just two.
However, this piece doesn’t attempt to answer a question that is popping up increasingly at conferences and in the national press: are energy companies going to hit their December targets? The answer is that some certainly will. Others are far from certain. Whispers around the energy sector suggest that two of the big six definitely will. Despite their complaining and lobbying for the ‘unrealistic’ CERT and CESP targets to be relaxed, there is also thought to be behind the scenes pressure from individual companies that are on-track to hit their targets to make sure that their peers are not let off the penalties if they fail to.
Of course, the much bigger and far more concerning question people should be asking is: if you can’t give energy efficiency measures away for free now, how are you going to get people to pay for it through their energy bills with the green deal? Somehow, the plain-Jane, wholly unglamorous prospect of insulation has to be made aspirational and attractive to consumers. Like double glazing – only sexier. Energy companies are more than just failing to give it away; they can’t give it away with free cash too. Some are handing out cheques for £100 to customers that sign up to CESP. This is a move that betrays just how desperate some energy companies and ultimately devalues insulation as a product. And at the moment, it isn’t really working.
From the extraordinary manner in which the government has aborted its plans for consequential improvements as part of the changes to building regulations, one could be forgiven for assuming the proposals were toxic to the electorate.
Following a series of negative Daily Mail front pages, the Tories, still smarting from the ‘pasty tax’ and ‘granny tax’, have back-tracked as far away as possible from the whiff of the next PR-tax disaster: a ‘conservatory tax’. The line spun from Downing Street is that consequential improvements was a ‘bonkers’ Lib Dem idea that somehow slipped through the net – but don’t worry, David Cameron himself is intervening to make sure there is to be no cap on aspiration.
As we reveal this week, Lib Dems are seething at the way they have been scapegoated in all this. They are especially irritated that housing minister Grant Shapps and communities secretary Eric Pickles, who both supported the policy only two months ago when it was introduced by Lib Dem communities minister Andrew Stunell, have now u-turned and briefed against it. Despite being a coalition, the Tories have failed to consult the Lib Dems on the decision to drop the proposals even before the consultation process is over.
It was always known that consequential improvements were not an easy sell, and the housing sector applauded the coalition for being brave enough to push on ahead where the previous government had failed twice. Presumably some Tory policy bods did their homework on this and reported to senior Tories the policy is plain unpalatable to Joe Public – especially at a time when even good stories have a habit of turning bad.
Well, what would be your reaction if I were to tell you that they were wrong? That contrary to being toxic to voters, the majority of the public actually support of the introduction of the so-called ‘conservatory tax’?
It’s true - they do. According to a You Gov poll of 1,650 adults across Britain, weighted across the regions and political parties, carried out on the 12th and 13th April, 51 per cent are in favour of the changes to Building Regulations. A minority of 33 per cent oppose the idea, while 16 per cent don’t know. The results are buried on page six of a regular public opinion poll carried out with The Sunday Times and probably haven’t been found because they don’t use the words ‘conservatory tax’ or ‘consequential improvements’.
For the sake of transparency, this is what the poll asked: ‘Changes have been proposed to building regulations to make houses more environmentally friendly. It has been suggested that if people want to improve their house, such as by building an extension, adding a conservatory or fitting a new boiler, they should also have to make their house more energy efficient, such as by adding loft or wall insulation. Would you support or oppose these new requirements?’
Now, that is a pretty straight forward question which received a pretty straight forward response: overwhelming support. Had the same poll added that the process of making homes more energy efficient could be done at no upfront cost through the green deal, I suspect the result would be more compelling still.
Of course, had the poll asked whether people supported a ‘green stealth tax that will cost homeowners hundreds of pounds on top of the thousands they will spend on vital extensions’ then I am sure the response would have been very different. But that is the point – the reality of what the government was proposing has been lost in hysterical rhetoric.
On the face of it, as Grand Designs presenter Kevin McCloud said this week, the proposals are as sensible as sensible can get. ‘First, under proposals, conservatories below 30 square metres in size are exempt. Second, common sense prevails in that if projected energy savings fall below the cost of improvements, the homeowner can legitimately refuse to carry them out. Third, the improvements will be eligible for generous green deal funding. The green deal saves you money. If that makes it a tax, let’s have more of them.’
I am not going to go into any particular depth about the merits of the policy – this is partly because for most social landlords the details are not wholly relevant and secondly because it appears that merit is fairly irrelevant, anyway. Politics can confound logic from time to time in the mad chase for votes. But when sensible policies are abandoned on the back of misleading press coverage, and it turns out that most people would vote for that policy anyway then serious questions have to be asked.
So what is the impact of all this? I would echo the words of Paul King, chief executive of the UK Green Building Council who described consequential improvements as ‘the best tool in the box for driving forward the green deal’.
This should be considered carefully. It was a useful tool for driving demand for the green deal, but it is in no way the same thing as the green deal, and, though useful, is not going to make or break the scheme.
The real damage here is to the reputation of the green deal. The already fragile new brand has had a rough time of it.
As if it hadn’t received enough negative press of late, the widespread confusion between a ‘conservatory tax’ and the green deal has only made things worse. As we reported, Mr Shapps responded to an Inside Housing query to dismiss reports in the Sunday Telegraph, since echoed in the New Statesman, that he, Mr Pickles, employment minister Chris Grayling and chancellor George Osborne want to see the entire green deal scrapped. But these ministers, who should be following the example of deputy prime minister Nick Clegg in singing the praises of the scheme to the national press, were hardly quick out the blocks to rubbish the stories.
The green deal has been tarnished with the consequential improvements brush. It is now up to the government spin machine to ensure that the green deal is clearly differentiated from the ‘conservatory tax’ in the public eye. Mr Cameron must also throw his political weight behind supporting the green deal with the vigour of a man with a lot to lose.
There have been lots of headlines about delays to the green deal in the past few weeks.
I have not been one of the journos producing them, because from a housing perspective the immediate impact of delays is more limited.
It has been clear for some time that there was little chance of the green deal being up and running in time for October. The sector has pretty much come to terms with this.
DECC is not going to come back with a response to the green deal consultation until at least May - and given most organisations are laying out their business plans for the new financial year now, how many can possibly have planned for green deal launches in October?
An unofficial delay until March next year will not make a huge difference for many organisations who will hang back until the green deal is proven to actually work and all the details have been spelled out.
As Paul King, chief executive of the UK Green Building Council told delegates at Ecobuild this week, many would actually rather the government hung back and got the green deal right than race towards a self-imposed deadline for launch.
While it is certainly interesting that the pre-payment meters are not going to be ready in time for October (hat-tip to Building magazine on breaking this) this is one of a catalogue of issues that are concerning would-be green deal providers, and, in all likelihood, will not be resolved by October either.
What has made the story much more interesting, though, is the government’s reaction. The lady doth protest too much.
The message is that nothing has changed, there is no delay and the green deal will launch in October. This is simply not plausible given the context I have just outlined above.
Delays were inevitable and to some extent forgivable. While we need to tackle the UK housing stock as quickly as possible, a few months either way will not have a startling difference - especially if demand isn’t there anyway.
But now the government is laying its credibility on the line by insisting that on the one hand all is fine to begin in October, but on the other it doesn’t need to be, and was never likely to really get going until March 2013. The message is: ‘we are in control (hence there is no delay), but we never wanted a ‘big bang’ in October, but always wanted a careful staggered launch.’
As such, now the significance of the pre-payment story is less the actual impact on the green deal, and more revealing about the politics behind it. It builds on a growing green narrative of uncertainty which has finally been exploited by Labour. Caroline Flint has proved an annoying thorn in the government’s side over the feed-in tariff fiasco where she argued that the government had shattered investor confidence, and now her number two, Luciana Berger is proving equally feisty on the same theme for the green deal.
She has been the source of many of the delay stories and continues to forage for piecemeal scraps of uncertainty within the sector which she then assembles to create a damaging collage depicting coalition mis-management. Her sniping has not gone unnoticed by climate change minister Greg Barker who is clearly riled. On Twitter he has twice accused Ms Berger of ‘talking down’ the green deal and scare-mongering. But there is a growing sense that the Labour rhetoric is starting to tap into an underlying unease across the market.
This could explain the news from Mr Barker who this week announced plans to lower the requirements for organisations that want to become providers - two months ahead of the government’s formal response to the consultation.
It looked a lot like a timely feeding of the market with some good news from a government that is in control and in-touch.
He told delegates at Ecobuild that green deal providers will no longer be required to have insurance against insolvency, or set up an independent conciliation service. Instead a green deal ombudsman will be set up to handle complaints.
Furthermore, he scrapped requirements for lifetime warranties on green deal measures. In a populist flourish, he reflected that ‘it is essential to strike a balance between adequate consumer protection and not creating cost prohibitive barriers to market entry.’ Well quite. And many social landlords considering becoming green deal providers will welcome this slashing of the cost burden of red tape.
Instead of delays, I have been focussing on the findings of the Hills review. Many papers launched on the obvious points: the government will fail to meet its statutory obligation to eliminate the problem by 2016 when it will reach 8.5 million people.
This is shocking and deserves plenty of interrogation.
However, what has caught my eye is what Professor Hills has said about ECO and green deal. Buried in the depths of the document, he warns that the impact these green policies have on vulnerable households could be ‘too high a price to pay for reducing emissions’.
The people he refers to the poorest and most vulnerable – many of whom are in social housing. Under current proposals (as I have written to death) social landlords will be excluded from affordable warmth funding, meaning that despite paying for the subsidy through their fuel bills, social tenants won’t be able to benefit – instead their bills will go up as a result of the levy.
Speaking to me on Tuesday, Professor Hills would not be drawn on commenting on whether he thought this was regressive and unfair or acceptable given a higher average SAP rating in social homes. But he was clear that the success of the decent homes programme shouldn’t mask the scale of the challenge remaining in tackling fuel poverty in social housing where he found there are nearly 600,000 fuel poor households in England alone. To achieve this he conceded that funding of some description would be required.
More generally, his report also states: ‘On balance, a successful green deal programme, accompanied by an ECO that spends a relatively small amount of its total available for funding on the fuel poor, would be expected to increase fuel poverty under our proposed measurement framework.’
This is a massive finding. The government’s flagship energy efficiency policy and fuel poverty funding will not tackle the problem, and in some cases will make it worse.
Under current proposals, only 25 per cent of the £1.3 billion ECO subsidy will be ring-fenced to tackle fuel poverty. The report said this was ‘regressive’ and suggests it should be increased to 50 per cent.
To my mind, with problems as fundamental as this still to be addressed, technical barriers to implementing green deal in October are something of a blessing in disguise.
So Edinburgh has won ownership of the Green Investment Bank.
My initial reaction to this news when it broke on Twitter was irritation. In my head all I could already see were the quotes from council leaders about the ‘huge vote of confidence for Edinburgh’s future as a financial centre’, and then, simultaneously, a room full of pension fund managers in the City throwing their heads in their hands.
The reason is simple: the £3 billion GIB is too important to turn into a political prize to be won by other regional cities. Too many projects rely on its success. Social landlords should care because the green deal relies on finance from the GIB.
Specifically, the Green Deal Finance Company is heavily relying on a chunky loan from the GIB without which the green deal very well won’t work. For big news on this, keep your eyes peeled on our website or your free issue of Sustainable Housing magazine tomorrow.
If the GIB is to be a credible investment bank and not just a glorified fund, then it is essential that it is based in London, in the City – ‘the leading global financial centre’ (if Vince Cable is to be believed) – alongside all the other major lenders, investors, brokers and other viable financial institutions.
The idea of sending the GIB to Leeds, or Coventry or Bristol or any of the 31 applicant cities that weren’t London made no sense to me. Surely any other investment bank wouldn’t even consider basing itself outside of the City.
And since when was the GIB anything to do with building the economies of cities? It is about financing a green UK-wide economy. Anything that detracts from this goal – be it a nine hour train journey or simply a denting of its global credibility – is surely illustrative of how casual a commitment the government has made to the bank?
An hour later, back in the office, I read the full story.
What a relief. It turns out that, yes, the GIB will be headquartered in Edinburgh. Technically. But it will conduct transactions from London. The London office will host a transaction team and project financing team – i.e. the really important stuff surrounding actual loans. So we are left with the best of both worlds, then – or a pointless political compromise.
A written statement from the Department for Business, Innovation and Skills Parliamentary Secretary Baroness Wilcox seemed to concede that it would be little short of lunacy not to have a GIB presence in London.
‘To be effective in originating transactions and participating fully alongside other commercial investors, it is clear to me that the GIB’s major transaction team must be located, at least initially, in London, though capacity may be developed over time in Edinburgh,’ she said.
‘In coming to this decision, I have concluded that the challenge of recruiting teams of project financiers of the necessary skill and experience outside London would represent a significant risk to the successful operation of the GIB in its early stages.’
This was clear from the start. So why go through the whole charade of launching a competition to win the bank?
Doubtless local authority leaders and councillors in cities across the UK will tell me that their bid was excellent and that it represents yet another snubbing of their region in favour of London (again). But in my view, they are completely missing the point of the bank.
All that said, the location of the bank will only have so much of an impact whether it can become ‘a global leader’ as Vince Cable this morning claimed it would. It is important insofar as it sends out a message of intent – but beyond that, it is up to the government to ensure that it is resourced to make an impact.
As Friends of The Earth’s economics campaigner David Powell eloquently states: ‘Choosing the HQ for the Green Investment Bank has been like arguing about where to put the cherry on a half-baked cake. This is great news for Edinburgh, but George Osborne’s inadequate support means it will start life as a lame duck.’
It’s funny how rhetoric changes. As recently as January, writing for the Guardian, climate change minister Greg Barker was preaching that ‘we are on the brink of a revolution’. He was writing, of course, about the green deal - ‘a game changing scheme’ that would be ‘the biggest home energy improvement programme of modern times’.
Previously he has termed it: ‘the biggest home improvement programme since the Second World War’, and former environment secretary Chris Huhne has gone so far as to compare the green deal to the industrial revolution.
Speaking at the British Property Federation residential conference yesterday, it was notable how Mr Barker’s rhetoric has changed in just a few months. For some time now, everyone close to green deal has been warning that the start date of October is far too optimistic. The Department of Energy and Climate Change is nowhere near ready and investors, green deal providers and consumers are not going to be in a position to throw themselves into creating a giant private sector market.
Mr Barker’s speech yesterday was the first concession that the government is not on track to deliver green deal in October as originally planned. Suddenly, the long awaited October launch date has become merely a ‘soft launch’. Indeed, Mr Barker warned delegates not to expect ‘a big bang in quarter four’.
‘We want this to be a steady launch, growing in 2013, 2014 and 2015 right through to the end of the decade,’ he said. ‘This is a programme that will outlive the coalition, it will take us 20 years to do the job that needs to be done.’
Is this how a revolution begins? A steady build? I for one would quite like to see a big bang. I want this revolution to be televised. I want to see billboards advertising it, and I want to be able to witness change on the streets.
On Monday figures from Camco warned that not only is the green deal and ECO going to fail to meet carbon targets, but it will also fail to meet the government’s 2016 legally binding target of eradicating fuel poverty. Indeed, it will actually see it rise 40 per cent to 9.1 million households across the UK, meaning one in three households will be fuel poor – or one in two across Scotland, Wales and Northern Ireland. With all this in mind, there is a lot of pressure on the government to amend the green deal to make sure it works as best as possible.
I would rather see time spent on getting it right than see it rushed. It is too important to be rushed.
However, I am already fearing for the green deal launch party. A low-key affair. Perhaps a room in Portcullis House, filled with industry bigwigs wondering if they missed the revolution… Ed Davey and Greg Barker deliver their ‘radical game changer’ speech against a projected backdrop reading ‘greenest government ever’, get a polite clap, and then put on a brave face as lines of private sector investors clutching glasses of Cava (saving the champagne for the ‘hard launch’), wave fair trade organic cucumber sandwiches at them, demanding clarity on many of the issues that don’t appear any closer to resolution; the cost of finance, incentives, the cost of accreditation, consumer protection etc. Mr Barker protesting that this is merely the ‘soft launch’ and the retrofit revolution merely needs a while to hot up.
I am sure it will not be like that. For one thing I don’t think I will be invited. I am sure it will in fact be a huge success and they will serve champagne. But I am not that sure.
The news that the government registered an appeal at the Supreme Court over the High Court’s ruling that it acted unlawfully in cutting the feed-in tariff, was barely news.
Some were surprised, or, more accurately, ‘disappointed’, that newly installed energy secretary Ed Davey was on board with this plan.
Choruses of disappointment echoed around Twitter on Tuesday that the new leadership had not learned from his predecessor’s follies - and it’s easy to see why. Aside from the fact that four judges have now told the government it is the wrong side of the law, and aside from the fact that taxpayers’ money is at stake, there is also all the positive rhetoric around a bright future for solar to be factored in.
Only two weeks ago Greg Barker had committed to delivering 22GW of solar capacity by 2020.
But the departure of Chris Huhne had nothing to do with his handling of the solar saga – something that seems to have passed many people by. And hopes that Mr Davey’s arrival would herald a climb-down on a stance that, though perverse, cynical and at odds with many of the government’s supposed political goals (eradicating fuel poverty, cutting carbon, creating jobs and low carbon economy etc), is saving a lot of cash also feels naïve. Uncertainty is saving far more cash to the taxpayer than it would lose by paying the costs of continuing to appeal a case the government is likely to lose. It’s a loss leader.
The real news surrounds the implications of what the government is actually arguing in its appeal. According to Solar Century and Friends of the Earth – two groups behind the legal challenge along with Home Sun – if the government were to win, it would allow them to change the FIT rate for existing PV schemes whenever it wanted.
Jeremy Leggett, chair of Solar Century, said: ‘If the appeal is successful it will allow government to change feed-in tariffs whenever it chooses, even for projects that are already installed and supposedly guaranteed the feed-in tariff. At a stroke, this would undermine investment in all UK renewables, not just PV, and show investors that the UK government simply cannot be trusted.’
This belief is shared by Andy Atkins, executive director at Friends of the Earth. He claims: ‘A successful appeal will allow ministers to slash renewable energy subsidies at any time - even for solar panels and wind turbines that have been operating for years.’
That is such a bone-chilling proposition, I really wonder why the solar lobby has not flagged it up sooner. The impact on investor confidence would be so severe I can’t imagine the promise of the FIT would be worth the paper it is written on.
In many ways it makes this a legal argument that the government can’t afford to win. At present, anyone that has installed PV and registered it with regulator OFGEM, have a guaranteed FIT at a fixed rate for 25 years. For all those that installed well before 12 December, this means they are receiving the generous tariff of 43.3p/kWh for the 25 year life of the tariff.
So far the time frame of the FITs saga has not extended beyond the 12 December to the 3 March when it is reduced anyway. The conclusion of Mr Leggett and Mr Atkins is that the decision to appeal at the Supreme Court will have implications reaching far, far further than the organisations affected in this three and a half month window. They are claiming it will impact anyone who has ever installed PV, or ever intended to install PV, with the expectation of receiving the FIT.
This is not a new implication. Indeed, it is one that I have flagged up in previous blogs from the Court of Appeal outlining the broad legal argument from the solar lobby that the retrospective FIT cut ‘shows an expectation that the government can use statutory powers to change existing payments’. It was therefore described to the court as being ‘like the government is issuing a 25 year fixed gilt bond and changing the bond rate after a year’ – meaning that the government would be fundamentally untrustworthy. So, not new, but very powerful when explicitly spelt out.
Just think what a government victory could mean for all those thousands of middle-class Tory voting consumers who invested in PV for their retirement instead of a pension based on the government promise. And then there’s all those City investors and big companies who have trusted the government’s 25 year guarantee and based their business models on them.
Sure the government would argue its new FITs system of pegged degression will mean that it never would need to act as it did in October again, so its not relevant. But trust would have been dented. And the uncertainty alone would shatter any faith in any similar scheme again – let alone the green deal.
So, while this point might not be entirely new, it has been hugely underplayed. Now that the solar lobby has played this hand – potentially scaring their own customer base – it will be interesting to see what the reaction will be.
Time for some positivity I think.
First of all, despite the hammering that the green deal has received over the past few months, there is evidence of some latent enthusiasm among social landlords.
In the past two weeks I have spoken with three landlords that are looking very seriously at becoming green deal providers – and I know of at least two major players that are running rule on the idea in a major way.
One will come as no great surprise to many in the sector as it is a mid-large sized organisation that prides itself on leading from the front on the sustainability agenda.
It has received board approval to carry out a series of feasibility studies and is in talks with a number of contractors – again likely to be the ‘usual suspects’ such as Willmott Dixon and Keepmoat that have made it clear they are committed to trying to make the green deal work.
This is significant. In the slow moving, red-tape heavy housing sector, getting board approval for anything is an achievement not to be sniffed at. Just look at the feed-in tariff saga where the majority of associations were on course to miss the April deadline for the tariff degression anyway because they simply had not sorted themselves out quick enough (a point that often is conveniently forgotten when attacking the government for cutting the FIT in December). Maybe, this is an example of some lessons being learned.
But I digress. Who else is looking? One is one of the UK’s biggest players with a reputation for never missing a commercial opportunity.
Another is a huge landlord that again is known for having its finger set firmly on the private sector pulse. And the other one? Well it’s also one of the largest and most commercially hungry associations in England… See a theme here?
BIG and commercially minded. These two attributes have been widely assumed to be a prerequisite for any would-be green deal provider. How else could they achieve the scale needed to secure green deal finance and make a worthwhile return after the cost of accreditation, building a supply chain, and then administering the works?
As I revealed last week, perhaps size doesn’t matter as much as previously assumed. Alliance Homes, a smallish Somerset-based association only has 6,500 homes to its name. It’s not tiny, but it is surely by no means big enough to be a green deal provider?
Not so. Despite its size, or lack thereof, it is the first organisation to nail its colours to the mast and attempt to become a green deal provider. The association is looking to invest its own cash into forming a legal accreditation framework that other landlords could then join for free. In doing this it hopes to be able to achieve much greater scale than it would otherwise be able to command and will also be able to drive down prices accordingly.
At the moment it intends to create a supply chain and try to become a standalone green deal provider. But if this proves to be too expensive and difficult, then it will badge over a green deal offer from an energy company and become a green deal partner body instead. Either way, Alliance Homes is the first social landlord to commit to the green deal.
The Alliance Homes approach to green deal echoes what the organisation has already done for FITs by setting up one of the only successful PV procurement frameworks that had the nod from lenders and had successfully negotiated very low cost PV so other organisations didn’t have to.
Much bigger landlords gratefully accepted Alliance’s invitation to benefit for free from their £250,000 investment in the procurement process. By sharing to combining scale, muscle and borrowing capacity the social housing sector may stand a chance of making a compelling green deal offer in what could be a very competitive market dominated by the big six energy companies and some of the larger retailers.
That said, on the borrowing front, landlords may not be such a magnate for cheap lending as once they were having received something of a reality check from a ratings agency this week.
Moodys downgrade on the outlook of 14 housing associations yesterday may have been about as welcome as a spoon full of bronchial balsam medicine to a healthy child (trust me, it is disgusting), but it’s better now than later down the line when green deal business plans turn out to have been based on overly optimistic assumptions around borrowing powers.
This week will be a wake up call insofar as landlords’ ability to work green deal off their own balance sheets is not as robust as they may have previously assumed. Cheap debt through the bond markets is likely to become less cheap. The fact is housing associations can only ever be as safe a bet as the sovereign that underwrites their considerable debt.
If the UK loses its coveted triple A ratings then so will housing associations.
With this in mind, the need for low cost green deal finance has never been greater. The government has to make sure that the Green Deal Finance Company is granted seed cash from the Green Investment Bank, otherwise the whole scheme will be in peril.
But I digress again. Alliance Homes’ approach to the green agenda generally seems to be underlined by good business sense. Based on the long term liabilities facing the organisation around cutting carbon and protecting tenants from fuel poverty, Steve Drew, director of assets at Alliance, also makes a good case for installing PV regardless of the cut to the FIT outlined last Friday. He welcomes the new FITs degression plan that will see the FIT pegged to the falling cost of PV by introducing a 10 per cent cut to the FIT every six months (after an especially savage cut in July) and believes that it is workable.
This is because, as long as landlords can make it pay for itself so that PV is cost-neutral then the social benefits to tenants make it a good investment. Furthermore he argues that the cost of reducing carbon emissions by 34 per cent has not been considered by most associations. PV offers a cost neutral way of slashing emissions even before the green deal. Mr Drew therefore calls for a change to the way PV is viewed.
‘It should never have been about getting big returns and satisfying investors in the first place,’ he says. ‘This is the right thing to do – it’s got to be. It is a sensible response to what has been a bloody muddle and it should be workable. We need more clarity before landlords have the confidence to commit their cash back to PV after being burned last time. But it should work; we have calculated that under the new tariffs it may take us 13-14 years to pay back the upfront capital cost rather than 7-8 years – but that’s not bad as long as it does pay back. We are a lot better off than we were a few months ago.’
You might be thinking ‘well, he would say that wouldn’t he – he has a ruddy great PV framework in place with spare capacity!’ Maybe so. But I still feel that, as with the green deal, his attitude is right on PV.
This week Inside Housing has embraced the news that the government is consulting on social landlords being exempt from the extra 20 per cent cut to the FIT for multiple installations as a win for our Green Light campaign that so many of you backed.
It is more than we could have asked for and demonstrates that the government has listened, and understand that social landlords are different to other organisations. Climate change minister Greg Barker has recognised that PV has the potential to rescue vulnerable people from fuel poverty, that it would be unfair to deny social tenants cheaper bills when they pay for the FIT, and also that social landlords are not looking to profit from the FIT.
These are messages that translate through to the green deal. The logic is the same around access to affordable warmth ECO funding; social tenants must be able to benefit from what they pay for and social landlords must be given the opportunity to protect their tenants from fuel poverty.
If they are the plans and ambitions of forward thinking organisations big and small for delivering green deal then a government desperate for stronger take-up is even more likely to listen – and this is some cause for hope.
In a market where it seems even those that should be throwing their weight behind the green deal seem to be set on talking it down (I accept it is littered with significant problems) and becoming despondent, Alliance Homes has kept its eye on the bigger picture. And I welcome a bit of positivity.
This morning climate change minister Greg Barker announced a fundamental overhaul of the feed-in tariff.
His ambition was to reform the solar subsidy system from one that disproportionately benefited the few and put the government in the red, into a long-term, financially sustainable one that will deliver 22GW of solar capacity by 2020.
These are laudable ambitions that few could argue with. But there is only really one question that matters right now: will it work?
If the reaction from some of the better known faces in the solar lobby is anything to go by then the answer is a firm no. Twitter has been alive with outrage since the publication of the accompanying consultation trashing the plans as being destructive.
As tipped by Inside Housing the government has changed the administration of the FIT so that that the tariff tracks the price of PV – which has fallen dramatically over the last year.
The government says it has based its design on the German model and it will provide much needed certainty as well as a broad return varying between four and half per cent and eight per cent. This sounds reasonable enough in principle.
However, a consequence of this is that the speed of degression – the reduction – of the FIT is increased. Under government proposals, the FIT is set to be cut on 1 April to 21p as expected, but then will be cut again in July by 25 per cent to 13.6p.
You can imagine that to all those who have been battling the government’s most recent cut to the FIT from 43.3p to 21p, this is being taken about as willingly as a massive kick in the crotch. Well, the pain doesn’t end there.
The government boot looks to continue to land blows where it hurts the solar sector most every six months in 10 per cent hits right up until 8 April 2015.
By this point the FIT will be worth 7.7p. Unless of course you are a ‘multiple installer’ – in which case the FIT will be 20 per cent lower from 1 April, and by 8 April 2015, the FIT will be a pretty uninspiring 6.2p.
This is where there is some good news for social landlords: despite their schemes being larger than 25 installations, the government is consulting on exempting them and community groups from the additional 20 per cent. This is a big win for the sector – and for Inside Housing’s Green Light campaign.
I asked Mr Barker about the fate of social housing schemes under the consultation at a dinner on Tuesday night hosted by Gentoo and he was rather coy in his response.
He needn’t have been – the sector will welcome the fact the government has listened to reason. But this piece of great news could be lost in the wash if the larger proposals do not enable them to viably carry out PV schemes.
There are other ominous proposals – to reduce the length of the FIT from 25 to 20 years, to reassess the link to the retail price index. Then again there are other small wins such as the relaxation of the eligibility criteria for PV from homes that had a ‘C’ rating or a commitment to green deal measures, to ‘D’ rating. The government claims this will mean around half of properties in England and Wales are eligible for FITs and the rest can get energy efficiency works for free through the green deal from October. Fair enough.
Ultimately, though, as shadow energy secretary Caroline Flint pointed out on Twitter today: ‘81 per cent oppose tariff cut to 21p in the first consultation - how many will support cut to 13.6p?’.
In the housing sector, some might – if they are able to take advantage of low borrowing rates, cover their costs and justify the investment based on a social return rather than financial one in terms of the savings to their fuel poor tenants.
For the majority of the private sector, though, it is far from clear whether this is a viable model. Certainly the solar lobby is adamant that it is not.
Already challenging the credibility of the government’s assumptions and evidence, there is likely to be plenty more fight to come on this – not withstanding the ongoing legal battle over the cut on 12 December that the government insists it will take to the Supreme Court.
However, Friends of the Earth, one of the organisations behind the legal action showed great humility today in welcoming the government’s changes.
It branded the proposals a ‘significant improvement on the government’s original plans, with ministers securing increased cash and a commitment to much more solar power by the end of the decade.’
When the last cut to 21p was announced, many in the solar sector claimed it was unworkable. Yet around three weeks later the first models at that rate were being brought to the market. It is too soon to know whether the same thing will happen on this occasion – but, assuming PV can wash its own face under the newly reformed FITs system, I would put my money on it being made to work and the sector simply having to change the way it looks on PV with cash tinted specs.
Mr Barker today accused critics – specifically Ms Flint, who, never one to miss an opportunity to attack gave the minister a reasonable grilling in parliament this morning – of seeing the glass as being half empty.
It is a slightly patronising response to a sector that has had its future trampled on by the coalition government, however, there is also some truth to it. What was the solar lobby expecting to hear from a cash-strapped government that has already demonstrated its commitment to renewables is, at best, lukewarm?
Perhaps more tellingly, he also told the sector to ‘get real’ in an interview with Business Green this afternoon.
This could be the most honest advice Mr Barker has offered on the subject of PV for some time.
The National Planning Policy Framework. Remember that? I did this week while wading though the government’s consultation on part L of the Building Regulations published on Tuesday.
‘How could you have forgotten?’ I hear you ask. Well, the NPPF is probably not at the top of everyone’s minds right now. After six months of unprecedented furore between the government and two of the most unlikely opponents of a Tory-designed planning policy – the National Trust and The Telegraph – most people were grateful the consultation had closed and were sufficiently sick of it to turn their outrage other government green bungles such as the feed-in tariff saga.
The rest time is over and it could be time to get outraged again.
Just a recap for anyone who needs one: the main source of contention – and there were lots – in the NPPF was the presumption towards ‘sustainable development’. This, the government claimed was key to ‘creating a positive, pro-development framework, but one underpinned by the wider economic, environmental and social provisions in the National Planning Policy Framework’. The presumption means that planners should ‘approve all individual proposals wherever possible’.
Of course, the problem is the use of ‘sustainable’. This was ambiguous, and its definition referred to economic and social sustainability as well as environmental sustainability as three pillars of, ahem, sustainability. In short, its critics screamed that ‘sustainable development’ doesn’t equate to sustainability in any meaningfully green way and that the government was hijacking the term in order to bulldoze through any development plan presented to planners with a default response of ‘yes’.
The government has maintained that the NPPF is not a ‘developers’ charter’ because of localism – the local plans each council will have in place will reflect the views of the local communities. This is a whole different argument, but the point is, under localism each council is supposed to have autonomy over its local plan and, therefore also, local development rules.
Well, reading the Building Regulations, I stumbled across a single paragraph that could throw fresh fuel on the NPPF fire.
Paragraph 196 on page 58 reads: ‘Where local planning authorities wish to set environmental targets for new homes at a level higher than Building Regulations, the National Planning Policy Framework requires that these should be subject to viability testing. Notwithstanding legitimate local aspirations to seek higher sustainability standards, this is to ensure that necessary development is not hindered through unrealistic policy expectations.’
Er, what? Viability testing?
Let me get this straight. If local people and their elected councils want to impose local environmental standards on housing developments in their areas, then they have to undergo tests to make sure said democratically established standards don’t cost the developer too much? What is ‘necessary development’? What is ‘unrealistic policy expectations’? And who decides what is necessary, unrealistic and, ultimately, viable?
It strikes me that not only does this undermine the principle of localism, but it also caps sustainability in the environmental sense. Under the proposals in the Building Regulations consultation, the target for the 2013 carbon cut on 2002 levels is just eight per cent. This is compared to a previous Labour target of 25 per cent. Most housing associations are already building code level three homes that meet this target anyway – and all those using HCA cash in London are exceeding it at around 17 per cent by building to code level four.
That means under the NPPF, those associations building in London would have plans for the minimum standard made subject to viability tests on associations. Were they exceeding Code 5 or six then you could perhaps understand the point about being realistic – but the building regs carbon targets are not ambitious. Come zero carbon in 2016 the lameness of these targets will be apparent as the building industry is forced to make a huge, expensive step up. Why should environmental aspiration be checked by the NPPF?
In effect it means there is a presumption towards ‘sustainable development’ – on the condition that it is not too sustainable. Economic and social (hence the word ‘necessary’) sustainability is checking environmental sustainability. In fact, to go further, the NPPF could end up forcing development to become less environmentally sustainability. Or so, my unqualified working of the logic of the presumption seems to conclude.
People in the housing world are increasing used to the way the government takes a word and assigns it a new meaning; just look at the way the government has appropriated the word ‘affordable’ to create a product that is, more often than not, unaffordable to those who were previously on a social rent.
You don’t need to consult books on Derrida to see how the newsnight journos are bamboozled by the language and fail to discern between social homes and affordable homes when housing minister proudly boasts how many ‘affordable’ homes he is building. It looks like the same could be soon said about all the ‘sustainable development’ the government has encouraged through its planning reforms.
Call me old fashioned, but I think there is something to be said for at least trying to be the bigger person in an argument.
That means, if you are winning, not to crow and goad, and if you are wrong, to admit it. Right now neither the government nor the solar lobby seem to want to learn any lessons from their bitter clash.
First off, the government. Four judges have now ruled that the cutting of the FIT with just six weeks notice and before the consultation process was even complete was illegal.
That means it was wrong. Wednesday’s decision was, ahem, decisive. On both occasions – in the High Court before Christmas, and in the appeal yesterday - the government was told that, not only had it acted illegally in its retrospective action, but it also had no chance of appealing.
Were the government a private organisation, only the most stubborn/litigious challenger would continue pushing against the letter of the law.
Shareholders would put the brakes on very swiftly as the legal bills racked up. Well, it’s not private money – it’s taxpayers’ money. And Chris Huhne’s dismissal of £66,000 as ‘a few thousand’ next to the £1.5 billion he claims he is saving consumers by intervening demonstrates where the moral high ground starts to fall away into the low ground.
To date, even if you disagree with it, the government’s appeal is understandable. Yes tens of thousands of pounds of tax payers’ cash is a fair price to pay if the government has consumers’ bills in mind. But now, after it has been made very clear that the government was wrong it is very hard to justify continuing to appeal the decision.
The government is seeking permission to appeal in the Supreme Court, thus eking out the period of uncertainty in which potential investors will not know whether or not they would receive the 43.3p/kWh FIT or the 21/kWh rate. This is time wasting. It feels extremely calculated.
We report this week on several landlords gearing up to take advantage of this narrow window in which they might be able to claim the 43.3p rate before 3 March when the rate will definitely fall to 21p.
This is exactly what the government wants to avoid. Its budget is blown and if even one 100,000 home social landlord PV scheme goes ahead before 3 March it will slip further in the red. As we report tomorrow, Stockport Homes alone stands to make an additional surplus of £5.8 million if the government is denied an appeal in the Supreme Court. That is huge.
This scheme was designed to be viable at the 21p rate, so it was going ahead anyway.
But the 100,000-home Merseyside scheme will only go ahead if the FIT rate is 43.3p. Uncertainty is still holding it back. From the government’s perspective, maintaining that level of uncertainty will hold back the majority of opportunistic installations between now and 3 March.
Hence, the attempt to appeal in the Supreme Court. If they win, then they have saved a hell of a lot of cash and made a point of principle. If they lose, then, ah well – at least they prevented a gold rush of FIT seekers, and can always sleep soundly at night in the knowledge that they were acting in the best interests of bill payers. And if they are denied permission to appeal, then that is bad news.
But at least they have held back the tide for another valuable week.
It is hard not feel that the government is playing the legal system to fight a battle they never expected to win in order to save money in the long run.
If you accept this hypothesis of damage limitation (however short sighted that might appear given the huge damage inflicted on trust in the government and investor confidence ahead of the green deal) then it is even harder not to feel the pain of the solar lobby.
They have fought a good fight and are being frustrated by what appears to be extremely disingenuous tactics from the government. Just as, on the one hand climate change minister Greg Barker offers sound bites on Twitter such as ‘win, lose or draw today, important we move forward together, drive down costs and step up deployment’, on the other, he extends the period of uncertainty in the face of a strong legal slap down. I can only imagine how galling that must feel.
However, the solar industry must not legitimise the government’s arguments by acting foolishly.
Within an hour of the verdict, I was already receiving press releases from companies feverishly selling a second ‘gold rush’.
One release from a company that I will save the embarrassment of naming said: ‘CONSUMERS SET FOR SOLAR BONANZA AS GOVERNMENT LOSES RIGHT TO APPEAL OVER FEED-IN-TARIFFS’. Homeowners have been given a short-term window of opportunity to enjoy a solar power “gold rush”.’
A solar bonanza – is that really on the cards? And if it is, surely it’s not sensible? Is this not a bit like throwing fuel on a fire?
Another one: ‘In a swift u-turn the government has doubled financial incentives for installing solar panels following a successful court case by Friends of the Earth. Energy experts are advising to install panels now, as there will never be a better time.’
Er, what u-turn is this? I don’t recall seeing one of those?
First of all, it goes without saying this is hugely misleading and just as calculated as the government’s attempt to appeal again in the Supreme Court.
Until the legal battle is over, there remains considerable uncertainty over what the FIT rate will be between 12 December and 3 March. To promise returns at the 43.3p rate is mis-selling a product that should be about carbon reduction and saving energy bills rather than a potentially mythic return. In short it is unethical.
Secondly, regardless of your views on the way the government bungled the FITs saga to date, it is difficult to argue that the 43.3p rate wasn’t too high and that they were wrong to act. Even Friends of the Earth acknowledge the need for a cut to the FIT.
It is therefore irresponsible to begin hyping yesterday’s judgement as a ‘gold-rush’ to be taken advantage of.
Mr Barker has already warned that every home receiving FITs at the 43.3p level now will deny households of receiving it at the 21p rate after 3 March. Why would firms justify the government’s arguments? This kind of behaviour suggests that some elements of the solar industry have not learned from the last four months saga.
As tempting as it may be to lash out or do whatever can be done to retrieve some much needed business, it is important for the solar industry to continue to hold the moral high ground that it worked so hard to win – because that is the only way long term trust can be rebuilt.
You can spot them a mile away.
The pallid deathly paleness, dark rings under their bloodshot eyes, yellow sweat stains on two day-old shirts, stubble, and twitching from too many nights knocking back Red Bull and necking coffee.
These are the sustainability bods; specifically the ones tasked with responding to the government’s green deal consultation before the deadline yesterday.
Yep – for the first time in a long while these folk are probably sick of discussing the green deal. You would be too if you’d had to wade through nearly 2,000 pages of consultation document and accompanying impact assessment before drawing together a considered, succinct reply.
It would appear to be a thankless task – so as I read through them all over the next few weeks, hopefully I will be able to give credit where it’s due.
It’s worth mentioning that no response I have come across so far has deviated from the basic sentiment of: ‘we want this to work but with out a series of changes we are concerned that it will not meet its fundamental goal of cutting carbon to 2020 and 2050 targets’.
You can read that as ‘green deal set to fail’ – it is after all an easy headline – but ultimately this is a consultation inviting criticism so we can only be so surprised when, shock horror, the green deal gets criticised. Yes, some folk will tear chunks out of it and call for a plan B, but it’s all part and parcel of the process, and if you didn’t voice your concerns in the consultation, then you effectively hand in your ‘I told you so’ card at the DECC front desk.
If every organisation warns of potential failure without considerable change then I would suggest, for the sake of your sanity, to focus on what the suggested changes are rather the consequences of ignoring them.
Despite all that, there is some doom ‘n gloom to vent. The British Property Federation’s response which said it is unlikely carbon emission targets would be met without further action and called on the government to provide additional cash incentives to help make the scheme more attractive.
The NHF has been doing a huge amount of work on the green deal – often working with the Local Government Association - and their response reflects this.
As you might expect, they flag up the issues around excluding social landlords from accessing ECO funding that I have written about exhaustively (and will return to in more depth later). Interestingly, though, is the way it does so.
The NHF response paints the government a picture of the woes facing housing providers right now: the end of grant funding, more highly leveraged as a result of the affordable rents programme, their income streams facing an uncertain future as a result of the government’s welfare reforms, and all in all, in no position to invest large sums of cash in energy efficiency works in lieu of ECO.
It also warns that the FITs saga has had ‘a very negative effect on the reputation of DECC in the sector and sentiment about government supported energy efficiency schemes’.
With this in mind, the NHF makes a helpful pitch for some of the government’s £200 million green deal funding announced by Treasury, arguing that making that available to landlords would go some way to improving ‘engagement’ with the sector (a stance backed by the LGA).
There is even a veiled warning: ‘we have also made clear that if social landlords did not have access to any of this funding there would be very serious further consequences for the sector’s sentiment about the green deal and DECC initiatives more generally,’ it reads.
In terms of its wider concerns about the red tape surrounding consumer protection and accreditation for green deal providers, it says that in some instances the mechanisms proposed on the basis of the owner-occupier scenario are ‘cumbersome, unnecessarily costly or unworkable in the social housing sector’. It suggests that the assessment cost of £75 is probably an underestimation.
And on ECO, well – we all knew what the NHF was going to say, and it has said it well. It points out that by only focussing on solid wall insulation for hard to treat ECO funding, 85 per cent of the social housing stock stands to miss out on ECO altogether.
Finally, and most starkly, is its conclusion centring on access to affordable warmth. It argues a higher proportion of social housing tenants are fuel poor than occupiers in other tenures, and at least a million social homes need subsidy to enable improvements which would take their low income tenants out of fuel poverty.
‘The Federation and its membership support the objectives and key principles of the proposed approach, but believe significant changes to the detailed policy proposals are needed to make the Green Deal workable in the social rented sector, with ECO subsidy where necessary.
Without this, as the government is aware, social housing’s potential to be both early and significant deliverers of the green deal will be wasted, with the associated huge risks to the supply chains and policy aims of the green deal in general.’
That is certainly a blunt warning.
Even the Chartered Institute of Housing, which to date has been relatively silent on the subject of green deal and ECO, has responded candidly. CIH does say it is ‘very concerned’ that the green deal will have an ‘insufficient impact’.
Interestingly, the CIH calls for a completely separate consultation on the green deal and ECO for social landlords on the basis that the one we have just had was ‘inadequate’ for social landlords and overly aimed at the private sector.
Part of this is the lack of provision over the problem of including green deal works alongside major repair programmes and extending it to whole neighbourhoods, and the problem of getting tenant consent.
It pushes a number of point on ECO – the way it could be regressive by increasing fuel poverty for low income households, and that exclusion of social landlords from ‘affordable warmth’ subsidy is unfair.
It states: ‘Measures such as [difficult cavity walls, sloping ceilings, flat roofs and suspended timber floors] which discriminate against social tenants are inequitable in two senses: first poor households are concentrated in the social sector (47per cent of households in the lowest income decile are in social housing), second, all households pay fuel bills, from which ECO is funded, and therefore all sectors should have an equal right to ECO funds, subject to meeting the criteria.
As an aside, Inside Housing put this point to Energy Secretary Chris Huhne yesterday during an online question and answer session organised by Which?
He responded: ‘I just don’t agree that social landlords have little to gain from the hard to treat allocation, as our figures show that there are similar amounts (proportionally) of solid wall homes in the social housing sector as elsewhere. Because most social homes are now up to decent homes standard, it makes sense to concentrate affordable warmth where the biggest problems are.’
That could change soon, though. Issues around ECO being flagged up elsewhere in the nation media over the last few weeks. The Times’ Tim Web has been covering it – and more recently, The Guardian’s George Monbiot (who originally flagged up the inequitable way the FIT works) has been blogging on green deal and ECO.
When I first revealed about landlords exclusion from affordable warmth (denied by the government at the time) and the findings in the interim results of the Hills review it didn’t strike me as a topic that would ever be sexy enough to capture the imagination of rest of the national press. Hopefully now that it has, Inside Housing’s Green Light campaign can step up a gear to make sure that ECO is not regressive, that the mistakes from CERT and CESP are not repeated, and that the most vulnerable people are protected.
Unsurprisingly, the Association for the Conservation of Energy has beef about the transition from CERT to ECO which could cause a slump in the insulation. It has also published its timely Dead CERT report into the transition to ECO. This flags up the long discussed problem the introduction of ECO (focussed mostly on hard to treat solid wall insulation) will pull the carpet out from under the feet of the loft and cavity insulation market as the expected uptake of the green deal which takes over from the CERT measures is low.
The report does not recommend a ‘son of CERT’ approach to smoothing the transition; instead it suggests aligning the green deal to ECO by allowing lofts and cavity walls delivered through green deal to contribute to ECO. It also calls for ‘fiscal incentives’ such as a VAT cut for green deal measures, use of the £200 million from Treasury to incentivise the take up of green deal packages, and linking stamp duty and council tax to home energy ratings.
It recommends increasing the ECO for low income and vulnerable households and widening the eligibility group (although it’s not clear whether this means making it tenure blind), the introduction of more regulatory standards, and the inclusion of more costly cavity wall insulation as eligible for ‘hard to treat’ ECO. The executive summary has some very interesting pie charts.
They outline some scenarios based on ACE alternative proposals in the first four years of ECO up to 2016. These include 500,000 homes insulated with loft and cavity wall insulation a year, an additional 75,000 harder to treat cavity walls to be insulated, and more than 140,000 solid wall insulations a year.
ACE claims under their proposed scenario, more than twice the proportion of ECO will be spent in the homes than need it most, saving 55 per cent more carbon and seeing 80 per cent of solid wall insulation numbers delivered under the DECC scenario installed at a rate of 140,000 a year. And all at a lower cost to bill payers than DECC are proposing.
Now, I am no sustainability bod, so am unable to properly asses the merits of these proposals.
But I am hoping that better qualified (albeit more sleep deprived) people than myself will be able to respond to this and let me know – once they have recovered from the trauma of the green deal consultation, that is.
Friday 13: a diary date that is usually associated with colossal misfortune.
As the legal teams representing the government and the solar consortium fronted by Friends of the Earth filed into court 69 (a number loaded with very different connotations of its own) of the High Court at 9.30 this morning, the question running through their minds must have been: unlucky for whom?
Despite what many thought, today was not quite the judgement day for the government we expected over its decision to slash the feed-in-tariff in half from 43.3p/kWh to 21p/kWh from 12 December – four months earlier than planned.
Before Christmas the High Court found that that this was an unlawful move because the cut came into effect before the accompanying consultation closed on 23 December. Last Wednesday, the government lodged its inevitable appeal on the grounds that Justice Mitting was plain wrong.
This morning, after months of uncertainty, sniping and waiting, the court was to decide whether to allow the government to appeal and also wrap it up into an appeal hearing. Confused? Well, it doesn’t get any clearer from here on in.
First of all, if you were expecting a firm conclusion from today, then I am sorry to disappoint.
Yes, today will be remembered as the day when one party emerges a loser, but the chances are the actual judgement is unlikely to return next week. As I predicted this morning, today will not be drawing a line under all that uncertainty.
But that is not to say it was not an interesting hearing. Upon arrival it had all the makings of a classic clash. On the left hand side of the court was the wigged team representing the big bad penny-pinching government. On the right was the wigged team of learned colleagues for the plucky green underdogs.
The pantomime set up was hard to ignore given they were surrounded by a bizarre collection of personalities from across the green sector, from solar companies (often wearing fleeces with corporate logos on, but one boss proudly wearing tails and a Hull scarf), and, of course, journalists like myself camped out on the floor. A lack of government cheerleaders wasn’t going to affect the judges though.
Justices Moses, Lloyd and Richards faced us – all three grey haired and wise – sitting on their red thrones, owl-like in their unblinking, stern focus on the techy legal details of a subject that could bore the biggest green enthusiast at the best of times. When they threw in the occasional suggestion of joke there was a disproportionate response of hilarity from the room, as everyone pretended that, in true English style, for a few minutes we weren’t witnessing an incredibly awkward culmination of months of bitterness and resentment.
The government kicked off. Its argument was long, complicated and took a long time to get to the point, but when it did, it appeared to capture the sympathy (or at least the understanding) of Justice Moses. The gist of it was as follows:
- The costs of PV have dropped substantially in a short space of time (more than expected), and the step down in the tariff rate, though significant, broadly matches this.
- The issue of fairness is not relevant to the argument over legality – but were it to be considered, the six week period provided was in fact a fair amount of notice for those schemes that had ‘crossed the starting line’. This is evidenced by the fact that 102,000 installations went ahead in that period compared with 126,000 over 18 months.
- The case should rest of the issue of purpose: the secretary of state was entitled to make the proposals (and they are just proposals being consulted on rather than a firm decision) – and given the circumstances, he was clearly acting in an administrative capacity for the best interests of the scheme, the government and bill payers.
- The secretary of state does have the power to make these modifications. Justice Mitting misunderstood the ambit of a frequently referenced Section 41 of FITs scheme documentation which enables him to act and modify.
- There was ‘a false notion of vested rights’ for generators of solar electricity. The right to payment is only subject to the lawful decisions the secretary of state may make. For those that had not made the decision to push ahead with PV, they have no rights in this respect. The principle of fairness wouldn’t limit Section 41.
- The point about retrospective changes is a ‘red herring’.
These arguments were met with a series of shaking of heads and furtive murmuring from the solar legal team. Meanwhile Justice Moses mused on the government’s problem of having to do it like you would if you were building a railway with a full consultation, ‘or you act like you might with a budget – before the days of leaks’.
After a refreshment/tweet break (@nickduxbury if you’re asking), it was back in for the second half. The solar legal team came out fighting. Extensive evidence was heard that looked to undermine the picture of reasonable actions taken under extreme circumstances painted in the morning.
A witness statement from the chair of the Local Government Association was read out telling of the inadequacy of the six week window leading up to the 12 December cut. Stories I have written time and time over were told to the three owls about the thousands of local authority and housing association installations that were abandoned as a result of the cut.
Then the impact on the many thousands of social tenants (I have previously reported this to be a conservative 38,000) who had expected to see their eye watering fuel bills cut back as a result of PV schemes was explained. Schemes such as Wrexham’s 3,000 panel plans that were left by the wayside were listed.
Next, the impact on investor confidence was emphasised. The CBI’s claim that the FIT cut has ‘evaporated’ confidence was reiterated – and, significantly it was claimed that banks are devaluing existing PV schemes because they do not trust the government. No evidence for this was given – and clearly I will try and find it – but the suggestion is deeply concerning; that banks do not believe the government will treat the FIT like a bond-like income stream it is supposed to be, and expect the government to intervene and change the FIT again in the future. This bodes very badly for the green deal and renewable heat incentive if it is true.
The argument went: ‘It shows an expectation that the government can use statutory powers to change existing payments – how that can tie into encouraging investor confidence is irreconcilable.’
It was then argued that:
- The afore-mentioned section 41 and 42 does not allow the secretary of state to amend the FIT rate. The language used is general. And, although I was not present when the argument was made that generators of renewable electricity did have vested rights, the powers were not sufficient to overturn said unproven rights.
- Anyone who installed PV after the 12 December and before 1 April has converted their potential entitlement into an actual entitlement because the law has not yet been changed (the consultation conclusions have not been published).
- The point was made that all the companies that have bought PV and built up supply chains as well as spending cash on legal fees etc have effectively suffered a confiscation of assets (this confused me, but a series of old cases were referenced that made this point and referred to the legalities of acting retrospectively).
- The FIT is supposed to be a fixed payment – ‘not the payment the secretary of state chooses to make from time to time’. A comparison was then made to government bonds: ‘It’s like the government is issuing a 25 year fixed gilt bond and changing the bond rate after a year’.
Then, on the news it would take a further hour and a half to complete the evidence process, lunch was called and I dashed back to the office to report the above to you. Apologies for not being there for the full evidence, but my escape was justified on the basis that the government’s grounds for appeal are more important than the solar lobby’s grounds against - given we have already heard them and most people are familiar with the arguments around fairness.
Also, FOE warned this could go to the Supreme Court if the government loses so it could rumble on and on and on.
So who feels luckier on this day of fabled misfortune? One solar boss watching the case told me he was pretty confident of another victory. ‘They are just waffling aren’t they?’
Maybe. But by reframing the argument completely to three separate and especially sober judges, the government’s appeal is likely to, at the very least, get careful consideration.
As for the solar lobby – well, they have waited this long, what’s one more weekend of uncertainty and irritation?
Hold the front page: the government disagrees with the High Court’s ruling that early cut to the feed-in tariff was illegal. Wow. So no one saw that coming?
It might not have sounded like news that the government was of a different opinion to the judge when, on the 21 December, he ruled that the cut to the FIT from 43.3p/kWh to 21p/kWh on the 12 December was ‘legally flawed’ due to it being implemented before the accompanying consultation closing on 23 December – but it was.
The only thing more inevitable than the government lodging an appeal yesterday, was the reaction of Friends of the Earth, Solar Century, and HomeSun and the rest of the solar lobby to the decision.
A spokesperson from FOE said: ‘The [High] court says the government has no realistic chance of winning, and it will prolong uncertainty among solar companies just when they need reassurance.’
The organisation called for the government to extend the reduction period into February, claiming that the scheme could be expanded at no cost to bill payers.
Hmmm. Similarly, on the grounds of costs, shadow environment minister Caroline Flint rallied herself to put the boot in over the cost to the taxpayer. So, all in all how could the government possibly defend its decision (apart from a case of pride and principle) to return to the courts after its first very decisive defeat?
The Department of Energy and Climate Change released a statement that shed a bit of light around the government’s grounds for appeal. It said the following: ‘The overriding aim of the proposed reduction in tariffs for solar PV (as set out in the recent consultation) is to ensure that over the long term as many people as possible are encouraged to install small scale low-carbon generation (including other technologies as well as solar PV) and benefit from the funding available for the FIT scheme.
‘Without an urgent reduction in the current tariffs, which give a very generous return, the budget for the scheme would be severely depleted and there would be very little available for future solar PV generators, or for other technologies. Our view is that the urgent steps we have proposed to protect the scheme for the future are fully consistent with the scheme’s statutory purpose.’
One of the more bizarre points their statement made was that the High Court’s decision was premature as ‘no decision has yet been taken, and a decision will only be taken after a full analysis of the responses to the consultation’.
That will surely leave many in the solar sector confounded.
Being a journalist rather than a legal expert I have no idea whether this logic will wash with the courts, but either way there can have been little in the way of surprise here.
Climate change minister Greg Barker had already warned, via his new favourite medium of Twitter, that for every house that receives the FIT at the higher 43.3p/kWh rate, there will be two that don’t receive it at 21p/kWh. The suggestion here was that his hands were financially tied and the shambolic cuts were a result of urgent action to protect the general public.
The underlying, and quite scary, implication was that the FITs budget has already been blown. And this was today confirmed by Mr Barker speaking to Business Green.
He said: ‘For the current year we are in the red and there is the potential that next year will be in the red. There’s some flexibility in the levy control framework [spending cap] on a year-by-year basis… But we have our budget and the Chancellor is not going to reopen the spending review.’
This may explain the government’s otherwise inexplicable approach to the whole FITs saga: someone hit the panic button when the Treasury refused to come to the rescue. But how on earth did this happen? Surely it was so, so preventable?
This will need to be answered in time, because, right now, as we report tomorrow, regardless of whether the government is granted the right to appeal, it is too little too late for social landlords.
Even if the FIT is returned to the 43.3p level for another few months, most boards have already made their decisions regarding PV schemes at the higher rate (almost all to abandon). There is not enough time or certainty to take advantage of this potential window. In short, confidence is shot to hell and the damage has been done.
If appealing is a delaying tactic from a desperate government with no cash left in the kitty then it has worked as far as social landlords are concerned.
As a departing aside, it is worth mentioning that despite the awful mess he has overseen of late, Mr Barker has become my favourite MP users of Twitter – if only because of his willingness to engage with his critics on it.
Unlike his boss Chris Huhne who only tweets the most mundane 140 characters he can about local surgeries, Mr Barker simply can’t stand by and see the twittersphere attacking without having the last word.
His arch nemesis seems to be Solar Century chair, Jeremy Leggett – one of the main figure behind the legal showdown.
This week produced a classic back and fourth between the two green gladiators after a great gaff by Mr Barker about the ‘green Taliban’ which seemed to suggest that, despite that small legal wrangle, the pair aren’t beyond some kind of resolution:
When secretary of state for energy Chris Huhne defended the earlier than expected cut to the feed-in tariff that came into effect on Monday, he did so on the basis that the FIT had become too expensive and was set to increase energy bills.
‘Each week’s delay leads to additional annual cost of £400 million,’ he claimed, addingthat if the government did not act now, the subsidy could add £80 to energy bills by 2020.
There has been a fair bit of back n’ forward over this figure. But regardless of whether it is correct, the point was clear: the government was taking a stand to protect consumers from rises in energy bills. For the government to shoot a fledgling, but rapidly growing industry in the face at a time when jobs and economic growth – not to mention investment in the green sector - is so badly needed, there must have been real and genuine fear that consumers will turn on the coalition’s green policies as their bills increase. To put it mildly, the government is bricking itself on the impact of rising energy prices. A perfect storm is gathering and right now the green deal is the only policy to hand that the government has to combat it. But there is an inherent mistrust about to what degree the government’s own green policies are contributing to the rising costs.
And to some extent it is easy to see why. Were I a journalist writing for a more climate sceptical publication than Inside Housing – naming no wind turbine hating papers in particular – the government’s green subsidies would seem like a gold mine of stories. Open goals everywhere. You say energy company obligation: I say outrageous green stealth tax. You say FIT: I say levy on the poor to pay for eco-bling for the rich (there is something to this line of interpretation as we will reveal here). And green deal? What’s that? Oh, it sounds like green regulation and red tape.
The fact is most consumers don’t have a clue that money from their energy bills are paying for anything other than their energy bills. And to be fair, it is far from transparent. There are legitimate questions to be asked about what kind of tabs are kept on the way energy companies spend these green levies. Can you imagine what will happen when the tabloids get their teeth into how CESP and CERT money is being spent – or not spent.
We have seen the mass give away of light bulbs by energy companies in the past, now as they all start to panic about the possibility of not being able to spend all of it in time we are seeing front page adverts in the Metro about insulation giveaways. Surely this is a ‘green scandal’ waiting to happen.
Interesting then, that yesterday the government’s green watchdog, the Committee on Climate Change, published a report showing that green policies are not responsible for energy bill hikes.
‘The committee’s findings disprove often repeated claims that recent bill increases are due to environmental policy costs, and that major investments in low-carbon power capacity will drive dramatic bill increases over the next decade,’ the press release claims, rather smugly. And why not? What a relief for the government. In short, gas prices rather than their policies are responsible for energy bill increases. End of. Ish.
The report also projects bills will increase by around £110 over the next decade to support investment in low-carbon power capacity and energy efficiency in homes. The all-important latter is worth £10.
To me, that seems like a price easily worth paying for what will effectively be a hedge on bills. But tell that to a wind turbine hating paper that shall not be named – and indeed the likes of the Telegraph which kicks off with ‘Green policies to add £110 to bills’, before then conceding that claims that investment in wind farms and other low carbon technologies will ‘dramatically’ hit household bills are untrue.
An interesting, and potentially important aside has been dug up by my colleague Jess McCabe who attended the launch of the report. It says that the FIT has had a ‘negligible’ impact on the typical household’s dual fuel bills. Subsidies for renewables added £16 to the average electricity bill in 2010 of £430, of which FITs account for less than £1. By 2020, the report predicts renewables support will make up £58 of the typical electricity bill, of which the FITs could account for about £7. This doesn’t quite chime with Mr Huhne’s claims regarding a feared £80 hit for consumers by 2020.
The government can’t have it both ways regarding the impact of green policies on energy bills. Its messages are mixed and confused, and there is a fundamental lack of transparency around the levies and how they are then spent – as demonstrated by the ongoing FITs saga. Until this changes, it is hard to criticise other publications scepticism around the government’s green policies.
For most landlords, installing photovoltaic panels after the 12 December is off the cards.
The cut in the feed in tariff from 43.3p to 21p has been such a body-blow to the viability of PV schemes – especially rent a roof models – that almost none are still going ahead.
As for the prospect of schemes going ahead under the 16.8p FIT rate coming in to play in April, well, that is less than a pipe dream.
Unless you are extremely cash rich and risk-happy then it will be near impossible to deliver a large scale FITs programme. And few have even considered that solar firms would ever be able to resuscitate a rent-a-roof model that could work for landlords at the 16.8p rate.
This week, we reveal that one energy company claims to have managed to do just that. In the same week that Carillion announced it plans to exit the PV market that its energy services division largely led from the word go, Strategic Energy is rising like a phoenix from the ashes and returning to the PV market with vengeance.
The company claims to have come up with a lease model that will be ‘cost neutral’ for landlords. It has worked with Ernst & Young, the Council of Mortgage Lenders and five leading law firms to develop a legal framework that is compliant with lenders demands around obtaining their consent for schemes, is quickly accessible, and, most importantly, free for landlords to use.
No funders’ fees and no legal fees – yet documentation from top firms (the likes of Towers & Hamlins, Addleshaw Goddard, Cobbetts, Croftens and Hammonds) as well as backing from lenders including HBOS, Santander, Barclays and Dexia.
So many landlords are licking their wounds after having wasted hundreds of thousands of pounds each in legal fees and procurement costs for schemes that never happened, that this offer can’t fail to tickle interest. In fact, how many boards that have been burned once by PV schemes would return to the bargaining table without the concessions of no outlay and an assurance of lenders’ consent.
Now, unlike many of the rent a roof models previously, there is not going to be much money for landlords to make here.
But if they can cut their tenants’ energy bills and carbon at the same time, then there can only be very limited ground for complaint. Strategic Energy is going to offer a ‘kicker’ which will be worth around £10,000 for every 1,000 installs that can be used for community purposes.
So how can it possibly offer a ‘free’ PV model when no one else can make the returns stack up? According to its managing director, Andy Watson, the trick is to have an all-equity model.
This means that it is not confronted with the same problems of having to cover the cost of capital and claiming a return. Somehow, while most investors have been running to the hills, Strategic Energy has received £10 million backing from Hazel Capital.
This will last the window until April at the 21p rate, and then after that it has another mystery investor waiting in the wings that is happier with low, but secure returns at the 16.8p rate. This investor is institutional – i.e. a pension, life or insurance fund – and is exactly the type of investor that we have been told has had its confidence shattered in all things green at the moment.
It is currently working with St Vincent’s Housing Association where it is installing PV on 400 roofs. This will be the test for many of its claims, which, on paper appear quite impressive.
Two of these is that they can install in half the time of their rivals (having agreed with the Tenant Services Authority that it can carry out the Tenant Liaison Officer role) and get on site far quicker than anyone else as a result of the legal framework.
Assuming this works, it is hard to see this not being attractive to landlords that have been complaining about the FITs cuts on the grounds of the impact they will have on their ability to protect tenants from fuel poverty. That said, it is still quite a big if. There could well be plenty of compromises that landlords need to make in order to take up this offer. But more generally, whether their model works or not, it is refreshing to see a company taking a proactive route to carving out a niche in a market that only two months ago was saturated with entrants.
Their niche is simply that instead of trying to sue the government, they are still trying to make it work when, apparently, no one else is.
Presumably, others are doing the same.
But it is also likely that the company will come under some fire from the industry for leaving the PV picket line and taking advantage of it.
And so it starts: the solar fallout. We have already seen social housing PV schemes being abandoned en mass, we have seen companies pulling out of the market, we have seen the legal challenges, and we have seen last ditch Labour parliamentary motions defeated.
Only now, finally we are seeing the warnings of swathes of job losses – which previously must have sounded to the government like the hysterical cries of protest from an industry fighting the tide of inevitability – become a chilling reality. This week we saw the first major economic casualty of the government’s early cut to the feed in tariff; Carillion Energy Services announced yesterday that 4,500 jobs were under threat.
Clearly not all these jobs will go – but it is a case study that exposes the massive contradiction between the rhetoric of the self-appointed ‘greenest government ever’ and its actions. By this I don’t simply mean ‘how can they say they are green and push forward any policies that seem to damage the green sector’. While there is considerable mileage in arguing that the government’s shambolic FIT policy has undermined its claim to be the greenest government ever, the real contradiction is to be found in its economic ambitions.
Never has the UK economy needed jobs and entrepreneurialism more badly. As chancellor George Osborne revealed on Tuesday, things are bad. Really bad. Growth is starting to flatline. Mr Osborne revealed that growth next year would fall back to just 0.7 per cent – a big fall from the 2.5 per cent originally predicted by the OBR. Furthermore, the current forecast is premised on the assumption that the Euro-crisis is resolved – without that the UK is likely to return to recession. As a result, the Autumn statement was a shopping list of measures to encourage growth and help business; and, there was little mention of sustainable measures except in the context of cutting red tape and relieving regulatory burdens.
Reminding taxpayers that he was the chancellor that had introduced the first Green Investment Bank, and reiterating his support for ‘sensible’ green policies, he proceeded to explain how he would relieve businesses of green levies to encourage growth. ‘We are not going to save the planet by shutting down our steel mills, aluminium smelters and paper manufacturers,’ he said. ‘All we will be doing is exporting valuable jobs out of Britain.’
Well, what about the British jobs that are being crushed across a whole industry as a result of a change in policy that confounds both investors, businesses and environmentalists alike?
As Friends of the Earth’s energy campaigner Donna Hume warned today: ‘This is just the tip of the iceberg - if Ministers push ahead with plans to slash solar subsidies tens of thousands of jobs could be lost. A fraction of the cash the Chancellor set aside this week for more roads and dirty energy would throw a lifeline to the solar industry and the thousands of skilled workers currently facing unemployment.’
Carillion Energy Services is exactly the kind of company that Mr Osborne should be bending over backwards to support. It is also a case study in exactly what the government has done to green business – a new UK sector creating jobs and skills that was booming despite the economic gloom until two months ago.
When it was still Eaga, as revealed by Inside Housing, it was the first to convince the City in any meaningful way to invest in the green sector on the back of the future of government policy. It must have taken some convincing to get £300 million of cash from the leading banks and institutions – but Eaga managed on the basis of expected returns and a long-term political commitment to the FIT. That is £100 million more than the Treasury was able to scrape together as a green deal incentive package.
Eaga had taken the risk of doing most of the work in getting landlords on board its ‘free PV’ scheme on its own balance sheet – because they needed to prove to investors they believed in the business model.
Despite having agreed many deals in principle they were unable to spend much of the cash. Firstly because none of the associations’ banks were granting consent for the deals to go ahead due to concerns about how they would impact the value of their security, and then because the FIT cuts meant few of them would be viable anyway.
So what message does this send out to all the investors that rolled the dice and decided that green investment was finally more than a corporate social responsibility tick box, but an attractive proposition? Their belief that the government will stand by any of its future green schemes will have been shattered. And what has been the reward for CES’s entrepreneurial spirit and their trust in the government?
Many of the thousands CES staff going through the 90 day consultation will remember that this is the second time that their jobs have faced uncertainty as a result of a coalition policy change. Only last year Eaga was badly burned by Mr Osborne’s slashing of Warm Homes funding in the comprehensive spending review. This was a major source of revenue for the company and its share price tumbled. When it was bought by Carillion for £306 million at the beginning of this year, it looked like a very fortunate escape for Eaga.
Perhaps some staff at the time might have wondered: ‘we’ve been hurt once by this government – maybe we should think twice about trusting them on FITs’. Well, now those same staff might not take too much comfort from the fact that the business is restructuring itself to shape up ahead of throwing itself at the next major green government schemes: the renewable heat incentive and the green deal.
Why? Because, like hundreds of other enterprises – many much smaller and far more vulnerable - despite being let down by this government, they have little choice but to trust their government to do what it says it will.
Landlords are being asked to take something of a leap of faith too on the green deal. As we will be reporting tomorrow, landlords are telling government that in its current form, the green deal won’t work for social housing. Exclusive figure from consultancy Camco suggest that social housing will only be eligible for between 0.5 per cent and 1 per cent of energy company obligation funding a year – simply not enough to deliver the green deal at scale. The 2050 targets look unachievable at present. And fuel poverty in social housing could well be exacerbated.
Yet the Department of Energy and Climate Change has cast confusion about the extent to which social landlords access to ECO under current proposals. At a UKGBC event yesterday DECC officials disputed claims by Affinity Sutton’s Jeremy Cape and Willmott Dixon’s David Adams that landlords are being largely excluded from ECO and that as a result green deal would be difficult to roll out. Indeed they said that Mr Cape had ‘misinterpreted’ the content of the consultation document which states affordable warmth funding will be just for private landlords. Upon second and third reading (see page 125) there is no way I can see that you could mis-read their intention to make affordable warmth funding only available to private tenants. But climate change minister Greg Barker also was of the opinion that social landlords were not being excluded from any part of ECO. The DECC press office just told my colleague Jess McCabe that what was in the consultation document was correct – so we are none-the wiser.
According to sustainability consultant Martin Wheately the DECC impact assessment for green deal actually assumes that landlords will be able to access affordable warmth funding – contradicting the consultation itself. Mr Wheatley maintains that DECC are not intentionally excluding landlords from ECO and so all is still to play for. As he put it: ‘We have to assume that this is by accident rather than design given their [DECC’s] aspirations around fuel poverty.’
‘I am reading between the lines and assuming that this means that ECO is not yet a done deal and there is an opportunity to change what is currently proposed – this really could be one we could win,’ concludes Mr Cape.
Fingers crossed he is right. I don’t want to be in a position of ever having to blogging something along the lines of ‘And so it starts: the green deal fall out…’
When you are on press deadline on a Wednesday afternoon, how do you start to get your teeth into a 238 page document?
The executive summary alone of the much delayed, eagerly anticipated, and biblically long green deal consultation is 43 pages. Given the planning policy framework document was 52 pages that is crazy. Only a few weeks ago, our web editor Tom Lloyd was told that the consultation was 176 pages but was being hacked back. Well, that clearly didn’t happen. Somewhere in the editing process an additional 62 pages were accumulated. Give the amount of paper required for the printing of this leviathan across the country, this could very well be the least green green policy consultation ever. I would like to make a disclaimer that there is no way I can do the consultation justice in one blog. It will probably fuel at least 10 posts.
Indeed, the majority of green bodies, have not yet made up their mind how to react to the consultation. There is a vacuum of reactions from the usual green bodies other than stock ‘we welcome the publication’ press releases. The fact is that the sector is still digesting its considerable contents and will be forced to do so for some time before being in a position to respond. And to many people’s dismay they are being given just eight weeks to do so – an extraordinary demand.
What chance did I then stand of dissecting it on a press day afternoon – the same week in which the government announced its housing strategy, its consultation of councils’ self financing debt allocations, its TSA standards and the new build figures?
Very little – so instead I went straight for the section that interested me most: page 125 which explores the design of the Energy Company Obligation.
Firstly, a moment of rare smugness (sorry). We revealed that ECO was to be split in to two pots – one for hard to treat homes and another for fuel poverty called ‘affordable warmth’ – it is. We revealed that ECO would be £1.3 billion a year – it is. We said that it would be split between these two pots at a ratio of roughly 25:75 respectively – and it is. We were also the first to reveal social landlords would be excluded from the ‘affordable warmth’ pot of ECO – they are (even if Chris Huhne publically rubbished this at the EEPfH conference last month). We also warned about the narrow emphasis of hard to treat funding on solid wall properties – this is the case. And we reported that a brokerage scheme would be introduced so that energy companies would not have an unfair monopoly over ECO – there is such a system being proposed.
So, on that ECO section: the relevant section states: ‘Some social housing providers have argued that households on the proposed eligible benefits in social tenure homes might benefit from Affordable Warmth support as not all social landlords have easy access to the resources needed to make these improvements, therefore Affordable Warmth should be “tenure blind”. We will welcome evidence on this point. However, in the light of the discussion above, the Government is minded to restrict Affordable Warmth eligibility to properties in private tenures.’
This call for evidence is something that Camco and the NHF are working on – but the sector needs to address properly and coherently if it is to convince the government to change its mind.
At the moment the government argues that the majority of fuel poor live in the private sector (81 per cent in private tenures); that the private sector has the lowest average standards of energy performance; and that in private housing alternative support is less likely to be available after Warm Front has come to an end (it also says that social housing has benefited ‘disproportionately’ from measures through CESP and CERT and from Decent Homes work). These are compelling arguments. And, in terms of getting the best bang for the government’s buck in tackling fuel poverty is hard to disagree that this might be the most efficient way to do so – but that doesn’t mean it is the right way. Based on the current design of ECO, the government might be able to reduce fuel poverty by between 350,000 and 500,000 by 2022 but that doesn’t mean it is helping the people who need it most.
Social tenants are a generally more low income and more vulnerable section of society than private sector residents. They are also in their homes for more of the day as many are retired, unemployed, ill or disabled, meaning they are more likely to be hit hardest by fuel poverty. ECO should help these people – even if it makes the use of ECO less efficient.
As National Housing Federation chief executive David Orr said in his response to the consultation today: ‘the document contains the unhelpful and misleading claims that social housing has benefited disproportionately from subsidy up to now and that the Decent Homes programme has largely sorted, or will sort, energy efficiency in the sector. We will be arguing strongly both that social landlords should have access to the fuel poverty element of subsidy, since fuel poverty has a higher prevalence in social housing than any other tenure.’
This is hammered home when you look at the way they propose to distribute affordable warmth funding. Page 122 of the consultation states that the government plans to target the affordable warmth cash at low income households that ‘include an older person, a child or someone with a disability and who do not have access to alternative sources of support to improve their heating arrangements’. To find these people this it suggests using benefits status as a guide. This, it says, is because the benefits system is an effective and accurate means of targeting households on low incomes in a way that can easily be verified and regulated. This mean a link to the DWP’s planned Universal Credit IT data base that comes in to effect in 2013
Another way it suggests distribute the funds would be through an area-based approach as it used for CESP funding. It says that it anticipates that energy companies might use benefit status to work out eligibility when distributing funds. This could be tricky for the first year of the scheme when the Universal Credit system has not yet begun.
But aside from these details, if the government believed its own rhetoric surrounding the social sector being far more benefit driven than any other sector then it would seem odd to exclude it from fuel poverty funding.
In among all the bad news confirmed in the consultation, there was also some good news. Green Party MP Caroline Lucas this week championed the social tenant’s cause. She tabled an Early Day Motion to parliament calling for landlords to granted access to vital green subsidies as part of our Green Light Campaign. Since going to press we have received the backing of seven other MPs after just one day – including one Conservative - and counting. Please get your local MP to sign it here.
Another piece of good news is that during the FIT debate last night Chris Huhne showed then first signs he might support one of our two main campaign aims: that social housing solar photovoltaic schemes are classed as ‘community projects’ rather than as aggregated schemes which will be subject to the especially debilitating FIT rate of 16.8p/kWh.
On the same day that Caroline Flint led a Labour attack on the cuts to the FIT (which was defeated) Mr Huhne was asked specifically whether social housing PV schemes would count as community projects. He replied: ‘On social housing, I have already said that we will consult on whether it is appropriate to have a separate tariff for genuine community projects.’ This is clearly very good news. However, to balance it out he also said that the design of the scheme, which was introduced by the Labour government, means it is currently not legally possible to introduce a special rate for not-for-profit organisations such as social landlords. Hmmm. Well, we will see.
Something we can not claim to have predicted ahead of our rivals was the size of a government package of green deal incentives. Today Danny Alexander announced that there would ‘a special time-limited ‘introductory offer’ to kick off the green deal: £200 million. This, aside from being sold in the language of a market trader by the Treasury which clearly insisted that if there was to be any new money announced then they, not DECC, would do the announcing (see also David Cameron AND Nick Clegg stealing Grant Shapps’ thunder for the housing strategy announcement because there was new money involved) is a welcome move. Although vague on detail, it was met with enthusiasm by WWF et al. The next round of ‘nudges’ should be unveiled very soon so I will reserve judgement until I have heard the whole package of carrots and sticks before comment.
In the mean time, I have the remaining 200 pages to return to.
I will endeavour not to mention our Green Light campaign in this week’s blog.
Despite the fact that we have garnered more than 400 signatures and have the support of many more associations, consortia and bodies like Shelter – as well as the Labour Party and Green Party - I am going to quit banging on about the campaign.
I am sure you all have better things to do than hear about how it takes less time to sign up than it does to visit the water cooler. (Much less, actually).
So, even though you definitely should back Green Light if you haven’t already, instead I am going to steer you towards my favourite other subject, the green deal.
Many of you, like me, will be itching to read a copy of the long awaited green deal consultation.
For some time you will have heard the expression ‘shortly’ or ‘forthcoming’ or, maybe, you might have heard someone prick your excitement with the word ‘imminently’.
Perhaps, like me you have been told as many as five different dates for when it is expected. Well, I am now feeling moderately confident that next week we might actually have a physical document in our hands with tangible detail on how the green deal will work.
At the very latest I am assured it will be the 29th of this month, but in all likelihood it will be sandwiched as part of the bumper package of other government announcements scheduled for next week; on Monday we have the housing strategy with the right to buy consultation, and on Friday the growth strategy.
Both of these (especially the latter) are more eagerly anticipated and pressing than the green deal consultation – and therefore the contents of the green deal consultation could well get lost in the media wash.
Clearly, Inside Housing will be all over the design of ECO and the nitty-gritty of the green deal like a rash. But there are some bigger questions – like what can landlords actually do with the green deal? – which few are really asking right now.
One organisation that is renowned for its holistic outlook and is in fact asking that very question is Bioregional. As we report this week, the options are limited without considerable ECO funding.
The charity has found green deal finance alone will only cover £4,000 of energy efficiency work at a typical home, with a further £10,000 of work for flats or £20,000 of work for houses falling outside the scope of the scheme.
This was based on research and modelling for a scheme to retrofit 2,500 homes in the south London suburb of Hackbridge.
The green deal measures that were covered included loft insulation, cavity wall insulation, lagging and boiler exchanges – all things that most providers have already undertaken to some extent through CERT and CESP.
For many this research will confirm what we already know: that in order to achieve major savings in social housing, more difficult – or expensive – measures will need to be undertaken.
Much of the ‘low hanging fruit’ measures have already been picked. And to meet the ‘golden rule’ and achieve savings in social homes landlords will need MORE not less ECO funding.
In the words of Joanna Marshall-Cook, energy project manager at Bioregional: ‘I’m not sure what scope there is for social housing providers to use that [green deal] unless they are going to go down the solid wall insulation route, and that would need ECO funding.’
Without improved access to ECO, many landlords may well look at the green deal and wonder what the point is. Why should they bother?
Which, awkwardly brings us back to our Green Light campaign to ensure landlords are not excluded from any ECO funding.
But I said I wouldn’t loiter around this, so moving on…
In other news, we this week reveal exactly what the hit of the Carbon Reduction Commitment could be for councils.
The scheme, which was made a far blunter tool by Chancellor George Osborn this time last year, is effectively a tax on carbon emissions complete with a league table to name and shame the biggest green sinners.
The table was published for the first time last week and Inside Housing put in some leg-work to find out what the impact of the CRC is likely to be for cash-strapped authorities. The result is an eye watering £86 million hit. Given how little green funding is available to councils, and taking into account that the feed-in tariff – which was previously an easy way of cutting emissions while generating a tidy income – has been slashed back, this is actually not an insignificant sum.
If you need evidence of what £86 million could do to improve social tenants’ lives, just look at the £4 million that was today distributed among 24 social housing providers from across Britain under the Renewable Heat Premium Payment scheme. Despite being a small amount of money, the government received 125 bids from landlords. It all counts.
The Local Government Association has hit out against the scheme for creating unnecessary admin and distracting councils from investing in worthwhile carbon reduction measures.
They are certainly not alone – the scheme has been widely attacked for being laborious and overly complex. But ultimately it is too late for complaining. Big businesses are feeling the sting – but should tax payers be paying the costs of their local government’s inefficiencies? I am keen to hear what you think on this.
Either way, it will be a welcome stimulus for councils to adapt and change with the private sector.
You can imagine that Greg Barker had been dreading today for some time.
The climate change minister this morning stepped into a two hour meeting with a room of furious solar sector representatives desperately seeking some grain – even the slightest shard – of hope that their years of work and investment was not all about to go down the drain. He had none for them.
It was always going to be awkward coming face-to-face with the people hit hardest by your policies.
But today must have been especially awkward given a number of the people in the room have this week instructed their lawyers to begin legal action against the minister’s Department of Energy and Climate Change.
Solar Century, which is leading a consortium of other solar companies, said that it is seeking an interim injunction to stop the Department of Energy and Climate Change from using the 12 December as the cut-off date for the current tariff.
It describes the date as being ‘illegal, irrational and unreasonable’. The group, which has not yet named its other members, wants to stop any cuts to tariff levels being made until DECC has completed a ‘proper, review and followed the correct processes’.
This follows the example set by Friends of the Earth which laid down an ultimatum to climate change minister Greg Barker on Monday warning him to amend the proposed cuts by 4pm on Friday or face a judicial review.
Now an expensive and potentially bitter legal clash looks inevitable. It is hard not to sympathise with a sector that has just had the rug pulled out from under it with just six weeks notice.
As Jeremy Leggett, chair of Solar Century, said: ‘The banks get eight years to change, we get less than eight weeks.’
However, past experience of private companies combating policy reforms of this coalition suggests that this is not the best way of gaining traction.
Legal action smells of desperation and signifies an abandonment (however justified) of negotiations.
Past examples (think developer Cala which was eventually swatted aside by Communities Secretary Eric Pickles in its opposition of the scrapping of the regional spatial strategies), and the fact that the government will have taken water-tight legal advice before making the announcement, would suggest this latest effort might be in vain.
That said, there are rumours that local authorities are also considering some form of challenge.
If this is true, although lawyers doubt it is likely to happen, few could blame them. As we report this week, the fall out is massive.
Social landlords are facing abortive costs of £5 million and contractors like Mears have been very badly burned, limping away from the market without a deal to show for their efforts - just an expected £2 million write off and a £2.8 million hit to their annual profits.
Ironic then, that among all the gloom, there was the one deal sealed yesterday that three weeks ago would have been mega news.
The first – and possibly the last – rent-a-roof deal was completed by West Country Housing with PV company Anesco to install 1,400 panels.
After months of lengthy negotiations with banks not a single deal had been signed due to concerns about how the complicated third party contracts could reduce the value of lenders’ security in the unlikely event of a housing association loan default.
Well, somehow law firms Trowers & Hamlins and Eversheds have worked with their clients to overcome these difficulties at a time when nearly every other rent-a-roof deal has been abandoned.
It will stand as a testament to what could have been. Or, more optimistically, what could still be for the rest of the sector if our new campaign Green Light is successful.
We launched it last week with the aims of getting social housing FIT schemes categorised as ‘community projects’ rather than ‘aggregated schemes’ so they get help from the government, and that social landlords are given equal access to ECO funding for the green deal.
So how is our attempt to ensure landlords are not excluded from vital green subsidies going? Pretty darn well, if I may say so myself.
In our first week we have received unprecedented support for Green Light with over 300 signatures on our petition and pledges from across the sector.
As we will reveal today, we have the backing of some major Labour heavy-weights including shadow energy secretary Caroline Flint, and shadow housing minister Jack Dromey – not to mention the support of groups representing around 1.4 million social homes (and that is not including the millions of homes represented by members of the National Housing Federation and the Chartered Institute of Housing.
While the government doesn’t look likely to back down over the FIT cut coming into effect on 12 December, we believe there is scope to negotiate a fairer more equitable settlement for social tenants.
It is the voice of these tenants that will make the difference for Green Light – which is why we were so pleased to receive the support of the TPAS this week, which represents 1,700 tenants groups, and energy giant E.ON which represents millions of customers across the UK.
If E.ON, a company driven by profit can see the logic to our campaign, then the government should too.
There is huge pressure on the government to tackle rising fuel bills. When red top papers like the Daily Mirror take a leaf out of Inside Housing’s book and launch a campaign called ‘Fair Price for Power’ on the back of the FIT cut you know that the government will be concerned (note: it reported on Monday that the cut to the FIT means more than 100,000 housing association properties won’t have PV installed – hence the campaign).
As a further bellwether of the mounting consumer concern, if you need one, even the BBC’s Panorama set its sights on an investigation into how government policy was impacting bills earlier this week.
There is a row underway over the statistics cited about the impact on bills by climate change minister Greg Barker - but even ignoring that, as long as the poorest are protected then that is what should matter.
As it stands they have, subsidised the FIT but only home owners have benefited from it.
Leeds City Council had hoped to save their tenants a massive £30 million over 25 years through a 5,000 home PV scheme that has now been shelved as a result of the government’s announcement.
That equates to around £120 a home a year for the people who need it most. This is the big test on whether the FIT cuts are about getting votes or common sense.
While Inside Housing is not disputing the need for a cut to the FIT, we struggle to see how it can make sense to hit the poorest people the hardest if it is the impact on people’s energy bills that matters.
A similar dilemma will emerge if the government makes them pay for the ECO but not let them benefit from affordable warmth funding.
With your continued support, we are confident we can persuade the government that social tenants need more, not less, help if they are to avoid falling into fuel poverty.
‘Apocalyptic’. That is how one major PV provider described the news of the government’s cut to the feed-in tariff.
Everyone had expected bad news for weeks. In fact, as I wrote last week, a careful campaign of expectation management through what appeared to be strategic leaks from the government meant that the halving of the FIT from 43.3p/kWh to 21p/kWh was not a major surprise to anyone.
What was a massive shock was the government’s decision to hit social landlords harder than any other sector and slash the FIT to just 16.8p/kWh for multiple installation ‘aggregated’ PV schemes.
This was a worse than worse case scenario for most landlords. The move has effectively shattered the solar dreams of the social housing sector – and with it, any prospect passing on the benefits of reduced bills to their tenants, many of whom are low-income vulnerable people, and all of whom have paid for the scheme through their energy bills to date.
As I have blogged in past weeks, this is an increasingly familiar story: owner occupiers reaping the rewards of green schemes ahead of poorer non-home owners.
The government is planning to exclude social landlords from accessing the fuel poverty pot of the Energy Company Obligation – or ECO – funding which is paid for by energy companies through consumer’s bills to subsidise retrofit works in the forthcoming green deal.
The National Housing Federation has warned that this could have a devastating impact on landlords’ ability to deliver energy savings through the green deal for their tenants.
In both cases the end result is the same: an increased risk of the most vulnerable people sliding into fuel poverty and their landlords having no funding to help them out.
That’s why Inside Housing has launched its new campaign - Green Light. The campaign has two simple aims.
The first is to ensure landlords get equal access to ECO funding – all we ask is that social landlords are on an equal playing field to other sectors. Already, as we report this week – and following my analysis of Chris Huhne’s rhetoric last week – there appears to be a softening on the government’s position on this, so a win is achievable.
Second, that social housing schemes are classified as ‘community projects’ rather than aggregated schemes.
The only ray of light so far, as tipped in last week’s blog, is that the government is considering helping PV schemes that can be demonstrated to have a community, rather than commercial purpose.
It said on Monday it would consider helping ‘genuine community projects to be able to benefit from the FIT’.
This is vague – but it is the best we can expect to win. Once again, we are not calling for special treatment; we simply don’t think it is fair that the most vulnerable and poor are hit the hardest.
If you agree then we want to you sign up to our campaign.
In only a day and half we already won the backing of figures like Green Party MP Caroline Lucas alongside energy giants E.ON, the UK Green Building Council, Sustainable Homes, Chartered Institute of Housing, National Housing Federation, Northern Housing Consortium, PRP Architects, a host of contractors and solar providers such as Carillion, and landlords including Peabody and Affinity Sutton.
We need cross sector support to fight for the right to protect the fuel poor and get the support the sector needs to deliver the government’s carbon reduction targets. Please sign up.
So now the fall out of the FITs cut. As we report this week, rent-a-roof schemes, in which third party PV providers offer free PV in exchange for a portion of the FIT, have been stopped in their tracks.
None have taken place so far because of ongoing wrangles with lenders over the impact the deals could have on the value of bank’s security.
But progress was being made on this front. The first deals were coming to the fore – indeed there is one deal on the brink of completion that could end up being a testament to what could have been; a solitary product of millions of pounds and months of resources that now look to have been wasted.
Trowers & Hamlins warn landlords face an expected £5 million of wasted ‘abortive costs’. That spend equates to a lot of retrofit measures – or homes for that matter.
For self-funded schemes, now is the time to return to the drawing board and hope that the returns needed to pay for the cost of capital still add up.
For many it won’t.
The government is now claiming that it warned to expect a return of 5 per cent and that should still be obtainable under the new tariff.
However, already landlords such as Peabody - which had plans to invest a massive £23 million of its own cash into PV - say otherwise.
Having done their maths, it says that based on government guidance, it anticipated a return of 7 per cent against a 5.3 per cent cost of debt. A 5 per cent return will not let its scheme wash its face so this means a major rethink.
There are other unintended repercussions of the FIT cut.
One point that should really concern the government is that a growing number of experts are warning that the sudden policy change has rocked investor confidence to the point that now the green deal, which is heavily reliant on private sector finance, is at risk.
I will be speaking to banks, institutions and private equity investors over the coming weeks to find out what the true cost of this week’s ‘apocalyptic’ FITs cut for landlords will be.
Welcome to the week of green smoke and mirrors.
A week that - for me - will forever be etched into memory by the looping words ‘…the details of which will be published in a consultation shortly’.
Name a query about any area of sustainable concern – the feed-in-tariff, the green deal, energy company obligation, energy performance certificates – and the government will inform you that the answer to question will be out ‘shortly’ in a forthcoming consultation.
We know that. We are used to it. But when the consultation is delayed, it doesn’t make it any less frustrating.
Before I go any further there is something I want to make clear.
Behind the scenes there appears to have been a series of u-turns, leaks and contradictory statements that the government would like to characterise as the rumour mill spinning out of control.
The reality is that many of the stories that have emerged this week have come from official briefings and documents (admittedly ahead of a final decision being made).
This means that either there are healthy disputes between the Treasury and DECC or there is spinning to manage expectations.
Take the saga that has caught the headlines most this week: the news that the government is intending to carry out an early review of the FIT.
In short, there isn’t much left of it as uptake has massively exceeded government projections and there is a very real threat that the pot will be empty by the end of the year without a government intervention.
First of all, rumours were flying that the FIT would be slashed back to 9p, which would have been devastating.
Then, in an apparent accidental leak, a fact sheet conveniently posted on the Energy Savings Trust website today showed that the 43p/kW FIT level is to be halved for PV at 4kW or smaller as of 8 December to 21p/kW.
DECC tweeted that this was neither final nor accurate.
Taking us from apocalypse to a kind of purgatory within the space of a week to me feels calculated.
We find out on Monday what the reality is, but regardless of the extent of the cuts damage has already been done.
The solar market has been rocked by uncertainty - a word that sends investors running to the hills.
As we report, one company has frozen a £175 million investment in PV on social housing roofs as a reaction – and warns that the social housing sector will be hit hardest by any cut to the tariff.
This many well be as few landlords have come close to installing as much PV as they would have hoped – in part due to the ongoing troubles in getting bank sign off for their rent-a-roof deals.
It was a major subject of discussion at the fourth annual Sustainable Housing Awards at London’s Park Lane Hilton last Friday where one provider told me: ‘solar PV on social housing is like sex when you are a teenager: everyone is talking about it but no one is actually doing it’.
Fingers crossed this scenario will change soon because, otherwise social housing could die a solar virgin compared to other sectors.
Millions of social tenants funding the subsidy will not benefit from it at all.
On top of the existing problems facing the sector in hauling their rent-a-roof deals across the line, this investor uncertainty combined with a halving of the FIT could be the final nail in the coffin for landlords’ PV aspirations.
One rumour that crossed my path was that there had been some talk in government circles about exempting ‘socially focussed’ PV schemes out of the crosshairs.
Were this the case, then social landlords may well be exempt from an early FITs cut.
It would also compliment the government’s more thoughtful ‘fabric first’ approach to the FIT and renewable heat incentive tariff outlined by climate change minister Greg Barker yesterday whereby homes will only be eligible for the FIT if they have undergone energy efficiency works first.
Don’t hold your breath, though. All eyes will be on the announcement in parliament on Monday.
So, on to the next area of uncertainty. Yesterday, many in the sector had been led to expect that the government would release its long-awaited consultation document on the green deal.
In fact, the Energy Efficiency Partnership for Homes even held their conference around it.
An impressive line up of speakers including policy leaders from the Department of Energy and Climate Change, Secretary of State Chris Huhne and junior housing minister Andrew Stunell turned out to an equally promising catalogue of delegates – many of which were potential green deal providers including retailers like M&S, B&Q, BSkyB.
Unfortunately, many of the questions they had about the green deal remained unanswered because the consultation has been pushed back.
The press office at the Department for Energy and Climate Change contend that there was never a formal date announced so therefore it can’t have been delayed. Hmmm.
Tell that to the National Housing Federation, which, also expecting the consultation announcement, attacked the government over its plans to exclude social landlords from affordable warmth funding in ECO subsidy this week.
Their argument is that social tenants – many of which are the worst hit by fuel poverty – will be paying for ECO through their fuel bills but they won’t stand to benefit.
Following the publication of the interim report on fuel poverty from Professor John Hills last week, the NHF published figures from consultancy Camco that warn around 1.03 million social homes - the equivalent of 2.5 million people - will be vulnerable to fuel poverty if landlords miss out on the affordable warmth cash.
As Inside Housing reported last week, the Hills review has already warned the government that ECO could exacerbate fuel poverty and have a regressive impact on the poorest families if it’s not carefully designed.
As we report this week, the NHF, which has been explicitly briefed by DECC that landlords will be excluded from affordable warmth, pulls no punches:
‘Housing associations are ready, willing and able to play a key role in delivering the government’s Green Deal,’ begins NHF chief executive, David Orr.
‘But if ministers do exclude social landlords from the ECO fund set up to tackle fuel poverty then millions of the poorest and most vulnerable people in the country will miss out on warmer homes and lower fuel bills.
He builds momentum: ‘To make this even more difficult to stomach is the fact that these hard up tenants will still have to contribute to the fund even though they will not benefit from it.
‘We’re not asking for any special treatment. But if low income social tenants have to pay a levy to fund these improvements then they and their landlords should have fair access to the fund.’
Given there is no other funding available for tackling fuel poverty, this is an understandable reaction.
Certainly the logic in the context of the Hills review stands that everyone should access the benefits of ECO if they are paying for it.
At the EEPH conference yesterday there were very mixed messages emerging about the government’s thinking on this.
When asked about the plans to exclude landlords from the affordable warmth element of ECO, Chris Huhne appeared to poo-poo the idea.
‘I am absolutely astonished, being on the inside of many of these discussions, to see some of the rumours that have managed to get some traction out there,’ he said before explaining that he wanted the green deal available for everyone regardless of tenure and ending with the words ‘wait and see, but I think I have given you as much as an answer as I am able to ahead of the consultation.’
One landlord asked me ‘did we just get what we want or was Mr Huhne just badly briefed?’
Another ran up and claimed that he had just directly contradicted a senior civil servant.
A shell-shocked Andrew Warren, deputy chair of the EEPH, took Mr Huhne’s apparent u-turn as a clear win for the sector and pointed out that he makes the policy decisions.
However, a closer look at his exact words makes for less convincing reading than his enthusiastic delivery might have implied.
He actually spoke more about the green deal than ECO and there is considerable ambiguity in what he said: ‘The reality is that we want this to be a programme that extends right across the country.
‘The ECO subsidy is essential for both hard to treat and fuel poverty homes because it’s also what makes the green deal a universal offer.
‘We want people to be able to market the green deal for everyone and anyone regardless of their tenure and their region and their personal circumstances… ‘
And then a civil servant, asked the same question later, sounded much less convinced stating ‘there were questions’ to be asked’.
Clear as mud, then.
Regardless of the situation with affordable warmth funding, there is another problem, though.
As we report this week, the NHF also warns that landlords could find themselves largely excluded from the larger portion of hard to treat funding too because of a narrow government definition that focuses on solid wall properties.
At the moment it is understood ECO is likely to be around £1.3 billion and most people expect it to be split roughly 70 per cent hard to treat, and 30 per cent affordable warmth.
Landlords can’t make green deal work without ECO – more in fact than the private sector – so this could undermine the sector’s ability to deliver savings for its tenants and the government.
The government has the problem that it needs to get the best value it can for the limited ECO pot.
Affordable warmth was previously for private homes, and the social sector is perceived to have already benefited from CERT and CESP as well as Decent Homes funding, and therefore are warmer and more efficient already.
Backing this up, Grant Shapps called on social landlords to undertake their own ‘pay as you save’ schemes ahead of green deal’s launch in a year’s time.
Cheeky, if the government does exclude social landlords from fuel poverty funding.
Either way, this does show two things that the sector should be aware of: that the government is a) sensitive to the political fallout of being seen to get poor people to subsidise the wealthier (those who can own their own home) and so wants to be seen to acting, and b) it feels that that the social housing sector can adjust rents and service charges and use surpluses to invest in protecting their tenants from fuel poverty instead of using public funding.
Tempering these two points is a third; the government needs the social housing sector to make the green deal work.
As we report this week, the NHF has been in talks with DECC over signing a pledge in which the sector would deliver retrofits to an agreed number of homes.
For the government this would be a terrific early win; landlords offer retrofitting at scale and could attract bulk finance to the green deal giving it the early kick-start it will certainly need.
Therefore, the sector has leverage. It should use it.
The decision to exclude social landlords could see fuel poverty rise to unprecedented levels and leave elderly and vulnerable people with little choice but to risk their health or even lives by leaving their homes unheated during the cold winter months, according to the National Housing Federation.
This week the Energy Bill received royal assent. That is an important milestone; the green deal has taken another important step towards becoming a reality in a year’s time. What still needs to be done is considerable and for a different blog post.
However, the significance of this is that on 27th of this month, assuming there are no delays, the Department of Energy and Climate Change will release a consultation document outlining more detail on the green deal and also on the structure of the Energy Company Obligation, more commonly known as ECO.
This is effectively a levy on all our fuel bills that is collected by energy companies and used to tackle fuel poverty and improve energy efficiency. Right now it is still being designed by DECC and will replace existing suppliers obligations such as carbon emissions reduction target – CERT - and community energy saving programme – CESP.
ECO is a deal breaker for the social housing sector – especially as far as the green deal goes. Without considerable ECO funding, landlords will simply not be able to meet the ‘golden rule’ which the green deal is based on in which savings on energy bills must exceed the costs of the works. Research from Affinity Sutton’s FutureFit programme and BioRegional’s Pay As You Save pilot show that social landlords need more, rather than less, ECO if they are to make the green deal work because social homes are already more energy efficient than the private sector thanks to the decent homes programme and CESP and CERT works. As many in the sector would say, the so-called ‘low hanging fruit’ has already been picked – so the savings needed to meet the golden rule in social housing is harder to achieve.
Inside Housing has revealed not only what ECO is set to look like, but also that social landlords are set to be excluded from some of it.
The government is planning to split ECO into two pots; one for hard to treat homes, and another to tackle fuel poverty. The government is planning not to allow social landlords to access this latter pot, which is to be called ‘affordable warmth’ – despite there being 17 per cent of the 4 million fuel poor in England living in social housing.
So how bad is this news? Until we know how big ECO will be and what the split between the two pots is likely to be, it is going to be very difficult to quantify the impact on landlords.
WWF reckons that ECO needs to be between £3 billion and £5 billion to make the green deal work – but also fear the eventual sum is likely to be between £1 billion and £2 billion. In terms of the split, sources suggest that the affordable warmth element of ECO will be much smaller than the hard-to-treat element, so perhaps, from a green deal perspective, being excluded from this pot won’t hinder landlords too badly.
That said, from a fuel poverty perspective, this must be a huge blow. For many social landlords, their main motivation for undertaking energy efficiency measures is to reduce fuel poverty. Given it is a major part of their social purpose, it could be considered quite short sighted to exclude them from funding on the basis they have already done good work. While it is easy to understand the government’s thinking that they can get more bang for their buck by tackling the private sector, it is also worth looking behind the fuel poverty figures. Just because social tenants homes are generally have better average SAP ratings than those in the private sector, doesn’t mean they necessarily require less help. Social homes, contain some of the most vulnerable people on low incomes – many of whom are elderly, unemployed or requiring care. This means they also spend much more time in their homes than in other sectors.
A household is considered fuel poor if it spend more than 10 per cent of its household income on fuel bills. Within this, there are various measurements that can be used. The current method is modelled on consumption in specific property types. While there are strengths to this approach, there are also drawbacks insofar as it ignores a lot of the human variables – some of which would find social tenants are much more heavily impacted by fuel poverty than the current statistics might suggest. Groups like the National Housing Federation are interrogating the government’s figures and methodology as well as lobbying for equal access to ECO on the basis that all groups pay for it – so it is unfair if they don’t see the benefits.
Adding weight to this concern, on Wednesday Professor John Hills announced the interim findings of his independent review on fuel poverty and in it, warned that if ECO is not distributed fairly, it could exacerbate fuel poverty for the lowest income homes. Echoing the concerns of the NHF, he said lower income households needed higher levels of ECO funding and pointed out that for low income families, the green deal would not provide any short term relief from fuel poverty.
Professor Hills also said more needed to be done to tackle fuel poverty and suggested other means of measuring it: ‘The way we have measured fuel poverty painted a false picture about how well we were addressing it,’ he said - adding ‘things are hardly on track for the problem to be eradicated in just a few years’.
He also delivered a stark warning about what is at stake here. His report, which was commissioned by DECC, found that 2,700 people die every year in England and Wales as a result of fuel poverty – more than in road accidents. Time then, for the sector to buckle up, because as energy bills continue to soar along with inflation at the same time as unemployment rises, without full and fair access to ECO, many of these victims will undoubtedly be social tenants.
With just five months left until the government cuts back the feed in tariff, despite rent a roof deals on hundreds of thousands of homes having been agreed between landlords and providers of solar photovoltaic panels, not a single one has been signed off.
That is a poor statistic – especially given the level of hype as companies flocked to the market over the last year.
The furious effort that has gone into getting these agreements sorted before the April deadline – after which, the drastically reduced FIT will no longer be enticing enough to make many of these deals viable – could well go to waste if lenders’ consent is not obtained for these deals soon.
With potential £250 a year savings for each tenant with PV on their roofs at stake, it is easy to see why PV providers and associations alike have levelled their frustrations at the perceived source of their problems: their lenders.
Banks, somewhat unfairly, have been accused of jeopardising these deals. The hold-ups, associations, PV providers and their respective irritated lawyers claim, is a result of their being overly cautious and tabling ‘apocalyptic scenarios’.
They have been asking what impact the deals could have on values if an association defaults on a loan and the bank has to sell, the properties it is holding as security. In this unlikely event they are concerned that the PV deals in place could significantly devalue their security.
Well, the shoe has been put on the other foot now.
As Inside Housing reports this week, guidance published by the Council of Mortgage Lenders means that many landlords could have to return to the drawing board and enter eleventh hour renegotiations with their PV providers.
The guidance spells out the minimum requirements of lenders that landlords must meet in order to obtain their lenders’ consent to push on with these deals.
At the core of the recommendations is the advise that most banks will require the power to terminate contracts with PV providers ‘without compensation and without liability for any costs of removal’ in the event of a default by an association.
This is bad news for PV providers. But then again, if they really believe that this default scenario is so very unlikely then they will surely have no problem signing up to taking on the risk that the banks were previously concerned about.
Of course, they will also have their own risk adverse funders to please. Lawyers warn that many agreements will need to be amended in the wake of the CML guidance. However, they also say that when push comes to shove, PV providers will probably will accept this, but they may well try and factor the risk into their own pricing – hence possible renegotiations with housing associations.
According to Richard Petty, director at Jones Lang LaSalle, the impact these deals could have on the value of banks security is actually huge; up to 15 per cent.
On a £500 million portfolio this would mean a bank stands to lose up to £75 million in the event of a default on the value of the security simply because of the contracts in place.
‘But surely having an income producing piece of technology installed on home that reduces bills and increases energy efficiency of the property can only be a good thing for property values?’ I hear you ask. The answer is possibly. But the impact on values that banks are concerned about has nothing to do with the PV itself.
The potential loss of value is a result of the contractual arrangements with third parties that could then make the properties harder to sell.
Mr Petty explains that if a bank finds that potential buyers don’t want PV on the roofs of the properties under the same terms that the HA has signed up to originally, then in many cases they face the prospect of paying a substantial termination fee to break and buy out the agreement, so that they can either sell unencumbered or remove the panels to achieve a sale.
In this scenario, banks would have to pay PV providers significant sums to break the rent-a-roof contracts, which have been drawn up to protect the PV providers’ security – which is the PV panels and equipment.
On top of this there is the prospect of long drawn out negotiations with lots of third parties, all with their own credit committees and sets of lawyers to appease.
When trying to sell huge portfolios, the prospect of legal wrangling is enough to kill a deal; hence the banks have said they want this get-out clause.
So housing associations are piggy in the middle right now. With no time left to start out entirely from scratch, they are at the mercy of their funders and their chosen PV providers.
The truth of the matter is that many associations probably should have approached their funders much sooner than they did. What on paper appeared quite simple has turned out to be painfully complicated.
Their complaint that banks have not acted with the urgency they required is may fall on deaf ears because, not only are these deals all different and immensely complicated, but also, banks – risk adverse profit driven organisations – are essentially being asked to take on more risk without any obvious reward. A big ask.
The CML guidance therefore should be considered good news. A line has been drawn. Everyone knows where everyone else stands.
Now that the CML has clarified lenders position, as unpalatable as it may be to PV providers and associations, changes can be made to contracts and the way is paved for the first deals to be done.
Watch this space.