Fit for the future

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

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

FutureFit

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

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

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

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

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

Positive thinking

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

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

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

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

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

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

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

Some of the other conclusions that are worth highlighting are:

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

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

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

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

The Autumn issue of Sustainable Housing is out on Friday