In order to meet the UK’s (legally binding) carbon reduction targets there is a need to update our old and inefficient housing stock. For instance:

  • 6 million UK homes have unfilled cavity walls
  • 6 million UK households have not had their lofts insulated
  • 7 million solid wall properties are un-insulated
  • 6 million households do not have double glazing
  • 70% of UK homes do not have heating controls
  • 12 million homes have non-condensing boilers

The government’s solution to address these inefficiencies and reduce our carbon emissions is the Green Deal Scheme. The idea is that home owners are able to receive a loan for the cost of installing energy improvements. The loan is attached to the property (rather than to the property owner) with the repayments made through the resulting savings in energy bills. As the loan is attached to the property rather than the property owner the loan will stay with the property for the duration of the loan – irrespective of whether the same owner remains in control of the property. It also means that home improvements can be made with no upfront costs.

Alongside the Green Deal is the Energy Company Obligation (ECO). This sets a legal obligation on Energy Company’s to help those on lower incomes heat their homes through the Affordable Warmth target. This sets aside at least £540m of funding per year, for 10 years, to make energy saving improvements in the worst homes and a further £350m a year to deliver heating and insulation measures to the vulnerable. Social Housing tenants will also be able to access funding of around £190m per year for loft and cavity wall insulation measures. This scheme replaces the Community Energy Saving Programme (CESP). Energy Companies, under ECO, also have a legal obligation to help install measures in “hard to treat” properties, in a scheme known as the Carbon Saving Target (which replaces the Carbon Emissions Reduction Target which ended in Dec 2012). Hard to treat properties include those with solid walls and very old buildings that do not suit external insulation measures, and will include glazing and draught proofing, and it is estimated some 7 million homes could benefit under this scheme. The total annual funding of the ECO scheme will be some £1.3bn per annum with the scheme being written into law for a minimum of 10 years. Eligible Measures: Please see here for an updated list of measures as of January 2013 A full-list of eligible measures that can be undertaken through the Green Deal:

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Installed by Cernunnos Homes

Heating,   ventilation and air conditioning Condensing   boilers (Gas & Oil)

here

here

Yes

Heating   controls

here

here

Yes

Under-floor   heating

here

here

Yes

Heat   recovery systems

here

here

Yes

Mechanical   ventilation (non-domestic)

here

here

Yes

Fan assisted   replacement storage heaters

NA

NA

NA

Flue gas   recovery devices

here

here

Yes

Building   fabric Cavity   wall insulation

here

here

Yes

Loft   insulation

here

here

Yes

Flat   roof insulation

here

here

Yes

Internal   wall insulation

here

here

Yes

External   wall insulation

here

here

Yes

Draught   proofing

here

Yes

Floor   insulation

here

here

Yes

Heating   system insulation (cylinder, pipes)

here

here

Yes

Energy   efficient glazing and external doors

TBA

TBA

TBA

Lighting Lighting   fittings

here

here

Yes

Lighting   controls

here

here

Yes

Water   heating Innovative   hot water systems

NA

NA

NA

DHW   Cylinder insulation jackets

here

here

Yes

DHW   Cylinder Thermostats

here

here

Yes

Waste   Water Heat Recovery systems

here

TBA

Yes

Water   efficient taps and showers

here

here

Yes

Microgeneration GSHP

here

here

Yes

ASHP

here

here

Yes

Solar   Thermal

here

here

Yes

Solar PV

here

here

Yes

Biomass   Boilers

here

here

Yes

Micro   Wind

here

Yes

Micro-CHP

Yes

The loans available are attached to the electricity bill of the property, with the loan amount being repaid through energy (and thus financial) savings made through the energy efficiency improvements. The duration will vary depending on the cost of the measure being undertaken and the expected savings, however the loan can be up to 25 years in duration. At the heart of the Green Deal is the “Golden Rule” which determines how much finance can be borrowed. The Golden Rule states that the amount borrowed to install the energy efficiency measure must be less than the expected savings made over the lifetime of the measure. It limits the amount that can be borrowed to the amount that is expected to be saved. It does not mean you cannot borrow or install an energy efficiency measure that does not meet the Golden Rule, it just means you can only borrow the amount that is expected to be saved. If the measure costs more than is expected to be saved then the consumer can choose to part-pay the difference. Below we run through a very simplified example of how the Green Deal and the Golden Rule works. Please note that not all of the details have been finalised or released by DECC and thus these calculations are subject to change. Example 1: A consumer currently has the following electricity bill of £150 per quarter:

Current quarterly electricity bill

£150

= £600   per annum

The consumer then wants to install a Solar PV system at a cost of £5,000 and through energy production and the Feed in tariff system this system will save the consumer £500 per annum, or equivalent to £125 per quarter:

Solar PV installation cost

£5,000

Quarterly Savings (through FiT and   electricity generation)

£125

The consumer wants to finance the Solar PV installation through a Green Deal loan, but first must make sure that the Golden Rule is satisfied. The loan is to be made for the full installation cost at and APR of 7% and can be up to a duration of 25 years:

Loan amount

£5,000

Interest Rate

7%

APR
Loan duration

25

years
Quarterly Repayment

-£106.24

Here we can see that the total savings and loan repayments over the lifetime of the loan will be:

Lifetime Savings from installing   Solar PV

£12,500.00

Lifetime Repayment of Loan

-£10,624.40

Thus the Golden Rule is easily met where the loan is for 25 years. However, let us say that the loan is only for 10 years and still has an interest rate of 7% APR thus:

Loan amount

£5,000

Interest Rate

7%

APR
Loan duration

10

years
Quarterly Repayment

-£174.86

Here we can see that the loan repayment and savings over the lifetime of the loan will be:

Lifetime Savings from installing   Solar PV

£12,500.00

Lifetime Repayment of Loan

-£17,486.05

And thus the Golden Rule HAS NOT BEEN MET. In this instance there are 2 options:

  1. Extend the loan to be at least 18 years:
Loan amount

£5,000

Interest Rate

7%

APR
Loan duration

18

years
Quarterly Repayment

-£122.68

 

Lifetime Savings from installing   Solar PV

£12,500.00

Lifetime Repayment of Loan

-£12,268.00

 

  1. The consumer borrows, as planned for 10years, but can only borrow a reduced amount and finance the rest themselves:
Loan amount

£3,550

Interest Rate

7%

APR
Loan duration

10

years
Quarterly Repayment

-£124.15

 

Lifetime Savings from installing   Solar PV

£12,500.00

Lifetime Repayment of Loan

-£12,415.09

As loans can be taken out for a total of 25 years, in this instance a consumer is likely to want to take a 25 year loan based on the Solar PV life expectancy being 25 years. However, the lender is going to rather that they lend for the minimum time required (i.e. 18 years) and then the consumer would get the benefits of the installation from year 18 to year 25. The actual length of the loan (and the details for this have not been finalised by DECC) is likely to be somewhere in between, and for the purpose of this example let’s assume the loan duration is agreed to be for 21 years:

Loan amount

£5,000

Interest Rate

7%

APR
Loan duration

21

years
Quarterly Repayment

-£114.06

In this instance the original electricity bill of £150 would now be reduced to £139 per annum:

Current quarterly electricity bill

£150

= £600   per annum

Quarterly Savings (through FiT and   electricity generation)

£125

= £500   per annum

Quarterly Repayment

-£114

= £456   per annum

New Quarterly Electricity Bill

£139

= £556   per annum

And added to this the homeowner would receive the full benefits of the Solar PV system from year 21 through to year 25 and have paid nothing for the Solar PV to be installed on their property.

Next -Green Deal Process And Key Players