Isra-Mart srl: Industry warns of rocky road to Green Deal success

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With the Energy Act now enshrined in law, the government is facing mounting pressure to overcome a series of obstacles that critics are warning could derail the launch of its flagship Green Deal energy efficiency scheme.

Green businesses welcomed the passage of the act this week, which should allow the long-awaited Green Deal scheme to launch in a year's time.

But observers warned that businesses were unable to move forward with plans for the scheme until details of the financing initiative are fleshed out in a formal consultation that is expected to be launched at the end of this month.

Key concerns focus on how the government will ensure the Green Deal abides by its "Golden Rule", which means monthly repayments made under the scheme will be less than – or at least equal to – the energy bill savings property owners enjoy from the efficiency improvements the scheme delivers.

David Symons, director at global environmental consultancy WSP Environment & Energy, warned there are still a number of hurdles to overcome if the Green Deal is to prove a success.

"Early indications are that customers may still have to provide an up-front payment to make the scheme's 'Golden Rule' work," he warned.

Critics have long argued that Green Deal financing will have to be made available at very low rates of interest if it is to encourage widespread uptake of efficiency measures, such as cavity wall and loft insulation.

Earlier this month a coalition of the UK's largest energy, banking, construction and law firms confirmed plans to launch a not-for-profit finance company designed to reduce Green Deal financing interest rates to around six 6 per cent.

But WWF Campaign Manager Darren Shirley warned this rate would still be too high to attract consumers, maintaining that the government must use the Green Investment Bank to subsidise lower rates of interest.

He citied a recent study by the Great British Refurb campaign, which found that 32 per cent of people were 'very' or 'fairly' likely to take up a Green Deal property makeover if the interest rate on the finance was two per cent, but take up interest would drop to 12 per cent with an interest rate of four per cent, and just seven per cent with a rate of six per cent.

"The Green Investment Bank has a role to play if the Green Deal is to be attractive," Shirley said. "There's no indication on what the government thinks uptake will be and no incentive to mobilise people to take it up, and no means to reduce interest rates."

He added that in addition to concerns over the rate of interest attached to the scheme there were also fears that without incentives, such as tax breaks, reforms to stamp duty or council tax rebates, householders would be unlikely to sign up to a scheme that requires them to deal with the hassle associated with property improvements.

His concerns over the lack of clarity on potential incentives were echoed by the National Insulation Association (NIA), which is planning to complete a joint government-industry roadmap for the rollout of the scheme once the Green Deal consultation is published.

Neil Marshall, NIA chief executive, warned that a lack of incentives could lead to a massive decline in the number of cavity wall and loft insulations among the "able-to-pay" section of the market.

Under the current Carbon Emissions Reduction Target (CERT) many energy companies offer free cavity wall and loft insulations as part of their obligation to deliver carbon savings.

The NIA estimates there are still more than six million homes requiring cavity wall insulation and around 10 million lofts with inadequate insulation. However, CERT is set to expire in 2012 and the subsidies will no longer be available.

"There need to be drivers in place, either incentives linked to council tax, or regulatory drivers, that require people to have insulation done at certain times, such as when they move house," said Marshall.

Recent research by Knauf Insulation forecast a significant fall in the uptake of the two main forms of insulation once CERT subsidies are removed.

John Sinfield, managing director of Knauf, warned that despite longer-term increases in demand for insulation in the general building market, the lack of focus on lofts and cavities in the funded residential refurbishment market will have a significant impact on overall demand for glass mineral wool.

"This potential 'cliff edge' has massive implications, not just for manufacturers, but also for consumers, installers and the government," he said.

Conversely, the Green Deal is set to spark a greater demand for solid wall insulation (SWI). But Marshall warned that businesses will need to upskill to prepare to treat the seven million homes estimated to require SWI.

Some onlookers are already warning that the Department of Energy and Climate Change will struggle to deliver the Green Deal by next autumn as promised, noting that it requires more than 50 pieces of secondary legislation and a major operation to ensure businesses are ready to start providing Green Deal services, particularly given that they can not start to finalise those services until they have more clarity on how the scheme will work.

However, Marshall maintained that the policy has provided the right signals for investors.

"For industry, what we need is confidence to make investments, which the Green Deal provides," he said. "But that means we need sustainable levels of insulation. We can't afford to jump off a cliff edge if we need to increase tenfold in a couple of years."