http://www.businessgreen.com/bg/news/2188479/labour-raises-fears-green-deal-rates

 

As MPs prepare to vote on final Green Deal legislation, Opposition warns high interest rates could undermine attractiveness of the energy efficiency scheme

 

Labour has today called on the government to rethink how loans are issued for the soon-to-be-launched Green Deal energy efficiency scheme, warning high interest rates could undermine the effectiveness of the innovative financing scheme.

Under the Green Deal scheme, households and businesses will from October be able to undertake energy efficiency improvements to their properties at no upfront cost and then pay for the work through a levy on their energy bills.

The coalition intends for the scheme to comply with a so-called "golden rule" that ensures that the levy repayments are less than the savings on energy bills delivered as a result of the efficiency improvements, meaning people will be better off.

But with MPs today preparing to vote on the last round of legislation governing the scheme, Labour has warned high rates of interest rates on the loans could leave households enjoying negligible savings or even facing a net increase in their energy bills.

The government has insisted Green Deal financing will be available at commercial rates of interest and Energy and Climate Change Secretary Ed Davey has said these could be as high as 7.5 per cent.

According to calculations undertaken by the Opposition, an interest rate of 7.5 per cent would mean that a household taking out a Green Deal loan of £10,000 would have to pay back around £22,000 over 25 years and deliver energy efficiency savings of £900 a year to cover the cost of annual repayments.

"The loan repayments could end up being more than double the amount of the loan and you'd have to cut the average energy bill by around three quarters to comply with the 'golden rule'," a Labour spokesman told BusinessGreen. "That is going to be a very tough ask and even if you can do it people are only going to end up saving very small amounts, which will make it difficult to attract them to the scheme."

He added that the government had no mechanism for "guaranteeing" the "Golden Rule" requirement and as a result some households could end up seeing repayments exceeding energy efficiency savings.

Caroline Flint, Shadow Energy and Climate Change Secretary, said the government had to "come clean about interest rates" and take steps to reduce the rate of interest participants in the Green Deal will be charged.

"Done properly, a pay-as-you-save energy efficiency scheme could cut carbon emissions, create jobs and lower bills for families," she said. "But the Green Deal must be a good deal for consumers."

Labour is proposing that the Green Investment Bank be used to provide Green Deal, allowing lower non-commercial rates of interest that would ensure larger savings for households and businesses taking part in the scheme and enable them to invest in a wider range of green technologies.

In contrast, the government is hoping a new dedicated Green Deal Finance Company will act as a broker for Green Deal loans, ensuring the scheme can access the lowest possible rates of interest.

Moreover, up to £200m of funding is to be made available to help incentivise early adopters to take part in the scheme.

However, the new finance company, which is backed by a group of high profile blue chip firms, recently confirmed that it had suspended work until it receives around £40m in government funding necessary to set up supporting IT systems and office costs.

Meanwhile, government officials have hinted the £200m fund will be used to provide cash back offers to households taking part in the scheme, but details are yet to be confirmed and ministers have already stressed that it will only act as a one-off incentive for early adopters.

A spokesman for the Department of Energy and Climate Change (DECC) acknowledged that Labour's calculations were accurate, but insisted the government expected most measures undertaken through the Green Deal to cost less than £10,000.

He also stressed that Labour's projections did not take account of the Energy Company Obligation (ECO) element of the Green Deal, which will provide subsidised work for fuel poor households and hard to treat properties.

"Accredited Green Deal assessments and the Golden Rule mean that customers will get the most cost effective energy efficiency measures for their property and not pay any more for their energy bills than they do currently," he said.

"Moreover, energy prices are expected to rise over the coming years, so households with Green Deals will likely see their savings grow."

David Symons, director at consultancy WSP Environment and Energy, said that the level of interest rates would ultimately prove "absolutely critical" to the success of the Green Deal.

"If the interest rates are at a level where you only just pay off the capital it means it is going to be a marginal scheme or providers will ask for a significant down payment, which is not how the government envisaged the scheme working and will make it less attractive," he said. "A lot depends on the rates people will be able to get through the Green Deal Finance company."