The UK government has spent now four years, I think it is four years, in designing a Green Deal. When it was announced the purpose of the Green Deal was to create a means of finance for people who want to invest in energy efficiency and in micro-generation for their own homes. The concept was that there would be a loan to cover the whole cost of all approved measures by approved installers so that householders could borrow very cheaply and repay the loan out of the savings they made over the years.
Little by little and over the years the original Green Deal, as sold and resold by successive governments changed into something that became quite unrecognisable from its original concept First a “Golden Rule” was developed; this was that the loan repayments had to be less than the savings made by installing measures under the Green Deal. This Golden Rule was created by those who had gold, not by those who needed gold, as are all so called golden rules. Logically the rule can only apply to present savings; no one knows the future price of energy nor does anyone one know how circumstances can change which can make the initial savings more or less, by, for example, people having children (the savings go up) or the children leaving home (the savings go down. Upon any fair analysis the Golden Rule is nonsense, and ought not be part of any Green Deal.
Hold on a minute, I hear you say, the loans are made at low interest so there should be some kind of test at the beginning to ensure that the loans are affordable and wisely spent. I would agree, if the loans were made at low interest as they were originally designed to be made. The government, which usually borrows money at the lowest rates, could issue a bond to finance the Green Deal at say 2%, and the Green Deal finance could then charge householders at say 2.5% or even 3% to cover administration charges. But in fact the Green Deal is now offering some of the money needed to install some green measures (solar water heating is excluded) at just under 7% interest, plus a set up charge of £63 and an annual management charge of £20 plus no doubt a charge by an independent assessor who will assess your theoretical savings at a specific date, not over the whole period of the loan.
In the words of the Beatles, it is nothing to get hung about. The Energy Minister Greg Barker claims that the Green Deal is a really good deal. I am glad that he is not my financial advisor.
I fear that there is a danger that companies offering energy efficiency measures (which seem to comprise loft insulation, boiler replacement and double glazing) will do the old time honoured trick of inflating their prices for customers who use the Green Deal. I predict that very few people will bother with the Green Deal; it will be cheaper to shop around for the measures and if you can simply add the cost to your mortgage, which will usually be cheaper and will be paid off when selling your home rather than take Green Deal loan, because the Green Deal loan stays with the house when you sell it, repayable out of the electricity bill, adding to complications on a sale and the costs of selling your home as buyers must investigate this possibilty and sellers must document the terms of the Green Deal, if they have taken up a loan, and no doubt there will be penalties for paying off the loan early and finance houses are very good at exploiting and calculating these penalties in their favour.
I cannot say whether the Green Deal is so badly structured as a result of incompetence or simply that the government decided to make it unattractive for their own reasons.
Without doubt energy efficiency is absolutely important; energy efficiency measures such as loft insulation could be made compulsory instead of devising these unattractive disincentives like the Green Deal. It will cost less, save more emissions and energy and be a lot less complicated.