How does it work? The Green Deal is essentially a financing mechanism, aimed at reducing up-front costs of energy savings and efficiency measures for households and businesses. According to the government, these measures could include:
- insulation - eg loft or cavity wall insulation
- double glazing
- renewable energy technologies - eg solar panels or wind turbines
You then choose a 'Green Deal provider' who carries out the agreed work. The consumer faces no up-front costs (up to a probable maximum of £6.5k), with the Green Deal provider sourcing private capital. Repayments are then added to the utility bills for the property over a given amount of time, including interest. These repayments stay with the property.
Theoretically, bills would stay roughly constant as energy savings would be cancelled out by loan repayments. Once the repayments are complete, bills will be lower than they would otherwise be at that point in time (though not necessarily lower than they were at the time of initial work being done due to probably escalating energy costs in the interim).
Fuel poverty is a real problem in the UK, and it of course affects those on low-incomes. An estimated 6.5m households in the UK were left in fuel poverty over Christmas 2012 as a result of further price rises. For every 1% increase in fuel prices, another 40,000 households can be expected to enter fuel poverty. 20,000 pensioners died last year as a result of cold related illnesses.
Enter 'ECO' or the 'Energy company obligation'. According to the Department for Energy and Climate Change (DECC), the ECO is 'a government scheme designed to reduce the UK’s energy consumption and support those living in fuel poverty by funding energy efficiency improvements worth around £1.3 billion every year'. The ECO has three different strands; simplified, the ECO is an order placed on energy companies operating in the UK to financially assist those living in 'specified areas of low income' or 'private tenure properties that receive particular means-tested benefits' to install the same energy saving measures as covered in the Green Deal.
However, as Demand Energy Equality pointed out in an earlier blog post, a recent report by the Institute for Public Policy Research suggests that the design of the ECO risks missing many of those it supposedly targets. Because the costs of the ECO are passed on by the energy companies to 'the consumer' this would effectively mean that anyone not benefiting from the scheme would instead be paying for it. Failure to get this right means raising bills for those already in fuel poverty.
So it is far from clear that the Green Deal, even with the ECO added in, has the ability to make a serious impact on fuel poverty in the UK. There are other factors involved, such as the 'dash for gas' George Osborne is banking on, which has been the most significant factor in rising fuel bills. What is certain is that market incentives without very well designed subsidy schemes will fail to assist those most vulnerable, and may instead do harm.