MP Tracey Crouch, Conservative member for Chatham & Aylesford, visited PTS at the BMF's behest.
BMF fights for merchants’ slice of Green Deal (4/4)
Published: 29 September, 2011
Who will be a provider?
The success of the Green Deal is predicated on routine work, done by trained and competent people, delivered in large volumes, every day of the week, away from Whitehall and Westminster, in the suburbs or market and coastal towns around the country.
The latest thinking expressed by DECC officials causes alarm to the BMF because the proposals rely far too heavily on big corporate names. The models being discussed favour large vertically-integrated businesses – energy suppliers and major retailers that will dominate the market from the outset with a ‘one-stop shop’.
Peter Matthews believes the big six suppliers have a competitive advantage over merchants because they hold information on gas and electricity bill payers. They can mine the data to directly target voters to steer them towards subsidiary businesses, or ‘preferred partners’. SME contractors are already at risk of being excluded because there is no finance mechanism to allow those not tied to major Green Deal providers to offer an alternative.
Mr Matthews told Builders’ Merchants News that if this is not addressed, it will limit the consumers’ choice. That leaves meaning little or no scope for merchants and their trade customers to participate. “We cannot allow these proposals to go un-challenged,” he said.
“For us, this is all about trying to prevent or at least, dilute or mitigate – the effects of the usual suspects invading merchant markets. A merchant-led response is imperative if we want an antidote to the continuing threat from vertically-integrated businesses. At a time when the Tories want private enterprise to lead the economic recovery, we urge ministers to think again.”
Last month, Birmingham City Council announced it will seek to become a Green Deal provider. It plans some £1.3bn of green retrofit work for 200 000 homes and commercial buildings.
What will be eligible?
In June, ministers published a document outlining a framework for determining whether a measure (or package of measures) is likely to be eligible for finance under the Green Deal. The Department says there will be no standard measure(s) appropriate for every property. It depends on various factors: work already done; the characteristics of the building; and (in some cases) the geographical location. The work done must be fixed, not detachable. To obtain finance, applicants will need to check that proposed actions:
- Are eligible under the criteria to be published later this year.
- Are suitable for their property, based on the recommendations of the assessment.
- Satisfy the Golden Rule.
On the technical side, DECC tasked the Energy Efficiency Partnership for Homes to review the costs and benefits associated with various measures. The EEPH issued a call for evidence from industry to garner data on the costs and performance of measures. The review seeks to identify gaps in current information so they can be addressed. EEPH will advise DECC of its findings in the autumn of 2011.
Renewable heat and power
At present, the Green Deal only relates to the energy-efficiency and thermal performance of buildings. It does not cover electricity microgeneration and/or renewable heating.
Plenty of industry voices are pushing for the Green Deal to be extended to renewables. Many say connecting it to the Renewable Heating Incentive will make the policy more enticing for consumers.
Mr Amphlett reckons the civil servants are stuck. “The problem they face is mission creep. The original aim of improving energy performance may become lost in trying to link other schemes to the Green Deal. I suspect, in the future, renewables will be connected – perhaps by making it a condition of the RHI that energy-efficient improvements are done first.
If so, we shall have more well-insulated buildings ready to adopt the renewable sources we need to meet carbon budgets.”
Paying for the Green Deal
Interest rates: Builders’ Merchants News has learned that a common thread being discussed is fixed or variable interest rates. If rates are too high, it will result in lesser types of measures completed – and lower numbers of them. Using the Golden Rule it has been calculated that:
- 9% rate = very little is done as only loft and cavity wall insulation and draft-proofing are viable.
- 7% rate = draft-proofing, some glazing, and a little solid wall insulation is completed.
- 5% rate = loft and cavity wall insulation, and glazing and boiler replacements are done.
The worry is that voters will not entertain the Green Deal because if they decide to improve their property, they can do so at a lower cost than is offered under the Green Deal.
Extending mortgages: Mr Amphlett noted that the Energy Bill does not appear to rule out voters modifying or extending their mortgage to pay for Green Deal work. He obtained Financial Services Authority data that suggests scope for increasing mortgages. The data shows at least 45% of households currently have loan-to-value ratios at or below 65% of the mortgage. If these owner-occupiers can be persuaded to add Green Deal project costs to their existing mortgage, it could lead to higher uptake. The BMF wants DECC to explore this so voters can choose between a conventional mortgage and Green Deal finance.
New Energy Company Obligation
The new Energy Company Obligation (ECO) is something merchants are right to worry about because the big six suppliers will surcharge everyone’s bill to pay for it as they did for CERT and CESP. The number of people who can benefit from ECO support may be quite low, but all bill payers will be liable to pay for it.
Policy objectives: The ECO will not be like previous obligations because it is being designed to assist certain people – namely those on low incomes or in vulnerable households. The twin objectives are to (a) reduce carbon emissions and (b) reduce the cost of heating homes. The latter is sometimes referred to as an ‘affordable warmth’ target.
The Government recognises there are properties for which the Green Deal on its own will not work because the Golden Rule cannot be met. Homes with solid walls are the prime example.
To meet climate change targets, ministers have to address this because able-to-pay customers will not pay for expensive solid wall insulation in large numbers. In such instances, the ECO will simply provide a subsidy that lowers the upfront costs of having Green Deal work completed. Mr Amphlett also uncovered some unintended consequences: prosperous, middle-class families could end up being cross-subsidised by low-income, fuel-poor residents.
Access to ECO funds: The willingness of merchants to enter the Green Deal market will depend on how well they can compete, how easily they can access ECO monies, and their own administrative costs.
One of the main concerns high-lighted by both Mr Matthews and Mr Amphlett is the monopoly of the energy companies. Some mechanism to allow merchants to obtain ECO funds must be found if they are to compete. The worry is that energy suppliers (who are also Green Deal providers) will want to fund their own Green Deal activity. They will allocate ECO subsidy to another part of their group to the detriment of merchants, who will be excluded.
The BMF is demanding there be a clearing house to bring energy suppliers and other Green Deal providers together to create open access to ECO funds.
What happens next...
After the Energy Bill becomes law, there is a huge amount for the BMF to do as complex technical and financial details are worked out. The Government will have to go back to Parliament with secondary legislation regarding:
- An authorisation scheme for assessors, providers and installers to regulate their conduct.
- Descriptions of which improvements, measures and products will qualify.
- A Code of Practice specifying the criteria for such issues as training of assessors, marketing offers, handling complaints and insurance and warranties.
- How the Energy Company Obligation will relate to the Green Deal.
- What connection (if any) will be made to renewable heat and power.
- Details of the permissible financial terms and whether to allow variable interest rates.
The BMF hopes DECC will make some of the relevant announcements in time for the BMF Members’ Day on 20 September 2011 at the Marriott Forest of Arden Hotel and Country Club.
The chief issue for discussion will be what an alternative Green Deal offer from BMF members looks like if merchants are to counter the threat from energy suppliers and the DIY sheds.
This article first appeared in the July/August issue of Builders' Merchants News.