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Government must learn from previous mistakes as Green Deal report concludes it failed to deliver value for money
Published:  19 April, 2016

The National Audit Office has concluded that the Department of Energy & Climate Change’s (DECC) Green Deal has not achieved value for money.

The scheme, which cost taxpayers £240 million, including grants to stimulate demand, has not generated additional energy savings because DECC’s design and implementation did not persuade householders that energy efficiency measures are worth paying for, says the report.

Green Deal and Energy Company Obligation, published on 14 April, also concluded that DECC’s design of its Energy Company Obligation (ECO) scheme to support the Green Deal added to energy suppliers’ costs of meeting their obligations. This reduced the value for money of ECO, but the Department’s information is not detailed enough to conclude by how much. Suppliers have met their obligations for saving carbon dioxide (CO2) and reducing bills.

The report also found that:

  • While the Department achieved its target to improve 1 million homes with the schemes, this is not a direct indicator of progress against the objective of reducing carbon dioxide (CO2) emissions because different types of energy-efficiency measures save different amounts of CO2.
  • The Department expects the measures installed through ECO up to 31 December 2015 to generate 24 megatonnes of CO2 savings over their lifetime, only around 30% of what the predecessor schemes achieved over similar timescales.
  • Demand for Green Deal finance has fallen well below the government’s expectations, with households only funding 1% of the measures installed through the schemes with a Green Deal loan.
  • The schemes have not improved as many solid-walled homes, a key type of ‘harder-to-treat’ homes, as the Department initially planned. As part of changes to ECO in 2014, the Department enabled suppliers to achieve their obligations with cheaper measures, moving away from its focus on harder-to-treat properties.
  • ECO has generated £6.2 billion of notional lifetime bill savings to 31 December 2015 in homes most likely to be occupied by fuel poor people. Beyond this, the Department cannot measure the impact of the schemes on fuel poverty.

There are significant gaps in the Department’s information on costs, which means it is unable to measure progress towards two of its objectives: to increase the efficiency with which suppliers improve the energy efficiency of ‘harder-to-treat’ houses, and to stimulate private investment. The lack of consistency in the government’s approach during the schemes could increase the long-term costs of improving household energy efficiency.

In the NAO’s accompanying investigation into DECC’s loans to the Green Deal Finance Company it found that the Department expects that it will not recover its £25 million stakeholder loan to the finance company, plus £6 million of interest that has accrued on it. The Department agreed a second loan worth up to £34 million in October 2014, of which the finance company has drawn down £23.5 million. The Department still expects to recover this loan in full as it will be repaid before other investors in the finance company. 

“The Department of Energy & Climate Change’s ambitious aim to encourage households to pay for measures looked good on paper, as it would have reduced the financial burden of improvements on all energy consumers,” said Amyas Morse, head of the National Audit Office, “but in practice, its Green Deal design not only failed to deliver any meaningful benefit, it increased suppliers’ costs – and therefore energy bills – in meeting their obligations through the ECO scheme. 

“The Department now needs to be more realistic about consumers’ and suppliers’ motivations when designing schemes in future to ensure it achieves its aims.”

The Heating & Hotwater Industry Council (HHIC), which contributed to the report, was not surprised with its findings and urged government to learn from its mistakes.

“DECC are aware that we believed that Green Deal was flawed. Together with our members we met with them on numerous occasions to try to make changes that would make the scheme more robust and better value for the end user, but we were unsuccessful,” said Stewart Clements, director of the HHIC.

“It comes as no surprise that so few people took out a Green Deal loan, they were always going to be a difficult sell to homeowners, particularly as the loan remained on the property and the interest rates were not favourable. Loans by their very nature are also out of the reach of many vulnerable people, probably those living in the coldest homes and most in need of help.

“We must however recognise that supporting people to improve the energy efficiency of their homes is a good thing and we would urge the Government to commit to a new policy that will deliver on both fuel poverty targets and help achieve our carbon targets.

“It is important that DECC learn from the mistakes of the Green Deal. To this end HHIC, in partnership with DECC have formed the Domestic Heat Strategy Group. The Group brings together Ministers, DECC officials, stakeholders and industry representatives who can discuss and develop strategies that will deliver for all concerned.”

Image courtesy of Shutterstock/igor.stevanovic