What is the Green Deal?
Green Deal finance is the latest government scheme which will attempt to aware the public about the carbon situation and get them to take action. The Energy Act 2011 includes Green Deal suppliers—now, so there will be no need to pay for initial energy-efficient installation costs. The loan is paid back through savings made on electricity bills. Part of the reason why previous government attempts at reducing carbon outputs have failed, was the complication of it all.
The Green Deal, though, is actually quite simple:
- Approach an installer with green deal provider status
- A green deal assessor will then survey your home
- A report will be generated for your homes potential improvements; the savings must outweigh the cost of improvements
- Once the work is comleted you should see a difference in your energy bills
- Green deal finance will stay with your property until paid off
Will the Green Deal work?we see sickly homes and sickly people and a very sick planetbit.ly/NUj5Lm
— Karen Maskall(@kar3n2) September 6, 2012
Encraft managing director Matthew Rhodes looks at the background to the Green Deal, explains the Golden Rule, and highlights some potential issues ahead of its introduction in October 2012.
So does this mean it will work? Will the UK reach its planned carbon cut of 34% by 2020?
Failure of previous government attempts was largely due to the lack of time some business and home owners had. (Well, that and mere complacency maybe)
The Green Deal, though, is designed to be friendly towards property-owners. All you really have to do from your part is approach a certified Green Deal installer. From there, they will assess your property and report on potential improvements. In order to pay back your loan, savings must outweigh the costs of improvements. In no time, you should see a difference in your energy bills. You’ll feel much better by making savings and helping the environment at the same time. And the ‘Golden Rule’ ensures financial protection for property owners.
What is the ‘Golden Rule’?
Actual savings that home and business owners will make may put them off the idea of the Green Deal. They may be worried that energy savings will not be enough to pay back their loans. What they must understand is that all upfront installation costs are being paid for. The Green Deal, though, has developed a guideline that protects property owners. The Golden Rule states that “the energy savings a property makes in a 25 year period must be equal to or more than the cost of implementing the changes in the first place. This ensures that the property owner is not paying back more to partake in the Green Deal than they are saving on their energy bills”.
So perfect! We’re all saved!
Not quite. Despite the fact that the carbon situation has gained more interest in recent years, it is not nearly enough to reduce the carbon footprint we leave on this Earth. As said before, property owners may not have the time, may be complacent, or may find the Green Deal too complicated. Because of these reasons, Green Deal’s success largely lies in the hands of small and qualified providers.
Great, so what’s the problem?
As pointed out before, the first problem is getting people to understand what the Green Deal is. The bigger problem, though, is getting people to go on board with the Green Deal. The majority of Green Deal’s success depends on energy companies and whether or not they become Green Deal providers.
A study by Datamonitor in 2011 showed that cost is the main factor for businesses that comes into play when deciding to undertake energy efficiency measures in the UK. Small energy providers may not have the credit rating available to get loans to go on board with such a big project as the Green Deal. Costs can start building up heavily for these small and medium enterprises as they have to invest in equipment, labour, and assessment. But without the ability to make the initial investment, these small energy companies will be unable to become certified Green Deal providers.
Another problem for small and medium energy providers is the monetary return. Because the payback period is so long-term, there is a large cashflow risk associated with becoming Green Deal providers.
The Green Deal’s main goal is to recover costs that are associated with the installation of green technologies.
By doing this, the Green Deal:
- makes finance more accessible, and
- lowers the cost of the finance by grouping similar green investments into one business project.
Theoretically, the Green Deal is a ‘win-win situation’ for all parts of the supply chain.
But there is a big downside for small and energy providers. For example, some Green Deal returns are long-term. In some cases, loans through energy savings may take up to 10 years to pay back. For this reason, the Golden Rule may not be beneficial from a business perspective.
So this is why the Green Deal could fail. Just like previous attempts, yet another government scheme at reducing UK’s carbon footprint will probably go down the drain. Nevertheless, the UK has a global responsibility to reduce carbon emissions. Whether the Green Deal works or it doesn’t work, it is a step in the right direction.