Energy News

Government’s energy Green Deal criticised as flawed and “undercooked”

Wednesday 10 October, 2012

By Martin Fagan

Recently launched flagship policy is already floundering, say industry experts

The government’s flagship energy policy known as the Green Deal is in danger of stalling less than two weeks after being launched.

Even though the government said the Green Deal would be launched on Monday 1 October, householders won’t be able to apply for its loans until February 2013 as the mechanism for borrowers to repay their loans is not yet in place.

A toxic combination of a delay in the loans being available, the terms of the loans and the fact the deal is unlikely to meet the government’s own “golden rule” means the Green Deal is already being branded by some as a failure.

Close scrutiny of the small print revealed the borrowing rate would be 7.5% over a compulsory term of 25 years, with borrowers who try to repay loans early facing heavy financial penalties. The maximum each household can borrow is £10,000.

The rate of 7.5% over 25 years means a household borrowing £10,000 would end up paying a total of £22,000, or almost £900 a year added to the average home’s £1,310 annual energy bill.

According to Which?, the current cheapest £10,000 loan charges 5.9% and, because its repayment term is five years, borrowers would pay £192 a month but pay back a total of £11,529.

The high cost of borrowing on the Green Deal means the loans will struggle to meet the government’s “golden rule” which states consumers will not pay back more each month than they save on their bills.

Ironically, the delay in Green Deal financing means renewable energy companies were already starting to offer their own fully financed solutions to householders looking to install solar panels.

Hitachi Capital recently announced it is offering loans to install Sharp solar panels. The fixed Interest rate is 7.9% APR and the loans are available on terms between two and 10 years and no upfront payment is required.

David Hunt, a leading spokesman in the renewable energy sector, said that the Green Deal had variously been described to him by senior figures in the industry as a “dog’s dinner”, “car crash” and “farce”.

“The Green Deal was never intended as a driver for renewable technologies, that’s the role of feed-in-tariffs and the Renewable Heat Incentive,” said Mr Hunt.

“But energy efficiency is critical for homes, businesses and UK PLC to reduce its carbon footprint and energy use. The Green Deal should be the ideal opportunity to support and address this issue, but we are facing a very undercooked policy becoming live and a government that is not listening.”