2 Jul 2012

Shotgun wedding? The government's Green Deal programme

The government's flagship Green Deal programme is currently in the media spotlight with the papers reporting its potential demise because of coalition infighting, lack of viable funding and questions around the programme's commercial viability

Wider research around reactions from other industry bodies and associations flags up three pro Green Deal pieces and four anti, along with an online forum debating the benefits of a New Year's Eve wedding deal at Gretna Green – better in early December because of Hogmanay-induced hotel room inflation.

A number of key factors mean that the Green Deal probably will ultimately happen, albeit possibly not as originally planned. There is a clear need - government data has identified up to 11.5 million domestic properties requiring the energy efficiency measures that the Green Deal will deliver in the period 2013-2020. The Green Deal should also benefit from the fact that it boils down to a very simple 'golden rule' test.

If the range of measures being proposed will save the householder more than the cost of financing them, then go ahead. That said, current low levels of uptake suggest there is more to do in selling the programme. Finally non-delivery of the Green Deal would be immensely embarrassing to the coalition, and particularly energy minister Greg Barker who has invested considerable personal effort in pushing the initiative.

In terms of key commercial issues currently holding back progress, there is a fundamental contradiction at the heart of the golden rule test. The private sector likes to maximise profits, but higher profits equal lower levels of properties passing the golden rule test.

The availability of sufficient levels of low cost debt also threatens to adversely impact on golden rule achievement (11.5 million properties translates to something like £17bn of required funding). Events last week were also not encouraging with the group of 13 companies who were working on establishing the Green Deal Finance Company – a non-profit consortium that will provide low-cost loans to homeowners wishing to take advantage of the Green Deal – announcing they were downing tools until in receipt of £40m government funding that is required to kick-start investments in new IT systems and an office.

Perhaps the major programme risk for the coalition, however, is that they become so wedded to the Green Deal cause that they lose sight of the core goal: the delivery of a national energy efficiency strategy, which makes absolute commercial and environmental sense.

The Green Deal is not a green measure, just a means of financing one, and it's imperative that the coalition recognises this, and explores multiple options to deliver the energy efficiency agenda.


Richard Ousey is energy, environment and sustainability director at leading business and financial adviser Grant Thornton UK