Member Article

The Energy Act 2011 deals with securing energy supplies and the regulation of renewable energy resources.  It also sets out the framework to facilitate the "Green Deal" to be launched, with the support of secondary legislation this coming Spring.  
The Green Deal offers “no upfront cost” in respect of the installation of energy saving measures.  The initial costs are to be paid by registered providers and repayment is to be made by the end user, along with payment of energy bills.  The Green Deal is governed by the “Golden Rule”:  the financial outlay should not exceed the energy bill savings. The savings are calculated according to the level of reduction in the utility bill for the average lifetime of the product.

The owner or occupier of property needs to prepare an energy plan which is assessed for eligibility and suitability.  The test is then whether the benefit of the proposed works adheres to the Golden Rule. 

A number of financial issues may still need consideration.  Who will be responsible for the costs of the assessments?  Will these be included in the Golden Rule cost: benefit ratio?  Can the works be balanced with bill savings without compromising quality?  Who pays interest on the Green Deal loan?  It has been suggested that where the Golden Rule cannot be met, individuals would be required to make a top up payment. This may undermine the success of the scheme.

An energy boost for property

The applicability of the Green Deal to domestic property is apparent but it is not so for commercial property.  Concerns have been raised over landlord and tenant issues, in particular in multi occupancy buildings.  The Act provides a framework to combat some issues: landlords in the private rented sector will be prevented from letting property that falls below a specified level of energy efficiency; and legislation is proposed where a landlord will have to grant consent to a tenant proposing energy efficient alterations.  

The energy providers

The Act refers to an Energy Company Obligation (ECO) commencing at the end of 2012. This replaces their existing obligations, namely, CERT (the Carbon Emissions Reductions Target) and CESP (the Community Energy Saving Programme).  ECO's operation will work with the Green Deal to provide funding to those households in need of additional financial support, for example, for insulation and efficient central heating systems.  Keeping the costs of the ECO to a minimum will be a priority as it has been recognised that the costs may be absorbed by a general uplift in energy prices, bringing indirect costs to the consumer.

Running out of energy?

The Act focuses on quality standards and consumer protection.  It is anticipated that providers will be regulated by a range of consumer protection legislation to ensure fair dealings.  In addition they will have to sign up to the Code of Practice under the Green Deal. 

The Green Deal is to be a market-led initiative.  The ultimate consumer may therefore be at the mercy of high labour costs for works and a potential lack of quality in services or products.  There is some good news though in relation to interest rates.  An organisation known as the Green Deal Finance Company (consisting of some major banks, lawyers, companies in the energy industry and retailers) is to support the Green Deal finance providers by obtain finance in global markets and offering the finance at a reduced rate of six per cent (rather than 10-15% which would be the best rate available directly for providers).   This may not be enough to attract investment under the scheme as surveys show that individuals would consider green initiatives under the Green Deal if interest rates were capped at two per cent, though fewer would commit with an interest rate of six per cent.  

Time will tell whether the Green Deal becomes a trusted source of finance to encourage energy efficient improvements. All participants await the “flesh on the bones” of the secondary legislation.  The outcome of the Carbon Reduction Commitment Energy Efficiency removing revenue recycling payments and more recently the Government’s decision to half the incentives available to households in relation to solar activity, may contribute to the cautious approach to this latest scheme.

 

 

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