Will the green deal save homeowners money? 13/04/2012, 09:54:03 PM (GMT+7)

(Guardian)-The government says its green deal will help homeowners cut their energy bills over time, but critics of the scheme disagree. Leo Hickman, with your help, investigates.

Installing cavity wall insulation, one of the benefits of householders signing up to the green deal
A cavity wall is insulated, one of the benefits of householders signing up to the 'green deal'. Photograph: Alamy

12.25am: Greg Barker, the government minister responsible for implementing the green deal, has hit back at the scheme's critics in the Guardian today, arguing that the deal, which comes into affect this autumn and allows homeowners to borrow money to undertake energy saving measures, will indeed save them money over the long term:

People can expect to save money. There will be two assessments to help consumers see for themselves how much they stand to save. The first assessment will take account of the average energy use of the home, and the second will look at how the occupants use the home so they can enter the green deal knowing how best to maximise what they will save. The green deal charge will be fixed from the start too and is designed to ensure money is saved based on existing energy prices. So if energy prices rise, which seems likely, savings will substantially increase.

But will this be enough to comfort those who say the calculations which underpin Barker's promise of savings are flawed and based on assumptions that are too optimistic? A lot of the analysis seems to be focused on the Green Deal's so-called "Golden Rule", whereby the loan repayments made by the homeowner must be less than, or equal to, the savings on their energy bill. Critics say the reality of the scheme mean it could end up costing some homeowners "thousands" because the savings will nowhere near match the expense of installing the energy-saving measures. So, who's right?

If quoting figures to support your points, please provide a link to the source. I will also be inviting various interested parties to join the debate, too. And later on today, I will return with my own verdict.

13.03pm: Carbon Brief posted yesterday some analysis of the Daily Mail's objections (mimicked by the Telegraph) to the green deal. It dug out the reports which the Mail says undermines the green deal's promise of savings and found that the Mail had, in part, misinterpreted one of the studies. Carbon Brief concluded:

As you might expect, the results of these interesting but not exactly conclusive studies show there is likely some serious room for improvement in some areas - crucially in tightening up the Standard Assessment Procedure (SAP) and engaging better with residents on how to get the best out of the deal. But to read the Mail's carefully-selected nuggets of information - which either focus on the worst possible aspects of the results or just make outcomes up - you'd think the authors would be getting into line to call for the scheme to be scrapped.

Intriguingly, Stephanie Wetherell, one of the authors of the report published by the University of Bath (pdf), then posted a comment beneath the article complaining about how the Mail and Telegraph had misinterpreted the report:

As the author of the [report] in question, I would like to say that I definitely object to the figures being used in this way, and completely out of context (the main limitation of the research being that all the homeowners were already very energy aware, and therefore had a lower than average energy usage before refurbishment)...I do think the assessment procedure needs some work, but am not against the Green Deal as a whole, and definitely did not want my research to be used in such a sensationalist way!...I'm very angry about the situation and have made complaints to both papers ...The research as a whole talks a lot about its limitations and was only a very small study. Added to that, the participants had no particular interest in payback periods, and it included measures that won't be relevant under the green deal. So the figures are cherry picked well and truly out of context.

1.38pm: I don't know about you, but diagrams like this (pdf) posted on the Department of Energy and Climate Change's website, which aim to explain how the green deal works, only seem to further confuse.

1.48pm: The construction industry seems pretty unimpressed by the green deal. The Federation of Master Builders believes that the financial incentives are not appealing enough to make the scheme attractive to homeowners. Brian Berry, the FMB chief executive, is quoted by EnergyNewsLive.com:

Mr Berry [said]: "A survey of our members reveals that 70% of FMB building companies do not believe that the Government's proposals are technically, functionally or economically feasible to implement for most domestic extension projects."

Around three-quarters of builders also believe home owners would carry out less work as a result of the proposals, or even turn to "cowboy builders", he said.

The Government claims it will be a huge support for the Green Deal.

However a spokesperson for FMB told ELN today: "It is fact it is the opposite. It is an admission that they have failed to make Green Deal sufficiently attractive so they are going to use regulation to force people to have it whether they like it or not. If they want to support Green Deal, they need to introduce meaningful incentives."

2.09pm: The lack of any government promise or guarantee for the green deal's "Golden Rule" seems to be the cause of some anxiety. Here's the wording it used when it first published its proposals back in 2010 (pdf):

The key principle, or golden rule, for accessing Green Deal finance is that the charge attached to the bill should not exceed the expected savings, and the length of the payment period should not exceed the expected lifetime of the measures. This is not a government guarantee, but a guideline for customers that, typically, they should be able to expect to gain more efficient, less wasteful properties with no additional net cost from the Green Deal.

2.15pm: I've just received this from John Alker, director of policy and communications at the UK Green Building Council:

You quote FMB saying the construction industry isn't that up for the Green Deal. Our members are – albeit there are challenges that remain. We've just posted this blog in support of 'consequential improvements' – the policy that sparked the ludicrous headlines about a conservatory tax!

2.56pm: I've just received this response from Richard Lloyd, the executive director of Which?:

It's difficult to see how hard-pressed homeowners will have confidence in how the Green Deal might work for them if the estimated savings are initially based on averages rather than on their personal energy use. The Golden Rule was supposed to reassure people that Green Deal repayments would not exceed the savings made on energy bills. But if this is based on typical figures then it could be meaningless for many.

The bigger question remains whether enough people will be persuaded to take it up. It's already clear that the Green Deal will not be for everyone. DECC's own research found that the overall annual cost savings were felt by many to be too small to make it worth their while. Some homeowners were also worried about the potential impact on the future saleability of their properties, or did not like the idea of incurring a debt.

Which? supports efforts to help consumers make their homes more energy efficient, but unless people are offered a good deal that is easy to understand by a company that they can trust, they are likely to remain sceptical about its value.

3.12pm: This just in from Guy Newey, a senior research fellow with the environment and energy unit at Policy Exchange, a centre-right thinktank:

The truth is that no-one really knows how successful the Green Deal will be. All the modeling in the world will not answer how millions of people will behave when faced with a new policy. Greg Barker is therefore right to argue for an iterative approach - let's see what works, and where there might be the need for additional incentives, removal of other barriers or regulatory sticks.

The criticism that some homeowners may lose out is a red herring. In many ways, they already take on many of these risks when they decide to make any home improvements. When Joe Bloggs installs double-glazing, he hopes that he will be able to save some money and also sell his house for more than he originally thought he might. But he may be wrong. The Golden Rule will help with those decisions, and Green Deal standards will make it less likely people will be ripped off. But, like any market, there will be winners and losers. No-one is being forced to take on these measures.

As far as additional sweeteners to improve uptake, it is important to note that energy efficiency measures offer some of the most cost-effective decarbonisation around (pdf, see page 13). If we are going to subsidise reducing carbon, which we should, we are much better off subsidising the cheapest possible measures than some of the more expensive renewable measures which currently get a larger chunk of funding.

The success of the Green Deal also depends on a wider set of policy measures on energy efficiency. This includes carbon pricing policy, building regulations and, crucially, smart meters. Lots of the cuts in energy use will only come about when people have a better idea of which activities waste energy. Smart meters will help with that (and therefore could lead to a greater take up of energy efficiency steps through the Green Deal). They will also allow for innovations like comparing your energy use to an efficient neighbour, which has had success in cutting energy use.

3.20pm: And I've also just received this response from Paul Ekins, professor of energy and environment policy at University College London's Energy Institute, and co-director of the UK Energy Research Centre:

The Green Deal certainly could save homeowners money, but two aspects of the procedure will need to be got right for it do so.

First, the assessment of the condition of the building must go beyond average measures of energy use and take account of actual energy use - different householders in very similar buildings use very different amounts of energy, for a whole host of reasons.

Second, another assessment will have to establish a clear behavioural baseline of energy use before any measures are installed, so that a post-measure comparison of energy use will be able to see whether energy-using behaviour has changed or not. This behavioural assessment will be difficult to carry out accurately, not least because energy-using behaviours are personal and people tend not to be keen to share them with others. These two issues certainly do not invalidate the Green Deal in principle. But they do make it more difficult for it to deliver the predicted energy saving in practice.

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