Green Deal update - Devonshires · Green Deal schemes could become unviable. Communication Since the introduction of the Green Deal, some RPs have already expressed concerns about

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Energy and HousingGreen Deal update

The Government’s flagship energy efficiency policy, the Green Deal, has finally been launched in January. Through this scheme the Government provides a mechanism and framework for delivering energy efficiency measures but no long-term subsidy to incentivise take up in the same way as such subsidies created such great interest in the solar feed-in tariff market. This lack of subsidy (other than initial kick-start cashback schemes) means that in certain contexts the Green Deal can be a “hard sell” as it relies on the householder and landlords buying into the concept. In addition, for some properties the so-called golden rule, whereby savings must not exceed cost, cannot be satisfied by Green Deal measures alone.

How can the Green Deal work?

ECO

Perhaps the biggest contribution to supporting a Green Deal such that it can be successfully implemented is the Energy Companies Obligation

(ECO), which picks up where CERT/CESP left off. ECO is not another subsidy but rather a target placed on energy companies flexibility in delivering carbon savings. ECO is only available to fund certain types of measures (such as solid wall insulation or hard to treat cavity wall insulation) and is to be provided by energy companies in one of three ways: through their own Green Deal delivery vehicles, through partnerships and through brokerage.

Brokerage is a new system facilitated by an online blind auction where providers of ECO can sell packages or “lots” of ECO Carbon Saving Obligation (to provide measures for harder to treat homes), ECO Carbon Saving Communities Obligation (to provide insulation of areas of low income) and Affordable Warmth Obligation (to provide heating and insulation measures for the poorest and most vulnerable in private tenure) in return for ECO subsidy. The lots are purchased by the obligated energy companies. However, at present, ECO brokerage is only open to domestic accredited

Published by: Caroline Mostowfi Head Office: 30 Finsbury Circus, London EC2M 7DT Further copies: Marketing Department on t: 020 7628 7576, or email [email protected] or via our website at www.devonshires.com

Devonshires has taken all reasonable precautions to ensure that information contained in this document is materially accurate however this document is not

intended to be legally comprehensive and therefore no action should be taken on matters covered in this document without taking full legal advice.

Green Deal Providers (with a minimum lot size being 1,000 tonnes of CO2 or £100k of bill savings); it is not currently open to local authorities and Registered Providers of housing. DECC say this restriction is necessary as the objective of the brokerage system is to stimulate the Green Deal market place (presumably the private sector market place) although there is a suggestion that the situation may be reviewed in future.

Cashback Scheme

A straightforward cash incentive is being used to encourage early take-up of the Green Deal in England and Wales. The Government has set aside £125m, with £40m of that funding being available at published rates for householders (capped at 50% of the householder’s contribution to costs). The rates allocated to the initial £40m of funding are likely to be reduced over time. Interestingly, this is not just an incentive being offered to the private housing sector, the scheme is also open to social housing tenants. Further, in common with private landlords, RP landlords will be eligible where they pay the majority of the installation costs and more recently it has been announced that charities and Community Interest Companies are also welcome to take part.

Whilst this scheme isn’t likely to ensure long-term success it should certainly help encourage early adoption.

Initial Reactions and Challenges

The excitement about the prospect of the long-billed Green Deal coming into being has for a while now prompted many housing providers to consider their positions. Many RPs have been weighing up whether they would become Green Deal Providers, delivery partners or observers and at the very least what their policy would be on the topic. Whatever position a RP has adopted or is considering they will keenly observe the success of the roll and at the very least the “do nothing” option will involve careful thought as tenants and leaseholders seek to become involved in the scheme.

Rented Accommodation

A challenge remains that where a tenant vacates a property, either the incoming tenant or the Landlord would have to take on the Green Deal charges.

Whilst landlord and tenant consents mechanisms can go some way to address these issues, such mechanisms don’t necessarily address the fundamental concern over the charges attaching to the property for a lengthy period with limited certainty over returns and the impact on property values. Is a leap of faith needed or something more robust?

VAT

Government has applied a 5% VAT levy to insulation materials instead of the full standard rate of 20%. This decision is reportedly being challenged by the European Commission and if the European Court of Justice rules that decision unlawful, aside from penalties that the Government may face, many Green Deal schemes could become unviable.

Communication

Since the introduction of the Green Deal, some RPs have already expressed concerns about cold-calling by third party Green Deal Providers. Landlords (private and social) are keen to retain a level of control over their valuable assets and social landlords are also particularly concerned to ensure that vulnerable tenants have reliable information available to them and the landlord, given its position as the asset owner and manager, has some influence or control.

The future

The success of the Green Deal will be borne out over time and with the tag of being a “flagship policy” the Government will no doubt have a vested interest to see that it becomes a success so we may well see new incentives and adjustments being introduced going forward. Looking back at the Feed-in Tariff scheme, which whilst different in that it involved a potentially lucrative subsidy, it took some time before housing providers realised the benefits of the scheme and delivery models were implemented. Perhaps the same is true here given the slower than expected take up. However, being a new and in some ways novel regime, a greater understanding of all the implications and considerations involved in putting together, implementing and managing a Green Deal is likely to be needed.

For more information on the Green Deal or other energy or climate change matters, please contact Caroline Mostowfi, Partner on 020 7065 1855 or [email protected]