The Green Deal
18th March, 2013
What is the Green Deal?
The Green Deal started on 28 January 2013. All property owners are eligible for the scheme including owner-occupiers, landlords, private tenants and those in social housing.
This is a new government initiative to improve the energy efficiency of buildings by removing upfront costs. The financing of the scheme attaches to energy bills for the property. Various types of improvements are covered by the scheme and you can apply for one or a combination of improvements,
The key principle, or Golden Rule, for accessing Green Deal finance is that:-
• the charge attached to the energy 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.
One criticism of the Golden Rule, however, is that it is calculated using the Standard Assessment Procedure based on certain assumptions rather than reflecting the reality of a particular property and its occupants’ energy use. If any factors change, the predicted savings could change.
Cash back is available for early adopters of the scheme on a ‘first come, first served’ basis. The cash back is paid whether or not the improvements are financed through a Green Deal Plan provided that a Green Deal Provider arranges the work. The works must be completed within three months (six months for solid wall insulation).
The Government has guaranteed that £40m will be available at the initial cashback rates. After this, cashback rates may reduce. Up to £125m has been earmarked for cashbacks.
There are four key aspects to the Green Deal:-
Assessment and Finance
The Green Deal assessment will be carried out in your home or business premises by a Green Deal Assessor. There may be a charge for this – typical market rates seem to be around £120. Green Deal Assessors must meet certain standards set out in the statutory Code of Practice. They will be listed on a live register (http://www.greendealorb.co.uk/consumersearch) so members of the public and businesses can check if they are authorised.
They will use standardised software to make recommendations as to what energy efficiency or microgeneration improvements are suitable for the property and say whether these are expected to pay for themselves through reduced energy costs.
The Green Deal (Qualifying Energy Improvements) Order 2012 sets out the qualifying energy improvement measures under the Green Deal. The most popular improvements are likely to be:
• Cavity wall insulation
• Solar panels
• Hot water systems
• Replacement glazing; and
• Lighting systems
However, there are however in excess of 40 improvements and include:
• Heating, ventilation and air conditioning:
- Gas and oil-fired condensing boilers
- Heating controls for wet central heating systems or warm air systems.
- Heating, ventilation and air-conditioning controls (including zoning controls)
- Under-floor heating
- Mechanical ventilation with heat recovery systems
- Flue gas heat recovery devices
- Biomass boilers
- Biomass room heaters (with radiators)
- Warm-air units
- Solar blinds, shutters and shading devices
- Fan-assisted storage heaters
- Radiant heating
- Variable speed drives for fans and pumps
• Building fabric:
- Cavity wall insulation
- Duct insulation
- Loft or rafter insulation (including loft hatch insulation)
- Roof insulation
- Room in roof insulation
- Internal wall insulation systems (for external walls)
- External wall insulation systems
- Draught proofing
- Hot water cylinder insulation
- Pipework insulation
- High performance external doors
- Replacement and secondary glazing
- Under-floor insulation
- Sealing improvements (including duct sealing)
- Lighting systems, fittings and controls (including rooflights, lamps and luminaries)
• Water heating:
- Hot water systems
- Hot water taps and showers
- Hot water controls (including timers and temperature controls)
- Cylinder thermostats
- Waste water heat recovery devices attached to showers
- Ground, water and air source heat pumps
- Solar water heating
- Photovoltaics (PV)
- Biomass boilers
- Micro combined heat and power (micro-CHP)
- Micro wind generation
- Transpired solar collectors
The Green Deal Assessor will outline how the payments will work and identify which improvements are likely to be cost effective
They then produce a Green Deal advice report outlining your options and has to declare any links they have with Green Deal Providers.
Finance and the Green Deal Providers
Once the Green Deal Assessor has given you your report, you can take it to one or more Green Deal Providers who can arrange and fund the improvements.
If you decide to take up a Green Deal offer you will then sign a Green Deal Plan, which is a contract between you and the Green Deal Provider.
The Green Deal Provider must also comply with Code of Practice and register directly with the Green Deal Oversight and Regulation Body (ORB) – the organisation responsible for the registration and monitoring compliance with the Code of Practice.
The Green Deal Providers must also be members of the Green Deal Ombudsman and Investigation Service who will investigate complaints and determine any redress for consumers. The ombudsman can refer the case to the Secretary of State to determine redress or impose sanctions. Sanctions could include the cancellation or reduction of the Green Deal Plan, order that compensation is paid, suspend authorisation or ensure a Green Deal provider faces a financial penalty.
Finance can be obtained if:-
(1) the measure is eligible for finance under the Green Deal
(2) the measure is suitable for the property as determined by the Green Deal Assessor; and
(3) the measure meets the Golden Rule discussed on day 1.
The amount paid for Green Deal improvements is based on what a typical household or business is expected to save on energy bills by having the work done.
The cost will be shown on your Green Deal Plan and will include the interest rate.
The Green Deal Finance Company is an industry led consortium with over 50 members from across the industry, both public and private sector. It acts as an aggregator designed to make finance available to all accredited Green Deal Providers on an equal and open basis.
The initial interest rates that will apply to loans made to Green Deal Providers will be 6.96% per annum. Each plan will also be subject to a £63 set up charge and £20 annual operating charge. These charges will be payable by the Green Deal Providers who then determine their own consumer packages and may choose to add these charges to the overall cost of finance charged to the household.
Tomorrow we will look at installation and repayment.
Installation and Repayment
It is an essential part of the Green Deal that the energy efficiency measures identified are installed by an accredited Green Deal Installer. The instructions will come from the Green Deal Provider to carry out the works.
Green Deal Installers will have to work to a recognised standard and to the certified framework using certified products and materials. They also have to meet the statutory Code of Practice and be listed on the register. Green Deal Installers are expected to employ customer care systems and provide insurance warranties for materials and installation. They will have to demonstrate they comply with relevant Green Deal requirements and at all times display the Green Deal Official Quality Mark. Government is encouraging Green Deal Installers to widen their network of colleagues / associates and sign up to as many providers as possible.
The Green Deal Plan is a type of unsecured loan and repayments are recouped through the energy bill. Where the property is transferred, the new bill payer will take on the repayments so when buying a property a check should be made to see of it is signed up to the scheme.
The energy bill will be in two parts. The first shows the actual cost of energy used and the second part the repayment due for the improvements. There is nothing in the Green Deal Plan to prevent consumers switching to other energy providers if they wish but only if the new supplier is participating in the Green Deal.
If the property has a prepayment meter, a small amount will be taken from the meter each day instead.
Consumer Credit regulations will allow a property owner to pay off the Green Deal Plan early and the exit should not be penal. This should allow the sale of a property free of Green Deal commitments.
Tomorrow, we consider how the Green Deal may affect the property market.
Impact of the Green Deal on property owners and transactions
The duty to disclose a Green Deal Plan is set out in the Green Deal Framework (Disclosure, Acknowledgement, Redress etc) Regulations 2012.
Sale or Letting transactions
A seller, landlord or licensor of domestic or non-domestic property, is to provide free of charge a disclosure document detailing any Green Deal Plan to a prospective buyer, tenant or licensee. Up to date information of the Green Deal Plan will appear on EPCs or Recommendation Reports and the seller, landlord or licensor will need to obtain written acknowledgement from the buyer, tenant, or licensee as the future bill payer that they understand they are bound by the terms of Green Deal Plan and are liable to pay the loan.
In practice it is likely to be property professionals such as estate agents, letting agents, auctioneers and solicitors will carry out these disclosure responsibilities on behalf of the current owner or landlord and provisions for acknowledgement will appear in the transfer to the buyer in the standard form prescribed by the Green Deal (Acknowledgment) Regulations 2012.
There may not be the need for conveyancers to raise any additional enquiries with Green Deal information provided on the face of the EPC but both the sellers Property Information Form TA6 for residential transactions and CPSEs for commercial transactions are being amended to make reference to the Green Deal. Buyers must be given disclosure documents providing full details of the Green Deal Plan including financial agreement at least seven days before exchange of contracts.
In principle, lenders are agreeable to mortgagors undertaking Green Deal measures that may reduce the energy costs on mortgaged properties. The lender will wish to know when a mortgagor has taken out a Green Deal Plan and made improvements to enable the lender to assess any potential impacts on its exposure to risk or the property’s valuation. According to the Council of Mortgage Lenders each lender will adopt its own policy and commercial decision towards the Green Deal.
Nearly all energy conversation works will require building regulations consent (many on a self certified basis) and some works may require planning permission and will therefore be apparent from the Local Authority Search. Searches providers are now including free of charge in the local search result relevant information relating to the new Green Deal.
A domestic private rented property is one which is let under an assured shorthold tenancy (Housing Act 1988) or a regulated tenancy (Rent Act 1977).
Regulations are still to be implement in this area but it is intended that no later than 1 April 2018 if the property falls below the EPC rating level set by the Secretary of State, the landlord is obliged to make energy efficiency improvements to the property to achieve at least the minimum EPC rating of “E”.
Before 1 April 2016 regulations preventing a landlord from unreasonably refusing the tenant consent to making energy efficient improvements. A tenant who is refused consent to energy efficiency improvements by its landlord will be able to apply to a court or tribunal for a ruling that the landlord has failed to comply with the domestic private rented sector regulations. The sanction for landlord providing false information is a fine of up to £5,000.
For properties let under tenancies that are not dwellings, similarly the landlord will be required to make energy efficient improvements to achieve at least the minimum EPC rating. However, there will be no restriction on preventing a landlord from unreasonably refusing consent to the tenant’s energy efficiency improvements. In contrast to domestic regulations, no cap is given for a civil sanction where the landlord provides false information.
Some social landlords may become Green Deal providers as well as using the Green Deal to improve energy efficiency in their housing stock. The social landlord will pay the Green Deal payments during void periods because the landlord becomes the energy payer. They will not be liable for unpaid payment by a tenant as those are treated as a debt in the usual way.
Consumer Protection, help outside the Green Deal and relationship between the Green Deal and other schemes
Consumer protection is at the heart of the Green Deal to ensure high standards from the first independent home energy assessment to getting the job done by qualified installers. It is intended to avoid any mis-selling of the Green Plan and anyone operating the system must display the Green Deal approved quality mark.
Where it is disputed there has been proper disclosure of the Green Deal during the sale or letting of a property, the new bill payer will be able to seek redress within 90 days after receiving their first electricity bill if they were not aware of the existence of the Green Deal Plan or the information they have been given is different from the plan. This will leave the debt with the outgoing seller who will have breached the terms of the Green Deal Plan and will therefore be liable for full repayment of the loan and interest.
There is, however, no recourse after 90 days and the new bill payer will be liable to pay the charge because it has effectively consented to being responsible for the loan repayments.
Help outside the Green Deal
The Energy Companies Obligation (ECO) is another new domestic energy efficiency programme that works alongside the Green Deal. It provides support where the Green Deal does not work for example, where the Golden Rule cannot be met.
ECO is an obligation on electricity and gas suppliers to improve domestic energy efficiency. It requires the suppliers to achieve carbon savings or customer fuel bill savings. It is intended to meet the needs of lower income householder. It supports boiler repairs, solid wall insulation and hard to treat cavity wall insulation for certain eligible households outside of the Green Deal.
The Green Deal and other schemes
Green Deal Plans can work together with feed-in tariffs (FITs) and Renewable Heat Incentive (RHI) as a package and providers can market renewable heat energy packages of improvements. However, customers will to be able to use the expected future revenue from FITs to count as savings for the purposes of the Golden Rule. RHI eligibility will be dependant on a customer ensuring thermal efficiency improvements are made to Green Deal standards.
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