Another Green Program Flops

The British government has spent £16million ($25 million) on an energy-saving scheme that has signed up only 36 households. The “Green Deal” program was launched in January with a goal of signing up 10,000 households in its first year.

Since April 2011, the UK’s Department of Energy and Climate Change (DECC) has spent over £12 million on administrative costs to set up the program and nearly £4 million to publicize it.

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Green Deal is intended to encourage homeowners to make energy-saving or green improvements, such as double glazing their windows, upgrading boilers or installing solar panels. The homeowner takes out a loan which they repay over time via the savings on their electricity bills.

If the UK is to improve its overall energy efficiency, large numbers of houses will need to undergo such improvements. The UK’s residential properties are some of the oldest in Europe. For example, 5 million British homes date from the Victorian era.

Green Deal was supposed to be a flagship program of Prime Minister David Cameron’s government. Despite the lack of response from the public, DECC officials claim to be optimistic that 1 million households will sign up by March 2015. They point out that Green Deal is intended to be a 20-year program.

To apply, a homeowner begins by calling a government-certified Green Deal assessor. The assessor visits the house and tries to figure out where energy is being wasted, reviews utility bills, and asks about energy use habits. The homeowner then receives an official Green Deal report which they can use to go a contractor and apply for a loan.

According to official statistics, 44,000 assessments had taken place by the end of June. The government has set aside £125 million to encourage early adopters. The money can be used for rebates of up to 50 percent of the cost of some of the home improvements. Given these generous incentives, why are almost none of the assessments converted into actual Green Deals?

A major problem seems to be the interest rates charged on the loans—usually between 7 percent and 11 percent. Moneysavingexpert.com, a popular financial advice website in the UK, provides a lengthy breakdown of the pros and cons of getting a Green Deal. It called the interest rates “flat out ridiculous.”

The fact that Green Deal charges interest at all is politically controversial. The Liberal Democrat party will likely include a call to make Green Deal loans interest fee in its platform for the next election.

The standards for getting a Green Deal loan are low, thus the majority of people in the UK are eligible. However, a homeowner with a good credit rating can get a lower interest rate elsewhere.

For instance, journalist Sarah Lonsdale wrote in The Daily Telegraph that she had an assessment done, but she decided to make the recommended improvements with a loan from a non-Green Deal lender who gave her a much better interest rate. She called the decision a “no-brainer.”

Another reason homeowners might take Sarah Lonsdale’s approach is that Green Deal loans are fixed for long periods—a minimum of 10 and maximum of 25 years. There are penalties for early repayment.

The guide to Green Deal at Moneysavingexpert.com says, “Only a few years ago, commercial lenders were banned from levying harsh redemption penalties and keeping people locked into loans. For the Government to do the opposite on a loan scheme it’s developed sets a poor precedent.”

The inflexibility of the loans deters many homeowners. They worry a Green Deal could make it more difficult for them to sell their house in the future. A Green Deal is attached to a house, not a person. So if the homeowner wants to sell before they have repaid their Green Deal loan, they have to find a buyer willing to take it over.

Another reason homeowners are passing on Green Deal is that they must use a government-certified contractor to complete the work. These contractors had to pay for the Green Deal certification process, thus they pass the cost onto consumers in the form of higher rates.

Homeowners prefer to have the improvements made by local contractors with whom they have an established relationship. This is not just because they are often cheaper. That contractor has an incentive to provide a high quality service to ensure future business. Home improvements made via Green Deals tend to be one-time jobs.

Government green energy schemes often attract fraud. This is because they tend to involve large publicity campaigns and the suggestion that free money is available. Green Deal is no exception to this trend. The DECC has already written 64 companies about unauthorized use of the official Green Deal logo. Moneysavingexpert.com and some media outlets report that homeowners have been cold-called by someone offering a Green Deal assessment and asking for £300 upfront. The normal charge for an assessment is between £100 and £150.

The fact that so many homeowners are passing on Green Deal—even after they have had an assessment—sends a signal that something is wrong with the program. Hopefully, the UK government will sit up and take notice.

Emma Elliot Freire is an American writer living in England. Image of Big Ben and Parliament courtesy of Big Stock Photo.

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