Deal or no deal?

Following the launch this month of the green deal, Paul Suff questions if it will really provide the energy-efficiency savings needed

An “unprecedented energy-efficiency programme” that will bring “jobs, growth and opportunities” right across the UK was how the then energy secretary Chris Huhne described the green deal when announcing plans for the scheme at the Liberal Democrat party conference in 2010.

The green deal is now live and the first deals are expected to be signed next January. The scheme allows the cost of installing energy-efficiency measures to be financed through a charge attached to a property’s electricity meter. According to the government, the green deal provides a market solution to a market failure: the reluctance of householders and businesses to invest in energy efficiency because of the initial costs.

In the non-domestic sector, DECC expects the green deal to appeal mainly to small and medium-sized companies, as larger firms tend to fund refurbishments from cash reserves. Overall, the energy department estimates the net present value of taking up the green deal at £1.1 billion for the business sector, with carbon equivalent savings of about 910,000 tonnes by 2022.

Will these projected savings materialise? It’s unlikely. Although the green deal removes the financial barrier to installing energy-efficiency measures by removing the up-front cost, green deal loans will attract interest. And, unlike domestic deals, fixed interest rates will not be available for non-domestic green deals.

As the Federation of Small Businesses has warned, commercial rates of interest, coupled with rising energy prices, mean that cost savings will not be seen until the initial capital is paid back – possibly as long as 20 years.

But money isn’t the only potential barrier. Small companies are just as likely as householders to resist investing in efficiency measures such as better insulation, improved lighting and heating controls, and new boilers, despite the potential savings, because of the time, effort and disruption involved.

The green deal is great in theory, but the scheme is likely to require substantial improvement if it is to be the game changer the UK desperately needs to reduce energy consumption in buildings.