Green Deal cost £17,000 per household, finds watchdog

A report by the watchdog, published yesterday, revealed that the Department of Energy & Climate Change (DECC) scheme, which cost taxpayers £240 million, saw only 14,000 households take up the offer, a net cost of over £17,000 for each home that was improved.

The NAO also found that DECC’s design of its Energy Company Obligation (ECO) scheme, which ran to support the Green Deal, added to energy suppliers’ costs of meeting their obligations.

The two schemes were implemented in 2013 with the primary aim of improving household energy efficiency to reduce CO2 emissions throughout England, Scotland and Wales.

The Green Deal was primarily a finance mechanism, which enabled householders to borrow money so they can improve the energy efficiency of their homes. They then had to repay this money through their energy bills (‘Green Deal finance’). This is complemented by a framework of advice, accreditation and assurance was intended to increase homeowners’ trust in the supply chain for home improvements.

Through the Energy Company Obligation (ECO), DECC required the largest energy suppliers to install measures in homes that would have cumulatively reduced CO2 emissions by a certain amount.

The suppliers were to pass on their costs to all their customers through energy bills and faced penalties if they did not comply.

Amyas Morse, head of the NAO, said: “The Department of Energy and Climate Change’s ambitious aim to encourage households to pay for measures looked good on paper, as it would have reduced the financial burden of improvements on all energy consumers.

“But in practice, its Green Deal design not only failed to deliver any meaningful benefit, it increased suppliers’ costs – and therefore energy bills – in meeting their obligations through the ECO scheme.”

The NAO said that the ECO scheme had generated £6.2 billion in notional savings in homes most likely to be occupied by fuel poor people. Beyond this, however, DECC cannot measure the impact of the schemes on fuel poverty.

The watchdog added that “significant gaps in DECC’s information” means it is unable to measure progress towards two of its objectives: to increase the efficiency with which suppliers improve the energy efficiency of ‘harder-to-treat’ houses, and to stimulate private investment.

“The lack of consistency in the government’s approach during the schemes could increase the long-term costs of improving household energy efficiency,” the report said.

In the NAO’s accompanying investigation into DECC’s loans to the Green Deal Finance Company, also published yesterday, it found that DECC expects that it will not recover its £25m stakeholder loan to the finance company, plus £6m of interest that has accrued on it. DECC based its stakeholder loan on forecasts of significant consumer demand for Green Deal loans. But demand for Green Deal finance was lower than the Department forecast from the outset, meaning the finance company could not cover its operating costs. DECC agreed a second loan worth up to £34m in October 2014, of which the finance company has drawn down £23.5m. DECC still expects to recover this loan in full as it will be repaid before other investors in the finance company.

Responding to the investigation, the Royal Institute of British Architects (RIBA) urged the government to “stop cutting corners with its lacklustre efforts” and play a leading role through ambitious national energy efficiency programmes.

RIBA sustainability policy advisor, Emilia Plotka, said: “The Green Deal and Energy Company Obligation suffered from a lack of political support and investment, and subsequently failed to offer a clear long-term vision for household energy efficiency while saving money. Reducing household energy demand remains the most cost-effective and permanent solution for saving money and meeting our legally binding commitment to reduce our carbon emissions.”