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The Progressive Policy Think Tank

Govt set to achieve less than 1% of target on Green Deal loans

Zero interest 'Help to Heat' scheme based on 'Help to Buy' would unlock £136 annual savings.

Just 813 households in Great Britain have taken up a 'Green Deal' loan to improve the energy efficiency of their homes since the scheme was launched in January, according to a new report published today by the think tank IPPR. New analysis shows that, at current rates of uptake, the Government will struggle to achieve just one per cent of their projection of 130,000 loans being taken out in 2013.

The new report shows that the cost of a Green Deal loan with a typical 8 per cent interest rate eliminates all the efficiency savings on bills achieved by a household. IPPR's report recommends a new 'Help to Heat' scheme modelled on the Government's flagship 'Help to Buy' scheme. The first 200,000 homes to take up the scheme would receive a zero per cent interest loan, saving the average household £136 off their energy bill every year.

Reports suggest the Chancellor plans to scrap the Energy Company Obligation (ECO) energy efficiency policy at next week's Autumn Statement. IPPR's analysis shows this would save just £47 off the average annual bill and leave 2.4 million fuel poor households in England without support. As well as making greater bill savings available, 'Help to Heat' would improve how ECO is targeted so that 117,000 extra fuel poor homes receive support every year (197,000 in total).

IPPR's 'Help to Heat' plan is cost neutral to the Exchequer by using existing funds more efficiently.

Reg Platt, Senior Research Fellow said:

"The way to bring down energy bills is through more energy efficiency not less. The Green Deal could unlock huge bill savings for consumers but is simply too expensive. What good comes from having competitively priced loans for which there is no demand? If people are going to take out a Green Deal, it needs to be a great deal and not just a good deal.

"At next week's Autumn Statement the Government should slash the interest rate from eight per cent to zero using the same approach they have used for 'Help to Buy' to create 'Help to Heat'. Underwriting the loans in this way would unlock large bill savings for households, turbo-charge economic growth by creating jobs, and rapidly reduce carbon emissions.

"Some energy companies want the government to cut ECO. But this would be hugely detrimental for vulnerable people and should be resisted."

Notes to Editors

IPPR's new report 'Help to Heat: a solution to the affordability crisis in energy' will be available here on Wednesday:

The Green Deal was launched in January 2013. The government had originally predicted that 130,000 loans would be taken out in 2013. Over 101,000 households had received a Green Deal energy efficiency assessment by October 2013 but only 813 households have either taken out a loan or committed to take one out. This represents just 0.6 per cent of the target.

A Green Deal loan can be used to finance energy efficiency improvements such as installing new boilers and loft insulation. The loan is repaid directly through a household's energy bill. This impacts the bill savings that can be achieved by making efficiency improvements.
The impact of different loan interest rates for the typical household after taking out a typical Green Deal package (worth £2,625) is:
o 8% interest rate = £0 annual bill saving
o 5% interest rate = £57 annual bill saving
o 2% interest rate = £107 annual bill saving
o 0% interest rate = £136 annual bill saving

The report argues that the first 200,000 people to take out a Green Deal loan should receive a zero interest rate and the rate should gradually increase over time as the number of households taking out a loan increases.

The report analyses different approaches for bringing down the Green Deal interest rate. A government guarantee approach, similar to the one that underpins the 'Help to Buy' scheme for homebuyers, is shown to be highly cost efficient for cutting the rate to 5%.The guarantee would underwrite the borrowing of the Green Deal Finance Company, which finances Green Deal loans. For every pound spent on the guarantee:
o Householder energy bills would be reduced by £4
o £9 of private capital would be invested in energy efficiency improvements providing a major boost to economic growth.

To bring down the interest rate below 5% the report shows that the guarantee should be combined with public subsidies.

The government is reportedly looking to remove some of the environmental and social policies (so called 'green costs') that are currently paid for through energy bills. Some companies have argued for the government to cut the ECO policy. A freedom of information request to Ofgem by IPPR uncovered companies who are lobbying for cuts, including British Gas and Npower, are failing to deliver their legal energy efficiency obligations.

IPPR's report outlines how cutting energy efficiency spending would leave consumers exposed to bill increases. It argues for reforms to the ECO policy to improve how support is targeted for vulnerable households instead of cuts.

IPPR's 'Help to Heat' scheme is cost neutral to the exchequer. This is achieved by reallocating a portion of current spending on energy efficiency through ECO to the new policy.

The cost to government of reducing the interest rate is shown to be relatively small:
o Annual cost to government to provide 200,000 households with a 0 per cent interest rate: £16.7 million.
o Annual cost to government to provide 1,000,000 households with a 5 per cent interest rate: £14.2 million.