Last edited 31 Dec 2020

NAO report into the Green Deal and Energy Company Obligation

On 14 April 2016, The National Audit Office (NAO) published Green Deal and Energy Company Obligation, a report assessing the value for money of the Green Deal and Energy Company Obligation (ECO) schemes.

The Green Deal created a mechanism for funding energy efficiency improvements in which, instead of paying up-front to have energy efficiency measures installed in a property, the cost was funded by long-term savings on electricity bills. On 23 July 2015, Climate Change Secretary Amber Rudd announced there would be no further funding to the Green Deal Finance Company and that the Government would stop any future funding releases of the Green Deal Home Improvement Fund.

The ECO provides support for the installation of energy efficiency measures to reduce energy consumption and to help people living in fuel poverty and in properties that are hard to treat.

The NAO report is a damning one, concluding that the Green Deal did not achieve value for money, that it cost taxpayers £240 million,and that it had not generated any additional energy savings. This, it suggested was because the Department of Energy and Climate Change (DECC)'s design and implementation of the scheme failed to persuade householders that energy efficiency measures were worth paying for. Only 1% of the measures installed through the schemes were funded with a Green Deal loan.

It also found that whilst energy suppliers had met their ECO obligations for saving carbon dioxide and reducing bills, the design of the scheme to support the Green Deal had added to the costs of meeting those obligations, which had reduced the value for money of the ECO. However, they were unable to determine by how much.

Although the target of improving 1 million homes with the schemes had been achieved, NAO suggested that this was not a direct indicator of progress against the objective of reducing carbon dioxide emissions because of the different amounts of CO2 saved by different types of energy-efficiency measures.

In addition, because the schemes had initially focussed on harder-to-treat homes, they had saved substantially less CO2 than previous supplier obligations. The projected 24 megatonnes of CO2 savings are only around 30% of what the previous schemes achieved.

The overall cost per tonne of carbon saved by the schemes (excluding energy suppliers’ administrative costs) was £94, compared with £34 for the previous set of schemes.

A second report into DECC’s loans to the Green Deal Finance Company was also published. This found that DECC expected it would not recover its £25 million stakeholder loan to the finance company, or £6 million of interest. Demand for Green Deal finance was lower than the Department forecast from the outset, and so the finance company could not cover its operating costs. The Department does however expect to recover a second loan in full.

Amyas Morse, Head of the NAO, said, “Improving household energy efficiency is central to government achieving its aims of providing taxpayers with secure, affordable and sustainable energy. 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 supplierscosts – and therefore energy bills – in meeting their obligations through the ECO scheme. The Department now needs to be more realistic about consumers’ and suppliers’ motivations when designing schemes in future to ensure it achieves its aims.”

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Lessons from UK Green Deal compared to the US Better Buildings Neighborhood Program (BBNP) show that financial incentives alone to householders don't increase participation. Other forms of support to householders are needed as well. The design of the Green Deal had fundamental flaws.

SOURCE: "Lessons for the UK Green Deal from the US BBNP" by Aaron Gillich, Minna Sunikka-Blank and Andy Ford. Building Research & Information. 2016.

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