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Auditors roast Green Deal failures

14 Apr 16 The government’s Green Deal scheme has been officially panned as a waste of money by the National Audit Office.

The scheme has cost taxpayers £240m including grants to stimulate demand since it was set up in 2013. But it has not generated any additional energy savings, the government’s own financial watchdog has concluded in a report out today.

This is because the Department of Energy & Climate Change (DECC) failed to persuade householders that energy efficiency measures were worth paying for, the auditors concludes.

There are approximately 12 million home slacking wall insulation in the UK; just 50,000 took advantage of the Green Deal cashback scheme and Green Deal Home Improvement Fund.

The National Audit Office (NAO) report (1) also found that DECC’s design of its Energy Company Obligation (ECO) scheme to support the Green Deal added to energy suppliers’ costs of meeting their obligations. This reduced the value for money of ECO, although DECC’s information is inadequate to conclude by how much. Suppliers have met their obligations for saving carbon dioxide (CO2) and reducing bills.

The report finds that while DECC achieved its target to improve a million homes with the schemes, this is not a direct indicator of progress against the objective of reducing carbon dioxide (CO2) emissions. This is because different types of energy-efficiency measures save different amounts of CO2.

The schemes saved substantially less CO2 than previous supplier obligations, mainly because of the initial focus on ‘harder-to-treat’ homes, as its analysis showed that previous schemes had absorbed demand for cheaper measures.

National Audit Office head Amyas Morse 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 & 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 Department now needs to be more realistic about consumers’ and suppliers’ motivations when designing schemes in future to ensure it achieves its aims.”

DECC expects the measures installed through ECO up to 31st December 2015 to generate 24 megatonnes of carbon dioxide (MtCO2) savings over their lifetime, which is just 30% of what the predecessor schemes achieved over similar timescales.

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Demand for Green Deal finance was well below the government’s expectations, the NAO says, with households only funding 1% of the measures installed through the schemes with a Green Deal loan. The schemes have not improved as many solid-walled homes, a key type of ‘harder-to-treat’ homes, as DECC initially planned. As part of changes to ECO in 2014, suppliers could achieve their obligations with cheaper measures, moving away from the focus on harder-to-treat properties.

ECO has generated £6.2bn of notional lifetime bill savings to 31st December 2015 in homes most likely to be occupied by ‘fuel poor’ people. Beyond this, DECC is unable to measure the impact of the schemes on fuel poverty.

The NAO says that gaps in DECC’s information on costs means  that 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.

In the NAO’s accompanying investigation into DECC’s loans to the Green Deal Finance Company, also published today (2), it found that the government expects that it will never recover its £25m stakeholder loan to the finance company, or the £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 was forecast from the outset, meaning the finance company could not cover its operating costs. The government 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.

1. Green Deal and Energy Company Obligation

2. Investigation into the Department of Energy & Climate Change’s loans to the Green Deal Finance Company

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