Is the Green Deal a good deal?

Buildings account for close to 40% of energy use in most countries. Making buildings more energy efficient is often described as “low-hanging fruit” for achieving energy savings and CO2 emissions reduction. In most countries, there are policies and incentives in place for the energy retrofit of existing buildings. In Europe, the main legislative instrument affecting energy use and efficiency in the buildings sector is the Directive on the Energy Performance of Buildings. Specifically for the UK, the 2008 Climate Change Act established a legally binding target to reduce its greenhouse gas emissions by 80% by 2050 compared to 1990 levels. The UK housing stock is responsible for nearly a quarter of the country’s annual carbon emissions. Much of Britain’s housing was built before the links between energy use and climate change were understood and when there were very different expectations of thermal comfort. As a result, the UK has one of the least energy efficient housing stocks in Europe.

The Green Deal is the government’s policy for improving the energy efficiency of buildings in Great Britain. It is based on the principle that some energy efficiency related property changes pay for themselves through the resulting savings on fuel bills. The Green Deal covers a variety of measures. Some examples include heating, ventilation and air conditioning, as well as insulation, lighting, water heating and micro-generation. All Green Deal plans must comply with the “golden rule”, according to which “the expected financial savings must be equal to or greater than the costs attached to the energy bill and the length of the payment period should not exceed the expected lifetime of the measures”.

The Green Deal has major implications for the industry. The golden rule means that the actual energy performance of the buildings after retrofit has to be as close as possible to the estimated one, while warranties and guarantees from the suppliers and installers are required for the same purpose by the Green Deal.

Therefore, some of the challenges are related to what is referred to as the “energy performance gap”, or the disparity between the estimated and the actual energy savings achieved through the installation of energy efficient technologies. The energy performance gap has both technical and behavioural aspects. Recent studies have demonstrated that the reduction factor catering for the performance gap can be around 50%, with the comfort factor being approximately 15%. In dwellings where occupants fail to achieve adequate thermal comfort conditions due to the high heating costs, energy retrofit can result in an improvement of the occupants’ thermal comfort levels, but not necessarily to energy savings. In fact, a study showed that 20˚C is the most likely whole house comfort temperature in an energy efficient house and that it is only then that improvements achieve the full energy saving.

It is due to this discrepancy between estimated and actual energy use that Green Deal Providers will have to apply “in-use factors” to the savings estimates for the assessment of potential Green Deal measures. The in-use factor is a percentage reduction applied to the savings. In-use factors will vary between 10% and 35% for different measures and are currently fixed, with a possibility to be adjusted to technological advances in the future. Keeping the in-use factors at a fixed value can possibly discourage product innovation and differentiation, therefore it is suggested that they should be regularly reviewed and that the administrator of the scheme should have the authority to change them over time. However, this will be addressed after March 2015.

The requirement for warranties and guarantees on one hand, combined with the energy performance gap and the initially fixed in-use factors on the other hand, create great challenges for the energy retrofit industry.

On the consumers’ perspective, the high interest rates of the Green Deal and the uncertainty of performance have prevented them from taking up energy efficient retrofits of their properties. Moreover, hidden costs might be a concern for some of the consumers. Hidden costs refer to hidden time and financial costs when implementing a measure. For example, redecorating one’s home after the contractors have installed cavity or solid wall insulation, or additional engineering costs to reinstall heating/pipes after putting solid wall insulation in place. A report prepared for the Department of Energy and Climate Change (DECC) by Ecofys analyses the hidden costs for various energy retrofit options. In most cases payback times can be extended by one to five years due to hidden costs, with solid wall insulation having payback times even prolonged by ten and up to more than twenty years. This factor might have very serious implications in the implementation of the Green Deal and the golden rule.

There is a further complication when it comes to rented properties. In this case, it is the tenant who pays for the improvements through their energy bills and it’s also them who benefit from better thermal comfort conditions and a healthier environment. However, the obligation to pay back for the energy retrofit through the Green Deal is connected to the building, so as tenancy and ownership changes occur, it is the new tenant’s obligation to pay back for the Green Deal.

We are still in the very early days of a twenty-year programme. The Green Deal launched in England on 28 January 2013 and the consumers’ awareness of the new measure has been increasing since then. Statistics released in mid-July suggest 44,479 Green Deal Assessments were conducted up to the end of June, up from almost 31,000 at the end of May and 1,800 at the end of February. Understanding the characteristics of the groups related to the Green Deal, their motivation and barriers and thus enabling better communication between DECC and them is vital for the success of the Green Deal.


Image Credit: Hat600, via Wikimedia Commons


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