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Government ponders Green Deal loan change

The government is considering changes to the “golden rule” of the Green Deal which states that the cost of energy saving measures must be covered by money saved on fuel bills.

Energy and climate change secretary Ed Davey said the government was considering changing the rule, which means that some homeowners cannot take out Green Deal loans to pay for more expensive energy savings measures such as solid wall insulation.

He acknowledged that the take up of Green Deal finance had been “disappointing” but added that “the aim of the Green Deal isn’t to sell credit plans, but to make our homes warmer, cheaper and greener”.

In a speech yesterday, he said: “You have told us that many customers wanting to use Green Deal finance to fund improvements can’t borrow enough to cover the full cost of the measures they want to install - and meet the ‘Golden Rule’.

“So we are considering whether changes may be possible so the Golden Rule may cover more costs while maintaining important consumer protections.”

Mr Davey did not give more detail on what changes the government is considering. But a source familiar with the matter said there were several reforms to the golden rule that could be made to ensure it did not hinder Green Deal customers from getting work done.

One would be to allow customers to opt out of the golden rule which would allow them to increase their monthly Green Deal repayment to borrow more money or to pay off their loan more quickly and so reduce their overall interest costs.

Another would be to allow borrowers to use money received through the feed-in tariff or renewable heat incentive to help their Green Deal meet the golden rule, although this would require new legislation.

A third option would be for the in-use energy savings to be calculated separately for each measure rather than using a blanket assumption for the amount of energy saving lost through getting temperature to a comfortable level.

Mr Davey also launched a consultation on reform of the Energy Company Obligation (ECO) which confirmed the changes to the programme revealed in December.

The changes were made in order to pay for the chancellor George Osborne’s pledge to cut consumer electricity bills by £50. The consultation said the ECO changes would account for an average of £30 to £35 of the cut on average.

Under ECO, which is paid for by a levy on fuel bills, energy companies must meet targets to install a certain number of energy saving measures in expensive to heat homes of people on low incomes.

The consultation extends ECO by two years to 2017. It sets a minimum number of solid wall insulation installations of 100,000 over the next four years but this is well below current delivery rates – 80,000 were installed in 2012 – so the industry fears it will result in a severe drop in the number of properties insulated.

The consultation also proposed that cheaper measures, such as insulation of lofts and easy to treat cavity walls, should be allowed under the programme, which could also lead to a cut in the number of solid walled homes insulated.

Mr Davey said many in the industry had pressed for loft and cavity wall insulation to be included in ECO.

He added: “But before, during and after this review of ECO, I’ve been clear: the obligations under ECO that meet the needs of the fuel poor cannot be compromised. And they have not been cut back… But we recognise that near term targets create long-term uncertainty and can result in surges of activity followed by lulls as the market adjusts. So it is our intention through this consultation to deliver longer-term certainty that is required for proper business planning.”

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