UK green deal: Households to get up to £1,000 for insulation

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Householders insulating their homes from January will be able to claim hundreds – and potentially thousands – of pounds back in cash from the government, the energy secretary, Ed Davey, said on Friday (19 October).

Following a week of controversy over rising energy bills and confusion over an announcement by David Cameron that energy companies would have to offer customers the "lowest tariff", the Department of Energy and Climate Change (DECC) outlined a £125-million pot of cashback money for the first people to increase the energy efficiency of their homes under the green deal.

Under the scheme, the coalition's flagship environmental policy, householders take out a loan with a provider who undertakes work such as upgrading old boilers, lagging lofts and draught proofing. The loan repayments must be offset by the energy savings, under the scheme's so-called "golden rule", though there is no government guarantee underpinning it.

Davey said: "The green deal will provide unprecedented choice for consumers wanting to improve their homes and make them more energy efficient. This cash back offer will help get the green deal off to a flying start. It really is a great offer – the more work households have done, the more energy they stand to save and the more cash they receive."

The rates initially offered will only be available to the first thousands of households to give their homes an energy makeover, and will be reviewed once £40 million is spent, which could be as quickly as "two or three months if it goes well," according to a DECC spokesman.

Rates include £650 cashback for fitting solid wall insulation, £150 for floor insulation and £50 for draught-proofing, and if enough works are undertaken, the cashback could add up to more than £1,000. However, the Decc spokesman said it was expected the average household would get around £350, meaning the rates could be cut after 114,285 households have undergone works.

The cashback will be capped at 50% of a householder's contribution, with the money paid by the company that undertakes the retrofitting. The loan is tied to the property, rather than the individual.

The government hopes the green deal will transform the energy efficiency of 14m homes, 43% of which still have inadequate loft insulation, while creating thousands of jobs and cutting carbon emissions.

"The cashback will help get the green deal away. But the long-term success of the scheme will still depend on the interest rate [of the loans]," David Symons, director at WSP Environment & Energy, told the Guardian.

Some analyses have suggested that householders will spurn the green deal because interest rates could be set too high. The typical rate is expected to be between 6-8%.

Shadow climate change minister Luciana Berger, said: "This is another hurried announcement from an out-of-touch government, making it up as they go along, desperate to divert attention from an energy policy which is in chaos.

"No amount of gimmicks and giveaways can distract from the fact that unless the green deal is a good deal and saves the public money, it will not be a success. Because of the high interest rates that consumers will have to pay on green deal finance, even with the energy secretary's announcement of a £1,000 discount, in many cases people will still have to pay more in interest payments than the upfront cost of the measures they take out under the green deal."

Audrey Gallacher, director of energy at Consumer Focus, said: "It's very welcome to see the government providing cash incentives to those who take up the green deal scheme early. It's also welcome that people don't have to take out green deal finance to qualify. But the government needs to provide incentives to all customers, not just early-adopters, to ensure wide-spread take-up in the long-term. This could mean moves such as council tax breaks or similar benefits for taking up energy efficiency measures."

Companies confirmed as planning green deal products include British Gas, E.ON and Scottish and Southern Electric, but major retailers such as Tesco and M&S that were talked up as possible providers have yet to confirm they will be taking part.

The £125-million cashback pot comes from a £200-million Treasury fund announced last November, with the remaining £75 million being spent largely on promotion via local authorities. A DECC spokesman said that, separately, the department is likely to use its own budget to spend on advertising, potentially online, but "not on a big TV campaign."

The cashback offer will start on 28 January 2013.

The UK is likely to integrate the Green Deal into the implementation of the EU's Energy Efficiency Directive.

Europe aims to reduce its primary energy use by 20% by 2020, a target which is not legally binding.

The Energy Efficiency Directive was proposed by the European Commission in mid-2011 as part of its effort to reach this objective. The European Parliament and Council, together with the Commission, reached a deal on the proposed directive in June 2012.

The directive:

  • Proposes individual measures for each of the sectors that could play a role in reducing energy consumption - apart from transport, which is voluntary. This includes a controversial obligation on energy companies to achieve 1.5% energy savings per year on their customer's bills.
  • Asks member states to develop long-term strategies for the energy-efficient refurbishment of Europe's building stock.
  • Obliges authorities to renovate public buildings, although this only applies to those "owned and occupied" by national governments, not regional or local authorities.

Member states must present their energy efficiency targets and the set of measures they will implement to reach their targets by April 2013. If member states do not collectively set the EU on its path to achieve 20% energy savings by 2020, they will have to re-assess their measures and targets or risk penalties.

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