What’s the Big Green Deal?

Emma Littlewood      26 Febuary 2013

Much of the early publicity surrounding the launch of the Government’s Green Deal in January 2013 has focused on the domestic market, but the scheme is also available to businesses, as DECC ministers are now increasingly keen to highlight. The Green Deal for businesses is a scheme providing financing for energy efficiency improvements, so that organisations don’t have to pay the upfront purchasing costs. Companies will instead pay for the installation of approved energy efficiency measures over a number of years through their energy bills. The ‘Golden Rule’ of the Green Deal stipulates that the financing cost will be no greater than the savings generated by the energy efficiency measures installed, so that any business taking up the deal will bear no extra cost – and once the Green Deal loan is paid off (between 10 and 25 years) the reduction in energy use will be fully reflected in the company’s lower bills. An approved assessor ascertains the most cost-effective technologies for the building from a list of over 45 possible installations for businesses (including LED lighting, insulation, air conditioning zoning controls, condensing boilers, solar PV and other microgeneration technologies). The assessment will usually incur a charge, though where an assessor is also a provider the assessment fee may be waived. The company will then choose which technologies they want to go ahead and install, and agree a Green Deal Plan with their chosen provider. The company’s energy provider will then add a fixed charge to the energy bill to repay the loan on a pay-as-you-save basis.

The Green Deal has been largely well-received by the energy industry, but as is so often the case with such schemes, the devil is in the detail. Some of the misgivings expressed so far are:

* Attaching loan repayment charges might possibly affect the portability of your contract or your renegotiating position on renewal dates – although the Green Deal advisors say that so long as your new energy provider is also registered with the Green Deal payment mechanism, switching energy providers will be straightforward. * The Green Deal loan is attached to the property, not the owner/tenant, but the detail surrounding commercial property freeholds, leaseholds and service agreements may still need ironing out to smooth out issues where properties are sold. * There are no enforceable guarantees that the estimated energy bill savings will be achieved, and therefore the Golden Rule of zero-cost to the company cannot be guaranteed (although an ‘in-use factor’ reduction is designed to minimise this risk). * Green Deal Provider NPower has warned that the scheme’s cost of borrowing is too high (at more than seven per cent), despite Green Deal Finance Company (GDFC), the organisation tasked with making finance available to all accredited Providers, claiming that the rates are competitive compared with other long-term, unsecured borrowing. On the plus side, there is no cap on the amount of finance available to companies under the Green Deal, allowing large-scale installations to be financed in this way, and the roll-out is intended to make the scheme widely accessible across the UK. As a Government-backed initiative, there are safeguards in place to ensure the quality of technology and installers qualified to display the Green Deal brand mark, and to insist that suitable warranties are provided.

Are energy-saving improvements cost-effective for businesses?

Research by the Carbon Trust shows that businesses implementing energy efficiency schemes can generate returns on investments as high as 40% and good projects can deliver paybacks in less than two years.

So if your organisation is considering energy-saving improvements to its buildings, where should you start?

If you want to get going within the next few weeks or months, we suggest you first contact the Carbon Trust about their Energy Efficiency Financing scheme (EEF) which is an established pay-as-you-save scheme for businesses which has already given loans to 4,500 organisations. This scheme runs along exactly the same lines as the Green Deal: * Energy site surveys and investment appraisals identify where energy savings can be made * Sourcing suppliers of energy efficient equipment * Flexible financing in the forms of leases, loans and hire purchase The EEF scheme provides financing for projects from £1,000 and above, subject to credit approval, with no real ceiling on the project size or financing available. When asked, the Energy Efficiency Financing partners (Siemens) preferred not to quote a typical interest rate on an average loan, since each application is ‘assessed on its own merits’ – and sometimes a whole system is being financed including pre-use, service and maintenance – but insisted their rates were always ‘highly competitive’, quoting a satisfied customer (Spark Response) who *’..chose the EEF scheme to finance our lighting project because of its competitive interest rate..’* Spark Response go on to say *’We are very pleased with the smooth process and the energy savings are now offsetting our monthly finance payments, making the investment zero cost for us’.*

Carbon Trust Technology Implementation / EEF scheme contacts

* Carbon Trust Technology Implementation Scheme: +44 (0)20 7832 4806 * Implementation EEF scheme queries: [email protected] * EEF Finance: +44 1753 434476 ; [email protected] If you have a larger organisation and want to upgrade the energy efficiency of more than one building or install large systems and equipment, it is worth contacting the Green Deal team since there is no cap on the amount of financing available to individual organisations, and if you don’t need to get the installation underway immediately, once the roll-out of the Green Deal for Businesses is properly underway it will provide huge amounts of financing for large-scale building enhancement projects. The interest rates are high (see examples for a £5,000 loan below), but the rates are lower for larger loans and your organisation is expected to make savings which at the very least cover the costs. Make sure you are happy with the terms of your finance agreement – for example, any early redemption penalties that may apply.

Green Deal contacts</ * Queries: 0300 123 1234 * List of Assessors **Your organisation may also benefit** from the Enhanced Capital Allowances (ECA) scheme which enables businesses to claim a 100% first year capital allowance on investments in certain energy saving equipment, against the taxable profits of the period of investment. To find out which plant and machinery qualifies for the ECA you can browse the latest list ECA Energy Technology List (ETL). Some items require criteria to be met (e.g. lighting) which should be checked with the manufacturer or supplier. ###ECA scheme contacts * Helpline: 0300 330 0657 * ECA queries: [email protected] * ETA scheme general tax queries: Nicholas Williams. ##One last word from us: **Green Element are able to help with a whole or part of this process.** Please do contact us. Savings can be made by renegotiating energy bills onto cheaper tariffs and/or becoming exempt from the Climate Change Levy (CCL) (0.524 p/kWh from 1st Apr 2013) by transferring to renewable electricity – we’ll be blogging more about reducing energy bills…  

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