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

The National Audit Office has today concluded that the Department of Energy and Climate Change’s (DECC) Green Deal has not achieved value for money. The scheme, which cost taxpayers £240 million including grants to stimulate demand, has not generated additional energy savings. This is because DECC’s design and implementation did not persuade householders that energy efficiency measures are worth paying for.

The NAO report Green Deal and Energy Company Obligation 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, but the Department’s information is not detailed enough to conclude by how much. Suppliers have met their obligations for saving carbon dioxide (CO2) and reducing bills.

The report finds that while the Department achieved its target to improve 1 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 have saved substantially less CO2 than previous supplier obligations, mainly because of the Department’s initial focus on ‘harder-to-treat’ homes, as its analysis showed that previous schemes had absorbed demand for cheaper measures. The Department expects the measures installed through ECO up to 31 December 2015 to generate 24 megatonnes of carbon dioxide (MtCO2) savings over their lifetime, only around 30% of what the predecessor schemes achieved over similar timescales.

Demand for Green Deal finance has fallen well below the government’s expectations, 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 the Department initially planned. As part of changes to ECO in 2014, the Department enabled suppliers to achieve their obligations with cheaper measures, moving away from its focus on harder-to-treat properties. ECO has generated £6.2 billion of notional lifetime bill savings to 31 December 2015 in homes most likely to be occupied by fuel poor people. Beyond this, the Department cannot measure the impact of the schemes on fuel poverty.

There are significant gaps in the Department’s information on costs, which means 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. The lack of consistency in the government’s approach during the schemes could increase the long-term costs of improving household energy efficiency.

In the NAO’s accompanying investigation into DECC’s loans to the Green Deal Finance Company, also published today, it found that the Department expects that it will not recover its £25 million stakeholder loan to the finance company, plus £6 million of interest that has accrued on it. The Department based its stakeholder loan on forecasts of significant consumer demand for Green Deal loans. But demand for Green Deal finance was lower than the Department forecast from the outset, meaning the finance company could not cover its operating costs. The Department agreed a second loan worth up to £34 million in October 2014, of which the finance company has drawn down £23.5 million. The Department still expects to recover this loan in full as it will be repaid before other investors in the finance company.

“Improving household energy efficiency is central to government achieving its aims of providing taxpayers with secure, affordable and sustainable energy. The Department of Energy and 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.”

Amyas Morse, Head of the National Audit Office

Notes for Editors

£240m
Department of Energy & Climate Change’s spend on the Green Deal between 1 April 2011 and 31 March 2015 (including grants to stimulate demand)

£3.0bn
Cost to energy suppliers of meeting their energy company obligations, 1 January 2013 to 31 December 2015

£94

Overall cost per tonne of carbon saved by the schemes (excluding energy suppliers’ administrative costs) compared with £34 for the previous set of schemes

2.3m
Number of fuel poor households in England

£6.2 billion
Estimated notional lifetime savings on energy bills resulting from the installation of Energy Company Obligation (ECO) measures in low income and vulnerable households by 31 December 2015.

50,000
Homes made more energy-efficient with direct subsidies from the Department of Energy & Climate Change, worth £170 million (Green Deal cashback scheme and Green Deal Home Improvement Fund)

12 million
Approximate number of homes lacking wall insulation in 2015 (cavity-walled and solid-walled homes that could be insulated)

  1. The UK's 27 million homes are responsible for over a quarter of the country's total energy demand and greenhouse gas emissions, owing to the age and design of many houses. The UK’s housing stock is among the least energy efficient in Europe. People living in inefficient homes have to use more energy to keep their house warm, leading to higher bills and harm to the environment. They may also suffer colder conditions, which can have a significant impact on health.
  2. In 2013, the Department implemented two energy efficiency schemes with the primary aim of improving household energy efficiency to reduce carbon dioxide (CO2) emissions. Through the Energy Company Obligation (ECO), the Department requires the largest energy suppliers to install measures that will reduce CO2 emissions a certain amount, or otherwise pay a penalty. The suppliers pass on their costs to all their customers through energy bills. The government has obligated suppliers to deliver energy saving improvements in this way for over 20 years. The Green Deal is primarily a finance mechanism, which enables householders to borrow money to fund improvements to their homes, making repayments through their energy bills (“Green Deal finance”). This is complemented by a broader framework of advice, accreditation and assurance intended to increase homeowners’ trust in the supply chain for home improvements.
  3. The Department wanted the Green Deal to enable more households to pay for measures that would improve the energy efficiency of their homes, rather than all energy consumers contributing as under previous schemes. It also wanted energy suppliers to focus on improving harder-to-treat homes, which cost more and take longer to improve. In July 2015, the Department announced that it would not provide any further funding for Green Deal loans, effectively bringing the scheme to a halt.
  4. Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.
  5. The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Sir Amyas Morse KCB, is an Officer of the House of Commons and leads the NAO, which employs some 810 people. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of £1.15 billion in 2014.

PN: 23/16