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Green Deal for Businesses

The government’s Green Deal scheme was intended to make Britain’s businesses (and homes) more energy-efficient by offering them the opportunity to make energy-efficiency upgrades at no upfront cost. However on 23rd July 2015 the Government announced that the finance company behind the Green Deal scheme would close in order to "protect taxpayers". As a result the Green Deal and its intended deliverables ceased to be operative at this point. The Government statement read:

"In light of low take-up and concerns about industry standards there will be no further funding to the Green Deal Finance Company, in a move to protect taxpayers.

"The Government will work with the building industry and consumer groups on a new value-for-money approach, Energy and Climate Change Secretary Amber Rudd announced today.

"Amber Rudd also announced that the Government will stop any future funding releases of the Green Deal Home Improvement Fund.

"Future schemes must provide better value for money, supporting the goal of insulating a million more homes over the next five years and the Government’s commitment to tackle fuel poverty.

"This decision has no impact on existing Green Deal Finance Plans or existing Green Deal Home Improvement Fund applications and vouchers.

"Today’s announcement comes as part of Government’s wider review of energy policies. The Energy and Climate Change Secretary has confirmed that her first priority is to get spending under control."

Amber Rudd said:
"We are on the side of hardworking families and businesses – which is why we cannot continue to fund the Green Deal. It’s now time for the building industry and consumer groups to work with us to make new policy and build a system that works.

Together we can achieve this Government’s ambition to make homes warmer and drive down bills for 1 million more homes by 2020 – and to do so at the best value for money for taxpayers."

In this guide we looked at the finer details of the scheme and how your business could have take advantage. However despite the 'carrot' being taken away, the 'stick' still remains for UK businesses as the requirements under MEPS and ESOS make clear.

What is the Green Deal?

The Green Deal is effectively a loan to improve your home or business premises’ energy efficiency, which is then paid back through your electricity bills over a maximum period of 25 years. Importantly, repayment of your loan is tied to the property and not to your business – so if you leave before the end of the loan term you will not be responsible for paying the outstanding debt. At the core of the Green Deal is the ‘golden rule’ - which says:
"the amount you save on your energy bills has to be greater than or equal to the cost of the repayments"
The government pledged £200m investment to “kick start” the scheme with a view to helping meet the target to reduce carbon emissions in the UK by 80% by 2050.

How does the Green Deal work?

First, you need to find out what work needs to be done to make your building more energy efficient. An accredited Green Deal assessor will inspect your business premises, rate its energy efficiency and suggest the improvements that they think are most suitable. They will also predict the likely energy savings the improvements will bring and determine whether the exercise is cost-effective. Once you’ve had your assessment carried out, identified the work needed and clarified the commercial benefit you need to choose a Green Deal provider. The Green Deal provider will supply the underlying funding for the work and will arrange for it to be carried out by an authorised installer. Whilst they fund upfront, you will pay over the lifetime of the loan (until you move) and under the golden rule will save more on your ongoing energy bills than the outlay in funding costs. When you choose a Green Deal offer you will then sign a Green Deal Plan, which is a contract between you and the Green Deal provider. It’s entirely up to you which provider you choose, so it’s worth shopping around.

How is the Green Deal funded?

Funding comes from the Green Deal providers. There’s a wide range of companies already signed up to the scheme, including three of the ‘Big Six’ energy suppliers - British Gas Business, E.ON and SSE. The amount of funding available to businesses is more than is offered to homeowners - currently around £6,500 - but exact details are yet to be finalised.

What will be the impact on business energy bills?

The overall impact if you sign up to the Green Deal should be a reduction in your energy bills. However, you may find that your electricity bill goes up while you gas bill goes down. This is because many of the energy efficiency improvements available are designed to reduce your heating costs and the vast majority of heating is run on gas whilst the electricity bill is the source of the loan repayment. Under the ‘golden rule’ however the cost of repayment is intended to be less or equal to the cost of energy-efficiency improvements. But the ‘golden rule’ is based on estimates of how much energy you will save - it can’t predict changes in your business that would affect your consumption and in turn affect your energy usage, so if there is a material change in your business’ behaviour there is a possibility that you could end up saving less than the cost of your loan repayments. However it is also worth remembering that as energy prices rise, the savings you make will increase through the energy usage foregone.

What will the interest rate on the Green Deal loan be?

According to the The Green Deal Finance Company (TGDFC) the initial interest rate on Green Deal loans will be set at 6.9%. On top of this, all Green Deal plans will have a set up charge of £63 and an annual operating charge of £20. When these fees are added, the actual interest rate for a £5,000 loan is between 7.67% and 7.96%, depending on the length of the loan.

What energy efficiency improvements are available?

Because of the size and diversity of non-domestic premises, there are more energy efficiency improvements available to businesses than domestic customers. However, due to the size of some business premises not all improvements will be available, as they won’t abide by the ‘golden rule’. The cost will simply be too much to be offset by energy savings. For example, the initial cost of fitting solar panels to a large warehouse might be too great for the business to save enough on their energy bills to make it cost-effective. Currently the Green Deal covers the following improvements:
  • insulation,
  • heating and hot water,
  • glazing,
  • microgeneration,
  • lighting,
  • mechanical ventilation,
  • heat recovery      
The potential application of each improvement will be audited on a case by case basis for each business and only those that prove cost effective and within the 'golden rule' will be put forward for the Green Deal.

If you rent your business premises can you still apply?

Yes. The Green Deal has been specifically designed to allow both tenants and landlords to take advantage in order. Of course if you’re a tenant you will need to get permission from your landlord before you can attach a Green Deal to a rental property however if it brings a long term beneficial value to the building and reduces the energy costs the proposition will be a commercially attractive one for most landlords. Likewise, if you’re a landlord, and your tenant pays the energy bills, then you will need to gain their consent before you can attach a Green Deal charge to their electricity bill.

What safeguards are in place?

As with any new scheme there are concerns around unscrupulous players. As a result, the government has put together a range of safeguards to protect consumers and businesses, including the following requirements:
  • all Green Deal assessors and providers must adhere to accreditation standards;
  • assessors must declare any commissions they may receive and any ties they have to Green Deal providers;
  • Green Deal providers must offer minimum periods of mandatory cover: five years for warranties, 10 years for building damage cover and 25 years for cavity or solid wall insulation;
  • all energy efficiency improvements must adhere to the ‘golden rule’. 

Should your business sign up?

The Green Deal has the potential to be a cost-effective way to make your business more energy efficient with no upfront cost, which would allow you to invest your capital elsewhere. Also, all of the energy efficiency improvements will be safeguarded by a redress system that will ensure all work is carried out to a high standard and that miss-selling does not take place. However, the rate of interest on Green Deal loans is yet to be confirmed. It’s thought to be in the region of 7.5%, so you will need to consider if you could secure funding for energy-efficiency improvements at a cheaper rate elsewhere. At the heart of the Green Deal is the ‘golden rule’ - the amount you save on your energy bills has to be greater than or equal to the cost of the repayments. However, the ‘golden rule’ is based on estimated savings, so there is a chance that if the sums are wrong that you could end up out of pocket. Also, it’s worth taking into account that some - if not all - Green Deal assessors will charge a fee, which is expected to be in the region of £100 and you will have to pay this fee even if you don’t sign up to the Green Deal after you’ve had your business premises assessed. On balance, as long as you go into the Green Deal with your eyes open, and are using a trusted partner, then it has a very real potential to not only render your business property energy efficient but also save you money along the way. With the inexorable rise in energy costs this could be the most prudent action your business has been able to take for some while without impacting your ongoing operations.