A damning National Audit Office (NAO) report has concluded that the Green Deal has not achieved value for money and “failed to deliver any meaningful benefit”.
The scheme, which cost taxpayers £240 million including grants to stimulate demand, has not generated additional energy savings because the Department of Energy and Climate Change’s (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’, published on Thursday, 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 DECC’s information is not detailed enough to conclude by how much. Suppliers, however, did meet their obligations for saving carbon dioxide (CO2) and reducing bills.
The report also found that while DECC achieved its target to improve one million homes with the schemes, this is not a direct indicator of progress against the objective of reducing CO2 emissions.
The schemes, according to the report, have saved substantially less CO2 than previous supplier obligations, mainly because of DECC’s initial focus on ‘harder-to-treat’ homes, as its analysis showed that previous schemes had absorbed demand for cheaper measures.
DECC expects the measures installed through ECO up to December 31, 2015 to generate 24 megatonnes of carbon dioxide savings over their lifetime, only around 30% of what the predecessor schemes achieved over similar timescales.
Demand for Green Deal finance also fell well below the government’s expectations, with households only funding one per cent 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 DECC initially planned.
As part of changes to ECO in 2014, DECC 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 December 31, 2015 in homes most likely to be occupied by fuel poor people.
The report also found significant gaps in DECC’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.
The NAO, scrutinises public spending for Parliament and is independent of government, also investigated DECC’s loans to the Green Deal Finance Company and found that DECC 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.
DECC based its stakeholder loan on forecasts of significant consumer demand for Green Deal loans. But demand for Green Deal finance was lower than DECC forecast from the outset, meaning the finance company could not cover its operating costs.
DECC agreed a second loan worth up to £34 million in October 2014, of which the finance company has drawn down £23.5 million. DECC still expects to recover this loan in full as it will be repaid before other investors in the finance company.
Amyas Morse, head of the NAO, said: “Improving household energy efficiency is central to the government achieving its aims of providing taxpayers with secure, affordable and sustainable energy.
“DECC’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.
“DECC now needs to be more realistic about consumers’ and suppliers’ motivations when designing schemes in future to ensure it achieves its aims.”
A DECC spokeswoman defended the government’s record, insisting one million homes had benefited from the two schemes and that concerns about cost effectiveness were being addressed.