The Green Deal: what you should know

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The Green Deal (GD) commences on the 28th January and is the Government's way to pay for energy-saving home improvements designed to reduce carbon emissions. The GD helps people pay for energy efficiency improvements like insulations and new boilers, through an effective loan (with fixed interest) capped for the time being at £10,000 and repayment via a higher daily charge on their electricity bills (i.e no up-front payment). The householder will repay the cost over many years (e.g 25), using the savings made through reduced energy requirements. This is unlike a conventional loan because if you move out of the property the bill stays with the property where the savings are occurring and not with the bill payer.

The amount of repayment is based on what a typical household is expected to save on energy bills by having the work done. In theory, the expected energy savings must outweigh the cost of improvements for the loan to be given - what the Department of Energy and Climate Change (DECC) calls the 'Golden Rule.'

The Golden Rule states that if your new insulation saves you £15 per month on your heating bills, for example, you'll pay less than £15 in repayments.

A property is first assessed and energy-saving improvements are recommended in a Green Deal advice report with suggestions to the home owner of Green Deal providers and Green Deal Plan will be written outlining the work to be carried out.and then the works are installed through a GD authorised installer. Codes of Practice set out requirements that installers must meet with regards to the installation process. Installers are required to guarantee the quality of their works.

One of the key principles of the GD is that the cost of the GD improvements should be repaid by those who are benefiting from them from time to time (i.e the electricity bill payer). Consequently, as the property changes hands over time, responsibility for paying the GD charge also changes.

But a bill payer will face two hurdles to effectively passing on the repayment liability of the GD Plan to a new bill payer. The first is that there must be a valid Green Deal Plan to start with, and second, they must disclose the existence of the GD Plan to a new bill payer, who must in turn acknowledge the GD Plan.

For there to be a valid GD Plan, there must be written consents from third parties to permit it (who must consent to the installation as well as the actual energy saving measures, who may include freeholders and the Local Authority, as nearly all energy conservation works will require building regulations consent).

To then successfully transfer the liability to the new bill payer, the GD requires the outgoing bill payer to 'disclosure' the existence of a valid Green Deal. This disclosure will be achieved by incorporation of the GD details on an amended form of EPC. An EPC will now be produced not just on a sale, but whenever new occupation of a property (gift/trust/court order) takes place.

Finally, the new bill payer must acknowledge that (a) they will become the payer of the GD plan instalments and (b) be bound by the GD plan terms, and this will be achieved on sale by prescribed wording incorporated into the sale transfer document.

But the GD is not without critics. Although the DECC is championing the initiative, it is not a Government grant – customers choose to take the Green Deal loan, and will then pay the money back to the loan company with interest. The Deal's Golden Rule does not actually guarantee savings, it is only an estimate based on average savings, not your actual energy use. This means that you could be in a 'break-even' situation for many years with no actual net benefit.

The GD's property assessment procedure has already come under scrutiny. A survey carried out by the Guardian of the 24 companies listed as domestic "assessors" for the scheme discovered that, of the 18 that were contactable, five will charge between £95 and £150 for an upfront assessment fee. Eleven were not able to answer the question, one plans to offer the assessment for free and one company had been mistakenly listed as a provider on the Government's website.

In addition, customers wanting to repay their GD loan early would have to repay the total loan amount plus roughly the total amount of interest that would have been paid throughout the lifetime of the loan. Should customers be discouraged from early repayment in this way?

Still further, customers will expect the guarantee period on energy installations to match the terms of the repayment period, but currently this is not necessarily the case - meaning some people could end up having to make monthly repayments for products that are broken.

It is not yet known how the Green Deal will affect the property prices but there is a concern that some prospective buyers may not be attracted to a property with a substantial Green Deal repayment liability attached to it.