Green Deal Low cost finance

The advantage of the Green Deal is that it enables consumers to fund energy efficiency improvements from the value of savings generated throughout the payback period. Because some payback periods may last several years after the investment, consumers will need to pay interest on this money. The golden rule must hold for the total cost of the work (including the measures, labour costs and financing costs) so keeping financing costs to the absolute minimum will be fundamental to the Green Deal’s success. The ability to repay through energy bills is critical to sourcing low-cost finance. Consumers have a relatively low likelihood of defaulting on their energy bills compared to unsecured personal loans or other traditional sources of financing; this means the eventual cost of finance should be lower under the Green Deal than many standard retail finance offers, which cost around 11% even for an average consumer, and considerably more for many consumers. [Source: Bank of England, average of quoted effective annual interest rates for £10,000 personal unsecured loan 1st Jan – 31st Oct 2010 10.7%].

This will also be true for many smaller firms whose cost of corporate borrowing is high. Moreover, the Green Deal is not secured on the property so this is not at risk if repayments are not met. To achieve this lower cost of finance without securing the payments to the property, it is imperative that the Green Deal charge is treated in exactly the same way as any other part of the energy bill. And, of course, one key advantage with Green Deal is that the consumer is able to stop paying once they move out and cease to be the billpayer at the address – unlike personal loans which borrowers have to keep repaying even if they are no longer enjoying the benefits. The Government is in discussions with banks and the investor community regarding the best means of ensuring Green Deal providers can access affordable capital. Source DECC

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For more information regarding the scheme for Green Deal Installers Insulation, heating and renewable energy installation contractors refer to the Green Deal www.greendealadvisersuk.com website.