Grant Thornton - What does the market make of the Green Deal?


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We have asked a number of the key players in the energy efficiency market the following questions in relation to the Green Deal initiative to hear at first hand the challenges and opportunities they are facing.

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Grant Thornton - What does the market make of the Green Deal?

  1. 1. What does the marketmake of the Green Deal?
  2. 2. The government’s vision for the GreenDeal and the new Energy CompanyObligation is ambitious and is looking 1 Is the Government adopting broadly the right approach to encourage take-up?to create a dynamic new energyefficiency market, with nationwidebrands, local businesses and communityorganisations competing to deliver 2 Is the Green Deal likely to be in a form that can be readily understood and will be attractive to thethe best proposition for the consumer. householder?The Green Deal which is planned forlaunch later this year is anticipatedto be a sustained multi-billion poundopportunity. 3 Which aspects in particular need to be addressed? The Green Deal intends to reducecarbon emissions cost effectively bysignificantly improving the energyefficiency of British properties. The 4 Can SME’s play a significant role in delivering the Green Deal and how will this work in practice?new innovative Green Deal financialmechanism eliminates the need to payupfront for energy efficiency measuresand instead provides reassurances that 5 What else (if anything) should the Government be doing?the cost of the measures should becovered by savings on the electricitybill. A new Energy CompanyObligation will integrate with the 6 What specific measures are providers likely to focus on?Green Deal, allowing supplier subsidyand Green Deal Finance to cometogether into one integrated offer to theconsumer. 7 What role should local authorities and housing associations play in helping to roll out energy For companies with regulatory efficient measures?obligations to deliver energy efficiencymeasures this is as a natural extensionto a range of services that they arealready delivering but it is the dynamic 8 How important is the local content of delivering energy efficiency measures to you from a commercialof the deal that is different. This perspective and why?energy efficiency opportunity willnot just appeal to the major utilitiesit is also attracting interest from retailorganisations, local authorities, housing 9 How could a local authority wishing to become a leading location for rolling out energy efficientassociations, and SMEs who can all play measures best encourage this to happen?an important role in the delivery of theservices. We have asked a number of the keyplayers in the energy efficiency market 10 What practicalproportion of ECO funding their to maximise the steps can local authorities takethe following questions in relation to localities attract from energy companies?the Green Deal initiative to hear at firsthand the challenges and opportunities We have not attributed the findings for confidentiality reasons butthey are facing: there is no doubt that the organisations we spoke to recognise that the Green Deal is a significant opportunity but not without its risks and challenges.
  3. 3. 1 2Is the Government adopting Is the Green Deal likely to bebroadly the right approach to in a form that can be readilyencourage take-up? understood and will be attractive to the householder?Market view Market viewConsultation with industry is critical, “government must Companies recognise that it will be very difficult to selllisten to the voice of industry”. In its current form there the Green Deal to the customer. When you look into theis tangible concern that take-up will be limited which detail it is more difficult to explain to the customer, forcould have disastrous consequences so the push from example, how do you demonstrate to the customer thatLocal and Central government is important to influence the Green Deal can be trusted? There is a need to removeattitudes and build trust. The market is encouraged that the hassle factor and make the process easy to understandthe government recognise the need to get the market by linking it to alternative energy efficiency solutions inmoving with a £200m incentive pot but some are the market. It is hoped that the consumer can be educateddisappointed with the lack of government direction through closer customer engagement but the Green Deal“how the £200m is used remains up for discussion”. is a complex offering. Effective messaging will be requiredOne company commented that this incentive is to target the older, hard-to-treat properties but there ispotentially wasted as early adopters would have also a lack of detail and clarity on key points, such as,invested in these projects anyway. There may be other ECO and billing.mechanisms to provide initial stimulus, for example, atemporary VAT holiday on Green Deal expenditure wasoriginally part of the framework, but has been removed. Grant Thornton viewIf that was reintroduced it would make the programme There needs to be an integrated approach by central andattractive. local government, utilities and other potential providers to ensure clarity of message and transparency about the risks and opportunities. The proposition needs toGrant Thornton view be broken down into a series of concise, plain EnglishFirst of all, the consumer needs a compelling right messages supported by accessible localised advice buy and must then be aware of what the Green A local or community based approach may be moreDeal means to them – this will require government to credible and trustworthy particularly if communicateddevelop user friendly guidance delivered through an through word of mouth or social media supplementedeffective communication campaign with support from by government sponsored national campaigns. Trustedall the key stakeholders. A credible finance package brands can play a key role in instilling the confidenceto underpin the Green Deal model must be secured at in households to try this new and potentiallythe earliest opportunity to enable providers to finalise disruptive opportunity.their commercial arrangements and delivery models.Getting the Green Deal off to a flying start with positivecommentary in the Press and by word of mouth willinstil a lot of confidence and drive the programmeforward. The early adopter incentive is a sensiblemeasure to fuel this early rush.
  4. 4. 3 4Which aspects in particular need to Can SME’s play a significant role inbe addressed? delivering the Green Deal and how will this work in practice?Market view Market viewThe reputation of energy companies has been tarnished The organisations we have spoken to recognise that fromby energy price rises and the perception of unfair an economic and practical sense they will work withtreatment of the consumer. Understanding and trust must SMEs to deliver solutions. The delivery of CESP andbe developed at a local level where councils have a role to CERT has already seen companies outsource up to 70%play. There is market visibility of the properties that need of their local delivery to SMEs so the model is tried andto be targeted but this must be supported by regulatory tested. Where there is a clear business case to use SMEs inassurance, communication and trust. the delivery model this will be implemented. The financial package must support the solution - alow interest rate is needed otherwise the packages maynot meet the Golden Rule. In addition, the concept of a Grant Thornton view25-year unsecured loan is unique and there is real concern The delivery model includes assessment, administration,about market uptake and how to discharge ECO. One accreditation, installation and finance so there is scope forcompany noted that the “current measures are very SME partnering but it must be viable from a supplier andcost effective to alleviate fuel poverty and reduce CO2” customer perspective. SMEs will have a role to play in theso careful transition from existing schemes is essential. local delivery of the Green Deal but must manage qualityAnother company noted that there should be an explicit and mis-selling risks effectively. The protection of theallowance to use other green energy technologies e.g. consumer is key and this must be clearly communicatedsolar, wind as part of the GD package. in the engagement campaign. The challenge for the Government is creating a framework in which the consumer is adequately protected but the ‘red tape’ doesGrant Thornton view create an administrative burden which prevents SME’sThere is concern that some of the key elements of the playing a full role in the Green Deal.Green Deal will not be ready in time for the plannedlaunch so the anticipated delay with the new legislationmay allow the government to engage more closely withindustry and the market as well as developing a financialpackage that will be fit for purpose. For the Green Dealto deliver sustainable value, delivery packages need to beflexible to maximise the ECO impact and should be easyfor consumers to understand and purchase.
  5. 5. 5 6What else (if anything) should the What specific measures areGovernment be doing? providers likely to focus on?Market view Market viewThere is a wide variety of views within the market with Companies agree with the government’s strategy to focusregard to what the Government should be doing. One on ‘Hard to Treat’ properties but they also need to delivercompany indicated that the Green Deal should focus the ‘Easy to Treat’. The level of growth targeted for SWIinitially on Local Authorities and Social Landlords is unrealistic and the concern is that the change is duewhere there is a stock of homes to retrofit and this to be implemented overnight. The private sector will bewould mitigate some risk and cost issues. One company prepared to take the necessary risks and scale up quicklyhighlighted that there is currently a fully subsidised where they see the potential benefits but the Governmentmarket for Cavity Wall Insulation (CWI) and Loft needs to refine their forecasts.insulation so we cannot expect the customer to paymore. One company suggested that they need to simplifythe consumer offering e.g. boiler replacement, partly Grant Thornton viewfunded window replacement/double glazing - they need There needs to be greater flexibility with the measuresto offer packages that incentivise the consumer to make that are eligible for the Green Deal and ECO at leastthe right decisions. If there is too much focus on Solid initially until there is greater visibility of how the marketWall Insulation (SWI) then this is also a concern. The will develop. One thing appears to be clear, companiestargets for SWI are challenging, the current capacity is cannot afford to wait and need to be proactive in30,000 properties per year and the government plan is developing their systems and solutions in readiness forto deliver SWI to 200,000 properties. Another suggested the Green Deal.that in order to scale up to this level, it may be advisableto continue with the current obligation to deliver CWIunder the CERT regime where c.3.5m homes are eligiblefor treatment. The government’s track record with theimplementation of other energy schemes is seen as aconcern so the market must be convinced that the GreenDeal is a credible proposition.Grant Thornton viewThe government must balance their economic, socialand environmental commitments in an energy marketin a state of flux that is undergoing transformationalchange with a range of alternative energy solutions,pricing challenges and market pressures. We believe thatthe Green Deal needs a phased introduction and shouldcarefully transition from existing schemes which are stillmeeting existing government commitments and ‘notthrow the baby out with the bathwater.’
  6. 6. 7 8What role should local authorities How important is the localand housing associations play in content of delivering energyhelping to roll out energy efficient efficiency measures to you from ameasures? commercial perspective and why?Market view Market viewLocal authorities and housing associations have a The role of education is key although one companysignificant part to play in the Green Deal. They can be highlighted the challenge that the market faces asa trusted advisor and promote an area based scheme consumer confidence has been impacted by energyand should consider launching awareness campaigns as price rises and the credit crunch. It is important tosoon as they have decided upon their approach. They get the message across at community levels, word ofcan work with landlords from a compliance perspective mouth is very powerful. If companies get involved withand influence their planning/design role in the market these programs and keep it in that area then significantto make it simpler and quicker to deliver projects. Some community benefits can be generated.local authorities may have limited capability to deliverGreen Deal services due to financial constraints andservice cutbacks so although local work-share is Grant Thornton viewan attractive opportunity, this may result in sub- Local delivery can be very effective but needs to be testedoptimal implementation. so initial projects should be piloted with local partners to assess the market appetite and performance before being rolled out at scale. Creating local jobs can be powerfulGrant Thornton view marketing and help significantly with take-up.We have noticed that there are opportunities for localauthorities and housing associations to work collectivelyto spread risk and generate scale opportunities. It isimportant that they act quickly to avoid losing the earlyadoption incentives and to maximise local job creation;and work closely with utilities to maximise the ECOimpact. They need to be able to collaborate with SMEsand the main providers to deliver packages atcommunity level.
  7. 7. 9 10How could a local authority What practical steps can localwishing to become a leading authorities take to maximise thelocation for rolling out energy proportion of ECO funding theirefficient measures best encourage localities attract from energythis to happen? companies?Market view Market viewBirmingham Energy Savers has gone early and is Local Authorities need to align their strategic objectivesbreaking new ground. They can test the market but the with those of utilities working in their area to maximiseset up cost is high and others can benefit from the lessons ECO funding but the government could help this processlearned. The companies we surveyed see a high level of by targeting ECO for social housing. The government arepilot/testing in the first couple of years to test different proposing a brokerage and if ECO goes to a brokeragemodels. The market has a clear focus on the major city then providers must ensure that they get the necessaryregions where providers have a strong network of sub- people on the ground that can deliver packages thatcontractors and where it has strategic significance. can use their ECO allocation. Some companies have indicated that they would prefer to see the measure introduced at a lower committed level to test the marketGrant Thornton view and then scale up.The Green Deal requires a coordinated approach andlocal authorities need to assess their strategic optionsby engaging openly with the market. This approach Grant Thornton viewwill be guided by engagement across services lines Local authorities need to be active in the promotion ofsuch as finance, housing, planning and climate change/ energy efficiency schemes and the word from utilitysustainability teams. The market is aware of the companies is that they want to “back a winner”. Manylimitations of some councils in terms of scalability and companies are already working closely with a numberaccess to comprehensive housing data so where necessary of Local Authorities in relation to the Green Deal andcouncils should collaborate with the private sector to authorities should proactively engage with the marketaccess systems and expertise. to develop a delivery model to meet their strategic objectives. A brokerage system, if implemented, must be designed to help suppliers make a significant proportion of their ECO spending available on a fair and equal basis to all Green Deal Providers who commit to delivering in a cost effective way.
  8. 8. Conclusion The Green Deal and the new Energy Company Obligation Who should I contact? have the potential to provide a significant shot in the arm to Grant Thornton’s Energy, Environment & the energy efficiency market. A collaborative approach with Sustainability team is active in advising public and all key stakeholders is needed otherwise this combination private sector clients to deliver the Green Deal may not realise sustainable benefits to all parties. The across the UK. government needs to support the industry comfortable If you want to participate in the Green Deal or that there will be sufficient take-up to justify significant to find out how this framework could represent an anticipatory investment, rather than waiting till the market opportunity for you, please get in touch with one is proven. Government must learn the lessons from the of our experts: existing energy schemes and ensure there is a smooth transition to the Green Deal model. Ultimately the success of the Green Deal will be determined by consumer uptake – will this pass the “pub test”: the Green Deal must be something worth talking about by the end user - for the right reasons. To do that will require trust to be restored to a market under economic pressure, the hassle factor needs to be Nathan Goode Charles Yates removed and simple packages, tailored to the needs of the Partner and Head of Energy, Associate Director, Energy, Environment & Sustainability Environment & Sustainability homeowner must be clearly presented – the market awaits T +44 (0)7887 625 265 T +44 (0)7768 337854 the government’s next move with interest. E E Mike Reid Manager, Energy, Environment and Sustainability T +44 (0)131 659 8503 E© 2012 Grant Thornton UK LLP. All rights reserved.‘Grant Thornton’ means Grant Thornton UK LLP, a limitedliability partnership.Grant Thornton is a member firm of Grant Thornton International Ltd(Grant Thornton International). References to ‘Grant Thornton’ are to thebrand under which the Grant Thornton member firms operate and referto one or more member firms, as the context requires. Grant ThorntonInternational and the member firms are not a worldwide partnership.Services are delivered independently by member firms, which are notresponsible for the services or activities of one another. Grant ThorntonInternational does not provide services to clients.This publication has been prepared only as a guide.No responsibility can be accepted by us for loss occasionedto any person acting or refraining from acting as a result ofany material in this