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14.04.16

DECC ‘must be more realistic’ about scheme design in light of Green Deal failure – NAO

A failed environmental scheme to provide householders with loans to improve the energy efficiency of their homes has cost the government £25m.

The not-for-profit Green Deal Finance company was founded in 2012 by the Department of Energy and Climate Change (DECC), but had to rely on loans from the department to keep it financially sustainable because of a lack of take-up of the home improvement loans until the department stopped funding it last July.

The National Audit Office (NAO) investigation into the failure of the Green Deal said that the department has loaned £48.5m to the company but will probably only get £23.5m from a senior loan back.

Amyas Morse, head of the NAO, said: “The 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. The department now needs to be more realistic about consumers’ and suppliers’ motivations when designing schemes in future to ensure it achieves its aims.”

The most significant investment from the department was a £25m stakeholder loan to the Green Deal to encourage confidence from private investors, who provided £43.7m, based on predictions indicating that there would be significant take-up for the loans.

However, demand was so low that the Green Deal Finance company leant only £17m by the end of 2014, compared to predictions of £695m, and had accumulated operating losses of £45.5m.

This also meant it was unable to access a promised loan from the Green Investment Bank, and was allowed to use £6.8m of the loan to cover operating costs instead of providing loans.

The government even provided councils with £88m to try to encourage take-up of the Green Deal.

A spokesperson for the department said: “The government is clear about the need to have firm financial controls in place to protect consumers, which is why we took action last July to address the issues in this report. We are now designing a new scheme that will help make even more homes warmer and bring people’s bills down.”

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