Sunday, April 4, 2010

UK Government Says No Upfront Fees For Household Environmental Upgrades

By Chris Floate

On March 2nd 2010, the UK government released its strategy for household energy management - Warmer Homes Greener Homes - which sets out its plans to deliver the already promised 29% cut in carbon emissions by 2020, from UK homes.

The main thrust of the document is to use the previously announced Renewable Heat Incentive, which plans to levy those using fossil fuels to pay those demonstrating green energy usage an amount per kW. The thinking behind this latest strategy is that the payment made for the energy saving (the current proposal for thermal solar is 18p/kw for 20 years) under the Renewable Heat Incentive should be enough to pay back the cost of installing the system and give a saving to the household. This idea is then taken a further step to include the financial sector that could then offer loans for the installation that will we paid off by the Renewable Heat Incentive payments.

On the face of it, this all sounds a pretty good deal for everyone. The government gets to hit its target, the householder gets cheaper heating at no cost to him/herself and the banks get to make guaranteed loans backed by the houses. Another interesting feature of the idea is that the loan and the payment stays with the property if it is sold. This means it should be a benefit for the seller.

So where's the snag?

Everything in life has to come from somewhere and this is going to come from the householder who is using fossil fuels and the power companies who will no doubt see added taxes to cover any further requirements.

The government is naturally claiming that many new green jobs will be created and that demand will mean we are in a shortage situation of qualified installers for a long time. I am really pleased to see an initiative that really encourages the individual to seriously invest in a greener lifestyle but one has to raise concerns about pricing. Whenever governments get involved and manipulate situations it tends to adversely affect pricing as it destroys competition. I will explain what I mean. If I, for example install a £10,000 solar system and the government guarantee me a payment each month that will pay off the loan and give me a little bit more then it makes sense for me to do it.

That part of the equation is great. We have a householder who will commit to reducing substantially his/her carbon footprint and when done en masse it is easy to see that this can have an impact. The other side of the equation is not so good though. If you create a situation where the demand is so much greater than supply there is only one thing that will happen, the costs of the systems and their installation will go up until the sums don't add up anymore. The banks will not be interested as the returns will no longer guarantee payment and when that happens we will be back to square one as the financial incentive will then be discouraging rather than encouraging the householder.

In a scenario similar to the one above the opposite of what needs to happen will happen. Increased demand for green products and systems, (provided it is within natural proportions) should mean prices actually reduce as scales of volume and improved manufacturing and installation techniques kick in. I like the Renewable Heat Incentive as it does what it says on the box - it incentivises the home owner to install green power.

Unfortunately, when a government starts meddling with finance they create distortions that will lead to a bubble in green energy and we all know what happens to bubbles in the end. Renewable energy could be set back a long, long time. If you take away the need for the householder to beat the price as low as possible then you're heading for a fall.

Another worrying aspect of the government document is their requirement for added layers of bureaucracy and further certification for installers which will give a perfect carrier for the justification of increasing costs. Also, there is no allowance for the DIY installer. There is no reason why many systems cannot be installed by a competent DIY'er which can give real cost savings and also allow for perhaps a larger system than could be afforded otherwise. Unfortunately, with government assistance comes control.

There is another fly in the ointment, the UK has an election coming up and who knows what a new government will want to do or change. Looking at the people who run the UK, I wouldn't want to rely on their word for a long term financial commitment!

If you would like to know more, the strategy document can be downloaded at:

Chris Floate has been writing for magazines in the recycling and landscape arenas for the last 20 years. He is currently developing an online resource, realityGreen which focuses on
sustainable living. Chris is also involved with natural swimming pools.

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