Gregory Barker, Climate Change Minister, claims pension companies may be the ultimate investors in the Gren Deal that will provide funding for insulating the nation's homes.
He also said that the Carbon Emissions Reduction Target, which was similarly announced last week, is "expected to deliver insulation to 3.5 million households between April 2011 and December 2012".
This equates to 58,333 homes being insulated per day. Readers may make up their own minds how feasible this is.
He was speaking in response to a question by Green MP Caroline Lucas about whether he plans to retain the previous Government's target of insulating every home with cavity wall and loft insulation where technically possible by 2015.
Her question was a follow-up to a major debate on energy efficiency held in the house of Commons on 30 June, in which the minister and many other MPs revealed a new enthusiasm for energy efficiency but not always a sound explanation of the figures.
Barker kicked off the debate by quoting President Obama, who recently said:
"Insulation is sexy stuff... Here's what's sexy about it: saving money". Barker commented, "For too long, energy efficiency has been the poor relation of British energy policy".
[subhead]How the Green Deal could work
He spoke in favour of the Green Deal for households, explaining that it is not a loan, or a cost to the taxpayer, but an investment by energy supply companies and others. "The beauty of the green deal as conceived and as we intend to implement it is that it applies to all sectors of housing," he said.
"It is most applicable to the area that has been hardest to treat and in which there has been least progress in the past-that is, the private rented sector. It will finally cut through that Gordian knot as landlords will not have to pay the up-front costs for benefits that will accrue to their tenants. There will now be a real incentive and no financial disincentive for landlords to upgrade their properties and increase the quality of life of their tenants while decreasing their energy bills.
"It will not be a personal loan, a green mortgage or a charge on the property.
If that owner moves away, the cost will simply transfer to the energy bill of the next occupant. If the occupant changes energy company, the cost will simply transfer to the new energy company."
Who pays?
So the savings on energy in the bill will be the payback for the investor. For this to work, the bill can't reduce, but must stay at the same level as it would. In other words, the householder may not get a lower bill.
Yet, a few moments after saying the above, Barker said the opposite: "The guiding principle is that the savings in every household that receives such interventions on the pay-as-you-save model must always be greater than the financing costs. The householder, be they in rented or private accommodation, should see not only an increase in the insulation in their home, a reduction in their carbon emissions and an increase in warmth and quality of life for them and their family, but – and this is an important point – a reduction in their total energy bill."
Can the investor – who may ultimately be a pension company, Barker thinks – receive payback and the householder lower bills over the expected 25 year period with just £6,500 investment per home in energy saving actions?
Barkjer tried to outline the financial mechanism, claiming it was the result of discussions "not only with the chief executives of energy companies, but with very senior members of the banking community, active participants in the capital markets and retailers such as Marks and Spencer, B&Q, which has been extremely supportive, and others, including installers."
"Across the industry – in financing, installment and retail – there is universal acceptance of this model and there will be innovation in the capital markets," he claimed.
"Some companies will choose to take the charge on to their balance sheets, but others will choose to participate in partnership with a financing company."
He claimed there exists among these companies "a real appetite...to purchase what will in effect be a form of bond with a 25-year life. I think they will be securitised together and parcelled up, and will then make attractive investments for UK pension funds, which currently suffer from a relatively limited choice of secure, long-term investments from which to fund their annuities.
"I can guarantee that, just as the green deal is not a personal loan, mortgage or charge, nor will it sit on the Government balance sheet or require a Government guarantee," he concluded.
The scale of the challenge
Lucas outlined the problem faced by the nation. "More than a quarter of the UK's CO2 emissions come from the energy that we use in our homes. If all the 6.1 million homes with uninsulated cavity walls installed cavity wall insulation, we could save 3.9 million tonnes of CO2 a year, and £690 million on energy bills. If everyone with a gas, oil or LPG boiler upgraded to a condensing boiler, the UK would save 6.7 million tonnes of CO2 a year and £1.3 billion in energy bills.
"If all the 13 million homes with insufficient loft insulation topped up to 270 mm, the UK could save nearly 3 million tonnes of CO2 a year and £560 million in energy bills.
"Those three measures alone could reduce the UK's emissions from the household sector by nearly 10%, so we need to see faster action."
As she concluded, the task demanded "is on such a scale that the Government need to think."
