The able-to-pay energy efficiency market
Last week (23 July) Department of Energy and Climate Change (DECC) announced it will no longer provide Green Deal funding, citing disappointing uptake of Green Deal plans, concerns around the quality of installations under the scheme and the need to save tax payers’ money through cost effective policies. The end of Green Deal and the discussions on future schemes to replace the Energy Company Obligation (ECO) post -2017 must be an opportunity to refocus on a long-term strategy around transitioning towards a competitive energy services market that is self-sufficient, demand-led and not wholly dependent on subsidy raised though energy bills.
Britain has one of the least efficient housing stocks in Europe, energy efficiency is an enduring solution to help consumers reduce their energy consumption, improve the comfort of their homes and is central to achieving 2050 carbon reduction targets. The current policy framework is, however, inappropriate as it is overly reliant on funding energy efficiency improvements through levies on energy bills, via obligations such as ECO. This is a regressive way of funding, especially when the installations are not targeted at those most in need. Furthermore, this subsidy-based approach has led to an expectation that energy efficiency should be provided free of charge, undermining the value of energy efficiency to the public.
In the wake of Green Deal, the development of assertive policy is required to operate alongside ECO and enable the benefits of domestic energy efficiency to be realised, underpinned by a clear and coherent policy framework. Reducing subsidies for the able-to-pay market is key to a sustainable, competitive industry, supported by a long-term strategy demonstrating the value of energy efficiency and stimulating consumer demand. Energy UK is, however, aware that without some form of subsidy, the upfront costs of installing energy efficiency measures prevent a proportion of able-to-pay customers from engaging in the market.
Stimulating the able-to-pay market will, therefore, require holistic policy that recognises the breadth of accountable stakeholders and sets a clear trajectory of government expectations. As part of this policy targeted incentives will be required to encourage demand, as well as funding mechanisms to facilitate uptake.
Fiscal incentives could provide effective support to both incentivise and facilitate consumer engagement in the able-to-pay market. For example, reflecting a property’s EPC in the Stamp Duty could provide an incentive to customers who would benefit financially by installing energy efficiency measures. Alternately, funding could be provided via green mortgages to support high investment measures, and a salary sacrifice scheme – similar to the Bike to Work scheme - could be used for the installation of low-cost measures.
The end of the Green Deal highlights the plight of the able-to-pay energy efficiency market and the need for a new policy framework. This framework, encompassing ECO, must support simple, coherent policies which recognise the limitations of previous policy to provide appropriate customer access to high quality installations of energy efficiency measures. In order to prove effective the framework must be supported by holistic, long-term, cross–government policies that drive and sustain demand for energy efficiency measures in the able-to-pay market.