A Thought Piece by Engage Consulting’s Peter Goodwin
Well, the quick answer for the industry is that we do not really know at this stage but on face value there may well be substantial metering implications.
Department of Energy and Climate Change (DECC) announcements have been made but as the Green Deal packages have yet to be finalized the exact details of what the Green Deal will include or involve are largely unknown. However, there is work being done within industry to both help understand the thinking and to influence some key policy decisions.
We have been keeping a close eye on the Green Deal developments for some time due to its importance and potential to make a huge difference to our green economy. We believe that the immediate challenge for our industry is to understand the unanswered questions that the initial publications have highlighted.
So what’s the real deal with the Green Deal?
It is clear there are a number of potential issues and challenges that the industry will need to appraise and overcome.
- There will be a role for the home energy meter. The whole point of Green Deal is to provide a route for upfront financing of energy efficiency measures, and smart meters and in-home displays provide the ideal platform for keeping consumers informed of how much they owe. For smart meters operating in PAYG mode, there is an obvious opportunity to collect cash via the meter. The areas that require clarity are as follows:
- Who will be make the charge through the home energy meter, how this will be done and through what mechanism?
- What type of upfront finance is available and who is responsible for providing the finance (DECC quotes a range of accredited providers)?
- Are suppliers likely to administer payments with their customers and provide balance updates to smart meters, and on bills?
- How will the smart metering rollout program affect this especially as there will be smart and non smart meters operating in parallel?
- What code(s) of practice or regulatory obligations will be in place to facilitate and control this including the general governance of the Green Deal?
- The term small business is mentioned but DECC also states that the Green Deal may be available to all customers. This will link to what definition is used to identify small businesses. Furthermore, it is unclear whether every customer should be obliged to take up the scheme and what happens if they cannot or do not want to?
- The Change of Supplier and Change of Tenancy processes will add significant complexity to the scheme. This coupled with the impact of the smart metering rollout program compounds the challenge for the industry and government alike, and
- DECC’s proposed insulation measures mentions loft, cavity and solid wall; however, this could be referring to one installation or potentially three installations.
We believe that there are also potential links to other current household schemes such as CERT, Zero Carbon Homes and Warm Front; there are some similarities and differences and could be confusing.
In terms of benefit, DECC has estimated that the most energy inefficient UK homes could save on average around £550 per year via installations made under the scheme. This could mean that a typical average domestic customer will be saving nearly half of their bill as result of these installations. In our opinion, this appears to be a generous figure and it does not take into consideration the impact of customer behavior changes as a result of additional insulation measures being installed at the property.
Another quoted benefit is that employment in the sector will rise almost ten-fold from the current level of 27,000 to approximately 250,000 if all 26 million households and small businesses take up the Green Deal. The projected investment from private sector is estimated to be £7 billion per year but DECC does not give the breakdown of this figure. This in addition to other costs such as the smart metering rollout makes it a significant challenge to all in times of economic hardship.
The key question is who will pay for all this? Could it be the customer in one way or another?
Next steps: The devil’s in the detail
We anticipate significant levels of industry change required to deliver the scheme, both to existing industry processes (and systems) such as the Change of Supplier process, and to introduce new industry processes for administering the arrangements between suppliers, Green Deal service providers, Green Deal financiers, the regulator and customers. The industry is already in the process of seeking to understand the impacts of the Green Deal on their businesses and on industry processes and we are working with the industry to deliver these impact assessments.
We believe that the Green Deal has merits but it also has gaps that require the industry and the government’s detailed consideration. A lot of work needs to be done on the detail of the Green Deal to realise these benefits and ultimately help customers and GB in our transition to a Low Carbon Economy.