'Energy efficiency' Green Deal launched by government

Householders are to be offered long-term loans to help make their homes more energy efficient and cut bills under a new government scheme.

Ministers said the Green Deal, to run in England, Wales and Scotland, will help thousands "stay warm for less".

Under the scheme, households can use loans to spend on energy-saving improvements, such as insulation and new boilers, with no upfront cost.

Campaigners said the project would "not stop fuel poverty rocketing".

How it works

The move to insulate the UK's aged housing stock is designed to save carbon emissions, keep people warm, and make energy affordable.

Homeowners will first be visited by an assessor, who will ask some basic questions about their energy usage.

Approved Green Deal installers, such as energy companies or DIY chains, will then advise on potential improvements, such as double-glazing, insulation or new heating systems.

Consumers will pay for the improvements by taking out a loan with the Green Deal Finance Company, a non-profit making organisation backed by the government.

Such loans will be paid back through electricity bills for periods of up to 25 years.

There is no guarantee that the eventual savings made by consumers will match the cost of the loans they take out to make the improvements.

"However, there's a good chance that you will make savings," said Paul Reeve, of the Electrical Contractors' Association.

Mr Reeve said it was possible, but unlikely, that consumers could end up out of pocket.

"Many of us believe that energy prices will continue to rise over the coming years. If that's true, people who've taken on the Green Deal will generally feel a lot better off," he explained.

The costs

Consumers taking out Green Deal loans will have to repay them at a maximum rate of 6.92%, according to the Department of Energy and Climate Change.

Compared to a standard home loan rate, that is relatively high.

On top of the loan, householders will have to pay a £63 set-up charge, and a £20 a year annual fee.

On a loan of £5,000, the overall rate that is repayable is just under 8% over 10 years, or 7.7% over 25 years.

The government argues that such rates are comparable to the best High Street rates for long-term unsecured loans.

Richard Lloyd, the executive director of Which? magazine, is sceptical about the value for money represented by the loans.

"Customers will ask themselves, is the price too high? Could they get a better deal elsewhere?"

There is no formal cap on the amount that individuals can borrow under the scheme, but the government expects that £10,000 will be the maximum amount that most people will apply for.

Anything larger would not be justified by the potential savings on energy bills.

The government is also introducing a cashback incentive scheme, to encourage people to take advantage of the deal.

In total, the Department of Energy and Climate Change has earmarked £125m to pay out on a first-come, first-served basis.

"The more work households decide to have done, the more cash they could receive," said a government spokesman.

"Some packages could be worth over £1,000," he said.

Moving on

Should householders sell their home, the loans will need to be taken on by any new homeowner.

Mark Bayley, the chief executive of the newly created Green Deal Finance Company, said: "What makes it work is that the experience of energy companies is that people's default rate is very much lower than the experience in consumer credit and that's how we're able to construct very long term, low cost financing."

"And as people move house the loans they take out under Green Deal plan stay behind with their electricity meter."

If householders transfer to a different electricity provider, the loan will transfer at the same time.

Consumers are allowed to pay the loans off early, but a fee might apply.

More needed?

Deputy Prime Minister Nick Clegg said: "The Green Deal will help thousands of homes stay warm for less. Those people will benefit from energy saving improvements - and their energy bills will fall."

However, campaigners have warned that the new scheme does not go far enough.

Ed Matthews, head of fuel poverty campaign group Energy Bill Revolution, said: "The Green Deal and Energy Company Obligation will not stop fuel poverty rocketing in the face of high gas prices."

"We call on the prime minister to use money from the carbon tax to super-insulate this country's homes.

According to Groundwork UK, which has been working on the scheme, potential energy savings can be worth up to £300 a year.

"For relatively low expenditure, you can make a big difference to the cost of your fuel bill," says Sir Tony Hawkhead of Groundwork.

He estimates that typical average savings on a small house can be £120 a year, rising to £270 for a three or four bedroom house, "or possibly higher than that".

But he acknowledges that in some cases, the cost of the loan could be more expensive than the savings gained.

"Obviously the cost of installing the energy efficiency measures, such as a new boiler or dealing with solid walls, can be higher."