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Government-backed loan scheme will enable property owners to install new energy efficiency measures at litttle or no cost

October 1, 2012 | Company News  

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The Green Deal, a Government-backed loan scheme that will enable property owners to install new energy efficiency measures at little or no upfront cost, which is set to become available at the end of January 2013, will be of great benefit to landlords, according to Enact Energy.

Enact Energy, named in April by the Department of Energy and Climate Change as one of the Green Deal Pioneers, will be one of the first companies in Britain able to offer landlords works under a Green Deal plan or grant funding through ECO (Energy Company Obligation).

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When the Green Deal becomes available, there will be over 40 types of energy efficient upgrades to choose from, all of which will be party or fully funded. The most common works expected include heating upgrades, insulation, double-glazed door and windows, and renewable energy products such as solar and heat pumps. The loan is then paid back through small increases to the electricity bill of the occupier of the property (i.e. the tenant).

It is this, the loan repayment through the tenant, that has got alarm bells ringing at the Residential Landlords Association (RLA), as it is feared that tenants will be resentful of having to foot the bill for upgrades to a property that they do not own, and will therefore avoid entering into agreements with rental stock tainted with the mark of Green.

However, Enact do not believe this will be the case, saying that the RLA has not taken into consideration the Green Deal’s Golden Rule, which, if properly communicated to tenants, will prevent a negative tenant reaction.

The Golden Rule states that work done under the Green Deal must not cost more than the expected financial savings attached to the energy bill. It must be thoroughly explained to the tenant that, despite an increase to their energy bill, the reduction to the bill through the work done will actually drag the total below where it otherwise would have been had the work not been done.

Adrian Wright, chairman of Enact, said, “Landlords will need the permission of the tenant to apply the loan to a property, so works will only be able to go ahead if they agree – a communication challenge that landlords must rise to if they are to see their properties benefit from the Green Deal.

“Alternatively, works can be installed during tenant void periods negating the tenant permission obstacle.

“Whilst it is the tenant who pays the loan, it is also the tenant who will benefit from the energy savings so through the Golden Rule they should be no worse off and will benefit from a warmer home with lower energy bills.

“With the Golden Rule in place, in theory, by taking advantage of the Green Deal, tenants will see a drop in their energy costs, the savings of which will pay for the loan and as energy prices rise, the savings will rise with them.”

But, unfortunately, not all of the works under the Green Deal meet with the Golden Rule; renewable energy technologies and double-glazing are expensive to have installed relative to the energy savings they deliver. They also happen to be among the most common expected works to be requested by landlords.

In cases such as these, landlords will need to make an upfront payment to cover the cost of the work in order to make sure that the full cost is not passed on to the tenant, thereby violating the Golden Rule.

Although Enact is quite clear that the Green Deal is a win-win for both landlord and tenant, there are still some contentious issues surrounding the scheme, leading many to question whether it really is in the best interest of everyone.

Under the current scheme, Cert obliges energy companies to pay out £2.4bn a year, 40% of which goes to vulnerable householders. But the ECO will oblige them to pay out £1.3bn a year, only 25% of which goes to help those in fuel poverty. This seems like a significant loss for the poorest tenants.

And pushed to the back of the discussion, behind the monetary concerns of landlords and tenants, comes the question of whether the aim of the Green Deal to reduce carbon emissions, thereby mitigating climate change, will be successful. If savings are made, it could be argued, they could well be spent on products that would not otherwise have been purchased, the production of which leaves a carbon footprint, therefore offsetting any carbon emissions prevented by work carried out under the scheme.

 

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