Eight months ago Amber Rudd, then a junior minister in DECC, wrote the foreword to the annual report on the Green Deal, the government’s flagship scheme for energy saving that she closed last week. In December of last year she praised the number of energy efficiency measures completed under the policy. More surprisingly in view of last week’s decision to shut the scheme, she wrote ‘We have also proved that Green Deal finance works’.
The evidence suggests otherwise. Under the Green Deal, householders were able to borrow money to carry out efficiency measures such as cavity wall insulation and the installation of new gas boilers. Their loans are repaid by a levy on the electricity bill and this repayment was intended to be less than the savings generated by the home improvement.
Despite Ms Rudd’s confident words, savings from energy efficiency projects in domestic homes do not cover the cost of installation after taking into account interest payments. This is what killed the Green Deal, not the ‘concerns about industry standards’ specified in last week’s announcement. The unavoidable but unfortunate fact is that home insulation improvements do not make financial sense if people have to borrow at commercial rates of interest. Blaming the insulation industry for the failure of the Green Deal is wholly unfair.
Ms Rudd ought to know this. In June this year her own department produced robust statistical assessment of the impact of the most frequent energy saving measures. This analysis demonstrated that the average (median) reduction in energy use was as follows:
Cavity Wall Insulation - 1200 kWh
Loft insulation - 400 kWh
Condensing boiler - 1300 kWh
Solid wall insulation - 2200 kWh
The annual cash savings from these four measures at today’s gas prices of about 4p per kWh will be
Cavity Wall Insulation - £48
Loft insulation - £16
Condensing boiler - £52
Solid wall insulation - £88
To put these figures into context, it may be helpful to note that the median domestic gas usage in UK homes is about 12,400 kWh, a figure that has fallen by about 30% since 1990.
The small savings observed in real homes contrast sharply with figures routinely used by government and its affiliated bodies. Most relevantly, the Energy Saving Trust, a DECC sponsored body, publishes estimates of the savings from cavity wall installation (CWI) ranging from £90 for a flat to £275 for a detached house, between twice and almost six times as much as actually measured. These unrealistic figures from the EST are routinely used by web sites that householders will consult when thinking about investing in energy saving. I found the EST numbers copied (with proper credit) on the Which?, Money Saving Expert and British Gas web sites, for example.
If you believe the EST figures cavity wall insulation may have appeared to make sense under the Green Deal. For a typical semi-detached house, the savings from this measure are estimated at £160 and the EST says the cost will be less than £500. A Green Deal loan for this amount would have cost about £65 a year, meaning that the insulation savings suggested by the EST would have easily covered the cost.
However if the real savings are only £48 a year, as specified by the government’s own new research, then the Green Deal loan will cost more each year than the reduction in the gas bill. Borrowing money to fund this improvement makes no financial sense. To be clear, the householder might still want to carry out the extra insulation to improve comfort and increase the speed at which a house warms up. But if she has to borrow money to do the work, the savings wouldn’t be enough to cover the cost. The equation would be even more unfavourable, in fact much more so, in the case of all other home improvements.
This is what destroyed the Green Deal. It wasn’t stupidity on behalf of householders, rapacious sales tactics, poor performance from the insulation industry or the inadequate marketing of the scheme. Unscrupulous or careless exaggeration of the real savings by the EST combined with a government committed to privatising energy efficiency meant that the Green Deal was doomed from the start. It simply could never achieve what its architects intended.
In January 2014 I wrote a similar article to this one. I showed how early statistical work from DECC had suggested typical savings from cavity wall insulation of around 1,400 kWh a year, slightly more than the new research now suggests is likely. At the time I criticised EST for using savings estimates of ‘up to £140’ for households carrying out this measure. Currently, EST is saying that the owner of detached house can save £275 and semi-detached house £160 from cavity wall insulation.
In other words in the last 18 months the government’s own continuing research has marked down the average reduction in energy use from installing CWI from 1,400 to 1,200 kWh a year. In the same period the EST, a body charged by government with providing householders with independent advice on energy saving, has increased its estimate of the financial benefit from ‘up to £140’ to a higher level. The Energy Savings Trust needs urgently to be pulled into line.
So what do we do now?
It’s all very well sounding off about the implausibility of all the assumptions behind the Green Deal and the false numbers provided by the EST. What should the UK do now? The problem of the UK’s poor quality housing stock isn’t going to disappear. Carbon emissions from the energy used in domestic heating are still about 25% of the national total. Extra winter deaths, often from respiratory diseases encouraged by low interior temperatures, are running at about 24,000 a year and according to NICE may be trending gradually upwards after falling until about 2005/6. (This last winter may have been particularly bad, although I couldn’t find official numbers).
There's some independent evidence that homes are now heated to lower temperatures in winter. In particular, poorer households seem to be cutting heating use. The government’s data shows that houses occupied by people with total income of less than £15,000 reduced their gas consumption by 4% between 2011 and 2013. But households with an income of over £100,000 increased their gas use by a similar percentage. Rising rates of excess winter deaths may be related to the tendency of poorer households to run their homes at lower temperatures than they previously did because of concerns over the cost of heating.
A rational society would resolve to do something both about the particular problem of low house temperatures among elderly householders and the more general need to improve the UK housing stock (unique around the world in having a quarter of homes build before 1914). Help for older people living in poorly insulated homes makes clear financial sense in that NHS admissions would fall reducing the huge winter pressures on the service and the extra billions that need to be spent. So the programme of free home improvements for elderly people needs to continue and be hugely expanded. The package called the Energy Company Obligation - severely watered down in recent years – should be extended in its scale and radically simplified. At the moment its complexity, rigidity and general all-round incomprehensibility reduces its effectiveness. I believe that the costs of this programme need to be met by general taxation rather than loaded onto energy bills. Otherwise it will be seen as another example of ‘green crap’ policies used as an excuse to raise utility prices.
My second proposal is similar. We continue to need huge amounts of wall insulation; a third of total heart loss is still through walls. Although perhaps 75% of all cavity walls are now filled, several million remain to be done. More importantly, the UK has made almost no progress in insulating older solid wall properties. This needs to be completed – for free – as a national programme in which installers move from street to street.
Lastly, I still think the easiest target remains draught-proofing. Nearly a quarter of heat is lost through simple gaps in the exterior surfaces of homes, whether around the edge of doors or draughts between the floorboards. That is more than the losses through the fabric of roofs, floors and doors combined. Draught proofing isn’t glamorous but it might be far more cost effective than insulation. £30 spent by an individual at the local DIY store will be a far better investment than all the measures available on the Green Deal. The tools needed are simple – a heat loss detection device and possibly a smoke pen.
Or a wider programme of careful, meticulous work, carried out by trained people in a national scheme, might cut heating bills by measurable amounts and would substantially improve our sensation of comfort. The perception of warmth is partly driven by the degree of temperature difference in the air around different parts of the body. A room in which air whistles around the ankles will seem colder than the same room with a still atmosphere. This is one of the reasons draught proofing seems to 'work'.
A national programme of getting community organisations to run street-by-street draught proofing, with large prizes for those groups getting the best results (easily measured by pressure testing the houses) could make a substantial difference to carbon emissions, excess winter deaths and home comforts.
I fear that there is no prospect whatsoever of the government pursuing such a programme but to me this is the easiest, cheapest and most inclusive way of improving Britain’s housing stock. It would be perfect constituent of what Labour Party contender Jeremy Corbyn calls 'the people's Quantitative Easing'.