Green Deal Finance

Revived Green Deal set to be rolled out across the country

Reports of the Green Deal’s death may have been greatly exaggerated. The controversial government-backed pay-as-you-save energy efficiency scheme could be about to enjoy a second life, after a consortium of investors today confirmed they have acquired the scheme’s loan book and administrative system in a deal worth £40m.

The Green Deal was closed to new loans in the summer of 2015 after the government refused to make additional funds available to the pay-as-you-save scheme.

The collapse of the scheme – which had previously been touted by ministers as a crucial component of the UK’s efforts to improve domestic energy efficiency and cut carbon emissions – sparked widespread condemnation, including a highly critical National Audit Office report which accused the Green Deal of failing to deliver promised energy savings.

Environmental and industry groups also slammed the government’s handling of the scheme, arguing the failure to provide sufficiently competitive interest rates or alternative incentives meant the Green Deal had failed to scale up as planned.

The closure of the Green Deal to new loans left the government-backed company set up to oversee the scheme, the Green Deal Finance Company (GDFC), to manage the loan book that had been developed from the initial wave of households to sign up to its pay-as-you-save finance plans.

GDFC today announced its wholly owned subsidiary GDFC Services Limited, which controls the £43.8m loan book and the Green Deal’s administration system, has been sold to Green Bidco No 1 Limited, an acquisition company set up by Greenstone Finance Limited and Aurium Capital Markets.

The company said the sale was the culmination of a process that originally saw 14 separate organisations express an interest in buying GDFC’s loan book and operations.

It added that under the terms of the deal GDFC has repaid in full the outstanding £20.2m senior loan facility that had been granted to it by the government.

The sale is expected to have no impact on existing Green Deal plan customers, but the deal could soon see the scheme re-opened to new customers, according to Greenstone Finance’s founder Kilian Pender.

“We believe that the concept of repaying your loan as you save on your energy bills is an excellent one and with the significant private investment that we have secured, we’re looking forward to rolling the Green Deal finance scheme out across the country,” he said in a statement. “We will provide homeowners a cost effective way to improve their homes and quality of life.”

GDFC said its management of the existing loan book had provided evidence that “as anticipated, the underlying level of customer default in Plan repayments is as low or possibly lower than original expectations in setting up the GDFC, notwithstanding the high level of financial inclusion within the GDFC’s lending policies up to July 2015”.

David Brent, chairman of the GDFC, said the sale of the GDFC Services to a buyer who “intends to re-activate the GDFC’s pay-as-you-save lending activities… shows the significant value of the pay-as-you-save system the GDFC developed”.

“With the right backing it has the potential to fulfil the environmental and energy efficiency objectives set out by the government and the GDFC’s other stakeholders when the GDFC was first established,” he added.

Greenstone Finance was set up in 2015 with a view to investing in organisations focused on renewable energy and energy efficiency financing. It is working with structured finance specialist Aurium, which also has a track record of investing in renewable energy projects.

The two firms have said they will commence financing of new Green Deal loans before the end of the first quarter.

They are expected to focus the Green Deal’s finance packages at those facing the cost of installing a new boiler or other essential work, those who want to boost the value of their home by improving its energy efficiency or installing renewables technologies, and landlords facing a legal requirement from April 2018 to ensure their properties meet new minimum energy efficiency standards.

The news was welcomed by Energy Minister Jesse Norman who said the re-opening of the Green Deal would help the government meet its fuel poverty and carbon targets.

“People living in more energy efficient homes can have lower bills and warmer homes, while producing fewer carbon emissions, which is why the government has committed to improving the insulation of more than one million homes over this Parliament,” he said in a statement. “This deal will help us to reach that goal.”

Advocates of pay-as-you-save schemes maintain they can deliver a major boost to energy efficiency across the economy, allowing households and businesses to install clean technologies at no upfront cost and then pay for the project through the resulting energy savings. The approach is also expected to become more attractive to prospective customers as clean technology costs continue to fall.

But some industry insiders have warned that without attractive incentives or robust regulations it will remain difficult to encourage large numbers of households to take advantage of loans that can take years to pay off and can deliver relatively small net savings.

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