What is the Green Deal – and will it save you money?

The Government hopes that its Green Deal will ‘transform’ British homes, which are among the least energy efficient in the world.

The newly launched scheme provides loans to pay for the costs of making a home more energy efficient.  The savings on bills are used to pay back the borrowed money. Homes in England and Wales can also get their hands on cashback worth up to £1,000.

Energy Secretary Ed Davey said: “More and more families are being hit by the rising cost of fuel bills and the best way people can protect themselves from increased costs is to use less energy.

“This is where the Green Deal comes in, giving people a whole new way to pay for energy saving home improvements. The Green Deal is a great deal. Improve the look and feel of your home, make it cosier and at the same time save energy - what's not to like?”

The initiative replaces the Warm Front scheme, which offered free insulation and help with bills to households on income-related benefits.

However, homeowners are being urged to check the details on Green Deal to make sure it’s suitable for their circumstances.

How does it work?

The Green Deal offers homeowners a loan to spend on features to make a property more energy efficient. The loan is attached to the property rather than a person, so if you move the debt won’t follow you. 

Households can choose from 45 different types of improvements, including insulation and new heating systems. The money borrowed through the scheme is paid back through your electricity bill – the idea being that money saved on bills should cover the cost of having the work done.

The process starts with a so-called Green Deal Assessor who will come to your home and discuss energy use, then recommend improvements suitable to the property. However, not all assessors will be providing their services for free – though some will, others could cost up to £120.

The assessor will indicate whether the work should pay for itself through reduced energy bills. Homeowners don’t need to follow through will all of the recommendations, but to get any or all of the work done a ‘Green Deal Provider’ must to be used. There are a number of providers and you can get as many quotes for the work as you like to find the most competitive deal for you.

Once a provider has been chosen, a ‘Green Deal Plan’ – a contract between the provider and homeowner – is put in place for the work and repayments.

As the money is a loan it comes with a fixed interest rate attached and this will be confirmed in the plan. The Green Deal Finance company has been set up by the Government to provide funding at a rate of 6.9%, but not all providers will need to use this mechanism so rates could vary considerably.

A Green Deal Installer will carry out the work and repayments will automatically be added to your electricity bill. You can find a full list of providers, assessors and installers here.

The Government has ear-marked £125 million to offer as cashback, including £650 to those who fit solid wall insulation and £220 to those get loft insulation. These incentives are available to homes in England and Wales and will be offered on a first-come, first-served basis and you can apply for it here.

Is it a good deal?

The Government says 8 million homes in Britain could benefit from solid wall insulation, which would provide a typical bill saving of £270 a year for a three bedroom semi-detached house.

But the scheme does not guarantee that improvements will pay for themselves; this will depend on future energy use and the cost of energy, as well as the cost of the loan.

High energy use homes, along with big draughty homes that leak a lot of energy, are likely to be the biggest winners from this deal, but homeowners will need to study the costs and potential savings carefully.

Andrew Pendleton, head of campaigns at Friends of the Earth, said: "Bolder Government action is needed to help those really struggling to heat their homes.”

Broadly critics have welcomed the push to make households more efficient, but the loan conditions have been controversial and others have said there is too much confusion about parts of the scheme, such as how many people will actually benefit.

Luciana Berger MP, Labour's Shadow Climate Change Minister, hit out at the loans and said that the Green Deal will cost most people more that it will save “because of sky high interest rates, hidden charges and penalty payments".

Kim Vernau, chief executive of BLP Insurance, commented: “Eric Pickles refusal to enforce any element of compulsion in terms of extensions or conversions to property, and having to spend money to improve the efficiency of the original building contributes to the confusion.

“A glimmer of hope for the scheme comes on the back of its initiative to replace old boilers for the cost of between £2,000 and £3,000, with no upfront costs for the property owner.”

Further information can be found on the Government's official site or through the Energy Saving Trust.