uk ee financing schemes: an update

UK EE Financing Programmes:An Update

Dr. Steven Fawkes

ACEEE Financing Forum15th May 2013

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Shared savings – a British invention

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Agenda

Update on Green Deal- Latest numbers in over night

ECO, GIB & other initiatives in an Appendix to PPT

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Green Deal – the basics

• Financing of efficiency with repayment through electricity bills• Tied to meter i.e. property• Golden Rule:

– repayments always less than estimated savings• Target of £14 billion investment over 10 years

– cf. £80 billion requirement• ‘Light’ credit assessment:

– 80% eligible• 10-25 year debt from private sector• Residential focus but can be applied to business

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Eligible measures

45 eligible measures in categories:• Heating, ventilating and air conditioning• Building fabric• Lighting• Water heating• Microgeneration

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Context – housing stock & energy

• 76% of UK properties built before 1980– Pre 1919 – 21%– 1919-1944 – 16%– 1945-1964 – 19%– 1965-1980 – 22%– 1981-1990 – 9%– Post 1990 – 12%

• Homes produce 27% of GHG emissions• Domestic energy bills a big social/political issue:

– 2007 – 2012: • 37.1% real increase in average gas bill• 15.5% real increase in average elecricity bill

– One in five now in debt to energy supplier– 6 million households in fuel poverty – 9 million by 2016?

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More energy price rises expected

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Green Deal - Process & Actors

Assessment

Recommendations

Quotes

Plan

Implementation

Repayment

Green Deal Assessor

Green Deal Provider

Green Deal Installer

Electricity suppliers

Green Deal Oversight and

Registration Body (ORB)

Green Deal Finance

Company

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Green Deal Finance Company (GDFC)

Structure and function• Industry led consortium > 50 members• Provides finance to Green Deal Providers

Funded by• £7m loan from DECC to cover set-up• £69m Loan and Junior Capital from 16 members of GDFCo • £30m Junior Capital Facility of £20m and Contingent Capital Facility from DECC• £125m Senior Debt from UK Green Investment Bank• Negotiating £125m debt with European Investment Bank

Customer offer• 6.96%• Set up charge £63• Annual operating charge £20• Exploring Islamic financing option to access 2.7 million Islamic population

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Additional support for Green Deal

• DECC £125m to fund ‘Green Deal Cashback Scheme’• Available on ‘first come first serve’

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Green Deal status 16th April

Launched 28th January 2013• 108 Accredited Green Deal Assessor organizations• 1,003 Accredited Green Deal Assessors • 40 Green Deal Providers • 629 Accredited installers

• 9,268 Green Deal Assessments completed • 1st Green Deal ‘good to go’, 2 others being reviewed (11th

April)• GDFC established and funded (£244m)

STOP PRESS14th May 2013

- 152- 1,274- 55- 942

- 18,861

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Green Deal gaining momentum

Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-130

200

400

600

800

1,000

1,200

Assessor organisations Individual AdvisorsGreen Deal Providers Installer organisations

‘The latest figures on the Green Deal show that this new market is gathering real momentum; 9,268 Green Deal assessments taking place in just over two months is very encouraging and shows a genuine interest from consumers.’

Greg Barker, Minister, DECC, April

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Inevitable teething problems

‘We’ve had the official launch – this time accompanied by a press campaign – but the sad reality is that the systems aren’t ready yet. The largest part of the system still missing is the finance, but there are also problems with the wording in Green Deal plans, the snail-like pace of certifying Assessors and the lack of guidance about how ECO will work. I’d be interested to hear from anyone who has actually produced and financed a Green Deal plan… anyone?’

Diary of a Green Deal Provider3rd April 2013http://www.localenergy.org.uk/diary-of-a-green-deal-provider/

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Green Deal for Business

• Always envisaged that Green Deal could be used by business

• Limited number of Green Deal for Business assessors• Lot of potential demand• Very early days

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Local Authority GD initiatives - 1

Birmingham• £75m Prudential borrrowing• £25m from ECO (Energy Company Obligation)• Will fund Green Deals directly and be repaid through electricity bills• Intention to aggregate and issue bonds

• Appointed Carillion as exclusive delivery partner• 8 year framework contract worth up to £600m• Aim to retro-fit 60,000 houses plus non-domestic buildings• Commitment to create local jobs

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Local Authority GD initiatives - 2

Leeds & 10 surrounding local authorities• £100m over first 3 to 4 years• 12,000 houses• Likely to appoint a delivery partner in May

Similar initiatives in:• Newcastle• Sussex• London

Cambridge looking to create a sustainable energy fund to finance retro-fits and sustainable generation projects

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Issues with Green Deal

• Max loan of £10,600 under Golden Rule at 7% 25 year loan

• Quality of GD Assessment (2 day training)• Potential scams (already happening)• Subsequent property buyers not liking GD liability• Potential for massive disappointment if savings are

not delivered– a mis-selling scandal waiting to happen?

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Green Deal questions

• Is the demand there? / How do we create demand?• Will demand be created in segments that need it

most e.g. fuel poor?• Why borrow at 6.96% when you can use:– Personal loans from 5%– Re-mortgage at 1.75 to 2.5% (initial rates) – Savings currently earning very low rates?

• Will savings be delivered?

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Green Deal summary

Green Deal launched!!!• Activity increasing• Early days• Potential issues with demand– Conversion rate from Assessment to Green Deals?– Assessment and implementation rate once early DECC

supported GDAs are completed• Local Authority led model is promising

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ECO – Energy Company Obligation

• A licence condition for suppliers with:> 250,000 domestic customers> 400 GWh electricity supplied to domestic customers> 2,000 GWh gas supplied to domestic customers

• 1 January 2013 to 31 March 2015• Replaces previous schemes (CERT and CESP)• ECO obliges suppliers to spend on efficiency relative to energy

supplied • c.£1.3 billion per annum• ECO money can be used to supplement Green Deals

– Assists with ‘hard to treat’ and expensive situations like external wall insulation

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ECO has 3 components

Carbon Saving Obligation• Solid wall and hard to treat cavity wall insulation that

can’t be financed under Green DealCarbon Saving Communities Obligation• Insulation measures in specified low income areas (15%

of each company’s obligation)Affordable Warmth Obligation• Insulation and heating measures to consumers in private

tenure properties receiving benefits e.g. elderly, disables and families

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ECO brokerage

• Fortnightly auction• Green Deal providers sell ‘lots’ of future ECO delivery

to energy suppliers • 6 auctions by end of March • Total value £68.9 million to date

• Energy suppliers very keen to deploy ECO funds

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Green Investment Bank

• Formally launched November 2012• £3 billion to deploy in 3 years• Aims to ‘crowd in’ private investment• 3 areas of focus:– Off-shore wind– Waste to energy– Non-Domestic Energy Efficiency (NDEE)

• Must invest alongside market on market terms• No soft capital

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GIB NDEE progress

• Selected 2 NDEE fund managers- £50m allocated to SDCL- £50m allocated to Equitix

• Fund managers have to source deals and matching capital

• Deals size £500k to £30m• Deals > £30m will be done directly by GIB

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GIB NDEE progress - 2

• £5m EPC project for Kingspan• Working on a development model with Greater

Manchester• £50m committed to Aviva REalM Energy Centres

Fund– Fund has invested in 1st project (£36m - £18m from GIB)

• Cambridge University Hospitals NHS Trust• Biomass boilers, CHP and heat recovery from medical waste

incineration• Energy centres rather than end-use energy efficiency

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GIB issues

• Lack of soft money to assist development process• Lack of skills developing large scale projects in supply

chain and end-users• Fund managers relatively passive• Relatively expensive money• Paradox of ‘addressing market failures’ by investing

alongside the market

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Other Local Authority initiatives

Peterborough ESCO - • Owned by Local Authority

Scope:• Green Deal• NDEE• Renewable projects• Collective purchasing• Energy supply to local consumers• Sell excess power to grid

Achievements• Solar PV framework (1 MW installed)• EPC procurement framework due May 2013

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Other initiatives

Royal Bank of Scotland- £200m corporate energy efficiency fund- Draws on government’s Funding for Lending scheme- Borrowers must have revenues > £25m- 5 to 7 year tenor

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Summary and conclusions

Green Deal launched• Activity increasing• Early days• Potential issues with demand • Local Authority led model is promisingGreen Investment Bank launched• NDEE a key area• Early days• Need to increase flow of investment quality deals• Still need to access long-term low cost fundsSome other interesting developments• Peterborough ESCO• Many other Local Authorities gearing up to create ESCOs• Royal Bank of Scotland allocation of £200m

uk ee financing schemes: an update

Economy & Finance