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A Green Deal good for business?

Blog by Craig Simmons, Co-Founder and Director, 13 February 2013

Photo of Craig Simmons, Co-Founder and Director

Did you know that you can now implement energy efficiency improvements in your business without having to pay the full cost of these measures up-front under the long awaited Green Deal?

Almost all of the advertising around the Green Deal – which started last month – has been focused on domestic properties, but businesses can also benefit.

The scheme principles are the same in both cases. Essentially, an approved assessor ascertains the most cost effective technologies (from an approved list) for your building and then the business owner applies for funding to underwrite the installation with the cost being re-paid as a charge on future energy bills.  Unlike householders, organisations do already benefit from several pay-while-you-save schemes; ranging from Salix loans to the Carbon Trust’s energy efficiency financing fund.  In addition, various tax breaks are available to company’s purchasing energy efficient technologies.

The Green Deal claims to be unique in that it is more widely available (over 30 companies are currently offering non-domestic assessments), the application process is simpler and the finance is potentially unlimited. See the Green Deal Oversight and Registration Body website to search for an Assessor or Provider.

Green Deal finance

The Green Deal sounds great in practice, but its success will hinge on the cost of finance. Too high, and few measures will meet the Deal’s ‘Golden Rule’ that requires savings to pay back the loan cost within 25 years. An uncompetitive borrowing rate will also deter businesses from using the scheme. If shorter term, cheaper finance is available then why not simply use this?

Speaking last month, Green Deal Provider NPower broke ranks and warned that the scheme’s cost of borrowing was simply too high (at more than seven per cent) to be attractive. In response, Mark Bayley, the chief executive of the Green Deal Finance Company (GDFC), the organisation tasked with making finance available to all accredited Providers, argued that when compared with other long-term, unsecured borrowing the rates being charged are competitive.

There is a fair degree of mystery surrounding the financing side of the Green Deal.  I recently wrote to the GDFC and asked a few pointed, but the legitimate, questions of the type my business clients would typically want to know. I was merely re-directed to their communications agency. Not a good start.

All this points to continued caution on the part of those businesses wishing to invest in reducing their energy use and carbon emissions. The Green Deal is not a magic bullet. It does not reduce the need for a sound business case, or for a strategic approach to carbon management. It is one option to consider – but not the only one.

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