Paying for it
ExHA Finance working group
This paper sets out the findings of the Existing Homes Alliance (ExHA) Finance
working group in their analysis of the various finance scheme options that
Government could adopt to support a large scale retrofitting of the UK’s existing
housing stock. In addition, the group has estimated the costs of a large scale
retrofit scheme and its associated benefits in terms of job creation.
Each of the schemes in this paper was analysed by assessing the scheme against a
set of criteria, this is explained further in the section covering the approach adopted
by the group.
Using this approach three schemes scored very highly and emerged as potentially
attractive schemes to both Government and householders:
• The German model;
• Pay as You Save scheme and
• A typical mortgage with grant attached.
While these three schemes were much further ahead of the other schemes
currently being proposed or used, the working group still felt it valuable to provide
analysis on other schemes and so they are also covered in this paper. The schemes
evaluated by the working group are a combination of those currently in use or
potential propositions and are listed below:
• The German DENA/KfW scheme
• The Heat and Energy Saving Consultation’s ESCo proposal
• The Pay as You Save proposal
• A mortgage further advance scheme with grant
• The Kirklees scheme
• The Australian Green Loans scheme
• The New Zealand scheme
• The French Loans scheme
Each scheme has a multiplier of Government expenditure ratio to work carried out
on site, which varies according to the three most favoured schemes from 4.6 up to
5.9. Other schemes can have much lower multipliers, so Government Grant does
not go as far. The cost to Government will vary according to which scheme is
adopted. Also, in times of high unemployment a large part of the Government grant
can be offset against reduced need for unemployment benefit, because the program
requires a large work force estimated to be 200,000 jobs when the program is fully
operational; these people would otherwise likely be unemployed and therefore
attract unemployment benefit.
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Incentivising the Homeowner
In the UK 70% of the housing stock is owner-occupied with a further 11% rented
out by private owners. Thus over 80% of the problem and therefore 80% of the
solution is in the hands of the private owner. In the short term at least, coercion
has not been put forward to be politically or practicably an option. Therefore to be
successful, any scheme that depends on voluntary take-up must be very attractive
to the private owner.
We believe that there are some key points to achieving incentivisation:
• The owners must be inspired to transform their houses
• The hassle factor of retrofitting must be reduced
• People need to be provided with good advice about what needs to be done and
which measures provide best value.
• An attractive financing package must be available to all.
The Energy Saving Trust recently commissioned a report1 on what finance method
people would respond to and this demonstrated that to achieve breakthrough,
• Low-cost, supporting finance from a credible source such as local or central
government, the financial services sector or (potentially) energy suppliers
• A limited, motivating set of financial incentives provided by local or central
• Flexible repayment term options depending on energy saving measures adopted
and the extent of financing required
• Simple, compelling energy saving facts, impartial advice and straightforward
information about effective solutions
• Encouragement via double feel-good factors of saving money (primary) and
doing “good” by the environment (secondary).
• The report estimated that £2500 grant is required to make or enable consumers
to take the next step on this journey.
A working group was set up within the ExHA to investigate what systems of finance
would be most likely to incentivise the mass retrofitting of the UK housing market,
and what features such a system should have if it is to lead to wide-scale take-up.
The group began with the most successful scheme to date, that of the German
Government. This quickly evolved into an analysis of schemes implemented or
proposed by other nations or experts as interest in this field is rapidly increasing.
The ExHA Finance Working Group (ExHA FWG) was tasked with investigating these
forms of funding, with the aim of gaining Government commitment to implement
and finance such a scheme by July 2009, and a programme in operation by
December 2009. A key feature of this analysis was to establish whether any of
these schemes could be adopted in the UK and what would be the benefits and
difficulties of doing so.
In order to assess the suitability of each scheme a set of criteria were developed to
benchmark each scheme against. These criteria were developed through examining
successful schemes and EST research into propositions that are attractive to the
consumer and are listed below:
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• The scheme should be attractive enough to incentivise homeowners and
RSLs. Research suggests that the most attractive method would be one that
ensures there are no upfront costs, and that the energy savings outweigh the
• Finance repayments are more than paid for by lower fuel bills. This is a key
issue; the majority of people interviewed by the group do not believe that a
scheme that costs you more than the energy you save is likely to be
attractive to any substantial market segment. This is also borne out in
research undertaken by the EST into financing retrofit.
• Ratio of retrofit spend to Government grant. The higher the ratio the more
money is leveraged from other sources and the further the Government
grant is stretched. For example, in Germany 850 million Euros results in 5
billion Euros spent on energy and carbon saving retrofit, a leverage ratio of
5.9 (i.e. for every Euro of Government grant, 5.9 Euros of retrofit work was
• Borrowing from trusted funding sources. Evidence collected by the EST
suggests that the utility companies are not trusted (“who would trust
cigarette manufacturers to run a no smoking campaign?”). When asked,
people said they would trust the Government and Local Authorities more.
This is also supported by work undertaken by the Sustainable Development
Commission that demonstrated consumers were suspicious of energy
suppliers offering energy saving measures2.
• Cost efficient management. Management costs of any scheme must be kept
to a minimum and it is important to note that the private market does not
necessarily provide this. In Germany the management charges are 0.5% and
anything substantially above this should be avoided.
• Access to low interest funds. There can be considerable differences in
interest rates, from 4% from Government borrowing at AAA rates to
commercial rates, which are currently as high as 8.25%.
• Provision of secure funding over time, offering secure funding for long
periods. To achieve the need to ensure that loan repayments are paid for by
fuel bill savings either the grant has to be sufficiently large or the loan period
long, typically more than 20 and less than 30 years.
• Help both homeowners and RSLs. The scheme should preferably be able to
supply funding for both homeowners and RSLs.
• A package that is simple to understand. Again, research from the EST
identified that the method must be simple to understand, easy to use and
• Low or no legal issues. People need to feel secure in undertaking such long
term loans and the ExHA needs to be aware if further legislation is required
to support such a scheme.
In undertaking this analysis the ExHA FWG sought the views and expertise of
organisations and people outside of the working group. A full list of those consulted
along with the members of the working group can be found in appendix 1.
2. The German DENA/KfW scheme
This scheme is funded through money from the KfW Bank of Reconstruction which
then lends this money to local banks who then provide 10 year loans to those that
want to retrofit their homes. This money is obtained from two sources. The first is
from the financial market where interest rates are low, historically around 4%. KfW
obtains this low interest rate because the bank benefits from a guarantee from the
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German Federal Government and is thus seen as a safe organisation to lend to. The
second source of funding comes from the German Government in the form of a
grant that makes up the shortfall between the rate at which the money is borrowed
(4%) and the rate at which it is loaned out (1.4 - 1.5%). In 2007 the cost of this
scheme to the Government was 850 million Euros which stimulated 5.0 billion Euros
in loans, a leverage ratio of almost 6:1.
To qualify for this scheme the retrofitting work must be specified by an expert
energy consultant, and must meet certain minimum standards (generally the
transformed building should perform as well as a building built to current Building
Regulations). The loan has been provided historically at a fixed rate of 1.95% per
year. KfW lend this money to the local banks at 1.45% with the difference between
the two rates covering the 0.5% administrative costs of the local banks.
The key benefits of the UK Government looking to implement such a scheme are:
It is a successful proven scheme creating 5 billion Euros of energy upgrade in
The actual work undertaken was worth almost 6 times the Government
The scheme is Government backed and therefore secure.
The management costs are low, adding 0.5% to the loan repayment costs
(UK mortgage lenders can be up to 1%).
The central bank (KfW) can borrow at very low rates, as it is Government
backed and these low rates are then passed onto the householder.
The loan repayments interest rate is very low at 1.95% versus 5.4%3 historic
rates in the UK.
As it is a Government scheme it has a strong due diligence appearance to
The scheme can be accessed by RSLs and Housing Associations.
An initial cash grant can be added to the offer as a further incentive.
The disadvantages associated with this scheme:
The loan is not fixed to the property and given the long life of many of the
measures consumers may feel it is “unfair” to have paid for someone else to
benefit from lower bills.
If loans are provided over a 10-year period the savings on fuel bills may not
exceed the level of monthly repayments.
Further details are given in Appendix 3.
3. The Heat and Energy Saving Consultation ESCo scheme
This is a scheme that was one approach proposed in the Government’s consultation
on a Heat and Energy Saving Strategy and as such the group felt it merited further
examination within this paper. This scheme proposes that companies could install
low carbon energy generation and energy saving equipment and charge consumers
for the use of their service over a defined contract period. The equipment would
remain the property of the company and as such they would maintain it under the
terms of a service contract. The different Government subsidies available could be
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packaged together under the scheme including CERT and RHI with householders
signing up to energy service contracts that cover the installation and ongoing
maintenance of the equipment. Within this type of scheme the contract could set
out the expected energy bill savings that should net off against the monthly service
charge. These contracts would be subject to a minimum contract period for the
companies’ cost recovery.
Whilst this initially sounds like an interesting proposition with some clear benefits
the working group are concerned that this HES consultation document based its
costs around a notional cost of £5,800 for retrofitting. This is much lower than the
typical £20,000 that homes retrofitted in the Superhomes4 programme cost (see
appendix 2). Depending on the management and maintenance costs applied and
the length of the contract period there is a concern that such a programme could be
very costly to the homeowner in the long term. Much more clarity on the costs
would be required before this scheme could be fully assessed for its effectiveness.
The key benefits of this scheme are:
Removal of any upfront cost to the householder.
Low carbon energy generation equipment would be maintained under the
scheme so reducing hassle for the consumer.
Potential to offer the service charge payment through the District Network
Operators so maintaining the permanent connection to the property which
allows for switching energy supplier and moving home.
The potential disadvantages of this scheme:
People may not like the idea of being tied into a long-term service contract.
The proposal of a minimum contract period could effect the flexibility of the
scheme i.e. people would be unable to choose a repayment period that suits
their financial circumstances.
If repayments do not come off the consumer’s energy bill there is potential
for the scheme becoming too complicated.
Future renovations to the home. Consumers may wish to undertake building
work that would affect the installation of the equipment and this could lead
them to have to pay a predetermined sum to break the contract.
Utilities are not regarded as a trusted source for information and this could
Management costs could be higher than other funding routes, leading to less
attractive loan rates and payback times, or higher government subsidy.
4. Pay as You Save scheme: Knauf proposal
Insulation experts, Knauf Insulation, have proposed an innovative financing
mechanism that would remove the upfront costs for the homeowner and ensure
that the level of savings achieved on customers’ bills through the scheme are
always greater than the level of repayment.
The Pay as You Save5 (PAYS) mechanism would provide a loan to the householder
for energy efficiency work to the property with a modest financial subsidy of £1550
applied to reduce the overall cost. This subsidy is set at a level that is equivalent to
the current Carbon Emissions Reduction Target. The remaining costs are funded
through this mechanism and paid back via a standing charge on the householder’s
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energy bill or through a supplement to the Council Tax charge on that property
over 25 years.
The scheme would only fund those energy efficiency measures that will save more
than they cost over their lifetime ensuring that the householder’s energy savings
are always higher than that of the loan repayment. The scheme also includes a
mechanism whereby the stamp duty of a home can be factored up or down
according to its energy efficiency rating upon the sale of that property.
It is proposed that the PAYS scheme is only provided through accredited installers
and that the actual performance of the scheme is monitored i.e. actual savings are
monitored rather than standard savings assumed. The scheme also notes the
importance of promotion through trusted intermediaries and as such proposes that
Local Authorities are key in this promotion.
For a worked example of this scheme please see appendix 4.
The key benefits to the PAYS scheme have been identified as the following:
No upfront cost to the householder.
Energy bill savings are always greater than the loan repayments.
If the householder moves then the charge and the benefit remain with the
Enables householder to switch energy supplier.
Provision of data on actual carbon savings.
Can be delivered through trusted intermediaries e.g. Local Authorities.
Fully accredited scheme.
Some of the disadvantages of this scheme:
If delivered through the energy suppliers and the consumer’s energy bill
there is the potential that this is not viewed as a “trusted” scheme.
Potential lack of flexibility in choosing payment terms if the energy bill
savings are to always exceed the loan repayments.
5. Mortgage further advance with grant
This scheme is targeted at private homeowners but the principle could be applied to
social housing landlords. Retrofitting projects would be financed through the
combination of an upfront grant from the Government and an advance from the
homeowner’s existing first mortgage lender. The grant would be sized so that the
energy saving would exceed the additional mortgage cost and the amount of grant
could be varied for different types of retrofit project to maximise the investment to
the grant available.
The mortgage advance would be provided by mortgage lenders on market terms
and since it would have a term of typically up to 25 years and could be provided on
interest only or partial repayment terms, it could offer very long term finance
against improvements with a very long term benefit. Lenders would also be secured
on the value added to the property by the retrofit project so the lending could be
done at much lower rates than unsecured commercial lending.
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A key assumption of this proposal is that private sector lenders can be persuaded to
participate in a programme of further advance lending for low carbon retrofit. This
will require that i) the increased mortgage cost is covered out of the reduction in
energy bills and ii) the energy efficiency improvement can be expected to enhance
the value of the property by at least the amount of the loan to preserve the lenders
collateral position. The value enhancement required would need only to reflect the
energy saving benefit, not the full cost of the retrofit project. However, the views of
mortgage lenders on this proposition need to be sought.
There would though be no requirement on homeowners to take out a further
advance on their mortgage. They could obtain the grant and fund the remainder of
the cost themselves if they chose. Proponents of this scheme suggest that the grant
could be financed by a combination of central Government budget and an energy
supplier levy that would replace CERT in 2012.
The key benefits identified by the group of a mortgage advance with grant are as
Removal of upfront cost to the householder.
Mortgage lenders have an established capacity to provide, fund and
administer further advances.
Longest available loan terms to match the term of the retrofit investment.
The secured basis of the lending and competition in the first mortgage
market will achieve the lowest loan losses and cheapest finance.
No additional administration costs, as the loan will be administered under the
existing mortgage relationship.
Introduces real private capital to retrofit investment.
Lending on market terms will not dis-incentivise borrowers from using their
own funds or repaying loans early.
Ability to allocate grant flexibility to different types of retrofit project.
The disadvantages associated with this type of scheme:
Currently the value of properties does not reflect the benefit of energy
efficiency measures and as such it is unlikely that mortgage lenders will see
the additional funding as providing additional value to retrofitted properties.
The scheme is attached to the homeowner and so benefits cannot be taken
with that homeowner when they move.
Potential to be viewed negatively as simply a bigger mortgage.
6. The Kirklees RE-Charge scheme
This was originally set up by Kirklees Council and is now being used and considered
by other Local Authorities including the London Borough of Camden and Woking
Borough Council. The scheme6 is very straightforward with the householder able to
obtain an interest free loan from the Council for the installation of renewable and
low carbon technologies. This loan is only repayable when the house is sold.
The key benefits of this model are:
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Minimal upfront costs to the householder - £350 maximum to cover the legal
work required for setting up the charge on the property.
Interest free and only to be paid back when the homeowner sells the
No monthly payments.
Scheme is easy to understand and straightforward.
This scheme could be modified to have a modest monthly repayment
arrangement designed in such a way that the householder’s savings on their
energy bills remain higher than any monthly repayments. The loan charges
could still be low as Local Authorities are able to borrow money at more
favourable interest rates.
Potential to collect repayments through Council Tax keeping the scheme
simple. This would require clarification as to the legality of repayment
collection through this route.
Some key disadvantages of the scheme:
The loan repayment must be repaid at the time of sale. This will often occur
before the point that the loan costs are repaid by energy bill savings. The
value of energy saving is not yet reflected in higher house price value (unlike
Australia which has had an EPC for 10 years in the ACT State (mainly
Canberra) and where energy prices are 6% higher for homes with low energy
Inability to pass the loan repayment on to the incoming householder. This
would potentially be a good option to encourage take-up but it is unclear as
to whether this could be legally enforced.
This model can be relatively expensive in terms of the ratio of refurbishment
spend to grant. For example, if borrowing and management costs are 5%
and the loan is made for 6 years then the ratio is 1:3.3 i.e. for every £1 in
grant £3.30 is spent on site.
This option will require a substantial grant to be offered if the energy bill
savings are to outweigh any monthly loan repayments.
7. Australian Green Loans scheme
The Australian Government has recently announced a Green Loan scheme for
housing energy retrofit offering an interest free loan for 4 years. In order to qualify
for the scheme, householders have to have a free detailed survey undertaken by a
trained DEA Domestic Energy Assessor. This survey then lists the recommendations
for the energy retrofit of that property. In addition, householders are provided with
loft insulation free of charge and a grant of AUSD $1600 (approx £800 GBP) for a
solar water heating installation.
The loan is capped at AUSD $10,000 (approx £5,000). There are potentially 124
acceptable measures that can be specified and the DEA selects up to 10 measures
that give the most carbon dioxide saving for the particular house, location and fuel
source. The work must be specified in sequence with the highest CO2 savings
specified first. Water saving advice is also given and at least three of the 10
measures must be water saving related.
The Green Loans scheme has a budget of AUSD $3.9 billion (approx GBP £2 billion)
over 5 years.
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The benefits of the Australian scheme are:
Interest free loan, so attractive to homeowners.
Grant Application and Survey is also free.
The scheme links in with other grant schemes quite easily – i.e. the loft
insulation and solar water heating.
Only trained assessors can make the recommendations.
The disadvantages of this scheme are:
The interest free loan will have to be paid back before the full benefits from
fuel bill reductions are realised.
It is unclear whether this scheme has the potential flexibility to pass the
finance onto the next householder should the house be sold within the 4 year
8. New Zealand scheme
This scheme uses the ANZ bank to fulfil the central bank role that KfW plays in the
German scheme, this ensuring that borrowing is available at AAA rating. The
EnergySmart scheme main features are:
• A grant is available from the ANZ bank, either for 10% of the costs or a NZD
1,250 (approx £500) interest subsidy.
• An EnergySmart assessor decides whether the homeowner is eligible and what
measures can be applicable.
• The house must be the homeowner’s primary residence and built before 1978.
• Loan eligibility is capped at maximum NZD 100,000/yr (approx £40,000) for one
person or 140,000/yr (approx £56,000) for 2 persons.
• Loans can be paid off immediately or up to 60 months, with interest rates
varying from 0% for 1-year payoff to up to 10.5% for 60 month payoff.
The key benefits are:
Very simple method of loan repayment through individual separate ANZ
Flexible repayment periods
The key disadvantages of this scheme:
Eligibility is capped by Homeowner Income
Repayment loan rates can be very high
Short loan payback times will not allow annual fuel bill savings to exceed
More details are available from the ANZ Bank, New Zealand
9. French loans scheme
Two new schemes have recently been launched in France with four key objectives:
• Renovate 800,000 of the worst performing social housing stock by 2020;
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• Reduce energy consumption from existing buildings by at least 38% by
• Refurbish 400,000 homes per year from 2013 and
• Train 50,000 building energy professionals by 2010 and 120,000 by 2012.
This scheme provides interest free loans for private homes and preferential interest
rates (1.9%) for public sector housing providing funding for a list of 6 measures:
roof insulation, external wall insulation, high performance glazing, efficient hot
water systems (fossil fuelled), renewable hot water systems and renewable heating
The level of loan is set at 20,000 Euros for two measures or 30,000 Euros for 3 or
more measures with repayment terms available over 3 to 10 years (there is the
flexibility to extend this over 15 years). In addition, people are still able to claim
“Sustainable Development” tax credits while signing up to this loan scheme.
The key benefits of the French model:
Low or interest free rates making it attractive to private and public sector.
Flexible loan term.
Integrates with existing environmental financial benefits.
The key disadvantages of this scheme:
It is not clear if the retrofit is undertaken on the advice of a trained expert.
Loan repayments could well be higher than savings depending on the term of
Appears to be on a measures-based approach rather than a whole house
approach aiming for a minimum standard.
10. Comparative loan repayment costs
The costs for each of these models were evaluated using the Knauf Insulation
Spreadsheet to inform the overall evaluation of each scheme and are shown in
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Table 1 : Loan Repayment costs
Based on 10 Superhomes average costs and savings. Retrofit cost £20,000, Energy cost before retrofit £1734/yr; Energy
saved £1031/yr; Energy saving £ 59%, carbon saving £ 70%. Assumes Annual inflation 2% and fuel inflation 2% above
annual inflation. 5.4% mortgage based on last fixed rate by Nationwide before credit difficulties.
Ref Scheme Cash Loan Loan Breakeven year: Net Loan Ratio of
grant or repayment repayment annual fuel savings escalator retrofit
stamp rate rate savings exceed over 25 % spend to
duty yrs 1-10 yrs 11 - 25 loan repayment yrs Govn't
rebate £ £ spend
German, no grant, Initial loan
0 1.95 5.00 4 3,627 3 5.9
E 1.95%, 5.0% after 10 yrs
German, no grant, Initial loan
0 1.95 5.40 6 3,014 3 5.9?
1.95%, mortgage 5.4% after 10 yrs
German, initial loan 1.95%, 5.4%
0 1.95 5.40 11 4,950 0 5.9?
mortgage after 10 yrs, no escalator
PAYS for smaller package of £8,600
with grant of £1,548, equivalent to
3,605 5.4 5.4 1 8020 3 5.55
£3,605 grant for £20,000 retrofit
C Typical Mortgage, with grant 4,350 5.40 5.40 5 3,072 3 4.6
D Typical Mortgage, no grant 0 5.40 5.40 Never -5,619 3 0
HES possible long term
Commercial loan 6.5% for 25yrs, 4,350 6.50 6.50 18 -922 3 4.6
B with grant
HES possible long term commercial
0 6.50 6.50 Never -10,724 3 0
loan 6.5% for 25yrs, no grant
HES short term loan proposal,
Assumes £4,000 loan charges for 0 Never 1.45
Q £5,800 spend, no grant
Australia short term loan interest
free, paid back over 4 yrs, interest 0 Never 4.67
R rate 8.25%
This table shows that different repayment methods lead to very different outcomes.
For example the ratio of retrofit work done to Government spend can be very
different (the higher the number the more other funds are leveraged and the better
value for Government funds).
Also, some methods are unable to meet the key criterion that fuel savings should
exceed loan repayments.
We have ranked the measures in the order in which they provide the government
with best value for spend. From this is will be seen that the German and PAYS
methods give the best returns, while a typical mortgage with grant provides
reasonable returns. Other methods give low rates of return, except for the
Page 11 of 22
Australian method. However this does not meet the second criterion, that loan
repayments should not exceed fuel bill savings.
11. Funding the RSL sector
There is also a clear need to fund the RSL sector. Preliminary figures suggest that
in normal economic times a 50% capital grant to RSLs would stimulate widespread
activity. At a unit cost of £20,000, the £10,000 per unit grant for 100,000 units per
year would result in a total grant aid in the order of £1 billion when the programme
is fully operating. The current economic situation is likely to reduce activity.
The German and PAYS systems could both be easily extended to fund the RSL
sector. The combination of initial grant plus low loan interest will achieve the
requirements of the Public Sector. This will also be more likely to occur if the
benefits of lower fuel bills would be split 50/50 between tenant and Landlord. For
example if the tenant saves £10 per week in fuel bills (£500/yr) then the tenant
pays half of this to the landlord as higher rent, but still benefiting by 500 – 250 =
£250/yr net saving from combined fuel and rent costs.
12. Devolved Administrations
It is important to note that the development of a finance mechanism to encourage
large scale up-take for the retrofitting of the UK’s existing housing stock will need
to be undertaken with the inclusion of the devolved administrations. Some of the
devolved nations have or are considering financial mechanisms to stimulate low
carbon retrofitting of existing homes and the Government needs to consider how a
UK scheme can be developed that works with the incentive schemes in the
13. Scale of Funding and Job creation
The overall costs of the programme to the Government will be dependent on which
system is used and the multiplier employed. For example in the German model,
each euro spent by Government results in 5.9 euros of energy saving activity.
The site costs are at present unclear. There are several ranges of the average cost
per dwelling, from an estimated £8,600 (PAYS scheme) to £20,000 (typical
reported costs of Superhomes).
On the basis of transforming 20 million private households by 2050; and taking the
£20,000 cost per house; that yields a programme of 500,000 retrofits costing £10
billion per year on average. If a German model was used, the Government share
would be £1.33 billion per year. A further 100,000 per year HA and RSL dwellings
would need conversion at a 50% funding level, resulting in a further £1 billion
expenditure per year. Part of this would be offset by reduction in unemployment
benefit of up to 200,000 jobs which would be created, leading to a net cost to
Government of £0.93 billion per year. These are average figures, and we could
expect costs to fall over time as the techniques become more widely used. Further
details are given in Appendix 6.
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Out of the eight schemes examined by the ExHA FWG it was identified that three of
them had clear potential for implementation in the UK and as such warrant further,
more detailed investigation including pilot testing. Those that the group believe
should be examined further are:
• The German model
• PAYS scheme
• Mortgage advance with grant
The table below summarises the criteria against which each scheme was assessed
and their relative merits.
Ref Scheme Cash Savings High ratio of Trusted Net Simple to Proven
Grant? exceed loan costs to lending savings? understand system?
payments? Govn't source? and use?
E Germany no grant X
P PAYS X
Typical mortgage with
HES long term loan with
X X X X
B grant, commercial rates.
D Typical Mortgage no grant X X X X
HES long term loan without
X X X X X X X
A grant, commercial rates.
Q HES short term loan X X X X ? X
R Australia short term loan X ? ? X
Each of these schemes has the potential to increase demand in the retrofitting of
energy efficiency and low carbon measures by removing one of the key barriers to
uptake, that of high upfront costs. Any one of these schemes would provide
householders with access to trusted funding that can be paid for through the
savings made on fuel bills whilst providing the Government with a good return on
their investment i.e. a high ratio to Government spend and clear benefits to the UK
economy in terms of job protection and creation.
However, increasing public demand in low carbon retrofit is key to the Government
achieving its targets to reduce emissions and this will not be achieved through a
finance mechanism alone. It is imperative that any finance mechanism developed
by the Government is part of a package of policy measures if the UK is to maximise
demand for low carbon retrofit and reduce emissions.
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Finance Working Group members and People consulted.
The Finance working group members are:
• Andrew Warren, ACE
• Brian Berry, Federation of Master Builders
• Paul Ruyssevelt, ESD/Camco
• Christoph Sinn, CIH
• Gavin Killip, ECI
• Nicholas Doyle, Places for People
• Zoë Leader, WWF
• Helen Eveleigh, SDC
• Liz Reason, AECB and Reasons2bcheerful
• John Doggart, SEA and Chairman
In addition we have sought views of organisations and people outside the EHA group who have
complementary skills. These included:
• Charles Able Smith, ARUP and ex Bank Paribas and Kleinworts.
• Chris Matthews, Co-op, Senior Business Development Manager
• David Adams, Knauf Insulation.
• Mervyn Kohler, Help the Aged/Age Concern.
• Ray Morgan, Chief Exec Woking Borough Council, has operated a revolving loan scheme.
• Alexis Rowell, London Borough of Camden, Sustainability Champion and Councillor.
• Christopher Little, Policy Advisor, HM Treasury.
• Paul Ellis, Chief Exec Ecology Building Society
• Jim Clemence, Head JRC Consulting
• Mervyn Kohler, Help the Aged/Age Concern
• Gavin Purchas, DECC
• James Harries, DEC
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Data from 10 Superhomes
The table shows the data from 10 Superhomes, and is used as a basis for calculations of loan
repayments, with an average cost of £20,000 assumed.
Carbon use Electric Use
Gas/oil/coal Electric use before: Gas/oil/coal Wood use Use After: Saving:
Use before before tonnes use after after after PV after tonnes tonnes %
Project KWh/yr KWh/yr CO2/yr KWh/yr Kwh/yr KWh/yr KWh/yr CO2/yr CO2/yr saving Notes
Birmingham 15007 920 3.34 4244 920 0.8 2.5 76
Walsall 253 23219 12.34 9061 2310 2.9 9.4 76
Oxford 1 24600 3000 6 8276 1331 2.2 3.8 63 *
* Good energy renewable electric
supply was not allowed for, this
Camberwell 24600 3000 6 609 6400 0 -598.0 -0.1 6.1 99.6 increases savings to 102%
** Bills show 79% gas and 64%+ elec
savings over comparable before/after
Camden 43,173 3,475 9.8 9118 6588 3002 3.2 6.6 67 periods
*** Good energy renewable electric
supply was not allowed for, this
reduces carbon emissions to 0.045
Tonnes CO2 and increases savings to
Oxford 2 20,582 4640 6.23 6514 3.5 2.7 66 6.18 tonnes/yr = 99% saving
Abergavenny 32,304 7,311 9.5 8,896 3,058 3.0 6.5 68 **
Hereford 55,155 3614 16.5 14,900 15,040 3363 -122.0 6.0 10.5 64 **
Clacton 51,180 5,699 12.3 2029 37,808 4948 3.4 8.9 72 **
Oxford 3 30,830 2,057 6.8 7164 255 1.5 5.3 76 **
Total 297684 56935 88.8 64297 65836 25701 -720 26.4 62.4 70
Total/house 29768 5694 6430 6584 2570 -72
Costs (London Bgas + LEB) + wood 3.1p/Kwh 1730 204 0 829 £625 without wood costs
Total cost/house £ 901 £ Saving (52% cost saving)
* Before is benchmarked against typical 2/3 bed houses at 6.0 tonnes/yr
** Before use was estimated with NHER program
*** House is 67% larger than average house. Benchmark is 6.23 tonnes/yr
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German Model details and examples
(Double click on slide for presentation and details)
Page 16 of 22
Based on a 3 bedroom semi detached Victorian terrace using gas assuming a 2%
increase in fuel prices per annum with £8,600 worth of energy efficiency upgrade.
Energy efficiency upgrade expample Before year 1 year 10 year 25 onwards
Before - After energy costs
£3,000 If no action taken
Annual energy cost
£2,500 - equipment is Householder energy
£ 1,634 £ 1,634 £ 1,953 £ 2,629 £ 2,681
replaced like for cost
£2,000 like at end of life If energy efficiency
£1,500 - 2% per annum action is taken:
fuel inflation rise
£1,000 Household energy
- 1%pa increase £ 1,634 £ 1,073 £ 1,282 £ 1,786 £ 1,824
£500 in repayment cost
£0 charge Capital and interest
£ 458 £ 501 £ 581 £ -
Total energy +
£ 1,634 £ 1,531 £ 1,783 £ 2,367 £ 1,824
Capital repayment Energy cost Baseline energy cost Saving pa £ - £ 103 £ 170 £ 262 £ 857
• There is no upfront cost to the householder • Despite overall lower bills the long
• Householder comfort is improved term charge on the home may be
• Likely to be linked to work already planned to viewed negatively by a prospective
minimise disruption i.e. major redecoration / householder at the time of rent or
re-wiring etc and therefore may reduce these sale
costs • Net savings cannot be guaranteed as
• The subsidy costs that society pays are no fuel bills are also dependent on
more than the equivalent cost of the levy on householder use
energy bills today so not worsening fuel • The annual cost savings during the
poverty in the short term first 25 years are relatively modest
• Annual savings of £175 during the first 25 • Will require modifications to the
years energy supplier or Local authority
• After the 25-year period the charge is removed billing systems
and annual fuel costs are £1,824 rather than
£2,681 (assuming fuel price inflation of a
• The householder is less exposed to rapidly
rising fuel bills as the ‘variable’ fuel cost
element is smaller
• The UK benefits by heavily reduced carbon
emissions and the creation of circa 40,000
Further information is available from David Adams
Page 17 of 22
Spreadsheet calculation of repayments of the German Loan system
Spreadsheet and data provided by kind permission of Knauf Insulation.
First table shows that there is a net saving of £6199 of fuel savings over loan
repayments over 25 years. Second table factors in the loan costs to Government.
Up front cash grants could be withdrawn after early years.
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Notes on Jobs and Benefit payments
1. Investment size and jobs created.
a) £1 billion Government investment gets £6 billion upgrade investment. At £60,000 gross
contract cost per job = 100,000 jobs.
b) From the note* below, £2.33 billion/yr Government finance is needed to deliver 500,000
houses per year, with a gross contract value of £10 billion/yr. This creates 200,000 jobs.
2. Government Benefit payment savings by creating a job.
a) Job Seekers allowance
Single male 30 years old, living with others in rented accommodation, out of work, gets
£60.50/week Job seekers allowance, Couples and Civil Partnerships get £94.95 / week.
b) Council Tax reduction
Council Tax, (Typicalband B e.g.Camden) = £1035/yr
Less 35% job seekers = £250/yr say £5/wk
Total benefits £94.95 + 5 = £100/wk = £5,000/yr
Total benefit reduction is 200,000 jobs x £5,000/job = £1 billion/yr
The above does not allow for Income Tax revenues. Say 50% of gross contract costs is job
related at £30,000, and tax paid perhaps £2,000 per job = £400,000,000 (£0.4 billion).
Total £1.4 billion/yr
c) Benefits and costs.
Gross Government grants for programme = £2.33 billion/yr
Government unemployment benefits if 200,000 jobs are not created = £1.4 billion/yr
Net Government costs therefore £0.93 billion/yr
*Note on programme costs: JD Discussion with Jim Meikle, Principle author: Measuring
Competitiveness of UK Construction (DTI), UCL and DLE Nov 2004
1. Fig 3.10 p.61 shows labour is about 40% of gross construction costs.
2. Insulation and other retrofit measures are more labour intensive, so a figure of 50% is
3. Fig 3.10 p57 shows labour approx £30,000 added value per job.
4. Therefore gross construction costs are £30,000/0.5 = £60,000 per job.
From this the following is calculated:
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5. Gross construction costs of £8 billion per year will support 8 billion/60,000 = 133,000
jobs/yr. On a multiplier leverage of 6, this would cost the Government £1.33 billion/yr to
support a £8 billion gross construction costs/yr for the private sector.
6. For the public HA and RSL sector, a government subvention of £1 billion/yr would pay
for 50% of gross construction costs of £2 billion/yr. This would support 33,000 jobs.
7. The total jobs would therefore be 133,000 + 33,000 = 166,000 jobs/yr. These figures do
not allow for jobs created in the supply industry. If we allow for an extra 20% then the
total jobs would be 200,000/yr.
8. The total houses retrofitted at £20,000 per house will be £10 billion/20,000 = 500,000
houses per year, 400,000 in the private sector and 100,000 in the public sector.
9. Figures for the German scheme for 2007 show that 177,000 jobs were created per year
for a contract spend of 5 billion euros (£4.5 billion GBP). Using these figures for a UK
programme of £10 billion/yr would create up to 393,000 per year.
10. We have used the more conservative job figure of 200,000.
Total cost to Government is 1.33 + 1 = £2.33 billion/yr
Page 21 of 22
Green Finance Uptake, Quadrangle (February 2009)
5.4% is the last fixed rate mortgage offered by Nationwide before the credit difficulties in autumn 2008 (source
David Adams, Knauf).
Information on Old Home, Super Home - http://www.sustainable-energyacademy.org.uk/index.php
PAYS proposal – for more information contact David Adams at email@example.com
EnergySmart ANZ Freepost 92659, PO Box 39802 Wellington Mail Centre, Wellington 6140, New Zealnd
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