Green deal: what next for government's energy efficiency scheme?

It was an energy policy hailed by the government as the "biggest home improvement programme since the second world war", one that would cut energy bills for 14m homeowners. But only 18 months after it was introduced, the highly vaunted green deal has been branded a "complete flop" amid criticism that forced ministers to announce the troubled scheme had been reorganised.

Introduced in January 2013, the green deal lends money to householders to help them improve the energy efficiency of their homes through insulation, boiler upgrades and double glazing. Residents save money in the long term from cheaper bills, and pay back the loan through their savings. Government figures indicate there are just 2,439 green deal plans in place or pending – falling miserably short of the Department of Energy and Climate Change (DECC) target of 10,000 by the end of 2013.

Up until the end of April this year, 210,239 green deal assessments had taken place so just over 1% of those have actually taken on the job. Of those properties to have been assessed, around 75% were owner-occupied, 12% were privately rented and 13% were part of the country's social housing stock.

Criticism of the scheme has been fierce and unrelenting. "It's hardly surprising the green deal has been a complete flop, given the whopping seven to eight per cent interest rates, complicated assessment process, and the difficulties of applying the scheme to private rented housing," said Sophie Neuburg, a Friends of the Earth campaigner. "To deal with cold homes effectively, government needs to commit to a large-scale, publicly funded energy efficiency scheme providing grants to low-income households, and no-or-low-interest loans to those able to pay."

She suggests that loans should be encouraged by strong incentives and backed by regulation that requires minimum loan uptake should be driven by strong incentives, and backed up by regulation requiring a minimum efficiency standard at which a home can be sold.

Which? has also expressed concern over the policy and called for the government to investigate what has gone wrong. "Measures that help people make their homes more energy efficient are a vital way to help save money on bills. However, we would like to see a full review of the root causes of the lack of interest in the green deal before any more money is allocated," a spokesperson said.

Since the scheme's inception, some serious failings have been exposed. An investigation by Which? found assessors gave wrong estimates on how much customers were paying for energy and, therefore, how much they would save with home improvements. Indeed, one assessment was described by energy experts as "appalling in so many ways".

The energy and climate change select committee has taken evidence on the effectiveness of the green deal and said in a report that "the fuel-poor may benefit little from the green deal". The committee added: "Also, the energy companies' obligation (ECO) could push more consumers into or further into fuel poverty, given the very uncertain scale of its costs and that it is likely to be regressive in nature, hitting the fuel-poor hardest. Low users may well be charged the same amount as higher users, as the energy suppliers are free to pass on costs how they wish and this will be a larger share of their income too."

Some householders have complained the scheme is too expensive. Anne Thomas, from Inverness, found commercial loans were available more cheaply elsewhere. She said: "We had a green deal assessment as this was a requirement of claiming a renewable heat premium payment for our heat pump. The assessor said that he had stopped doing any assessments for any other purpose as he felt it was unfair for people to pay for this and then find there was no way of financing the measures locally – if you took out a green deal with an energy company they would demand that their own assessor did it all over again.

"The finances have never really stacked up for most people. They have generally worked out at about 8% interest by the time you factor in arrangement fees. Most people can find a commercial loan cheaper elsewhere and many of the people motivated to do the assessment in the first place have some savings they could use anyway."

Those on low incomes may also be reluctant to take on a loan, even if it purports to save them money in the long term, she added.

Earlier this summer, DECC announced that the scheme would be complemented by new financial incentives. From 9 June, a £500 payment is available to anyone who installs energy-efficiency measures within 12 months of moving into their property. Residents will be able to apply for a further £1,000 cashback if they fit any combination of two improvements from a list of 12.

DECC describes the improvement fund as designed to work alongside the existing green deal scheme. " [The home improvement fund] was launched to make it simpler and faster for households across the country to benefit from more energy efficient homes and reduced bills," a spokesperson said. "It enables people to sign up to the scheme, with a quicker, easier sign-up process and supply-chain systems in place."

According to DECC's latest figures, May 2014 was the second most successful month for applications. But critics remain unconvinced.

Natalie Bennett, leader of the Green Party, said government sweeteners had done nothing to address the complications. "I think one of the key factors is that this looks like it has been designed by the finance industry, for the finance industry," she said.

"The loans involve a lot of complicated calculations and there are lots of hoops to jump through. The interest rate is very much one of the key things. Most people are currently paying less than 6.5% on their mortgage so if people hear that here's a very complicated system and the interest is more than your mortgage, of course they're walking away. It certainly appears that they nailed their colours to the mast with this, I guess they are trying to get the figures up before the election so it doesn't look so bad."

This article is part of the Guardian's #bigenergydebate series. Click here to find out more about this project and our partners.