Diary of a Green Deal provider Volume 1 – the early years

This volume of our Diary has now ended. To read further instalments, please go to Diary of a Green Deal provider Volume 2 – growing pains

Part 9

3 September 2013

It’s been a while since the last diary entry because we’ve been so busy. Sadly, not busy writing Green Deal plans but busy with ECO. I’m aware that just replacing boilers is not what DECC would like us to be doing, but what a godsend given the continuing tribulations of Green Deal!

In fact, it feels as though the whole carbon reduction programme has been turned on its head and rather than ECO supporting Green Deal, ECO has become the main player and Green Deal is only used where absolutely necessary. It’s no surprise that free money is more attractive than debt to the British public but some sort of adjustment will be needed to boost Green Deal, not least because there is not enough ECO money to deliver the required carbon savings.

ECO itself is hardly perfect. To remind readers, there are three types: HHCRO (Home Heating Cost Reduction Obligation), also referred to as ‘affordable warmth’; CERO (Carbon Emissions Reduction Obligation), sometimes called carbon saving; and CSCO (Carbon Saving Community Obligation), the pot aimed at low-income and rural communities.

Some distinct patterns are emerging: HHCRO can be used to replace inefficient boilers for people on benefits and this appears to be very popular, which is not surprising – it’s a known process and the capacity exists to deliver. CERO is supposed to deliver solid wall insulation but DECC modelling expects a ‘contribution’ either from Green Deal or cash. These contributions are difficult to secure and therefore it’s challenging to deliver solid wall insulation. There is a sub-category of CERO described as ‘hard to treat’ cavities (HTTC). The definition of HTTC is quite bemusing and I have tried to picture the moral philosophy department at OFGEM deliberating over the meaning of the phrase ‘hard to treat': It currently encompasses narrow cavities, cavities in blocks of flats, cavities in tricky places, damaged cavities and cavities in wet and windy areas. So far the problem has not been treating the cavities; it’s been correctly identifying them. CSCO has a sub target of 15% for people on benefits in rural areas. As far as I can tell from the Government figures none of this has been utilised as yet.

Part of the problem is that the three ECO headings cover a wide range of technologies; some cheap, some expensive. The price is driven down by energy companies not wanting to spend more money than they have to, but that means the more expensive technologies don’t get the boost expected from ECO. In an ‘ECO only’ world, then fair enough. My problem as a Provider is that if the GDAR recommends an expensive technology, the Golden Rule only gets us so far, and then a market price for ECO based on a cheap technology can’t fill the gap. So if the debt on the meter wasn’t a tricky enough sell, we then have to ask for a cash contribution.

So back to the Green Deal – how is it going? Slowly. To be fair, not because the Green Deal Finance Company (GDFC) is slow but because the questions they ask are not straightforward. Once again we have to prove that we’re a company that is a going concern and genuinely interested in delivering Green Deal. This time, though, we needed a ‘legal opinion’ to prove it (more cost). We also have to commit to remaining solvent way into the future.

GDFC have released a big information pack full of flow charts and guidance slides. Once you get your head around it, it’s not too bad, but just getting from GDAR to Green Deal plan is a 5-stage process at least. GDFC have also released a template for a Green Deal plan but it only works for owner-occupiers. The template for landlord/tenant won’t be around till Christmas.

I have a feeling we’re very close to the end of our Provider readiness journey, but there is one remaining big issue – insurance. We need insurance as a sensible business but also to comply: we have to insure both the guarantees and ourselves. Some of the technology will require insurance for over 42 years (I was told this had recently been revised but can’t find the paper), which means that no big insurance companies will touch it, leaving Providers at the mercy of insurers they know little about. Neither DECC nor GDFC will recommend any insurer or even indicate that their offerings are compliant.

And so the extra costs of administering a Green Deal plan creep up: what next? Ah yes, software. It is possible for us to struggle on manfully with spreadsheets if we are just dealing with ECO, but I’ve come to realise that for Green Deal we need to buy software. It would be dangerous for me to recommend a package here but, if it helps, my criteria are that it is easy to use by the assessors and installers we partner with; it is known to suppliers; DECC civil servants don’t roll their eyes when you mention it; it is seamlessly linked into GDFC; it sorts out ECO compliance and calculates Golden Rule illustrations. I think we’re close to deciding.

The Diary of a Green Deal provider is written by Andy Johnston, Chief Executive of Local Energy

Part 8

3 April 2013

Well, it turns out that successfully negotiating the authorisation process is only half the job. Not long afterwards, an email came through with a new checklist of contracts to sign, procedures to complete and technology to negotiate. More on this later, but first an update on Green Deal implementation.

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?

Back to the checklist: The first task was straightforward; I had to contact the Green Deal cash back administrator (Capita) and register. Praise where it’s due; this was a quick and painless task, but actually delivering cash back will be less so. The whole point is to incentivise Green Deal and therefore householders need a Green Deal plan; however, they can still get the cash back even if they reject the Green Deal plan and just pay for the work in the normal way. Another key tenet is that the cash back shouldn’t ever be in the possession of the Provider – which is fair enough, but means a fairly tortuous process of signing off the installation then presenting a voucher to be redeemed (eventually) by the householder.

Before we can process a Green Deal plan through the central charge database we have to become signatories to the Green Deal Accession Agreement (GDAA). In theory, this is straightforward; just a swap of papers with my signature on. However, being a mere Green Deal Provider who has been through the three month fitness test process doesn’t mean that DECC will let you be a signatory to the GDAA. DECC have to think about it and decide whether they want you as a signatory. After a couple of weeks we got the nod, so I sent the signed papers… then nothing. I phoned up to chase and was informed that the GDAA counter signatory can’t be any old civil servant, and they couldn’t find my papers, and that anyway something called the GDAA Panel will be confirmed imminently so it would be inappropriate for the Secretary of State to take action when the panel is so close to starting its work. Sigh…

So now the GDAA panel will decide whether we can become a party to the GDAA and they will send me new papers to sign, soon (in no more than two weeks). Beyond the bureaucracy is the nagging question – is it possible to get authorisation but for some reason be rejected by the GDAA? If so, what are the grounds; what’s the extra test; what does the GDAA Panel discuss? I would remind readers that to be authorised already requires: a Consumer Credit Licence, with its accompanying proof of a viable business free from allegations of criminality; proof that we understand the Data Protection Act; proof that we understand the Green Deal regulations; and commitments in blood to abide by the Code of Practice!

As many of you will know, Providers are uniquely able to access the ECO brokerage mechanism. In order to do so requires some paperwork, but nothing too onerous, and again this was relatively painless – other than a few more passwords to remember. The main problem with ECO is a lack of guidance for Providers (although Ofgem’s recently published ECO: Guidance for Suppliers does offer some clues). Somebody clearly knows what they’re doing because ECO is being sold and prices are becoming established, but we’ve had to guess at the logic by working back from the prices being agreed.

For those of you who don’t know, ECO is quite a different animal from CERT and CESP. As a Provider, I sell a promise to either reduce carbon emissions or energy costs depending on which ECO pot I think is appropriate. There are some interesting modelling challenges over how a price for energy savings matches up to the cost of the installations to achieve the savings, but that’s what being in business is all about. The big uncertainty comes after the work has been completed: As a provider, I present an EPC/SAP assessment to prove the savings have been made, these are agreed and I get my installation spend reimbursed. This final claim process is unclear; the guidance refers to a claim form that I cannot find and I’ve been taking calls from installers who have carried the cost of installations only to be told their ‘savings’ are ineligible for ECO.

I also have some questions about cash flow and ability to invoice ECO. It appears that Providers will have to report installations to OFGEM every 15 days and I think this means we can invoice every 15 days, which will be good, but I have a clarification into DECC on the point and haven’t received a reply yet.

Back to the checklist and a couple of tasks that I simply forgot amongst all the documents and passwords. The first is really important; it is the Landmark registration, which allows me to access EPCs, so I must get on with that. The second is of uncertain significance; I was told at registration that the Green Deal Ombudsman Service would be in touch, but they haven’t – should I chase them?

The Diary of a Green Deal provider is written by Andy Johnston, Chief Executive of Local Energy

Part 7

15 January 2013

Local Energy is now a fully authorised Provider!

It took a while, but we were number 23 to be authorised (there are still another 147 being processed). Finding out was slightly odd; given that I ring quite often to check progress, I thought they’d let me know straight away when we were finished just to get rid of me. Alas no – I rang on January 7th to be told that we’d been authorised before Christmas and I’d soon be getting an email.

However, being authorised is far from job done. The next tranche of emails have started, and we now have to:

  • Get onto the databases that allow the Green Deal payments to come from improvers back to us – the Green Deal Central Charge Database (GDCC)
  • Register with the Ombudsman
  • Register for the incentive scheme
  • Register for ECO brokerage

The tricky – but vital – one is the databases. To get into the system you first have to sign the Green Deal Arrangements Agreement (GDAA), which requires an application form followed by an invitation from the Secretary of State. After the GDAA you can access the Green Deal Central Charge (GDCC) database, which requires a GDCC application form and a contract, though in reality these processes can run in parallel. You also need an MPID which is a unique identifier. Once you have obtained an MPID (and paid a small fee), an organisation called Electralink uploads some software to your PC and that gives you access to the system. So there’s both a legal side and a technical side.

Firstly, the legal side is a worry. The GDAA is a big document that governs access to key information. Ever since it was published I’ve been receiving emails explaining that various sections have been redrafted. Let’s hope it’s fit for purpose on January 28th.

Secondly, the technical side had seemed straightforward but I’ve just been told that the GDCC is not actually ready. The bit that holds information on Providers will be sent as an Excel spreadsheet for now, until the real thing is ready. It could be worse; we could be trying to be an Assessor in Scotland where the ‘in use’ software is still causing problems.

So, any budding Providers be warned: We submitted our ‘Fitness Test’ to the ORB on September 4th excitedly anticipating a new world after the promised 28 day turnaround.

  • First setback wasn’t too bad. The 28 days is a net figure, so the clock stops if they ask you a question and you spend a bit of time answering. I’d had a few of these requests for further information, on training, references, data protection and procurement policies. They took about a week each to respond to and afterwards the ORB settles into an inscrutable silence until the next request comes along.So… our real time was probably closer to 50 days.
  • The second brake on my enthusiasm was altogether more worrying because its nature betrays that something quite fundamental is not functioning properly in the ORB. In early November I rang to be informed that I was in the ‘final stages’ (I ring most weeks so am not clear on the exact date). Early December I rang and without prompting was informed that I’m in the ‘final stages’. Late December I rang and was reassured to find that I’m still firmly planted in the ‘final stages’. I began to worry that the ORB was prioritising other companies who may be better known or who shouted louder, but no. The ORB has a clear work regime that processes applications in the order they are received.So… the earlier the application the better.
  • Regardless of the glacial bureaucracy, being in the process does mean I get contacted about other parts of the Provider world that I need to plug into. The first of these offered a chink of light into thinking around ECO. We have been invited to register interest in the fortnightly ECO auctions… so they’re definitely fortnightly. If you’re a provider (or applying) you can register by contacting the ECO brokerage at DECC. It’s not the ECO brokerage contract, so no real commitment yet. One interesting discovery was that Local Energy has something called a DUNS number. These are held by Dun and Bradstreet and you need one to interact with the Government Procurement Service and hence ECO.So… while you’re waiting for the next clarification question from the ORB, look up your DUNS!

In other news, we’ve also begun getting to grips with the process of producing a Green Deal Advice Report by becoming Green Deal Assessors. Karen Lawrence – Local Energy’s head of CRC and consultancy – has already completed the classroom-based part of a combined DEA/GDA course, to be followed by submission of a portfolio of work to achieve qualification. Peter Chasmer – Local Energy consultant – will be heading to the Midlands shortly to attend an in-depth two-week course that will see him emerge as a fully-qualified GDA.

The practical work involved in GDA training is already providing useful insights into the level of detail required to generate an EPC and occupancy assessment, how and why various Green Deal measures are recommended and how small adjustments can affect the numbers used when proceeding to a Green Deal plan. However, actually producing an assessment still seems to be dogged by the same issues faced by Providers: the software isn’t yet reliable.

Regardless of whether the necessary software and systems are running as they should be, during January-March Local Energy will be contributing to various projects that have received funding from DECC’s Green Deal Pioneer Places Fund. These projects will explore a number of ways to bring the Green Deal to market, including how best to identify suitable properties and vulnerable groups, test referral mechanisms, generate leads, carry out assessments and produce sample Green Deal plans.

The Diary of a Green Deal provider is written by Andy Johnston, Chief Executive of Local Energy

Part 6

10 October 2012

Well, the big day has been and gone. For those of us involved with the Green Deal since its first appearance, October 1st 2012 has always had a special hold. At first it was the signifier of a bold new world but as it got closer it became a threatening, unachievable deadline.

DECC marked the momentous day with the signing of the Green Deal Arrangements Agreement, the contract that governs how providers get their money back from utility companies. It would have been impossible to come up with an event further removed from British householders saving the planet, and so the minister clearly felt his best contribution could be made by keeping quiet and going to East Africa.

In the Q and A session, DECC officials put up impressive flow charts that showed ‘initial ECO’ or ‘go early Green Deal’ but were unable to say exactly what these were nor whether they would be the same as the finished product. The main response for management of ECO was that a consultation document – to be released very soon – would clear things up. Pleasingly from my perspective, DECC do now seem to see local government, particularly cities, as leading the whole Green Deal strategy.

There was a very useful update on the registration of providers. Only two providers have been registered so far (which must be annoying for the 22 chosen first movers). There are 120 organisations currently seeking registration, much more than DECC expected. It seems that the Oversight and Registration Body (ORB) is being very careful and only submitting organisations for DECC approval once they have been fully vetted.

There was also a quick explanation of an extra little raft of contracts, registration fees and IT requirements. Once a provider has a registration, it is then able to get an ID number (an MPID) that allows it access to various databases and permissions. But be warned: this could take a month. Some paperwork can be done early, but you can’t get going until ORB and DECC have completed registration.

Local Energy submitted its fitness test a few weeks ago. As I mentioned at the time, it’s a strange process as it asks quite detailed questions about something you’ve never done. It has been useful in making me think through the detailed elements of provision, such as what does a Green Deal plan actually look like? The answer is that it’s a bit longer than I hoped and a surprising number of signatures are required – eight at the last count.

We have just had our first piece of feedback from ORB asking for clarification of customer service and data protection. It seemed straightforward, but hinted heavily that we should have a notification with the Information Commissioner’s Office for data protection, something I had missed. Interesting point here is that becoming a Green Deal provider has nothing to do with your understanding of what technologies to install at what price, nor whether you have the money to fund the work. Instead it’s all about consumer protection, data handling, complaints handling and marketing strategies.

As the process of becoming a provider continues, our work with local authorities carries on in parallel. During the past couple of weeks I have been running workshops with partners from North Yorkshire, Nottinghamshire and Derbyshire. There is a general consensus that the model developed by Birmingham doesn’t fit the requirements of smaller local authorities or those with large rural areas, so we are exploring alternative approaches. Most of you will be familiar with the Promoter, Partner and Provider models; here are some more to consider:

Multi-partner – Local authorities can partner up with a range of trusted providers; this has the advantage of future flexibility and increased competition. It allows SMEs to enter the market as providers, not just installers.

Assessment led – Some local authorities have recognised that the assessor is the key gatekeeper of quality in the Green Deal, as they have access to people’s houses and will steer homeowners to providers. If the council can supply assessors directly, or endorse associates, then they have strong leverage over local standards of quality.

Community finance led – There are already in existence organisations that fund home improvements, have a good understanding of people’s needs and know how to keep the money local. Local Energy is working with a Community Banking Fund to develop a community finance model which can start small and expand rapidly.

Producer model – This is the model gaining traction in London, where the councils could act through a clearing body such as the GLA. The councils would produce hot leads to be followed up.

Protector model – There’s no immediate rush to participate in the Green Deal as the deadlines keep rolling back, so councils can follow a two-stage process. First, make sure that they have systems in place to deal with any rogue traders misusing Green Deal in their areas. Second, to use the time to see what other councils are trying and enter the market in 2013. The money recently made available to core cities will help this research but not all lessons are directly transferable and non-cities should have access to funds to test ideas.

This last month has been busy and things are gathering pace, but a clear picture of what the whole Green Deal package looks like remains tantalisingly out of reach. I’ll be at the Conservative Party Conference to see if Greg Barker can shed some more light on matters – Ed Davey at the Lib Dems didn’t!

The Diary of a Green Deal provider is written by Andy Johnston, Chief Executive of Local Energy

Part 5

14 August 2012

After the announcement that Gemserv will be the Oversight and Regulatory Body (ORB) I had wondered how long it would take to set up a system of registration and how onerous it might be. It’s no secret that government have a regulatory dilemma: If they make Green Deal too tough, the entrepreneurial SMEs they want to encourage will walk away; however, if they make it too easy then the cowboys will ride into town and it will only take one scathing edition of ‘Dispatches’ to sink the whole scheme.

So the process of registration could sit at extremes. At one end of the scale, ORB could ask for the company name, consumer credit licence (CCL) number and a commitment to follow the Green Deal code of practice, then off you go. At the other extreme, ORB could ask for copies of your consumer credit agreements and examples of contracts with installers plus testimonials from satisfied customers. Rather than make that choice, government seems to have gone for a bit of both with cautious duplication of effort thrown in for good measure.

In overview, registration is a two-stage process. Firstly, a pre-assessment questionnaire to establish that your company exists and has a CCL number plus some tick boxes to clarify that you will follow the relevant codes of practice. Secondly, the topically themed Fitness Test, (disappointingly there is no mention of Gold, Silver or Bronze categories).

At Local Energy we have our CCL and so – to my delight – stage 1 of registration (the pre-assessment) only took 15 minutes, most of which was spent looking for the CCL number. There was one small glitch as the form wouldn’t let me paste in an electronic signature so I just sent it as an attachment. The form consists mainly of contact details and statutory minimum requirements plus some tick boxes to say that you will abide by codes of practice, sign up to work with the Green Deal arrangements agreement (GDAA) and the ombudsman, obtain access to the Green Deal central charge database (GDCC) and become authorised users of the EPC register. Ticking these boxes is easy to do at the moment but your finger hovers over the key momentarily as you consider that each commitment entails a bit of unknown cost.

The pre-assessment questionnaire was submitted last week. No word as yet but, assuming all is well, we will be sent the fitness test in due course. The fitness test is more onerous and, according to the guidance issued on August 12th from DECC, it’s a curious aggregation of evidence demonstrating that you’re a good company and know what you’re doing. However, as Green Deal is new and government wants to encourage business creation, the process also has to accommodate companies that have no relevant track record or no track record at all. As someone with experience of the CRC I can already see the signs of a regulatory process trying to serve too many masters.

The fitness test will require references for your company. Where possible these references should be relevant to elements of the Green Deal. DECC highlight the importance of paying suppliers on time.

The fitness test also requires ‘evidence of competency’. In my mind, evidence of competency means can you do it: In the fitness test it’s more a case of could you do it. This is the place where you state your policies, outline important elements of your business plan and declare that you haven’t been in trouble in the past.

The elements of Green Deal that you will need to cover are – marketing and sales, assessment, Green Deal plans, credit provision, supply chain management, customer services, complaint handling, data protection, health and safety, staff training, membership of professional bodies and any criminal convictions. This seems fair enough – if you haven’t thought through these issues then you’re probably not ready to become a provider.

Assuming all is well, ORB will notify you and then you can enter the GDAA, access the GDCC (this is not straightforward and is expected to take 6-8 weeks), access the EPC register and join the ombudsman service. It all seems straightforward but I have a concern: ORB do not actually approve providers, the Secretary of State does. It’s clear from the guidance that if there are queries about your application then DECC will contact you, not ORB. Why do we have two teams of administrators looking at the same forms? Apart from the cost of duplication, my concern is that it will slow the process down. Let’s hope it doesn’t, but I do wonder what the point of ORB is, if DECC does the approval.

On a more positive note, I was contacted by ORB to ask what issues concerned me about the provider process so that they could address them at the workshops they are running in August. The issue that has been exercising me lately is that of insurance. The new guidance removes the requirement for providers to have a bond should they go bust but it still requires that providers hold insurance to cover maintenance arrangements if they cease trading. At present I cannot find out how much this might cost; however, I’m talking to the Association of British Insurers to find out.

In other news, I have been running workshops for groups of local authorities in London, Manchester and Berwick upon Tweed. It’s pleasing to see new models of Green Deal delivery emerging that play to the strengths of councils and local businesses and communities. Local Energy has also been asked by DECC to find out if public sector bodies intend to use Green Deal to reduce their own estate emissions. My impression is probably not, as many have free money in revolving funds from Salix Finance, but it would be interesting to hear from any councils or other public sector organisations who do plan to use it.

The Diary of a Green Deal provider is written by Andy Johnston, Chief Executive of Local Energy

Part 4

21 June 2012

Having gone as far as I can with the licensing for Green Deal provider status, it’s time to bite the bullet and start looking at the finance element of being a Green Deal provider. In theory, all sorts of money can be used to finance a Green Deal plan. If the property owner is in social housing, the council might come up with some cash or maybe the social landlord. If the property owner is in the private sector, the money could come from the coffers of private sector companies, city funds or bank loans. In addition, many Green Deal plans will be able to use a bit of Energy Company Obligation (ECO) money.

So far, so laissez faire. However, a dominant player has already emerged in the market. The Green Deal Finance Company (TGDFC) is the product of a collaboration between the city and major players in the Green Deal. The main members are British Gas, Carillion, EDF, NPower, EON, SSE, Insta, Kingfisher and Mark Group. They are supported by a group of city firms led by PWC and Goldman Sachs. Finding out exactly what’s on offer is relatively easy to do but some of the information you get is confidential so I can’t pass it on. The publicly available information is at www.thegreendealfinancecompany.com

The model is quite straightforward: a Green Deal provider can sign up with TGDFC and thereafter they can use it as a source of funds for their Green Deal plans, the main benefit being that the provider doesn’t have debts sitting on its own books. At the moment, organisations can sign up as members; there doesn’t appear to be any major obligation and you only need to give seven days notice to resign so it’s pretty flexible, though that must surely change as we get closer to October.

There have been two main discussions in the press – monopoly issues and who pays for set up. Firstly, the monopoly issue: this is not really TGDFC’s fault. The fact is that no other major source of city funds has yet emerged, though I’m pretty sure it will. If Goldman Sachs think something is worth investing time and money into, then someone else will. However, there is a real issue here because the source of finance will have a big impact on the nature of the credit elements of a Green Deal plan. You won’t be able to just phone up TGDFC and ask for a few bob – there will have to be proper negotiations and a legal agreement. If a provider goes through all this to get access to TGDFC, will they put more work in to secure other sources of funding? I suppose it will depend upon the cost of a TGDFC loan, and the interest rates and charges are not yet known.

The second discussion point is how to finance the set up costs of TGDFC. TGDFC is established as a not-for-profit company and, once up and running, will cover its costs by the difference between borrowing and lending interest rates. But how will it fund its establishment? It must be tempting for DECC to step in, as they are so desperate for Green Deal to work – and a Green Deal without a source of money will look a bit limp. The difficulty is this: on what grounds would they act and then not help any other potential source of funds? It’s DECC’s move.

So what about other sources of funds? Bigger local authorities with a track record of prudential borrowing are looking at using the public loans work board. The interest rates may be favourable compared to finance from the city and it’s a known arrangement. There are two issues to consider; the appetite for debt in local government and the potential problem of state aid rules (can cheap public money be allowed to undercut private money?).

What about the Green Investment Bank (GIB)? Vince Cable has stated that funds for Green Deal are within the remit of the GIB… which is not quite the same as saying GIB funds will be available for Green Deal. It’s a small bank and the demands of a major programme of energy infrastructure must be its priority. Furthermore, we don’t know what interest rate policy it will adopt, so it may offer the same rate as other sources. Other banks – especially the Cooperative – have been active in the renewables market, but their profile on Green Deal so far has been low.

There are some niche projects. In Brighton, the Brighton Energy Cooperative is using a bond issue to fund renewables; a similar mechanism could fund small-scale Green Deal programmes. Some local authorities have access to ELENA funding from the EU which will help kick start programmes.

At the end of the day, if Green Deal produces steady returns then the finance will turn up. In my travels around local authorities, the models for offering Green Deal plans have been assuming an interest rate to providers of 7%, with a hope that it will be lower. The next challenge is how to organise the different sources of funding into a strategy. Providers will have to blend the available sources to their best advantage. For big providers like the energy companies, this will probably be TGDFC with some of their own balance sheet or bank loans to kick-start things. It’s this kick-start finance that is the big challenge for local authorities and will be the topic of the next diary entry.

The Diary of a Green Deal provider is written by Andy Johnston, Chief Executive of Local Energy

Part 3

6 June 2012

The last week has been dominated by organising the initial scoping meetings with our ‘Local Green Deal’ partners. We now have dates confirmed for Fife and Nottinghamshire/Derbyshire, and we’re hoping to get to Wrexham and Urban South Hampshire in the next couple of weeks. We also had a really interesting meeting with Northamptonshire County Council.

When not organising travel around the country I went to an event for Green Deal Providers hosted by the National Energy Foundation in Milton Keynes. The event was an amalgamation of two existing groups run by the Green Deal Finance Company and the Green Building Council plus some nominations from DECC. We were one of those nominations.

The work is arranged in task-and-finish groups, each tackling a particular topic and reporting back in 8 to 12 weeks. The idea is that groups will ‘stress test’ the policy with a view to informing guidance, though some of the challenges are so fundamental it’s probably more a case of establishing whether they’ll actually work.

I’ll try to give a flavour of the main challenges:

The market creation group are concerned with the ‘adoption’ issue. Will anybody actually buy a Green Deal? Debate centred on the use of the government’s two-year £200m incentive fund. The dominant view seemed to be that it would be spent on a cashback scheme for householders and there would definitely not be an advertising campaign by government. The risk here is that Green Deal looks a bit cheap, tacky and temporary. It looks like incentives via Council Tax rebates are off the table for now.

The social housing group was mainly concerned with over-regulation and competition. Many of the measures in the Green Deal guaranteeing the quality of the work already apply to social landlords, so is more needed? If a social landlord sets itself up as a provider, could some actions fall foul of anti competition law? For example: not allowing door knocking; fixing Green Deal work to the existing maintenance cycle; or briefing vulnerable residents to be careful of other providers.

The Green Deal Finance Company (TGDFC) had its own group. As far as DECC is concerned this is the only big finance option in town, which I find hard to believe. However, concentrating on one source of finance does help consideration of the issues. The money drives most of the Green Deal elements a provider engages with and, inevitably, any supplier of finance will want to influence and scrutinise a provider’s business plan. TGDFC finance will be available to any provider large or small, though fees will vary and the interest rate charged is also variable. These conditions will directly impact the wording of any consumer credit agreement and will heavily influence the Green Deal Arrangement Agreement (GDAA), the contract that governs how payments by electricity consumers get back to the providers.

The Consumer Credit Licence group started by recognising that getting the licence is the easy bit. Coming up with a process that complies with the law – without discouraging the consumer – and satisfies the requirements of the financiers will be tough. Consumers will have to be asked searching questions about their creditworthiness and demonstrate that they have achieved creditworthiness through legal means. Providers will have to explain the finance arrangements to consumers (so the simpler the better) and may have to come up with a process that addresses the unknown creditworthiness or money laundering credentials of future property owners.

The SAP group recognised that property level SAP is vital to the success of the Green Deal but that it needed more development. The group will test the methodology on 6 types of property. The main challenge is that SAP uses broad rules of thumb but Green Deal requires very specific recommendations. Other unknowns are the implications of ‘in use’ factors and the impact of the Golden Rule.

The viability group is looking at the Green Deal plan. After the financiers have taken their margin, the guarantees are paid for, the installers are paid, the fees to government are paid, the reports are written, the maintenance completed and the complaints dealt with – is there any surplus for the provider? The view was that any surplus would be small and the margins are thin.

The consents group is looking into one of the quiet backwaters of the Green Deal but one with the potential to cause lots of headaches. Providers will have to facilitate any consents required and there are two main risks – missing a vital consent or time delays while waiting for regulators. For the former, building control and planning may be obvious but there may be others such as listed building consent. For the latter, delays in the planning system are the most obvious.

The warranties group is primarily concerned with the cost of maintenance. Providers back the warranties, so they need to be sure that the equipment is being maintained.

The oversight and regulation group was concerned with how this process may impact on the financial viability and bureaucratic load of the Green Deal. It’s possible that the Green Deal Oversight Body could take a view on the interest rates being charged by providers, test the ‘fitness’ of providers, carry out audits of providers, maintain registers and possibly require an annual re-application process. None of this is very clear yet and DECC is currently out to tender.

The Energy Company Obligation (ECO) group is operating in an area of high uncertainty at present. The view in the room was that DECC would probably go for the brokerage model to buy and sell ECO certificates, there would be one (official) broker and the process would be double blind with buyers and sellers not knowing each other. It could be an eBay type process with bids up to a deadline. The risk in this model is that an energy supplier doesn’t know the provenance of the ECO they are buying.

In addition, there is still uncertainty about how much money is available, how it will be apportioned to different priorities and how the money will actually make its way from energy companies to installers/providers.

Rather embarrassingly the only group that hadn’t met, or indeed agreed to meet, was the local authorities group. I‘ve offered to help but heard nothing yet. Perhaps the problem was the narrowness of the brief, as local authorities were only being asked to discuss how they can promote and support providers.

The SME group had two workstreams, one of which was looking at how assessors and installers should position themselves to work with providers. The other workstream was asking trade associations and SMEs themselves whether the nature of the Green Deal was too onerous for them to consider becoming providers. The view in the room was that it looks too onerous to become a provider at present, and it might be best to wait and see how the first few months go and find out more about the ease of access to TGDFC.

There will be another session in late June.

The Diary of a Green Deal provider is written by Andy Johnston, Chief Executive of Local Energy

Part 2

3 May 2012

One of the biggest challenges for energy focused companies becoming Green Deal providers is the requirement for a consumer credit licence.

The reason one is needed is pretty straightforward. Green Deal is paid for by a charge on the electricity meter. The amount charged depends upon the offer accepted by the homeowner but all offers will have some element of interest charged. So, in plain terms, Green Deal is credit which has interest charged on it and it’s sold direct to consumers – it’s consumer credit.

However, Green Deal is a bit different to the usual HP agreement.

Apart from the fact that it’s a government supported, endorsed and policed scheme, the repayments are collected by someone else (the power company). From the perspective of the OFT this simplifies things a lot. In particular, it removes concerns about providers having to send the boys round to collect arrears.

Consumer credit is licensed by the Office of Fair Trading (OFT) and there are a combination of online and offline forms to fill in and a fee of £1,225. As well as the main form there are extra declarations for anti money laundering and a credit risk profile.

There are 13 categories of business but those seeking ‘Green Deal only’ trade just need category A (consumer credit business).

The process of application is quite onerous. It took me a couple of days to get all the required information into the forms and a few days before that to read through the introduction to the Consumer Credit Act 1974 (CCA). On the face of it the CCA is straightforward but references to case law in the guidance suggest that the devil’s in the detail.

One of the surprises in the process was that the OFT was not only interested in the Board members of the company applying – in our case Local Energy Ltd  – but also the Board members of all the organisations in the group, all the way up to the Board of the Local Government Information Unit. This is publicly available information so not a problem for us, but it does illustrate the spread of the reputational risk being taken. Most of the questions relate to convictions or criminal proceedings against the company or the various Board members. I was confident my Boards were clean, but it’s very clear that if I was subsequently proved wrong, the OFT would come back to me.

Quite early on in the process I was asked to complete an anti money laundering form to be registered under the Money Laundering Regulations 2007. There is an annual fee of £53 to keep this going.

The form is mainly repetition of company information; the hard work comes later when I work out precisely how the regulations will affect our Green Deal activity. At the very least it will involve formulating some sensitive questions about how consumers can actually afford to enter into a credit agreement. One interesting responsibility is that as the applicant I am also the ‘nominated officer’ and must make disclosures to the Serious Organised Crime Agency.

Further on in the application there are questions about credit selling in people’s homes. I stated that this is probable. Ticking that box triggers the second form, the Credit Risk Profile. This form helped OFT to find out if I knew what I was doing or had a credible plan to get upskilled. It asks questions about the type of business being undertaken, the nature of the marketing, potential partners, our knowledge of consumer credit, trade association membership, plans and policies, staff development, contracts and complaints procedures.

Given Local Energy’s history of working with local government rather than consumers, most of the form contained information on what we intend to do rather than what we have already done.

Once the papers were submitted we were sent a provisional date for a response. The anti money laundering licence came through in a month. A couple of months later we received a call asking us to clarify that we would not be collecting money in the home. We sent an email to that effect and then three days later an unimpressive piece of A4 paper announced that we had received a consumer credit licence.

The reason Local Energy is becoming a provider is mainly to help local government understand the process better. In order to do this we intend to work closely with some partner councils. In March, we ran a round of workshops for the Carbon Saving Public Sector network and asked for interest. I’m pleased to say that we have had plenty of interest and will be working up detailed plans in the next couple of weeks.

Less pleasing was the news that we had not been selected for ‘Green Deal provider hand holding’ by DECC, although apparently our name is on the list and we’ll be contacted later. The process of selection for who gets the help completely lacks transparency and due process – it would make any council blush. Given that the recipients of the help are organisations like E.ON, EDF and Kingfisher, who hardly need government help with business planning, I’m tempted to think that their hand is only being held to make sure they don’t run away!

The Diary of a Green Deal provider is written by Andy Johnston, Chief Executive of Local Energy

Part 1

5 April 2012

As soon as the consultation document on Green Deal came out it was clear that the scheme could become dominated by big money and big organisations. It was also apparent that, if the scheme is to be successful, councils would have to be active participants as they are trusted by local residents and communities.

Local Energy began thinking about models for Green Deal delivery and were greatly helped by conversations with the Energy Saving Trust and Marksman Consulting. The question arose – what would Green Deal delivered by small local authorities in partnership with community groups actually look like? While it would be interesting to work through this problem as a theoretical exercise it would be far more interesting to look at it from a practical point of view.

So the idea was hatched to see if we could get Local Energy accredited as an official Green Deal provider. It was a daunting task; to start with there are no models to copy, no one has done this before; secondly, the list of requirements was long and included a consumer credit licence, a bond, a conciliation service, lots of insurance, lots of accreditation to look out for and an understanding of a new document called a Green Deal plan; and, if that wasn’t enough, access to a significant amount of money.

Nevertheless, we felt that the process would help us understand much better how the scheme would work and we could share that learning with our public sector network.

The next step is to find some volunteer councils to work with. We have just finished our round of workshops in London, Manchester and Linlithgow. The chance to participate in a learning partnership on the Green Deal was taken up by quite a few of our members and we’re in the process of identifying who to work with and how.

In the meantime we had already embarked on the journey towards becoming a Green Deal provider, getting the consumer credit licence. The process is not quick and, given the protection it gives to consumers, nor should it be. We started the application before Christmas in 2011 and have just had our first call from the Consumer Credit Licensing department of the Office of Fair Trading, which was a positive experience.

One of the questions on the original application form was about collecting money from domestic premises. We thought it would be sensible to tick this box as Green Deal plans could be signed in the home and the money is collected from householders. However, the OFT take the view that the provisions are more to do with collecting cash on the doorstep not money that is collected via energy bills, so the good news is that we don’t have to worry about the household collection provisions.

That conversation completed, we were told to expect a decision on 1st May.

The next bit of good news came in a speech by Greg Barker. He made it clear that providers wouldn’t now need a bond or a conciliation service. This does seem sensible, as no other home improvement company has to place a bond with government in order to trade nor do they need to hire expensive lawyers to provide conciliation services. The market should be much more accessible to small providers now.

So, a belt and braces bureaucratic solution that tried to ensure no one was ripped off by the Green Deal has bitten the dust. However, property owners will still need reassurance that they can get redress or that the company they used will still be around a year after the improvements are installed. Where will that reassurance come from?

We’ll have to see, but the model we’re exploring has trusted local actors at its heart and we hope this will help.

The Diary of a Green Deal provider is written by Andy Johnston, Chief Executive of Local Energy