The problem
A key barrier preventing many households installing energy efficiency measures is upfront cost.
This problem is primarily one of cashflow, but it is compounded by:
| a) |
The time and energy it takes to research purchase decisions (‘perceived transaction costs’) |
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| b) |
The fact most people prefer to spend surplus income on more immediately satisfying goods and services (‘instant gratification’) rather than boring, often invisible energy efficiency measures with slow returns on investment and benefits that are hard to perceive; and |
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| c) |
The current situation whereby neither tenants nor landlords have the incentive to make rented property energy efficient |
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The Solution
This problem can be solved by allowing occupants to pay for retrofitting by introducing a financial mechanism that allows borrowing against future energy savings.
In our proposed system:
| a) |
Occupants would receive a retrofit at no upfront costs from vetted suppliers |
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| b) |
Loan repayments for retrofit work would be embedded in utility bills |
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| c) |
Energy bills do not rise (they may even fall) and emissions are reduced from day one. |
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For short-term occupants, the retrofit will be effectively free, for long-term occupants, better than free. |
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Summary of the pilot project
We will offer a menu of energy efficiency measures to 200 households in Winchester District. Householders will choose measures from the menu and we will install them at no upfront cost.
To finance this we will secure loans to pay for retrofitting. These loans will be repaid through one of three mechanisms:
| a) |
Loan repayments embedded in energy bills |
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| b) |
Equity release from each property when it next changes hands (an option only for homeowners) |
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| c) |
Early repayment at any time at the occupant’s discretion |
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We believe that the main barrier to low-income homes implementing energy efficiency measures is essentially one of cash flow and can therefore be solved by mechanisms (a), (b) and (c) above.
We emphasise that this project does not require large-scale grant funding, merely pump-priming finance. Over the medium term the scheme will finance itself, ultimately paid for by loan repayments or equity release from each property when it next changes hands. |
How this works
The loan for the retrofit is in effect made to the Meter Point rather than the occupant and would stay with the house even if the occupant moves on. The loan is securitised against future energy savings rather than income or property value. Repayments are embedded in energy bills. In effect, the occupant finances their own retrofit by continuing to use energy.
In this scenario, most objections to making a dwelling energy efficient are overcome. As a resident, you merely experience what feels like a free retrofit, and from day one, the same or lower utility bills. |
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What needs to change to make this
happen?
1. The Electricity Act (which defines distribution activities) needs a clause inserted to allow Distribution Network Operators (DNOs) to act as conduits for payments for retrofitting measures.
2. The multi-party industry code, the Distribution Connection and Use of System Agreement (DCUSA) needs a distribution license amendment that ensures DNOs facilitate the collection and distribution of payments.
Read about the regulatory problem in more detail. |
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