The previous instalment of my blog about Consumer Protection in Green Deal covered Green Deal Finance and the role of Green Deal Advisor. I explained the Golden Rule, and how it depends on the calculated cost savings from installing the energy efficiency measure. We saw that the cost savings estimates that set the cap on repayments are calculated using EPC standard occupancy, but with an in-use factor applied. In the next two instalments of my blog, I want to explain a little more about these two terms, starting with:
EPC standard occupancy – a consumer protection measure
EPC standard occupancy – a consumer protection measure
The Green Deal Advice Report starts off by showing the customer how their own consumption compares to consumption based on standard occupancy. In the example here, the household being advised uses less energy than would be assumed by standard occupancy - they are a low fuel user.
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Standard occupancy represents an average occupier – a large family in a 4 bed house, a single person in a one bed flat, and so on – with average heating demands. In similar fashion, their hot water needs are estimated on the assumption that a large home is fully occupied. The heating assumption is that the home is not heated at night, with the heating on during the early morning and evening on a working day, and on throughout the day at weekends.
When an EPC (Energy Performance Certificate) is prepared for a sale or let of a home, it’s important that this EPC is independent of how the former occupier used it. Their annual fuel bills may not be a good guide for the new occupier, especially if the seller is a single person out at work, but the buyer is a family with children who will heat the home all day. Standard occupancy allows one home to be compared to another on a like-for-like basis.
In Green Deal, it’s standard occupancy that’s used when estimating the savings from measures that are compared against repayments in the Golden Rule. The maximum Green Deal annual repayment is based on EPC standard occupancy, ignoring how the current occupier uses the home. The Green Deal Advice Report also gives ‘your household’s estimated annual savings’, but these values do not affect the eligibility for Green Deal finance or the maximum Green Deal annual repayment. This is deliberate, and protects future occupiers from inflated repayments, calculated for a former occupier who happened to be a high use household.
This protects future occupiers from inflated repayments calculated for a former occupier
If the current household’s own occupancy patterns were used, a high use household would find that more expensive improvements - with higher repayments - would be judged as meeting the golden rule, and therefore could be funded through Green Deal finance. However, if the home later changed hands and a low-use household moved in, they would still be required to make the same high repayments. As low fuel users, they would not make the high savings to cover those repayments, and would find themselves paying back more than they saved.
This protection is not part of the non-domestic Green Deal – new commercial occupiers must check for themselves whether they want to accept the Green Deal finance that had been calculated for the previous building user. If they don’t, they can choose not to buy or lease the property.
When an EPC (Energy Performance Certificate) is prepared for a sale or let of a home, it’s important that this EPC is independent of how the former occupier used it. Their annual fuel bills may not be a good guide for the new occupier, especially if the seller is a single person out at work, but the buyer is a family with children who will heat the home all day. Standard occupancy allows one home to be compared to another on a like-for-like basis.
In Green Deal, it’s standard occupancy that’s used when estimating the savings from measures that are compared against repayments in the Golden Rule. The maximum Green Deal annual repayment is based on EPC standard occupancy, ignoring how the current occupier uses the home. The Green Deal Advice Report also gives ‘your household’s estimated annual savings’, but these values do not affect the eligibility for Green Deal finance or the maximum Green Deal annual repayment. This is deliberate, and protects future occupiers from inflated repayments, calculated for a former occupier who happened to be a high use household.
This protects future occupiers from inflated repayments calculated for a former occupier
If the current household’s own occupancy patterns were used, a high use household would find that more expensive improvements - with higher repayments - would be judged as meeting the golden rule, and therefore could be funded through Green Deal finance. However, if the home later changed hands and a low-use household moved in, they would still be required to make the same high repayments. As low fuel users, they would not make the high savings to cover those repayments, and would find themselves paying back more than they saved.
This protection is not part of the non-domestic Green Deal – new commercial occupiers must check for themselves whether they want to accept the Green Deal finance that had been calculated for the previous building user. If they don’t, they can choose not to buy or lease the property.
But what happens if the current occupier is a low fuel user? In this case, they are unlikely to make the fuel cost savings estimated by standard occupancy. Obviously, it is important that low fuel users are warned about this. Two warnings are provided – verbally by the Green Deal Advisor, and in writing on the Green Deal Advice Report, as shown below:
This extract shows how the customer’s attention is drawn to the expected savings (£172), but also to the ‘cap’ on repayments (£243).
For this low fuel user, the ‘cap’ is higher than their expected savings because it has been calculated for standard occupancy.
A Green Deal provider arranging to install these energy efficiency improvements could charge up to £243/year in repayments in the first year, but the household might only expect to save about £172/year. The Green Deal Advice Report shows prominently the overall increase to the electricity bill that the customer might have to pay (£71 in this example).
It would be up to the low fuel use household to make a decision, based on this information, as to whether to go ahead with the work, in spite of this. If they were eligible for ECO support, some or all of the installation costs would be subsidised, and in some cases the work could be installed free of any Green Deal charge. In other cases, this subsidy might reduce the required repayment so that it fell below the expected savings based on their own low fuel use.
When selling a Green Deal product to a low fuel user, the Code of Practice requires the Green Deal Provider to discuss with the consumer the implications for them of taking on repayments that may be higher than their own personal savings estimate. Green Deal is a new sort of loan – one that’s tied to the home, and not the person – but it’s still a loan, and when provided to a consumer, it’s covered by the Consumer Credit Act just like other loans. Under the Office of Fair Trading’s Irresponsible Lending Guidance, Providers must carry out an affordability assessment for the consumer, and must take a household’s estimated energy use into account when they do that.
The next instalment of my blog about Consumer Protection in Green Deal will look at in-use factors – why they have been included, and how they give further protection from the risk of repayments exceeding the savings made by installing the improvements.
For this low fuel user, the ‘cap’ is higher than their expected savings because it has been calculated for standard occupancy.
A Green Deal provider arranging to install these energy efficiency improvements could charge up to £243/year in repayments in the first year, but the household might only expect to save about £172/year. The Green Deal Advice Report shows prominently the overall increase to the electricity bill that the customer might have to pay (£71 in this example).
It would be up to the low fuel use household to make a decision, based on this information, as to whether to go ahead with the work, in spite of this. If they were eligible for ECO support, some or all of the installation costs would be subsidised, and in some cases the work could be installed free of any Green Deal charge. In other cases, this subsidy might reduce the required repayment so that it fell below the expected savings based on their own low fuel use.
When selling a Green Deal product to a low fuel user, the Code of Practice requires the Green Deal Provider to discuss with the consumer the implications for them of taking on repayments that may be higher than their own personal savings estimate. Green Deal is a new sort of loan – one that’s tied to the home, and not the person – but it’s still a loan, and when provided to a consumer, it’s covered by the Consumer Credit Act just like other loans. Under the Office of Fair Trading’s Irresponsible Lending Guidance, Providers must carry out an affordability assessment for the consumer, and must take a household’s estimated energy use into account when they do that.
The next instalment of my blog about Consumer Protection in Green Deal will look at in-use factors – why they have been included, and how they give further protection from the risk of repayments exceeding the savings made by installing the improvements.
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