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Pay As You Save: financing low energy refurbishment in housing
The UK's Green Building Council is publishing a report on its 'Pay As You Save' (PAYS) proposals today. The report will detail a scheme that would enable householders to undertake home energy upgrades at no initial cost, allowing them to pay for the work over time. Construct Ireland has been working on similar proposals for the Irish market, and described potential measures in this article.
The executive summary of the PAYS report, which has already been published, provides basic details on how the scheme would work:
- Following a whole house energy assessment, an energy company would present energy saving retrofit options to the householder together with the projected savings and the PAYS payment schedule. The repayment mechanism and contract would be clearly explained to the householder. The householder could obtain quotes from other companies before making a decision.
- The up front cost of work supported by PAYS would be up to £10,000. After the annual repayment for work has been met, annual energy cost savings based on gas heating would be estimated at between £50 and £200 depending on the work undertaken.
- In order to drive mass-take up, a range of incentives would be needed. Incentives could be offered through stamp duty, council tax, reduced VAT or cash back.
- A subsidy would be provided based on the CO2 savings achieved. The executive summary doesn't provide much detail on this - I'll add more once the full report is published.
- The low energy refurbishment provider would arrange the upfront finance for the householder, organise eligible subsidies and facilitate the billing contract as well as organising the work.
- The energy saving assessment process would be based on a standard assessment procedure used by all providers (such as SAP, the UK's equivalent to Ireland's dwelling energy assessment procedure - DEAP - which is used to calculate building energy ratings).
- Householders would receive appropriate advice and training to ensure they understand how to operate any new controls, what to expect from the low energy upgrade, and how the way they use the home will affect the actual level of savings achieved.
- The whole process would be supported by advice and communications from local authorities, the government and appropriate government agencies.
- The refurb provider would receive finance directly from a third party finance vehicle. The third party finance vehicle would be financed through capital sourced from the private sector such as bank loans, issuing bonds or raising equity finance from an investor
- In order to keep interest rates down to householders, financing would be underwritten by the government to reduce the investment risk.
- To keep capital repayments low for householders a 25 year term would be used.
- To create attract investment conditions there would need to be significant consumer demand generated through marketing incentives and/or regulatory action. Debt risk would managed by the biller with some debt risk potentially mitigated by a level of support from the government.
- The system needs to be simple to ensure success.
- Billing should be done through local authorities - this part of the UK scheme is of little relevance to Ireland though, as there is already established local authority billing infrastructure in the UK, unlike here.
- PAYS payments would be attached to the house rather than the householder, so if a householder moves the new householder takes over the repayment.
- Smart meters could potentially play an important role in showing the householder energy savings that have been made.
The principle of PAYS - allowing householders to spread the cost of energy upgrades over a substantial period of time - has already been adopted by the opposition Conservative Party in the UK, and the British government, in its 'UK Low Carbon Transition Plan' white paper.