What has gone wrong with the Green Homes Grant?

This post is by Jan Rosenow and Louise Sunderland of the Regulatory Assistance Project.

The Green Homes Grant risks becoming the second government home energy efficiency scheme in a decade designed to fail.

The last decade wasn’t a good one for energy efficiency policy in the UK. We all remember the Green Deal, the coalition government’s flagship energy efficiency policy that was supposed to support 14 million home retrofits by 2020. It was terminated in 2015, after two years, having achieved fewer than 20,000 home retrofits. If anything, it was an example of how not to design an energy efficiency policy. The failure of the Green Deal left a gaping hole that was never plugged.

When the Covid-19 pandemic began to take its toll on the national economy last year, the government looked for ‘shovel-ready’ projects that could create new jobs and support economic recovery. Quite rightly, energy efficiency was identified as an opportunity because of its jobs potential. Energy efficiency works are particularly labour intensive and, compared to more centralised infrastructure investment, the jobs are distributed all over the country. In addition, much of the expenditure in publicly funded energy efficiency programmes is offset by tax receipts and other revenue streams generated as a result of the activities promoted.

To capture this potential, the government announced the Green Homes Grant in June 2020, a £2 billion programme to rapidly deliver energy efficiency improvements. This was the first major energy efficiency programme funded by general taxation since the termination of Warm Front in 2013. Expectations were understandably high.

The grant had short-lived intentions
Under the original design, the Green Homes Grant budget was to be spent between late September 2020 and the end of March 2021. This required funds to be absorbed at a rate of more than £300 million per month, six times more than the current spending rate under the Energy Company Obligation, the largest remaining energy efficiency programme in Britain.

But the scheme failed to live up to expectations: two months before the original end date, only about five per cent of the funds had been allocated, with around 20,000 of the targeted 600,000 homes receiving support. Recognising the challenges of rapidly spending the funds, the government extended the grant for a year, a decision welcomed by the industry. But it has come at a cost.

Rather than maintaining the £2 billion allocated, the government is planning to only roll over £320 million into the next fiscal year, effectively cutting the budget by 80 per cent. The rationale is that the Green Homes Grant was only ever intended to be short-lived to help with economic recovery post-Covid. This can only be described as a huge disappointment, given the scale of energy efficiency improvements required across the entire UK housing stock and that the impact of Covid on the economy is still increasing.

A programme over winter was doomed to fail
Ramping up the supply chain to deliver shovel ready projects at the scale planned, with only a few months’ warning, was always going to be extremely challenging, especially since the shovels had been blunted for a decade by successive cuts to energy efficiency programmes.

The incredibly short timescale for spending the £2 billion budget added challenge upon challenge. First, many installation companies that did not already have the required accreditation to deliver measures judged there was insufficient time to get it. And the very short term nature of the new work, with no long term trajectory of government support, was a disincentive to invest in the quality label. Why invest in a market that will not be there next year?

Second, it was winter. Installation of key measures for the UK housing stock, such as external wall insulation and replacing heating systems, are more challenging during the winter months. Poor weather conditions can slow down projects, and households are reluctant to disrupt their heating system during a cold snap. With the programme originally running from late September to the end of March, weather was a predictable factor that would limit impact. The government, it seems, was quite literally trying to stick their blunted shovels into frozen ground.

Germany has done it successfully
Far from concluding that investments in energy efficiency are not suitable as an economic stimulus, the experience of other countries shows how to do it successfully. Following the 2008 economic crisis, the German government announced the largest economic stimulus programme since World War II, including £2.6 billion in additional funding for energy efficiency. The main purpose of the programme was to help the struggling construction sector and support jobs. And it worked.

But why? The main difference between this and the Green Homes Grant was that Germany used an existing and well-established energy efficiency programme, administered by the publicly-owned bank KfW. This structure has existed for more than 30 years. Trades are accustomed to delivering within its rules and have adapted their services to the required standards. Businesses are structured around the long term market it creates. The knowledge of the future market makes scaling up to benefit from a one time injection of investment a safer bet.

The programme shouldn’t be scrapped
What can we learn from the failure of the Green Homes Grant to meet its expectations? First and foremost, it is clear that designing any entirely new, national scale, big budget programme to achieve only short term impact is almost certainly doomed to fail. Long term policy stability is required to build capacity and trust in a supply chain that can deliver high quality work at scale.

Short termism also gives entirely the wrong message to householders, almost all of whom will need to carry out energy related renovations to their homes in the not too distant future. ‘Here today gone tomorrow’ government support undermines the communication of this long term shared project.

The final and overarching point, relevant to all policies and programmes, is that they must be designed for the outcomes wanted. The desired outcome is not the distribution of the budget but the activity needed on the ground. The Green Homes Grant would have looked very different if the design had started with a clear knowledge of the needs of the households commissioning the works, of the structure of the supply chain and of the physical efficiency measures it would deliver.

Rather than scrap the programme, the government should reform and extend the Green Homes Grant in such a way that provides industry and householders with a robust funding framework for energy efficiency for years to come.

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