I spent a large part of this weekend reading the proposals for the new Green Deal framework published by DECC last week. These are important, because they could shape the construction and energy efficiency markets in the UK for some time.
Sadly, I found the proposals confused, over-bureaucratic and lacking in customer understanding. I’ll be recommending our customers take the initiative and start forming consortia to shape the Green Deal and its delivery vehicles more in their own interests.
I think the government has tried too hard with this set of proposals. There are over 850 pages of analysis and complexity, but at its heart they have made a number of fundamental mistakes, and having made these mistakes, their efforts are just driving unnecessary cost and complexity into the whole framework.
My main criticism is that the proposals do not start from any sense of customer interests and demand. Building owners and occupiers are treated as targets for policy, rather than potential enablers of delivery. Instead of worrying about how to bribe people to participate to do something decided by third parties (the optimum package of measures for a given building) the government should be focusing on what customers are interested in and how to use this to motivate building occupiers to want to find out and invest in energy efficiency and microgeneration. If we can find mechanisms which motivate people to act out of self-interest we will get a lot further a lot faster and more cost-effectively. This is eminently possible, as shown (accidentally) by the recent explosion in interest for feed-in-tariff schemes.
People will not be motivated if the Green Deal can’t make up its mind as to whether it is addressing consumers or investors; whether it is a commercial proposition or a state subsidy or charity; or whether it can trust the market and end customers or not. Nor will they be motivated if there is any sense that Whitehall knows what’s best for you.
Throughout the documents customers are inconsistently and variously called consumers, bill payers, customers and households. We should call them investors, because this is how we want them to behave, and we should give them the power to invest, make mistakes, and learn because that is in the medium-term interest of a thriving and competitive market, with lowest cost regulation.
The proposals talk about creating “a new, open and dynamic market for businesses” but put in place warranty requirements for Green Deal providers which will ensure the market is controlled by a small number of large financial middlemen. They also pull back from making the new Energy Company Obligation (ECO) fully accessible to all scales of company, and are proposing that 50% of these funds (amounting to £1.3 billion annually) remain under the exclusive control of the six major utilities. Believing this power will not be used to distort the market in the interests of the utilities is naïve in the extreme.
The way forward with schemes like ECO is to place them under the control of customers as far as possible, so that local demand and self-interest in getting a good deal drives the market, not suppliers and bureaucrats. FITs and RHI, for all their critics, are much more efficient ways of stimulating markets and delivering policy objectives, because they allow customers to choose what works for them, and take responsibility for their choices (so long as the key measure is metered kWh delivered or saved). This is what I mean about trusting the market and customers.
I also find it depressing that the government still clearly feels Green Deal-type measures are somehow charitable or public-good-type activities which require subsidy. This is implicit in much of the way their market research is structured, and yet directly contradicts their own analysis which says Green Deal measures will in fact be economically viable and commercially sensible on many properties today – even before the cost reductions and efficiencies which are likely to come with the scale of delivery envisaged. Treating the sector as charitable encourages customers to behave as aid-recipients, and to wait for support rather than seeking to sort themselves out. This is counter-productive to competitive and well-functioning markets.
The problem is not the economics, it’s the attitudes and market structures created by the government. The solutions do not lie in perpetuating these attitudes, denying the economics and resorting to direct state subsidy, they lie in thinking about this whole market and sector in a more fundamental and in depth way.
I would like to see a Green Deal that is structured consistently and coherently by starting from a clear vision of a future mainstream and thriving commercial market in the UK for energy efficiency and microgeneration products. We should start by understanding what such a market might (indeed must) look like and then start creating the institutions and frameworks today to support it, instead of working from today’s backward looking industry structures, particularly in the utility sector.
Such a market will have many thousands of small firms competing and innovating to offer a wide range of solutions to empowered, interested and informed customers (investing to support their own futures). There will be no need for engagement of energy utilities (let alone control of the market by them) because the supply of commodity kWh is very different from the delivery of bespoke energy and construction services to individual buildings on a mass scale. The skills and business models required for this kind of market need to evolve through the proven mechanisms of free market economics and innovation, best supplied by small companies, which will in turn create tens of thousands of jobs. The market will have no more bureaucracy and middlemen than in today’s construction industry, and it will not need public subsidy at all.
We will need only basic standards and assessment methodologies (like in financial services) because it will be in customers’ own interests to find out about the best solutions for them, and there will be a thriving self-funded market of independent energy advisers helping them, regulated lightly by an energy services authority which has learned the lessons of the FSA.
I believe all this is easily possible within 3-5 years (and certainly 10) if the government gets the Green Deal right. It’s depressing to see so much effort having gone in to developing proposals without a coherent vision at the outset, but I do still think there is some hope, because if you look carefully, there are a few signs that DECC have made a limited amount of progress in the right direction.
Encraft will be holding a series of seminars and workshops for its customers and other interested parties across the country in the New Year to look in more detail at the Green Deal specifically from the customer perspective, and to develop and promote a vision to adapt the new framework so it works for the market and real customers, not just for the academics in DECC.
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