The Green Deal Finance Company says it’s the answer to the financing challenge facing the Government’s flagship Green Deal policy to insulate millions of UK homes and businesses over the next few years. Louise Bateman talks to Paul Davies, senior partner at PwC, who is coordinating the new not-for-profit venture.
Q. The Green Deal Finance Company (GDFC) is a UK first: a not-for-profit consortium of businesses spanning retail, energy and finance, which is going to offer cheap loans to householders and businesses that want to make energy efficiency improvements to their properties. Can you tell me how it came about and why?
A. It came out of a number of Green Deal workshops and the one outstanding question, which was: how was the Green Deal going to get financed?
Because of the Green Deal 'Golden Rule’ [which says savings on energy bills must be at least as big as the loan repayments] the lower you can get the underling finance the more energy efficiency measures you can have. A consensus emerged that we could set up an entity supported by everyone and at a national level that would lower the cost of the administration and have access to the capital markets.
Q. The GDFC is made up of some very large companies, including British Gas, B&Q, E.ON, HSBC and Goldman Sachs. Is size important?
A. Size is key because it means it can quickly and regularly access the bond market and get high '
investment grade’ money.
Q. This is a 16-strong consortium of companies, which effectively compete with each other. How have they come together to work in this way?
A. Force of will. It goes to the logic of what we are saying; we need billions [of pounds of investment] in a year and that is beyond the capacity of even the biggest companies.
Q. If size is important and given that the founding members of the GDFC are mainly blue-chip names, does this mean that small businesses are going to be locked out of it?
A. Quite the opposite. Membership is open to all and anyone who wants to be member can be. And in strong defence of the founding partners, they want to operate a very open book. Their stated objective is to be a finance enabler of the market, not a competitive barrier. Any accredited Green Deal provider will be able to join.
SMEs that are wondering, 'should I get into this market or not, I don’t have a balance sheet so I can’t’ – that barrier has just been removed.
Q. It’s interesting that it has been set up as a not-for-profit company. Why is that?
A. The not-for-profit means there’s no cost of capital, which reduces the overall cost of capital – again it makes us cheaper than the funds we can deliver.
The second side to not-for-profit is that it’s open to all. If you had a profit company with equity it could start smelling like a private club. It’s an expression of 'open to all’.
Q. Do you think it’s a model that we’ll see repeated in the green economy?
A. It’s an unusual model in unusual circumstances. I can’t pretend it’s a brilliant model that you can repeat, though. This is pretty bespoke.
Q. Can you explain how a business or household would buy energy efficiency solutions through the GDFC?
A. If you are householder and you decide you want to retrofit your house, an assessor will visit and say, for example, you need solid wall insulation, lagging and a new boiler. They will offer you a suite of measures consistent with the 'Golden Rule’, so say if you need £10,000 worth of work it will cost you £10 a month and meet the 'Golden Rule’. There will be no interface with the GDFC. The green deal repayments will be made to your [energy efficiency solutions] provider.
Q. Isn’t there a danger the GDFC could encourage a 'stack 'em high, sell 'em cheap' market for energy efficiency solutions and lock out high-end, innovative providers?
A. I hope not. Quite the opposite. We are an enabler and if you’ve got a high-end solution or marvellous new technological solution or a better kit, you’ll be better able to compete on price because underlying it is cheap finance to make it happen. It will make it easier for new entrants.
Q. Has the Government given its backing to the GDFC?
The Government is being very supportive and is attending our weekly meetings, but it’s not saying this is an exclusive deal. But the logic is – and I would say this wouldn't I – that it would be much simpler if everyone used it to minimise the cost.
Q. The Government is launching the Green Deal in autumn 2012 - when does the GDFC intent to start bankrolling the scheme?
A. The Green Deal launches in November 2012. We’ve got to be ready for then.
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