Financing energy efficiency
Money for nothing
Green loans are proving less popular among homeowners than expected
RETROFITTING houses to use less energy should be a no-brainer for homeowners. Over time, money spent on ways to reduce heat loss from draughty houses should produce a handsome return in lower fuel bills. In practice, many are cautious. Some improvements, such as solid-wall insulation and solar panels, can take over 25 years to cover their initial cost. Few owners are willing to wait that long: by then many are likely to have sold up and moved on.
Several governments have started finance schemes designed to address this problem. Since 2008 PACE programmes have offered American homeowners loans to finance improvements, repaid through higher local taxes on the property, whoever it belongs to. In Britain, the Green Deal offers loans over a 25-year period, with repayments added to energy bills. Countries including France and Canada have similar initiatives.
In theory, these schemes should boost investment in common energy-saving measures, such as extra insulation and new boilers, as the first owner does not have to pay all the costs upfront. But enrolment rates have disappointed, according to Sean Kidney at the Climate Bonds Initiative, a think-tank. In Britain, just 1% of those assessed for the Green Deal have signed up. In Berkeley, California, home of the first PACE scheme, the take-up rate is similarly paltry.
Homeowners are unimpressed chiefly because the interest rates on the loans look high. The Green Deal charges 7%; some PACE schemes a hefty 8%. As these rates are fixed for decades, they will inevitably look unattractive when short-term interest rates are low.
Many people also doubt they will save enough on their energy bills to cover the repayments. For instance, claims in Britain that installing loft insulation can cut energy bills by 20% have been dented by a government study that found it reduced gas consumption by only 1.7% on average. Others fear that green loans may reduce the value of their home. In America, firms that underwrite mortgages are hostile to PACE loans.
Green loans have not been a flop everywhere. Around 250,000 households in Germany sign up for them each year. They do so because they need pay only 1% interest on them each year, thanks to an annual public subsidy of 1.5 billion. Whether that is an efficient use of taxpayers’ money is another question.
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