FINANCE - 29.11.2012

The Green Deal won’t work for all

The view of the Federation of Small Businesses is that high interest rates and long payback times may scupper the government’s Green Deal for small and medium-sized businesses. So should you avoid it?

Damning report

The government’s Green Deal mechanism is designed to encourage companies to make their premises more energy efficient. However, the Federation of Small Businesses (FSB) says that the potential cost savings afforded by the Green Deal will be eaten up by rising energy bills driven by a raft of forthcoming energy and environmental policies. In a new report, the FSB argues that if you choose to take out Green Deal finance, you will face longer payback times than households which take advantage of the same system (see The next step).

Does the FSB have a point?

It’s fair to say that the Green Deal was largely established for domestic use. As a result, it’s more expensive for businesses.

Note. Before you see any real savings you’ll have to repay the initial cost at commercial rates of interest. This means it could take more than 20 years to see the benefit from carrying out any work to improve the energy efficiency of your premises.

The Golden Rule

Business premises are usually bigger than domestic homes, so projects are less likely to adhere to the Golden Rule - where the expected financial savings must be equal to or greater than the costs attached to the energy bill. For example, if you’re in a large warehouse, it won’t be cost-effective to fit solar panels to the building due to the high initial cost. However, adding lighting controls and low-energy lightbulbs will fit into the Golden Rule but the benefits won’t be as great.

Not all bad

The Green Deal remains an attractive proposition in that there’s no up-front cost to investing in energy efficient improvements. Plus, because it’s protected by an accreditation and redress regime, you can be sure that any work is carried out to a high standard.

Other options

Access to funding is hard to come by, and there are very few options available since the Carbon Trust closed down its interest-free loan scheme.

Tip. If you’re looking to finance projects that involve the installation of renewable energy technologies, the options include the Renewable Heat Incentive (RHI) or the feed-in tariffs (FITs) mechanism (see The next step).

Check out your energy contract

Rather than taking out finance to help pay for energy reduction projects, it’s better to pay less for your energy in the first place.

Tip. Get in touch with your energy provider and negotiate the best tariff possible. EDF Energy has just launched a new product for SMEs called New Start (see The next step). It’s a flexible contract with six and nine-month fixed price agreements to help small businesses get to grips with their energy use. The rest of the big six utility companies are likely to follow suit, so keep an eye out for offers that could help you reduce your energy bill.

Finance options are thin on the ground, but beware the Green Deal. Because it’s been designed primarily for domestic customers, it might not be very appealing - especially for larger energy reduction projects. Feed-in tariffs or the Renewable Heat Incentive are likely to prove more attractive.

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