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Green government loan scheme

How to incentivise homeowners to live a greener lifestyle.

The cost of reducing one’s carbon footprint can be prohibitive. The UK aims to achieve net zero by 2050 which requires significant public investment, but the general public are often priced out from making the home upgrades they would like to in order to live a greener lifestyle: an air source heat pump costs £6,000 to £8,000, solar panels £5,000, an electric vehicle charger £1,000, and it goes on. This can be further complicated by installation costs which can be significant, particularly if the property is old – a heat pump for example can cost twice the above amounts to operate effectively.

Green incentive schemes

There are incentive schemes in place: a new heat pump grant can pay £5,000 of the installation cost and replaces the Domestic Renewable Heat Incentive scheme from April 2022 which paid £7,000 over seven years and Office for Low Emission Vehicle (OLEV) grants reduce the cost of electric vehicle chargers by approximately half. An upfront payment is more helpful than the old scheme paid over several years as the cash flow impact to the homeowner is the biggest barrier to making these upgrades. However, the total grant pot is only for £450m which equates to 90,000 homes.

Government barriers

The issue for the Government of course is that to fund all the investment which is required it would have to raise taxes which are already running at high levels. Therefore, a mechanism is needed to help homeowners to make green choices for their homes while protecting their savings, particularly in a period of uncertainty.

Green Energy Home Loan Scheme

The Government should introduce a Green Energy Home Loan Scheme to fully fund the cost of cash-generative home energy upgrades for which the return is collected directly from the energy companies. For example, a £5,000 loan to cover the cost of solar panel installation would prevent the homeowner from using their own cash but the Government is also protected and ends up in a cash neutral position. The loan is repaid, with interest, through energy sold back into the grid directly repaid by the energy company.

This funding structure could also be used by home battery storage, technology which collects surplus renewable energy from the grid and stores it at home. This is then sold back to the grid during times of high demand adding to the UK’s overall supply capability and again representing a funded opportunity for the Government to support homeowners without raising taxes.

Heat pumps present a greater challenge as they do not generate energy but utilise low carbon energy sources instead of gas or oil. More access is needed to private home green loans through commercial banking. Green mortgages now afford better interest rates to low energy intensive homes, but it remains difficult to obtain a green loan to upgrade the home. Properly incentivised green banking deposits, for example those offering better interest rates or carbon credits to offset a company’s own carbon use, could unlock greater capital for homeowners to fund the upfront cost of upgrade.

Contact us

If you would like to discuss any of the above please contact your usual Blick Rothenberg contact using the details on this page.

You can also visit our COP26 Hub where we will share an article written by our experts each day the COP26 conference takes place with a focus on green taxation.