Interview: Mark Bayley,Chief Executive,Green Deal Finance Company

“The Green Deal has been operational for less than a year and people are already pulling up the roots.”

Mark Bayley insists he has something to be proud of. While the Green Deal’s struggles have been well-aired, less frequently told is the story of the Green Deal Finance Company (GDFC), a national institution that is able to provide competitive finance to more than 80 per cent of the population to enable them to improve the quality of their homes. Bayley is the chief executive of the GDFC. He has a string of explanations for why the Green Deal has started slowly, and confidently predicts that the energy revolution is just around the corner.

Of the £244 million of government funding behind GDFC, more than £9 million has been loaned out, with 2,400 plans currently being processed. There are 50 providers able to offer the loans, with a further 18 set to open their Green Deal doors.

It is a rare success story in the short but chequered history of the Green Deal.

The sign-up rate (only 2,000 plans have been agreed since the government’s flagship energy efficiency scheme was officially launched in January 2013) tells of a lack of awareness of the initiative, which has been hamstrung by its flaws. This apathy towards the scheme, over the difficult months since it emerged blinking and bleary eyed, has led to numerous calls for the Green Deal to be overhauled or scrapped completely.

Bayley is used to facing harsh criticism. Before the Green Deal, he was the head of the company that delivered High Speed One, and then was a driving force behind the controversial High Speed Two project.

Goodbye frying pan, hello fire.

But he does at least feel at home in a new office, located just off platform one of London’s Paddington railway station. More importantly, his experience of creating, and in the case of HS2 promoting, a nationally significant infrastructure project has left Bayley prepared for everything the Green Deal has to throw at him.

“My job was to get the thing up and running,” he says of the GDFC. “I’ve got it financed, I’ve got it operational, and I know we’ve got to endure for a lot longer than we first thought because demand never plays out like people first think it will.

“I just instinctively knew that when I joined the company, but the job was just to get it going to service what demand there was out there.”

Pointing out of his office window to one of the Crossrail construction sites, he once again draws the infrastructure parallel. “If you analyse all the issues around the Green Deal, you will find that they are typical infrastructure issues.

“Anyone who knows about delivering these large, complex national infrastructure projects knows they take a long time to get going and get practised at it.”

For Bayley, while the GDFC has not been faultless, it is merely a vehicle to provide finance. He says a significant share of the blame for the lack of take-up must lie with the big six and the government.

Energy efficiency is already a “no-brainer”, but Bayley says more needs to done to get people to insulate themselves from the predicted price increases, because so far the Green Deal has not managed this.

How? Well, with more than one year gone, and the 2,000-plan milestone (finally) reached, he says it is perhaps time the government looked back at everything that has been done so far. “It is time to take stock of the 2,000 plans, and time to take stock of the golden rule. We can also now go back to some of the homes that have been Green Deal-ed, if you like, and look at their experience.”

This includes assessing not only how effective the energy efficiency measures are, but also the golden rule.

The industry has already urged the government to allow flexibility on the golden rule, so consumers can have measures installed that cost more than are currently permitted. Bayley agrees that this is something the government should assess.

“All the time there are developments in energy efficiency technology, and a better understanding of how things actually work in situ. The golden rule is like anything else that needs continual improvement and adjustment, particularly a year on in.”

Climate change minister Greg Barker said last June that if 10,000 Green Deal plans had not been agreed by the end of 2013, he would be having sleepless nights. By this reckoning, the Green Deal has under-performed significantly, but the mention of failure is something that annoys Bayley, who sighs at the accusation.

“I get riled by the short-termism. The programme has been operational for less than a year and people are already pulling up the roots.

“We’re here to stay.”

Bayley says he has not had sleepless nights, but is quick to add that this is not a matter of overconfidence. He knows the Green Deal hasn’t hit the heights, but he says it hasn’t been as bad as its many detractors would have us believe.

One of the main problems, Bayley says, is down to the government’s attempt to save consumers money by altering the Energy Company Obligation (Eco).

He says the original forecast for the Green Deal, and the one that Barker confidently predicted the 10,000 plans on the back of, assumed a fully functioning Green Deal market and the seamless interaction between the two schemes, with the Green Deal “topping up” the more expensive measures under Eco.

This did not happen, and the government’s changes to Eco, which knocked £50 off energy bills, hurt the Green Deal too. “Half the demand in the initial investors’ forecasts was coming through Eco – 5,000 of those 10,000 plans,” he says.

There were also flaws with the scheme’s design, namely the issues that surrounded the rental sector, which he says cost about 1,000 Green Deal plans in the first year.

“I’m probably making some very sweeping statements, because frankly it is a harder product to sell than the initial forecasts assumed, and that probably accounts for the 2,000 on the system compared with the 4,000 in relation to Greg Barker’s 10,000.”

This then turns to the wider issue of demand – and what can be done to tap into it. It’s all very well creating this piece of national infrastructure that is able to provide finance, but what’s the point if there is no-one to lend to?

The big six are part of the problem, according to Bayley, although his critique is far from the usual big six bashing that seems to be de rigueur. He says the suppliers were looking solely to meet their own Eco targets in the most cost-efficient way – and that did not include the Green Deal, meaning it has so far been “undersold”.

Those companies that are active in the market are the small and medium-sized enterprises (SMEs), and Bayley says they have had to be creative in the ways they have gone about their business to drum up demand.

“The most successful models are where a Green Deal provider goes to an estate or an ex-industrial area, or ex-council estate, and puts up a show home.

“They buy a property, put up a show home, all the stuff, all the hard evidence, then the Joneses want to keep up, then the Smiths, then the Robinsons, and then down the street.

“It’s not your conventional mass campaign, but around the estate word gets around quickly.”

But life has proved to be precarious for the SMEs in this sector, especially because the process of getting from a Green Deal assessment to a plan being signed and the finance going through takes at least three weeks – and that is for the more experienced and slick operations.

Bayley has driven through a streamlining process, which includes ensuring that the GDFC’s credit agreement is only 36 words longer than that of a typical high street bank. He laughs as he highlights that a chunk of that is made up of the words “The Green Deal Finance Company”.

Simplicity in the Green Deal is not only important for customers, it is also important for the SMEs offering the finance packages and for the supply chain behind that.

Bayley points out that, while in terms of the number of plans things have not been a raging success so far, the GDFC has been vital when it comes to keeping some of the smaller companies going.

“Most of our active providers are SMEs and they rely on us to alleviate their working capital, so if it does take a long time from assessment to payout, the supply chain is bearing the brunt.

“The quicker we can funnel the money out the door, it’s great for business, and great for the consumer, but it is very important for the SME businesses that we can do that.”

The next step, now that most things finally seem to be in order within the Green Deal framework, is driving consumer demand.

Bayley is convinced this will come in time, with the rollout of smart meters possibly a trigger point for a cultural shift in the way society views, and ultimately uses, energy. His justification for this is that when he started at the GDFC, the Bayley household also had a smart meter installed.

This, he tells me, has led to a “thermostat war” where he turns it down in an attempt to reduce the energy bill, but unnamed members of the Bayley clan turn it back up again.

“There is this war going on, but at least there is a war going on based on information,” he laughs. “Giving people information is the first step.”

These “first steps” are being made more than a year into the life of the Green Deal, after many false starts and stumbles along the way.

However, with evolutions of the scheme continually occurring (such as the clarifications around the private rented sector) and calls for further changes (such as greater flexibility to the golden rule) being made, maybe these steps are the first steps of Green Deal 2.0.