The Green Investment Bank and the Green Deal. Chris Morrison, Head of Commercial British Gas New Energy March 24 th, 2011

Transcription

1 The Green Investment Bank and the Green Deal Chris Morrison, Head of Commercial British Gas New Energy March 24 th, 2011

2 Contents 1. Why British Gas New Energy? 2. Policy background 3. British Gas Green Deal Go Early 4. British Gas Finance Propositions 5. Financing the Green Deal

3 Why British Gas New Energy? Our future energy system must look radically different from today. A mix of low carbon power generation providing secure, reliable electricity, with the UK taking a leadership position in tackling climate change. Homes and consumers that use energy more efficiently and in smarter ways, and where possible, generate their own. Market arrangements that maintain affordability, with measures in place to ensure the most vulnerable groups are supported. And energy efficiency being as important to energy companies as supply. Indeed as I see it, the old utility business model is dead. Sam Laidlaw, September 2010` Higher energy prices, strained household budgets and energy efficiency regulations will lead to a reduction in power and gas demand UK and EU government policy in the energy sector is focussed on decarbonising generation and reducing energy demand If we want to continue to grow British Gas we need to increase our capability in low carbon products and generate business from the move towards increased energy efficiency and renewables.

4 The policy landscape Feed in Tariff Introduced 1st April 2010 Solar PV, Wind Turbine, mchp Market has shown good growth since launch of FIT, but from a very low base Govt will announced FIT review in February 2011 which will make economics of larger commercial systems challenging Renewable Heat Incentive Expected July 2011 Solar Thermal, Heat Pumps, Biomass, Biomethane Residential installations will not receive tariffs until 2012 but receive a premium payment in Green Deal Expected late 2012 Allows householders to improve energy efficiency of property, without incurring upfront costs Mainly for energy efficiency, but including microgeneration would help deployment Energy Company Obligation CERT & CESP end Dec 2012 Continuing obligation of similar scale To be targeted at the most vulnerable customers and communities Also to support Solid Wall Insulation FIT, RHI and Green Deal all require financing solutions to support growth

5 The size of the challenge 4% emissions reductions p.a. is required from homes required to meet the UK carbon budgets 14m homes potential market by ,000-10,000 per home average cost 80bn cumulative market potential to 2020 Greater if microgeneration included Still to do: Uninsulated lofts ~10m Unfilled cavities ~7.5m Solid Walls ~9m G rated Boilers ~4m Complete insulation of all lofts and cavities by 2016 where practical All New Buildings Zero Carbon All Homes have Smart Meters All buildings have received all cost effective measures : Emissions from buildings close to zero All New Homes Zero Carbon 7m homes offered whole house packages by 2020 (run rate 1.8m p.a.)

6 What is the Green Deal? Government proposal for householders to get energy saving improvements made to their home which will reduce energy bills Marketed by central/local Gov t, energy retailers, others Property assessed for energy efficiency improvements Improvement is carried out at no upfront cost Costs repaid over up to 25 years via the regular energy bill Customers still allowed to switch energy retailer This is a radically different to any other previous scheme: Green Deal debt is attached to the property, not the individual Retailers will collect Green Deal payments as if they were for energy Wide range of measures insulation, heating, microgen Repayments on measures installed must meet the Government s Golden Rule : Energy bills AFTER Green Deal + Green Deal repayments < Energy bills BEFORE Green Deal Slide 6 British Gas 3/25/2011

7 The customer journey: A personalised Home Energy Plan Our homes are as individual as we are. Every home needs special treatment when it comes to energy efficiency. We can all save money on our bills and what works for one house might make no difference in the home next door. You need to know what would work for you. British Gas will help you do that Awareness: Marketing by government and providers; carrots and sticks Home Energy Survey: detailed survey of the home by accredited surveyor Home Energy Plan: roadmap report on how to reduce you energy use Customer decides on measures to take now (and what to do later) Detailed quotes for work Measures undertaken by accredited provider Second survey to assess works and update Home Energy Plan British Gas

8 We will launch a go early version of the Green Deal in Spring 2011 Our Go Early proposition will be introduced ahead of legislative and regulatory changes, due late We will work 2 3 We will learn about Must offer to owner within current the process, the occupiers with low consumer credit customer insight and default risk to keep regulatory working with interest rates low framework partners Free measures still available to vulnerable group through British Gas

9 What have we learnt so far? The core idea of saving money works well Mainstream consumers do not seem to like the green link People do not feel they need measures on offer, even if they want them Why are savings not guaranteed? The payback period is too long Loan and interest payments Key customer concerns Is my home suitable? What happens when I move house? Is there a charge for the survey? Some of these concerns can be addressed through better communication but others have more fundamental implications

10 Green Deal and ECO Green Deal should be available and attractive to the Fuel Poor Lowers energy bills Not credit checked finance available to all Resolves tenant / landlord issues Green Deal will lead to substantial reductions in energy, but not to bills Extra help required to take households out of Fuel Poverty There is a role for a continuing Supplier Obligation (SO)/ECO Areas of highest deprivation ECO is an attractive form of social welfare Very hard to treat properties Solid Wall Insulation The fuel poor may be under-heating their homes, so savings not large enough Address Fuel poverty as the key objective Aimed at the most vulnerable households and communities

11 Why are financed propositions important to British Gas? As we enter new growth markets and our product portfolio expands, there is a need to develop a coherent and consistent policy, structure and internal expertise to support financing offers across the British Gas product portfolio. There are a number of different sources of current business and potential future business with a requirement for financing high capital cost products as part of a compelling customer offer. Solar PV Boilers (including energy efficient boilers) Green Deal go early and Green Deal proper Renewable Heat Microgen (Biomass, Solar Thermal, Ground and Air Source Heat Pumps) Business Energy Services (ESCo) Electric Vehicles Smart Homes (Home Energy Management, Home hub technologies Overall Goal: To put in place financing propositions and structures which work for customer and investors and which we will ultimately be able to take off our Balance Sheet.

12 12 Example: British Gas financed solar PV British Gas offer all our customers a fully-funded solar PV option year Property Lease Agreement between New Energy Solar (tenant) and the property owner (landlord) Installation contract Operating and Maintenance contract Master Services Agreement Insurance (theft, damage, third-party liability) Feed-In-Tariff payments British Gas Install and Maintain GB Gas Holdings 1 New Energy Solar 1 Property Owner 6 5 British Gas 2 Insurer 1. GB Gas Holdings is the parent company of British Gas; 2. New Energy Solar can choose which energy supplier will pay the FIT

13 Green Deal Financing Structure 1 2 Installers carry out measures at no upfront cost; reclaims from Green Deal Fund Energy suppliers act as collection agents 1 Fully funded energy efficiency measures Installers Householders Energy Suppliers Deferred repayment through customer surcharge 3 Green Deal Fund warehouses Green Deal obligations prior to securitisation Installers reclaim funding for measures 2 Suppliers act as collection agents 4 Green Deal debt is securitised 3 Green Deal SPV warehouses deals Green Deal Fund Green Investment Bank Commercial Banks 4 Green Deal SPV funded through series of public securitisations Capital Markets Revolving short-term funding facility

14 Initial Ramp-up and collateralisation Structure Example Cashflows 200,000 households; 18 month ramp-up period; average installation of 5,000; total fund size 1bn Drawdown 1bn over 18m Homeowners Installers Energy Suppliers Green Deal customer surcharge paid quarterly from install completion date Green Deal payments start in month 3 and increase until month 18 when they level out Green Investment Bank m m 1,200 1, Quarterly payments into fund Quarterly Cummulative month Cumulative nominal size of fund Fund launches here at 18months Cumulative payments to this date provide level of overcollateralisation Green Deal Fund 3m libor+ Commercial Banks Banks provide funding for warehouse facility month

15 The Role of The Green Investment Bank in Green Deal Government support is needed to sponsor initial funding vehicle for Green Deal and underwrite policy risk Green Investment Bank would be an ideal vehicle Only 1bn of funding would be needed which could be recycled regularly as the Green Deal Fund issues bonds to the market The bringing forward of GIB launch to 2012 means the GIB will be available for the Green Deal launch The increase in initial funding to 3bn provides the capital required for this project and others