The Scottish Low Carbon Investment Conference

Are we ready for the Green Deal to start as planned in January 2013?

Yes, we are motoring along! The Department of Energy and Climate Change (DECC) gave The Green Deal Finance Company (TGDFC) a loan of £7 million in August and that was a significant landmark. This will allow TGDFC to carry out two key functions – first, to competitively outsource the loans administration of the Green Deal so its cost – which is all wrapped up in the Green Deal interest rate - can be at the lowest cost possible. The Green Deal involves a complex set of interrelationships between providers, energy suppliers and TGDFC and our loans admin function must be able to book loans and record their repayment as people pay their energy bills.

Secondly, the DECC loan will allow us to develop the detail of the finance structure, so we can get a credit rating which underpins our ability to raise low-cost bonds and push down the cost of finance, ultimately to the benefit of households.

We are progressing well and on track to be operationally and financially ready for the beginning of 2013.

What was the rationale behind the creation of The Green Deal Finance Company?

It is designed to be a not-for-profit company limited by guarantee, involving the private and public sector, but created by a market-driven consortium. We started with 16 companies and we have now expanded it to more than 50 across the whole market - from energy suppliers, large and small contractors, industry organisations and critically, an increasing number of local authorities. The local authorities are crucial in driving demand and raising awareness of the Green Deal across the country.

The rationale of TGDFC is to create a company to raise finance at as low a cost as possible for the Green Deal. The cost of setting up the loans administration capability to administer the Green Deal is high given its complexity, so TGDFC is designed to do this just once, centrally, for the whole market, so the cost to the Green Deal (which is hidden in the interest cost) is low. And TGDFC is a vehicle which will aggregate Green Deals at a national level, meaning it can quickly and regularly raise low cost bonds to finance those Green Deals. This low cost finance is critical to maximise the measures that are affordable under the Green Deal's 'Golden Rule' – ie that the measures can be paid for from the savings in household energy bills.

What is the role of PwC in a not-for-profit organisation like this?

We are advisers to TGDFC and have played a significant role in putting The Green Deal Finance Company together. We took the initiative to assemble the original members in TGDFC because it was the obvious solution to how to best access low-cost finance to underpin the Green Deal. The success of TGDFC will mean that all Green Deal Providers will be able to access finance, which will no longer be a barrier to entry to the market.

What are the major challenges ahead?

The biggest challenge was probably agreeing the initial funding for The Green Deal Finance Company. Now the launch of the Green Deal is looming large and there is a lot to do. And if people haven't noticed, the Green Deal is quite complex and a number of issues inter-relate. So the biggest challenge going forward is the future workload and ensuring that at the detailed level the Green Deal is going to work. For instance, will the loans administration be structured in a way that allows us to raise low cost long term bond finance?

What will the role of the Green Investment Bank be?

The GIB has already been very supportive of TGDFC alongside DECC. Obviously it is an arm's length bank and needs to look at every deal on its own merits, but the current intention is that it could lend up to £300m to The Green Deal Finance Company together with private sector financiers as the initial finance available to fund Green Deals. But it will not just disappear after six months - it will also be a long-term lender, a bedrock financier, who will exit when the market is proven. The GIB is therefore a critical catalyst to getting TGDFC started.

Will the Green Deal be attractive to more traditional investors after the early phase?

Yes. Although The Green Deal Finance Company is not for profit and will not have the classic shareholder model, the capital structure will need senior bonds and also some more junior finance to make that whole structure work. Certain investors might be interested in this energy efficiency space - pension funds and sovereign funds will be most welcome. I would like some of them at the outset, which is possible as long as we structure everything prudently. As the Green Deal becomes more successful, we will suck in more and more long term private sector capital.

What happens in 2013 if all goes to plan?

When the Green Deal goes live on 28th January, providers can come to us and say they would like to book a loan. We will process those applications and indicate interest rates. The market will start transacting Green Deal plans in early February and work could be going on as early as February - so contractors will come to us for payment in March.

How important is quality assurance for the Green Deal?

It is very important. The more we can be seen as a proper high-quality industry, the better. This will drive customer confidence, demand and attract lower cost finance.

Can the collaborative model of The Green Deal Finance Company be used in other situations?

It's a very god model for collaboration between companies who would normally be competing. Slightly strangely, our collaboration will underpin a market where all of our providers will be competing against each other.

How do you see the Green Deal in a year's time?

I hope The Green Deal Finance Company is funding a lot of Green Deal plans, supported by a range of Green Deal Providers who have been enabled to compete by the finance available. I want to see a growing order book and a growing balance sheet.

And that competition will drive down costs to the benefit of households and in particular to the fuel poor who may not take out Green Deals, but will benefit from a competitive and successful market.

I am optimistic about the future of the Green Deal, particularly if embraced and encouraged or even enforced by local authorities, for instance through council taxes or planning permission conditions. I believe that the Green Deal has a chance to really transform the UK housing stock and allow us collectively to make a massive reduction in carbon emissions – at no cost to the household. That is how I would really define success in the long-term.