DECC has recently published the latest statistics for Green Deal up to April 2014. With linear growth in Green Deal plans, are players still trying to find a product/ market fit?
What is the Green Deal?
The Green Deal is a government-sponsored initiative to give householders access to loans for improving energy efficiency of their homes.
Loans are subject to a ‘golden rule’ that means householders pay no more for the combinations of energy bills (i.e. electricity and gas), interest charges and loan repayment than they would have done without the home improvements. Loans are associated with the meter point and not the householder, so when the householder moves home, the loan stays behind for the new owner or tenant to pay.
The Green Deal is one element of DECC‘s policy on energy efficiency for householders.
Customer need
Improved energy efficiency is a major component of how the UK aims to reduce its emissions footprint and achieve its carbon targets.
The challenge, and the big win, is solving the retrofit problem.
The issue here is how to motivate householders to invest in energy efficiency measures. To date, rising energy bills, growing awareness about climate change, and political interventions have done little to drive behaviour change in householders. Much of the success in improving energy efficiency to date has been through obligations placed on the energy supply companies.
The Green Deal is an attempt to engage the majority of householders in investing to improve the energy efficiency of their homes, thereby reducing energy demand (and bills) and cutting emissions.
The market
This is a big potential market with the ONS reporting over 26 million UK households spending in 2012 around £32 billion a year on domestic energy and £4.5 billion on domestic appliances.
Globally, the energy efficiency retrofit problem is repeated across developed economies – North America, Japan and Europe are key markets.
With an addressable market in the UK of 26 million households, around 20,000 assessments are completed each month, i.e. less than 1% of the market is assessed each year. Of those, less than 2% are converted into confirmed Green Deal plans.
Opportunity
So far we have seen linear growth in Green Deal plans which suggests poor traction for the product on offer.
Having been live for around a year now, the Green Deal exhibits the chaotic and volatile behaviour we’d expect for a new venture.
Robust growth dynamic have yet to take hold – numbers of newly confirmed plans, plans newly being installed and newly live plans are all over the place. This suggests the players have yet to discover effective sales machines (for conversion from assessments) and execution machines (for moving plans smoothly between development stages).
There is an increasing stock of assessments not converted into Green Deal plans – what is happening to these assessments? Are players mining these for sales opportunities?
The stock of confirmed plans is growing steadily. Given under-utilisation of Green Deal Providers (on average, they each managed around 8 pre-live and 8 live plans in April) and Green Deal approved installers (less than 20 plans per 100 installers in April), why is there a bottleneck in moving plans from confirmed to being installed?
The number of plans being installed is flat’ish at around 500 (±100) each month. Does this represent a natural limit for installation? Or, when coupled with the growing stock of confirmed plans, is it poor operational performance?
Any reasonable view of the average workloads for Advisors, Providers and Installers suggests under-utilisation and over-supply. Of course, workload will be concentrated in a few players, with most being left with little or no work from the Green Deal. Is this picture right?
Is there an opportunity here for a new entrant with good marketing and operations?
What’s next
To explore opportunities in the Green Deal market further, contact The Venturing Firm for an initial meeting.
The Venturing Firm 