Scottish Government

Potential for loans for carbon saving measures in Scottish homes

Experience from other countries

Background

The Scottish Government is seeking to facilitate a step change in energy efficiency and renewable energy in order to meet challenging carbon reduction targets. Given that more than a quarter of total carbon emission are from homes, it is clear that very significant investment in homes will be needed to achieve the 80% cut in emissions across the economy required by Scotland's Climate Change Bill. Whilst there is some prospect of continuing public investment in social housing, the majority of homes are privately owned or rented from private sector landlords. The energy efficiency of Scotland's housing has been improving year on year, however, the scale of likely investment in these sectors needed to achieve major reductions in emissions, will be in the billions of pounds. Direct government assistance for the whole of this amount will therefore not be affordable, and much of the investment is likely to have to come from homeowners and private sector landlords. However, such investment is not yet happening on the required scale and the Scottish Government therefore needs to consider how it might stimulate and support the necessary investment. Other nations in Europe and further afield are confronting similar policy issues and one approach that has been adopted has been subsidised loan schemes for energy efficiency and other carbon-saving measures in the domestic sector. Such schemes are potentially very efficient, stimulating highly leveraged investment by the homeowner or landlord for a low investment by the government.

The Scottish Government wishes to explore whether such domestic loan schemes have any potential in Scotland and as part of this exploration has asked EST to provide an overview of national and international experience in this area. This paper therefore reviews some small-scale domestic energy efficiency loan schemes in Scotland, considers the current state of provision within the UK and also explores some examples of loan finance for domestic energy efficiency in Germany, Spain, Portugal and Canada.

Past provision within Scotland

Between 2002 and 2006 a number of small energy efficiency loan schemes for householders in different parts of the country were funded by the Scottish Government through EST. These were delivered through the EST-managed Energy Efficiency Advice Centre (EEAC) network. The eligibility, amount and terms of loans provided varied. Some had both a grant component and a loan, others were loan only; loans were typically at a zero rate of interest and were always unsecured. Measures covered ranged from basic insulation measures to new heating systems. Each scheme only operated in a limited geographical area, usually a particular local authority area, with schemes in areas as diverse as Orkney and Ayrshire. Loan numbers delivered were high tens to low hundreds per scheme and some 700 loans were given out in total across all schemes. Schemes were typically popular, successful and oversubscribed; levels of bad debt were extremely low. This was generally attributed by scheme operators to careful assessment of loan applicants by the Energy Efficiency Advice Centres.

This evidence of demand for loans as a route to funding energy efficiency improvements in the home led in 2005 to EST commissioning a study by AEA Technology on the feasibility of a Scotland-wide loan scheme. The reasoning was that a single Scotland-wide scheme could be more cost-effective because of economies of scale, could incorporate the most successful components of the various existing schemes and would ensure equal provision across the country. This study found no major barriers to such a scheme and reaction from a variety of stakeholders was very largely positive. However, at the time of this study wider policy issues meant that no national scheme was developed.

Current carbon-saving loan provision within the United Kingdom

We are not aware of any large-scale schemes operating in the UK with public sector funds.

A review of the commercial lending market within the UK by EST has shown that at the time of writing:

• There are no unsecured loan products specifically targeted at energy efficiency.

• A number of lenders offer green mortgages or further advances which are secured against housing assets. Some of these products offer a financial incentive, such as no arrangement fee, or a discounted interest rate for varying periods. Some are linked to specific carbon saving measures, for example the Ulster Bank's solar mortgage which offers 50% off the bank's standard variable rate for the first three years for those taking out a mortgage and installing solar photovoltaic technology on their property. Most of the institutions offering these products are small organisations with a low profile. The main exception, HBOS, has announced two green mortgage products but is not actively promoting them.

Overall, there is no significant loan infrastructure in the UK or Scotland targeted on financing carbon saving measures. Unsecured loan provision is absent whilst for secured loans there is no widely available, actively promoted mainstream product.

A final point for consideration, however, is that whilst there may be little or no loan infrastructure targeted on carbon saving measures, there are of course a large number of general purpose loan products which can be used to finance carbon-saving measures. It might be suggested that there is no need for anything else, as many carbon-saving measures, especially energy efficiency measures, are very cost -effective. However, people do not always act as rational economic beings. Take-up of cost-effective measures remains relatively sluggish in Scotland and the UK except where specifically stimulated by direct or indirect subsidies such as government grants or fuel company subsidies under the Carbon Emissions Reduction Target (CERT). It is known that even relatively small cash rebates or other subsidies greatly stimulate installation rates for carbon-saving measures. On this basis a subsidised, well publicised loan product targeted specifically on carbon is likely to lead to a step change in uptake of measures; this has certainly been the experience in Germany (see below).

Current energy efficiency loan provision in other countries

Our work has focused on provision in Germany as the best-known example of finance for increasing energy efficiency in housing. However, there are also significant scale schemes in Spain, Portugal and Canada

Germany

Background

The German residential sector accounts for 40% of final energy demand of which 85% is used for domestic heating and hot water. Of Germany's 39m residential dwellings, 74% were built before 1979. As a result of this age profile, approximately 50% of German homes will need major refurbishments in the next 20 years and the German government views it as essential that energy efficiency improvements be integrated into these refurbishments

Germany also has a relatively small proportion, 14.4%, of its housing stock in public ownership compared with Scotland where 26% of the stock is publicly owned. As a result, German efforts to improve energy efficiency in the housing sector have focused on the private sector.

The combination of a need to invest in refurbishment of the stock over the next 20 years and the fact that the scale of private ownership means that most of this investment must be by homeowners and private landlords has led to a concentration on loan funding to motivate and assist the private sector in including energy efficiency and other carbon-saving measures in such investment. As German private sector landlords invest in property on a long-term basis and homeowners in Germany tend to stay in their home for a long time, long-term loan finance is attractive.

Support for energy efficient housing

The German government supports a range of loan-based programmes to achieve housing, employment and carbon reduction objectives, these are the Ecological Construction programme, the CO2 Building Rehabilitation programme and the Housing Modernisation programme (Standard and Eco Plus levels). Although the different funds have a number of differing objectives they all make secured loans characterised by generous financial terms. Loan periods are long, at up to 30 years. Interest rates are subsidised, and fixed for a certain period, typically 5-10 years with a grace period before repayments start. There are repayment bonuses for higher levels of energy efficiency achieved as a result of loan expenditure. Loans can be repaid fully or partially at any time at no extra cost to the borrower.

Loans can be for up to 100% of the cost of measures up to a maximum of £38,000 per dwelling. Interest rate subsidies are greatest for measures which save the most carbon.

Loan Programmes

The main programmes are:

For new build:

The Ecological Construction Programme which provides intensive support for carbon-saving measures in new build, e.g. low energy houses, passive houses, renewable energy systems in new build.

For existing buildings:

The Housing Modernisation Programme which finances a range of improvements to houses, including a specific stream of funding for energy efficiency investments such as thermal insulation, renewable heating systems etc.

The CO2 building rehabilitation programme which finances:

• predefined packages of CO2 reduction measures which will reduce emissions from existing stock to close to the level regulated for new build
• additional measures which will take existing stock to or below the new-build mandatory level.

Typical loans sizes tend to vary by programme. Figures received from KfW indicate average loans sizes as follows:

• Eco Plus - £9.6k,
• CO2 rehabilitation programme - £18.8k
• Ecological construction programme - £34k

Finally, it should be noted that there is also grant support available under the CO2 rehabilitation programme, this is restricted to home owners, relatively limited at a maximum level of 17.5% and cannot be combined with loans

Eligibility for receiving loans

Home owners, individuals who own property for rent and private sector housing rental businesses are all eligible for loans under the above programmes, with the large majority of loans going to private householders but significant funding also going to private sector landlords. (There is a separate, parallel scheme by which KfW lends directly to municipalities and other owners of public housing)

Eligible measures

A wide range of measures are eligible for loan support, including:

· wall and roof insulation

· modernisation of conventional heating systems

· heat pumps

· solar thermal systems

· biogas systems

· automatically fed biomass systems

· connections to local district heating

· domestic CHP and fuel cell applications

Delivery vehicle

These programmes are all delivered through a reconstruction bank, the KfW Banking Group. This state-owned bank, founded in 1948. is wholly publicly owned, with the federal government of Germany owning 80% and the remaining 20% owned by the various German federal states. KfW raises capital in the capital markets and then makes it available to commercial bank partners at rates subsidised by the German government; KfW is required to take a neutral view of the commercial lending market and work with any qualifying commercial bank which wishes to participate in the scheme.

These commercial bank partners carry out credit and eligibility checks on a loan applicant and agree security for a loan; this security is normally property. The commercial bank then borrows the funding from KfW to make the loan and assumes the credit risk and responsibility for monitoring that the loan has been used for the agreed purpose. An interest rate spread of 0.75% between the rate charged to customers and the rate charged by KfW for funds covers their credit risk and handling costs.

These are large-scale programmes and demand for them is very high and increasing: during the first six months of this year KfW committed the following capital:

• Eco Plus - £467m,
• CO2 rehabilitation programme - £1.3bn
• Ecological construction programme - £1.25bn

with number of loans per year running at more than 220,000.

Total funds disbursed by KfW since 1990 amount to £26 billion, which has financed measures in 2.7 million homes.

Such large scale programmes require large-scale government support for the interest rate subsidy. From 2006 to 2008, at least £0.78 billion has been made available annually through German federal government funds, it has been announced that this level of support will be extended to 2011.

Impact

These programmes, which have been running since 1990 in various forms, have had a significant impact on carbon efficiency. Overall there has been a significant improvement in the building stock with CO2 reductions of 13% (16mtC) from the sector achieved between 1990-2005, more than 10% (1.6mtC) of this in 2006-7 alone. Renewables currently account for about 6% of the energy used for heating buildings.

KfW also estimate that in 2006-7 the programmes generated or safeguarded about 318,000 jobs for at least one year; the employment benefits of the programme underpin political support for its funding.

Spain

The Institute for Energy Saving and Diversification (IDAE) is a public business entity attached to the Ministry of Industry and Energy. In helping to assist the delivery of the Spanish Renewable Energy Plan 2005-2010 (REP) IDAE operates a number of schemes for different sectors and end users, covering both grant/subsidy schemes, a short term deposit programme (2 years) and a recently initiated loan scheme.

This Renewable Energy Projects Loan Programme was introduced in 2008. It is open to individuals, SMEs, local authorities, public and private organisations (except large corporations). Loan finance is available for up to 100% of the investment costs up to a maximum value of £1.2m. The loan repayments are amortised over an eleven year period which also includes a one year repayment holiday. Interest rates are capped at 0.3% above Euribor rate with an initial 0.3% opening fee: for comparison normal Spanish mortgage rates are 0.5-1% above Euribor. The scheme funds PV, CHP up to 2MW, biomass up to 3MW and solar thermal with a capacity greater than 20kW only.

A bank guarantee, which implies security, is required for these loans; for loans of up to £94,000, this is required for 50% of the loan, for larger loans it may be greater.

Portugal

The Portuguese government has, as part of its Energy Efficiency Action Plan 2015, set up the Efficiency Credit scheme. This scheme, set up in 2008, offers personal low interest rate finance for households installing a variety of low-carbon measures. Loans need not be secured, but the interest rate on secured loans is half that for unsecured loans. The scheme is delivered through a number of banks with the Portuguese government supplying funds for interest subsidy.

Canada

Loans from a power company

The power supplier Manitoba Hydro is owned by the Manitoba provincial government and this public ownership is reflected in a strong emphasis on demand reduction. Manitoba Hydro offers two different loan schemes to its customers who are home owners:

• Energy efficiency - the Power Smart Residential Loan Programme

Loans are of between £250 and £3750 are available, the maximum term of the loan is 5 years and the interest rate is fixed at 6.5%, slightly less than 5 year fixed term mortgage rates which are currently c. 7%. The loan can be used to help meet the installation costs of insulation, glazing improvements, boiler replacements and heating controls. Such upgrades must be made to levels recommended by Manitoba Hydro. The loan is made by the energy supplier and repayments are included in the monthly fuel bill. To date, since this scheme started in 2001, 41,000 loans have been made with a capital value of more than £75M. Of this the majority, £44M has been used to install energy efficient windows and doors, another substantial proportion, £27M has been spent to upgrade to high efficiency boilers and £4M has been spent on insulation, ventilation and draft-proofing. Demand is increasing, with £18M lent in 2007. Average loan value is c £1850 and loan value has been increasing over the years as homeowners increase the value of their energy efficiency projects.

• Heat Pumps - the Residential Earth Power Loan

Loans are of up to £10,000 are available, the maximum term of the loan is 15 years and the interest rate is fixed at 4.95% for 5 years, a significant reduction. The loan can be used to install ground source heat pumps, air source heat pumps do not qualify. Heat pumps installed must be designed and installed by a certified contractor and meet relevant Canadian standards.

Again, the loan is made by the energy supplier and repayments are included in the monthly fuel bill. Since this scheme started in 2002, 750 loans have been made with a capital value of more than £5.5M.

Although these are loans in the financial sense, these schemes are conceptually similar to domestic energy services agreements

Green mortgages

The TD Canada Trust Bank has two green mortgage products which offer a 1% discount on a five year fixed rate loan. A further cash rebate of up to 1% of the loan value can be claimed against the cost of a home energy assessment and the purchase of Energy Star-rated energy efficient products including:

• major appliances
• heating and cooling equipment and controls
• windows doors and skylights.

Homeowners who sign up for these products also qualify for a 10% rebate on mortgage protection insurance.

Overall picture

The overall picture in other countries is patchy, what is noticeable is that there are relatively few examples of a loan approach and that all those identified are delivered through the public rather than private sector. Although loan schemes are not widespread, the examples of Germany and, to a lesser extent, Manitoba show that such schemes can make a large scale impact.

Options for the Scottish Government to ensure energy efficiency loan provision in Scotland

No action

One option is to leave it to the market to provide loans for this purpose, although clearly this has not yet happened, with those loan schemes identified here almost exclusively delivered through the public sector. It is obviously difficult to predict how such a varied and complex market as that for loans may develop. There is a possibility that the high public profile of energy efficiency issues, strengthening regulation, for example the introduction of Energy Performance Certificates and ever higher energy bills may stimulate development by the private sector of additional products in this area.

However, against this, the current turbulence in global financial markets affecting both the liquidity of banks and the availability of credit is likely to mean that lenders will seek to reduce the number of new financial products on offer and revert to a limited number of tried and tested products.

Another possibility might be that fuel suppliers operating in Scotland introduce demand reduction schemes similar to that operated by Maitoba Hydro. However, this energy services approach has been on the horizon in the UK for several years now and has not yet actually materialised.

On balance, without stimulating action from the Scottish Government there is unlikely to be effective provision in this area in the short and medium term, although over a longer period there remains considerable potential for growth.

Options for action by the Scottish Government

Making direct loans using Scottish Government funds

The simplest option for the Scottish Government would be to put in place a loan fund of their own using their own money. This fund could then make loans to householders at below market rates for carbon-saving measures. In effect this would be a national variant of the successful local loan schemes in Scotland which are described earlier. Administration of loans could be carried out by a third party under contract. Banks and other financial institutions, which of course already have very cost-effective systems for retail loan administration in place, are obvious potential contractors but a number of other options also exist e.g. the proposed National Lending Unit or consumer facing organisations such as Citizens Advice Bureau or Energy Saving Trust.

This is an option which could be put in place but would require a period of development and investigation given that capital requirements would be very significant for any reasonable level of demand and might well outstrip the ability of the Scottish Government to supply them, given the many other demands on its funds.

Making loans using borrowed capital

An alternative is to adopt broadly the same approach but to raise capital on the commercial markets for the loan fund and lend this on at a subsidised interest rate to loan customers. Again, administration could be contracted to the National Lending Unit or another third party.

A variant of this would be to adopt the KfW model and loan the capital raised to partner financial institutions who then handle the individual loans.

The key advantage of this approach would be that any constraints on the Scottish Government's ability to supply capital for large-scale take-up of the scheme would be removed. However, Scottish Government routes to raising capital in the commercial markets are limited, complex and uncertain and it is not clear that this is currently a viable option.

Making loans using third party capital via a contract bundling capital supply and loan administration

This is broadly similar to the previous option but instead of raising capital itself the Scottish Government could contract a financial institution to deliver the entire system, with the contracted institution supplying capital and undertaking loan administration. The Scottish Government would pay an administration fee and subsidise the rate of interest on the capital employed so that retail loans to customers borrowing to save carbon would be below market interest rates. This option is simple in concept and execution, and again means that loan volumes would not be limited by any constraints on the Scottish Government's ability to supply capital.

It has a further advantage in that it would allow banks to gain experience of this type of scheme; successful operation might well lead to them offering a similar loan product in their own right. Such an approach might thus offer an eventual exit route for the Scottish Government.

This option was actually explored by EST in some depth with the Co-operative bank in 2006; at the time they would have been willing in principle to supply up to £10M of capital on this basis. Current financial conditions mean that this particular offer is no longer on the table but they remain interested in the basic approach.

Working with fuel companies

It would be possible, in a variant of the above approach, to use fuel companies as the vehicle for loans. Essentially, this would mean following the Manitoba Hydro model but through a partnership with a fuel company or companies. In such a partnership the fuel company would either supply or raise the capital for loans and carry out administration. The Scottish Government would subsidise the interest rate on loans and fund the administration costs. In effect this is very similar to the previous option but involving a fuel company has certain potential advantages:

• It would allow fuel companies to gain experience of this type of scheme which could well form a very effective marketing tool for them. Successful operation might well lead to them taking on full responsibility for the scheme in their own right. Such a scheme might thus offer both a route to fuel companies at last providing an ESCO service and an eventual exit route for the Scottish Government.

• From the customer's point of view, it would be a very convenient offer. They would be dealing with a fuel supplier with whom they already had a relationship and no new payment arrangements would be required as loan repayments would be part of the overall fuel bill.

One drawback, however, might be that the costs of servicing the loan might be somewhat higher, as retail loans are not a core business skill set for fuel companies. However, any such premium is not likely to be very large and would reduce over time as experience is gained.

Other issues

Whatever approach might be adopted there are various issues which are common to all:

Retrofit and/or new build

The German system provides loans for both retrofit and new build and this would clearly also be possible in Scotland. However, it is suggested that loans should be confined to retrofit measures. The reason for this proposal is that building standards will enforce increasingly high carbon standards on new build properties and so incentives such as subsidised loans are not required. In terms of financing measures to meet these standards, their cost is passed on to purchasers and can already be efficiently financed through normal mortgage products.

In contrast, there are no regulatory instruments requiring carbon-saving measures to be retrofitted to existing homes and so there is a need for incentives. In addition, the carbon savings from loan financed measures will be greatest in existing homes. This is because existing homes are generally less energy efficient and have higher carbon emissions, and thus higher savings potential, than houses being built under current or forthcoming building regulations.

Links with CERT

Loan funds have the potential to be very efficiently combined with CERT funds. Normally Ofgem does not allow government funds to co-fund with fuel company funding under CERT. However, guidance from Ofgem is that government loan funding, even if at a subsidised interest rate, can be used to co-fund measures with CERT as ultimately most of the co-funding comes from the loan recipient as they repay the loan. This means that it would be possible to work up combined loan/grant schemes for measures such as solid wall insulation in conjunction with fuel companies, CERT providing the grant element and the rest of the cost to the client being met by a subsidised loan. Clearly, this is potentially a more attractive package to the client than a loan alone and would also reduce Scottish Government costs in any loan scheme.

This potential to combine loans and CERT funding would of course be facilitated if the loan was delivered via a fuel company and this may make this option potentially more attractive to the Scottish Government.

Secured v unsecured loans

One question that would need to be decided at an early stage is whether or not loans made should be secured or unsecured. This is largely a function of attitude to risk management and this in turn is influenced by the amount loaned and thus at risk. If we use the loan amounts from KfW as giving at least a ball-park range, then the average loan size would be in the £10K - £20K range. This is in line with the sorts of sums it is possible to borrow on an unsecured basis from a number of retail finance providers, including Tescos and other consumer-facing organisations. As secured loans are likely to present more psychological barriers to borrowers, from a promotional point of view it would be better to offer unsecured loans. Experience with the local schemes in Scotland described above was that loan defaults were at extremely low levels as a result of evaluation of applicants through EEACs as part of the overall loan package. It is envisaged that the new Energy Saving Scotland advice centres (ESSacs) would play a similar role in any new scheme (see below) and we believe that this would continue to keep default rates low enough that unsecured loans would present an acceptable level of risk.

Eligibility

Who?

Those eligible for loans should include both homeowners and private sector landlords. Other investment options, including public funds, are available for the social rented sector, which in any case has higher standards of energy efficiency than the private sector and is thus not the first target for loan support. Conversely, energy efficiency in the private rented sector in Scotland is below that of any other sector of the housing market and hence it would inappropriate to exclude it. However, it is recognised that private sector landlords which are businesses can already access loans administered through the Energy Saving Trust. The likelihood is that domestic scale loans such as are discussed here would form a further option for the quasi-domestic segment of the private rented sector; i.e. by individuals owning one or two properties which they rent out. The similar scale and needs of homeowners and of this sub- sector of the rental market make this appropriate

Which measures?

It is suggested that a wide range of measures should be eligible for loan funding, including both energy efficiency and renewables, following the German model. As homes are so individual, each needing a tailored package of measures to maximise carbon-saving, a narrower range of measures would limit the impact of the scheme. However, there should be strong presumption or requirement of expert advice to help homeowners choose the most-cost-effective measures for their home and this might be supplied through the home visit service currently delivered through the ESSac network (see below/above). Given that in any scheme supporting a wide range of measures there will be a range of costs per tonne of carbon saved depending on the measure, any scheme should also be structured to maximise carbon savings to enhance its cost-effectiveness. This could be done by enhanced financial incentives within the scheme, such as higher interest rate subsidies for homes reaching specified standards of primary energy demand or carbon emissions; again this follows the German approach. One possible customer-friendly mechanism for defining these packages might be by integrating loans with Energy Performance Certificate ratings, i.e. loans would be made on the basis of a specified improvement in EPC rating.

A further benefit of having a wide range of measures, including relatively novel and innovative renewable technologies, is that the loan funding then assists in driving market acceptance and transformation for these technologies. Discussions with KfW have indicated that this an important policy outcome of the German programmes.

Marketing

If the Scottish Government decides to develop a carbon-saving loan product then, whatever its form, there will be a need to market it. Here an appropriate piece of infrastructure is already in place. During the last year EST has upgraded the advice centre network which it manages for the Scottish Government. This network of Energy Saving Scotland advice centres (ESSacs) will now reach up to 250,000 Scottish households each year with individual tailored advice through telephone, email and web-based interactions. In addition a service based on home visits to customers interested in installing renewable and energy efficiency measures is delivered through the ESSacs to c 1000 clients per year, soon to be expanded to some 2000 clients annually.

Experience with the Scottish local loan schemes described above has shown that the previous EEAC network was a very effective marketing tool for carbon-saving loans. This is because EST and the advice network have considerable expertise in domestic carbon-saving measures, understand the consumer market for these measures and their advice is generally regarded by the public as independent and trusted.

Marketing any carbon saving loan product through the ESSacs would represent a truly integrated approach and would be more effective than other possible channels for the simple reason that ESSac clients are warm leads. They are already interested in saving carbon and are typically contacting the centre to find out what to do, what it would cost and if any financial assistance is available and so would be receptive to a loan offering. In addition, the centres are in a position to provide tailored advice on potential cost-effective measures, combined with a home visit if necessary. It is known from experience with previous local schemes that this level of interaction, based on understanding clients' needs and circumstances and providing objective advice leads to greater take -up of loans.

Importantly, this client-centred approach also allows the advice centres to advise people who are potential credit risks to take other, non-loan routes. This reduces loan default rates to very low levels, so helping keep overall loan costs down.

Likely level of take-up for loans

It is difficult to predict very precisely what the likely level of take-up in Scotland for domestic sector carbon-saving loans would be but two different lines of evidence suggested is likely to be significant.

• The experience of the Scottish local schemes was that they were generally oversubscribed. Although total numbers of loans under all the schemes was relatively low at 700, the population of the areas covered was only a fraction of the total Scottish population and marketing was restricted because funds for loans were limited.

• The experience of Manitoba Hydro where some 5000 loans per year have been made in a province with a population of 1M would imply some 26,000 loans annually in Scotland on a pro rata basis. The German experience would suggest 13,000 loans in Scotland per year on a pro rata basis. These estimates derived from existing schemes in two very different cultures and housing markets are nevertheless of the same order of magnitude, suggesting they might have some predictive value for Scotland. On the other hand, the Scottish housing market is distinct and the extent of read-across an unknown.

A final factor is current high fuel prices, which are obviously likely to stimulate take-up of loans, as the incentive to invest in saving carbon and reducing bills is greater.

Overall, it is probably fair to say that likely demand for domestic loans in Scotland is likely to be in at least the low thousands per year. Even this imprecise estimate has major financial implications, at an average loan value of only £10K (which is quite low compared to the German experience) this would require loan capital of tens of millions of pounds annually.

Ways forward

The evidence outlined in this paper suggest that loan schemes from the public sector can be effective in stimulating large-scale installation of domestic carbon-saving measures and would form a useful tool in the box for the Scottish Government in seeking significant carbon savings from the domestic sector.

Mike Thornton

Energy Saving Trust

112/2 Commercial Street,

Edinburgh EH6 6NF

0131 555 7901

mike.thornton@est.org.uk