Every day we hear stories of how we, as a population, need to do something to heal the Earth. Whether that’s driving electric cars, reducing our meat intake, or making our homes greener – it’s at the tip of people’s tongue. With the severe impact of COVID-19, we’ve heard stories of how the water is clear in Venice, and in parts of India you can now see the Himalayas for the first time in 30 years, due to people staying at home.
Making homes greener is fundamental to helping the climate, and renewables have an important role to play in helping homes become net zero-carbon. Products like solar panels, heat pumps and battery storage can move a home towards net zero-carbon. But these products have a high initial investment and, more often than not, consumers need a facility to pay for the products – e.g. a loan or consumer credit.
Consumer credit was the main impetus behind the initial incredible growth in the renewable sector, and many installers enjoyed a business that gave up to 80% of their customers a solution to pay for their product(s) over 10 years. This negated the need for an upfront capital requirement from the customer and usually only required a nominal deposit. However, this all changed in 2015 with almost all finance lenders suddenly pulling out of the market.
Finance Lenders pull out in 2015 due to mis-selling of renewables
In 2015, finance lenders realised that funding renewables was greatly damaging their business (indeed, in 2018 Barclays Partner Finance reported that it was looking at a £38.5 million loss on its renewable book) and, one by one, all the major funders pulled out of this market. If you worked in any area of the industry at the time, you would know how shocked this left both installers and the general supply chain.
Generally, renewable customers represent a good credit risk, and, as long as they are installed correctly, renewable energy products tend to be long-lasting, generate savings and income, and help with carbon reduction. But alongside many good companies, there were plenty prepared to mis-sell to consumers, and whilst a poor installation can normally be rectified, a mis-sold product can usually only be remedied by unwinding the contract and putting the customer in the position that they were in prior to the installation. With many rogue traders having ceased to trade, this expensive solution falls to the lender, under Section 56 and 75 of the Consumer Credit Act 1974.
What is mis-selling in renewable energy markets?
We’ve witnessed a great variety of mis-selling, including exaggerated returns, perhaps due to using higher energy costs or unreasonable levels of inflation. Savings amounts can also be greatly embellished, whether by over-stating the amount of solar electricity a household can self-consume, or by adding in savings on additional products that cannot be proven or evidenced (such as voltage optimisers, diverting devices, smart technologies, etc.). Some consumers have claimed that they were told that their system would be ‘self-funding’ (i.e. that the income and savings would meet or exceed the monthly financial repayments). Sometimes the initial solar generation calculations have been incorrectly calculated, leading to incorrect financial returns.
And we’re currently seeing a lot of claims companies, as their PPI workload declines, pick up the mis-selling of renewables as their next big thing. But understanding whether a consumer has been mis-sold requires a great deal of understanding, and we are finding that a lot of the claims put forward are misplaced or misunderstood. Sometimes the consumer is even in a better position than their contractual paperwork estimated that they would be. Unfortunately, these spurious claims are slowing down the ability of the finance companies to deal with the genuine ones.
So why did this all happen and whose fault was it?
The finance lenders didn’t really have a choice but to pull out of providing consumer credit solutions, because they didn’t receive the protection they needed from bodies in the sector who were supposed to protect consumers. The policing and monitoring in the sector just wasn’t up to the standard it needed to be in order to ensure consumer safety and protection, so action needed to be taken.
Installers downsizing or ceasing their operation
One effect of finance lenders pulling out was that installers were faced with a choice: either downsize or cease trading. Finance facilities were removed from installers with little or no notice, and they had to react immediately. Changing a business model overnight is challenging. Some managed to do this by making redundancies and concentrating on less volume, but others had an infrastructure too large to downsize and had no alternative but to close their doors. We have seen over the last few years the number of installers ceasing to trade has been significant – you could say it was the installer’s inability to react that cost them their business, but can you imagine how DFS would cope if they couldn’t offer finance on sofas?
EPVS brings back finance lenders into the marketplace
Since this industry-changing event in 2015, the Energy Performance Validation Scheme (EPVS) has worked with finance lenders to give them the confidence to provide finance in the renewable sector. EPVS ensures that consumers buying on consumer credit receive accurate performance estimates and savings which protects them and the finance lender. Due to the unprecedented protection EPVS provides lenders, it has helped over £50 million worth of renewable products to be installed, which would probably not have happened without consumer credit.
Installers who want finance from EPVS’ lending panel, will need to be a member of EPVS. But installers get much more than a finance facility. They protect their operation by ensuring that they are compliant, reducing time spent on complaints, protecting reputational risk and enhancing any future business sale. Sales conversion rates increase, not just because consumers no longer have to find significant funding, but they also have the peace of mind offered by third-party validation of their performance estimates – they can even contact us to check their understanding.
EPVS is now working with a range of stakeholders to help homes achieve net zero-carbon status and help make consumer credit accessible to installers, consumers and the wider industry. We want to see the adoption of renewable products in a safe and controlled manner which protects consumers, supports installers and raises industry standards. Our ultimate vision is to help homes become greener and achieve net-zero carbon status.
For more information about EPVS visit www.epvs.co.uk
