Chris Huhne unveils 'green deal' to insulate homes

Huhne unveiled details in parliament of the coalition's flagship energy and climate policy, the "green deal", under which 14m homes could be fitted with insulation and other energy-saving measures, in a move that the government hopes will create 65,000 new jobs and help millions of people out of fuel poverty. Housholders will be able to take out loans of up to £10,000 over a 25-year term, and in some circumstances will be able to borrow more. People taking up the deal will be offered up to £150 cashback, in order to encourage participation.

"The green deal is about putting energy consumers back in control of their bills and banishing Britain's draughty homes to the history books," Huhne said. "By stimulating billions of pounds of private-sector investment, the green deal will revolutionise the way that we keep our homes warm, making them cosier, more efficient and all at no upfront cost."

Households will be offered loans to install the energy-saving measures, which will be paid off over years by small additions to their energy bills. Those additions will be outweighed by the cost savings from needing less energy.

The scheme will be paid for in part by energy companies, which must contribute £1.3bn a year to ensure as many households as possible benefit. By the end of the decade, the government estimates that private sector companies will have invested £14bn in the scheme.

But some energy experts are concerned that Huhne's plan will be ineffective, because of the costs and the difficulties of persuading householders to take up the offer. According to a study by the Green Alliance thinktank, the loans to households would need to be well below commercial levels in order to give a reasonable payback – but businesses are unlikely to want to offer loans at such low rates. Plus, one of the key reasons why people do not install cash-saving insulation and other efficiency measures is not cost but the "hassle factor" – the fuss of having builders in.

Richard Lloyd, executive director at Which?, said: "It's difficult to see how hard-pressed homeowners will have confidence in how the 'green deal' might work for them if the suggested savings are initially based on averages rather than on their personal energy use.

"The 'golden rule' was supposed to reassure people that green deal repayments would not exceed the savings made on energy bills. But if this is based on average figures then it could be meaningless for many.

"The government estimates that average household energy bills will be 7% lower than they would have been by 2020 because of new energy and climate polices. But this is based on the big assumption that schemes like green deal will appeal to consumers. If take-up is lower than expected, energy bills will be pushed up even further."

The "big six" energy suppliers will be heavily involved in the green deal, but ministers are also hoping for a wide range of other companies – from the big retail chains to small building firms – to take part when the scheme comes into effect late in 2012. There will also be safeguards against "cowboy" builders, in the form of government-set standards for the work.

Huhne said: "The green deal is a massive business opportunity for firms up and down Britain, helping to power the economy and creating jobs. From one man bands and local authorities, to the big supermarkets and DIY stores, we want as many providers getting involved as possible because that's what will give consumers the best deal."

Audrey Gallacher, Consumer Focus director of energy, said she welcomed the green deal if consumers were given adequate protection. But she warned: "Proposals still need to provide more detail on how the government plans to help households in fuel poverty. A well-designed energy company obligation (ECO) that focuses initially on low income consumers would help the government meet both its fuel poverty and carbon targets.