Getting low carbon technology into people’s homes is one of the biggest challenges of moving to net zero. There are often high upfront costs, meaning fully funded upgrades will be essential for many on low incomes and many on middle incomes will need help subsidising the costs through grants. Those on higher incomes may be seen as more ‘able to pay’, and a lower priority for government support, but it’s important that they can access a broader range of finance options to reduce the upfront costs that are one of the biggest obstacles to decarbonising their homes.

What are subscription and third party ownership (TPO) models?

In our Low Carbon Finance (2023) survey we found that 47% of UK Homeowners were not interested in heat pumps and 30% were not interested in solar panels. Of these, 49% and 41% respectively felt that installing them would be too expensive.

Energy subscription and TPO schemes allow consumers to spread the upfront cost of installation over the long term, typically over 10 to 20 years. As well as spreading the cost, these subscription models provide a guarantee of ongoing maintenance and optimisation of the technology installed. Problems, particularly with heat pumps, can often be related to installation and maintenance issues, so this represents potential value for consumers.

Even in the relatively small number of schemes on the market, there is variation in terms and what they mean for consumers. In some cases, the consumer owns the product from day one and pays back the cost over time. In other cases, the product is ‘leased’, and the consumer pays a regular fee in exchange for use of the product, which they may or may not own at the end of the period.

Private finance has a role to play to meet Net Zero Targets. Energy Subscriptions / TPOs are just one example of Private Finance — alongside government-backed loans and other financial products, like green mortgages — that could help homeowners afford the costs of green home improvements. Although we don’t yet know what role Energy Subscriptions and TPOs will play in the transition to net zero, they will benefit from clear and fair regulation that can ensure value for money and protection for consumers. If these are not in place as the market grows, then their reputation with consumers, and commercial viability, may be damaged.

Beware of old wine in new bottles

Many consumers may be wary of TPO / Energy Subscription models thanks to the poor reputation of earlier comparable schemes, known as ‘rent-a-roof’ arrangements. These offered solar panels at no upfront cost in exchange for their feed-in tariffs. They were beset by problems, including legal issues when people came to sell their homes and consumers being let down by suppliers failing to maintain the equipment. Such schemes were marketed aggressively and, when they went wrong, have caused years of headaches for consumers.

Some Energy Subscription / TPO providers have learnt from previous failures, with more transparent ownership structures and clearer terms around how consumers can exit a contract. But even where lessons have been learnt, it’s possible that branding these models as ‘subscriptions’ risks misleading consumers, given their association with flexibility. It’s important that models offer consumers clarity about what they’re signing up for.

Subscriptions for everything

It’s not surprising that subscription models have come for renewable technologies. The market for subscriptions has expanded significantly since the start of the COVID-19 pandemic, although it has retreated in the face of increased pressure on monthly outgoings since the onset of the cost of living crisis.

The Home Upgrade Commission recently published findings on consumer views on upgrading their homes. This emphasised upfront cost as a key barrier, while also highlighting the uneasiness that many people felt around taking on debt. Subscription models were seen as appealing, as they allow consumers to reduce the upfront cost of home upgrades without the negative associations of consumer debt.

Subscriptions aren’t without drawbacks. Research from Citizens Advice found that, in 2023, consumers in the UK lost over half a billion pounds to ‘subscription traps’ with uncancelled free trials rolling over into full subscriptions, or confusing cancellation requirements causing customers to lose out. Whilst these problems persist across the sector, they also highlight a key aspect of the subscription model, which is that they are typically products that the consumer can cancel at their convenience. With Energy Subscriptions, this is rarely the case.

When a subscription is not a subscription

The lack of flexibility offered by energy subscriptions is not a problem in itself, and new financing models are an important part of the journey to net zero. But it’s important that they are understood by consumers and as this market develops it may be that we need new, clearer terminology to help consumers understand what they’re signing up for.

With the terms of the subscriptions running for 10, or even 20 years, servicing and maintenance are important to ensure consumers aren’t left paying for broken or faulty tech. Bundling together financing, maintenance and installation in a subscription model with one point of contact could help with this, but adding this service to the monthly charge means consumers could end up paying much more over the life of the product than the cost of the goods themselves. There needs to be clarity for consumers around where the money is going, and how much of their subscription is covering the installation versus any ongoing charges for maintenance.

Driving uptake, protecting consumers

With the Government being keen to drive uptake of green home technologies, and Energy Subscription / TPO models offering a way to get them into people’s homes at low upfront cost, we may see a lot more of these finance products in coming years. To avoid repeating earlier mistakes it’s important that consumers are informed about the terms of the commitment they are taking on and that appropriate protections are in place for the lifetime of the contracts. This is particularly important with heat pumps, where the consequences of being unable to heat your home must be avoided.

Making sure all arrangements are covered by existing regulations or guarantees provided by bodies such as the FCA and MCS will be the first step to ensuring everyone benefits from these new ways of financing home energy technologies. Given the risk to consumers taking on any finance product, particularly one that provides warmth and comfort to their homes, robust and clear affordability eligibility criteria must apply. Though we have seen positive signs in this regard, this must apply to all providers, particularly where models are scaled up to wider markets including the Private Rental and Social Housing sectors.

Looking ahead, we will be conducting further research with consumers to define the principles of consumer protection for these models, which must happen for these models to be workable in the long term. Evident in the design of some models is effort to learn from the mistakes of the past and we have spoken to market participants who have put detailed thought into preventing consumer detriment. We welcome examples of best practice and value the input of Energy Subscription / TPO providers.

Ioan Williams and Edward Pemberton