Zero Carbon, Zero Cash

Everyone has zero carbon on their agenda but how do you fund it? In this blog we will take you through what options are available to consider.

Posted on Dec 14, 2021

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With UK Government enshrining - in law - a new target to cut carbon emissions by 78% by 2035, the UK is on a pathway for major change in the way its energy is both generated and used.

The majority of public bodies in the UK have already made their own commitments to be zero carbon or net zero, most commonly by 2030, so it’s clear that the race to zero carbon is well and truly on at the local, national, and international level.

For those of us who have been working to reduce energy use and carbon emissions for many years now, we are thrilled and excited by the latest, lofty ambitions. We are also acutely aware of the ginormous scale of the challenge ahead. There are of course many actions that public bodies can, and are already taking, to reduce their own emissions.

Whether that’s building their own solar farms, using electric vehicles, installing LED lighting, or even moving to fewer and/or more efficient buildings better monitoring, it’s clear that there is a wide range options there to be taken. In some cases, an overall strategy including these measures can demonstrate a positive financial return on investment over a relatively small number of years. For others, however, there is no getting away from the fact that a massive investment is needed with limited return on that investment, especially when considered in purely internal financial terms.

So…where will the money come from?

For 15 years or so, the most reliable source of funding support for many were Salix loans.

While the schemes differed slightly between different public sectors, the basic premise was that Salix (a body created by government) would provide interest free loans to cover the capital cost of energy saving projects.

The projects delivered cash savings for the public body, and part of those savings were used to repay the loan. The money recirculated, funding more projects and delivering more savings. For those who used the scheme it was a real benefit, whether for upgrading heating controls in a primary school or multi-million pound County-wide installation of LED streetlights.

But change is upon us.

In 2020, partly as a response to Covid-19 and partly a need to kick start parts of the economy, government announced the £1bn Public Sector Decarbonisation Scheme (PSDS). Rather than loans that need to be repaid PSDS is based entirely on grants to any project which meets the criteria and got bids in quickly enough.

To give an idea of scale, the £1bn that was offered in phase 1 of PSDS is about the same as the total Salix had loaned in the previous 15 years. PSDS 2 followed soon after but with a significantly smaller pot at £75M, and there were changes to the scheme criteria.

The new criteria strongly favours projects switching from gas and oil heating fuels, and no longer supports projects which look to actively save electricity such as LED lighting or rooftop solar.

While many criticised aspects of PSDS, the scale of funding provided - and the speed at which it was processed - were unprecedented.

PSDS undoubtedly caused a step change in work for those businesses delivering the projects as well as the in-house teams bidding for money. However, the sting in the tail here is that from the 1st April, Salix loans have been ended.

PSDS 1 & 2 are now closed; so, what comes next?

We approached both Salix and BEIS with questions about why the loan schemes have ended and what comes next, but little is clear other than certain decisions were made at ministerial level and that if plans have been made for more PSDS or other new schemes, those plans are not yet at a stage where details can be shared.

With COP26 coming up and Government’s growing ambition, our guess is that there will be further rounds of PSDS, but when they will arrive is just pure speculation.

Many of our customers will currently be focussed on delivering new projects under PSDS funding they’ve received with short timescales. But all bodies will need further funding to take them to net-zero, and with the added impact of Covid-19, internal finances are very, very tight.

So, what can we in the public sector do to take some control of funding and be as prepared as we can looking ahead? The following might be a good approach:-

Get a high-level plan or roadmap in place.

This should cover the key actions the organisation will take and outlines potential investment required.

This high-level roadmap can be used to make stakeholders throughout the organisation aware of what’s coming and finance colleagues and Members aware of the kind of investment needed.

We are supporting a number of public bodies in producing their roadmaps ‘Carbon Descent Plan’, one of which was recently published by Tunbridge Wells Borough Council.

Build a business case for self-funding actions.

Some elements of the Carbon Descent Plan are likely to offer a more attractive return on investment, and be attractive as an internal investment, for example LED lighting or rooftop PV generate good financial as well as carbon savings.

These elements should be prioritised as the sooner they happen the quicker they pay for themselves and free up money to re-invest in more carbon reduction.

Also using genuine renewable electricity, such as via a Power Purchase Agreement may have minimal additional cost but make a big impact on emissions.

Be prepared for external funding opportunities.

Experience has shown that grant schemes have short windows and in the case of PSDS became oversubscribed before the window even closed.

Being prepared to bid gives you the best opportunity to get to the front of the bidding queue.

That early preparation means getting outline plans produced, sites surveyed, costings and energy savings calculated, plus a clear idea of how you’ll procure the project delivery.

What's your next step?

Our team are here to help you whatever stage of your zero carbon journey you're at. If you have any questions please get in touch with us below.

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