Energy Saving Trust: Delivering the Green Deal Ben Frier – Local Delivery Manager

What are we trying to finance? Return on investment over 25 year period with householder as the investor investing their own money Returns for energy efficiency Loft ~45% Cavity wall ~30% Solid wall, internal; 4-9% Solid wall, external; 0-3% Returns for solar PV FIT 6-8% index linked Previously proposed returns for RHI 6% solar thermal 12% other Whole house 5-7% 27 November, 2018

Role of Local Authorities Aligned Incentives De-risking Jobs Fuel Poverty CO2 reduction targets Landfill reduction Own estate contracts Social housing Marketing support Planning Waste contracts Convening power Project initiation Procurement Local initiatives (LEPs etc) Community leadership Project pipeline Scale Local Authority Revenue accounts Grants – UK and EU Prudential borrowing Credit enhancements Finance provision 27 November, 2018

Work with private sector LA Green Deal options Concept Going live Public Sector model Partnership with private sector (finance/ delivery) Public Private finance model Carbon proactive In-house model Marketing/ Facilitation role Retrofit Guarantee Fund Minimalist The Energy Saving Trust report identified five models for delivery Green Deal based on a local authorities proactivity around the Green Deal and the interest in working with the private sector Provide marketing support Outsource finance and delivery Leave to central government and the market In house Work with private sector

1. Leave it to the Market: Market view on financing the GD Energy suppliers and retail firms don’t want to finance the Green Deal off their balance sheets Balance sheets committed to other programmes High cost of capital of 8-10% Challenge of providing for fixed rates for 25 years Confidence needed in achieving scale in order to recover start up costs Confidence in delivery to existing consumer base The Green Deal is not well suited for retail banks and mortgage lenders Long term fixed rate finance not attractive High system start up costs 27 November, 2018

The Green Deal Finance Company PWC Banks Energy Companies Building firms Refinance programme GIB Banks £? Key Issues: Finance Will it be at scale? Will GIB finance? Will banks provide? What will be the cost of capital? Green Deal Providers What restrictions from banks? Access to ECO? What obligations to local jobs? What obligation to long term service? Householders What credit risk restrictions? Measures restrictions No solar PV or RH Operations Who will pay for set up? Who will operate? 2. Fund pays GDP 3. Pays fund over upto 25 years Green Deal Provider 1. Measures delivered to property

General promotion of the Green Deal market TGDFC Finance vehicle(s) GDP 1 GDP 2 GDP 3 GDP 4 etc Framework of approved GD providers which could be run by anchor authority or County for all District/ Boroughs Local authority broad marketing 27 November, 2018

General promotion of the GD market (2) TGDFC Finance vehicle(s) GDP 1 GDP 2 GDP 3 GDP 4 etc Borough 6 Borough 1 Borough 4 Borough 7 Borough 3 Borough 5 Borough 2 A variation in the model has authorities choosing a preferred Green Deal Provider for its area

Leave it to the market: General promoter Strength Weakness Dependency Passive approach; carries no financial risk Limited funding needed and no procurement costs required Need to be attractive areas in which GDPs will operate Does not take advantage of strong LA positioning No direct economic development opportunities or drivers for local jobs. Ability to attract ECO private sector providing necessary momentum with GDPs TGDFC or energy supplier/ retail led models Boroughs that find this model attractive will be happy to take on some risk in order to achieve some certainty around a large scale programme 27 November, 2018

2. LA as a marketer Finance vehicle(s) GDP 1 GDP 2 GDP 3 GDP 4 etc Marketing & Surveying Organisation Marketing for a panel of GDPs Referral fee TGDFC LA investment into own programme or third party vehicle 27 November, 2018

LA as marketer/facilitator Strength Weakness Dependency Set up of TGDFC or other finance vehicle Strong GDP network Straight forward framework to implement Capital investment limited to start up costs Can be repeated and a number of local authorities could work in concert Low balance sheet issues Limited scope for broader outcomes Need to procure and agree finders fee Potential dispute with operators over identification of customers Potential for adverse publicity if approved providers are ineffective or if equipment does not perform Potential for GDPs to cherry pick 27 November, 2018

3. LA as large scale Green Deal provider Anchor LA (+ partner LAs) Delivery partner Finance vehicle Marketing Delivery (via panel of installers) TGDFC LA/ Bank finance Refinance once track record in place Presentation title insert here 27 November, 2018

LA as Green Deal Provider Strength Weakness Dependency Long-term financial risk taken by private financiers Delivery Partner responsible for making it work Potential to create jobs and local low carbon sector Smaller LAs can join Delivery in your area First loss risk High set-up costs (but can be recovered) Scale required to achieve critical mass to access capital markets. Issue of governance Bank fees if bank finance used Birmingham City Council procurement process Working with partner LAs Boroughs that find this model attractive will be happy to take on some risk in order to achieve some certainty around a large scale programme 27 November, 2018

Examples Birmingham Newcastle Cabinet decision in April 2011 Initial programme of 15,000 private and social houses valued at £100m Option to extend to 60,000 houses and £400 million OJEU and PQQ issued in Sep 2011 22 West Midland local authorities in total on the contract Now covers non-domestic stock 11 other public sector organisations including housing associations and police/fire Valued at £275m with option to extend to £1.5b Newcastle Cabinet decision in July 2011 Recognised need to work with neighbouring authorities to achieve scale Open up to North East councils Reverting in January for procurement decision Strong support from North East councils 4 committed in total Financial and legal advisors procured Project governance and procurement programme being established Back to Cabinet – 25th Jan Approval to start procurement of a delivery partner Approve, in principle, use of LA finance 27 November, 2018

West Sussex multi-tier model Districts and boroughs WSCC Finance Anchor authority Provide start up finance Districts repay via joining fee or; Householders repay via Green Deal payments Run procurement programme Districts named as partners Manage future re-financing Contribute housing stock Asset-matched investment Contract Delivery partner Domestic Public sector non-domestic

Managing Green Deal Options LA as Green Deal provider LA as marketer LA as general promoter 2011 2012 2013 2014 2015 Can start now Clarity on private sector capability Clarity on market delivery Option to consolidate around working model 27 November, 2018

What do you want? What will you put in? Resource/Risk/ Control Outcomes LA as large scale GDP LA as marketer General promotion 27 November, 2018

EST LA support – to date Green Deal options appraisal and business case Greater London Authority (on behalf of 33 London Boroughs) Association of Greater Manchester Authorities (10 authorities) Nottingham City Council Business case for a preferred Green Deal model Birmingham City Council Newcastle City Council West Sussex County Council Capacity Building workshops Sustainability West Midlands (33 authorities) Building an evidence base Green Deal and FITs measures potential, ECO subsidy, economic impacts, CO2 saved Used by LAs and Registered providers 27 November, 2018

Contact Ben Frier Local Delivery Manager 07961 271587 Ben.frier@est.org.uk Vicky East Green Finance Manager 0207 654 2477 vicky.east@est.org.uk