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Financing Eco-refurbishment – a Scottish local authority solution

Financing Eco-refurbishment – a Scottish local authority solution. July 2012. Christoph Harwood Marksman Consulting LLP. Local authority activity on Green Deal model. Multiple areas of dialogue. Developing regional support. Business case. Option review. Procurement. West Sussex.

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Financing Eco-refurbishment – a Scottish local authority solution

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  1. Financing Eco-refurbishment – a Scottish local authority solution July 2012 Christoph Harwood Marksman Consulting LLP

  2. Local authority activity on Green Deal model Multiple areas of dialogue Developing regional support Business case Option review Procurement West Sussex Birmingham (1+22) Black Country Scottish Government Newcastle (5+5) Welsh Government London boroughs Worcestershire Greater Manchester Leeds City Region

  3. 2011 2012 2013 Changes to the energy efficiency sector Economic Activity CESP Green Deal & ECO CERT Warm homes/Warm Front Solar PV programmes

  4. Potential ~200,000 house roll out programme in 15 years Illustrative Phase 1 Houses retrofitted 15,000-20,000 (£75m)

  5. Local Authority Partnership Model Finance (Prudential borrowing or reserves) Social Housing Finance National and local fuel poverty funds LA Finance vehicle Green Deal + FIT payments Contract Marketing ECO Installation companies Energy Companies PV Meter/deemed Install and manage Benefits Green Deal Payments Finance Payments Other Management Company 5

  6. Green Deal LA joint approach Anchor IPA IPA FoPA £ • Anchor local authority • Set up and run procurement process • Manage ongoing programme Contract £ £ £ £ Management Company • Partner Authorities • Self financing with own prudential borrowing • Initial; from start to achieve critical mass for tender • Follow on;when ready • Client authorities • Access neighbours’ prudential borrowing • Provide marketing support • Underwrite bad debt risks

  7. Minimum size - £75m • Cost £1m to tender • Not see reduction in overall costs • Means higher costs per house • Need to see long term pipeline • Economies of scale require to spread fixed costs 15,000 –20,0000 7

  8. Green Deal early adopters Early adopters Laggards Nationally early adopters can account for up to 13% of the population – first target market Late majority Early majority Source; Grand Designs; Great British Refurb Campaign 8 8

  9. Adoption rates and targets £75m and 5% adoption is £1.5b target market Market research PAYS pilots Target set

  10. £b 1.0 0.5 0.0 Financing requirements by hub area, measures required and house type

  11. 2.0 1.5 1.0 0.5 Achieving desired market size 8 LAs to commit 10 LAs to commit

  12. Single programme for Scotland £3.7b £2.1b 5 local authorities £1.5b 5% adoption target 16 local authorities Without flats and social housing With flats and social housing

  13. Anchor authority • Scottish Government • Single Authority • Scottish Cities Alliance • Already reviewing its role • Seven authorities increases overall market size • Covers rural areas • Scottish Futures Trust support on procurement • COSLA support with local authority engagement • Scottish Government – assistance with start up costs Recommended

  14. Margin from providing finance Provisional Market APR to consumer (~7.5%) set by TGDFC • LA costs • Procurement • Officer time Operating costs • LA broader outcomes • Jobs • Fuel poverty • Special areas LA Margin Cost of capital • LA support to householders • Cost of measures • Incentives • GIB junior debt to TGDFC is 3.85% over Gilts • PWLB is 0.8% over Gilts

  15. Revenues available from taking a first loss position Base case First loss layer (%)

  16. Local Authority Green Deal Warehouse LA1 LA2 First loss risk retained Green Deal Warehouse Bank finance Uniformity requirement Bond LA3 £3-500m etc

  17. Role of LAs for TGDFC TGDFC Expands capacity – receives revenue Uses capacity – no revenue Customer authorities Financing authorities Lending to TGDFC Refinance using TGDFC Using TGDFC operations platform from the start

  18. Adoption risk Set price to householder based on a target of installations £75m Every house implementation covers its own costs and a share of start up costs House by house implementations Start up costs £1.5-2m • Business case • Procurement • Operational set up post procurement

  19. Summary • Local authorities have core role to play • Trusted by householders • Access to low cost finance • Fits with requirements on jobs, low carbon and fuel poverty • Green Deal legislation is strong enabler • Private sector finance does not seem to be available without public sector support – ie local authorities and/or GIB • Private sector delivery sector is supportive • Local authorities are taking the lead • Birmingham and Newcastle have enabled the programme • Other UK local authorities are expected to follow • Scottish Cities Alliance is able to take leadership position for Scotland http://www.energysavingtrust.org.uk/england/Publications2/Local-authorities-and-housing-associations/Funding-and-finance/Options-review-of-a-local-authority-led-partnership-model-for-the-green-deal-in-scotland.pdf

  20. Financing Eco-refurbishment Christoph Harwood Marksman Consulting LLP Christoph.harwood@marksmanconsulting.co.uk

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