Energy Saving Trust:Delivering the Green Deal

Ben Frier – Local Delivery Manager

What are we trying to finance?

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Return on investment over 25 year period with householder as the investor investing their own money

Returns for energy efficiencyLoft ~45%Cavity wall ~30%Solid wall, internal; 4-9%Solid wall, external; 0-3%

Returns for solar PV FIT6-8% index linked

Previously proposed returns for RHI6% solar thermal12% other

Whole house 5-7%

Role of Local Authorities

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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

LA Green Deal options

Leave to central government and

the market

In house Work with private sector

Provide marketing

support

Outsource finance and

delivery

In-house model

Partnership with private sector

(finance/ delivery)

Marketing/ Facilitation role

Retrofit Guarantee Fund

Public Private finance model

Public Sector model

Concept

Going live

Minimalist

Carbon proactive

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

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The Green Deal Finance Company

Green Deal Provider

1. Measures delivered to property

2. Fund pays GDP

3. Pays fund over upto 25 years

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 RHOperations

• Who will pay for set up?• Who will operate?

Refinance programme

• PWC• Banks• Energy

Companies• Building

firms

General promotion of the Green Deal market

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Finance vehicle(s)

GDP 1 GDP 2 GDP 3 GDP 4 etc

TGDFC

Framework of approved GD providers which could be run by anchor authority or County for all District/ Boroughs

Local authority

broad marketing

General promotion of the GD market (2)

Finance vehicle(s)

GDP 1 GDP 2 GDP 3 GDP 4 etc

TGDFC

A variation in the model has authorities choosing a preferred Green Deal Provider for its area

Borough 1

Borough 3

Borough 4

Borough 6

Borough 7

Borough 5Borough 2

Leave it to the market: General promoter

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Strength Weakness

• 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

Dependency

• private sector providing necessary momentum with GDPs

• TGDFC or energy supplier/ retail led models

• Passive approach; carries no financial risk

• Limited funding needed and no procurement costs required

2. LA as a marketer

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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

LA as marketer/facilitator

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Strength

• 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

Weakness

• 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

Dependency

• Set up of TGDFC or other finance vehicle

• Strong GDP network

3. LA as large scale Green Deal provider

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Anchor LA (+ partner LAs)

Delivery partner

Finance vehicle

Marketing

Delivery (via panel of installers)

TGDFC

LA/ Bank finance

Refinance once track

record in place

LA as Green Deal Provider

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Strength

• 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

Weakness

• 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

Dependency

• Birmingham City Council procurement process

• Working with partner LAs

Examples

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Birmingham

• 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

West Sussex multi-tier model

Contract

Delivery partner

WSCC

Domestic Public sector non-domestic

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

Districts and boroughs

• Contribute housing stock• Asset-matched investment

Finance

Managing Green Deal Options

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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

What do you want? What will you put in?

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Resource/Risk/ Control

Outcomes

General promotion

LA as marketer

LA as large scale GDP

EST LA support – to dateGreen 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

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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