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Financing Eco-refurbishment – a local authority solution
June 2011
Christoph HarwoodMarksman Consulting LLP
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Local authority Green Deal options
Leave to central government and
the market
Carbon proactive
Minimalist
In house Work with private sector
Provide marketing support
Outsource to third party marketer
End to end in-house
model
Partnership with private sector finance and
delivery model
Jobs and creation of low carbon sector
*North London Sub-Regional Housing Stock Analysis and Business plan
Public Sector Development Company or Project*
First Loss Guarantee Fund*
Public Sector Ownership of Assets through SPV*
Public Sector Ownership of Assets on balance sheet*
Concept
Going live
Birmingham City Council – Cabinet Decision 4th April 2011
1. Confirms its commitment to establish a transformational and pioneering public private partnership programme to improve the energy efficiency of 200,000 properties in Birmingham by 2026 by taking advantage of the Government’s Green Deal proposals.
2. Approves the plans for an initial Birmingham Energy Savers Phase 3 Pathfinder Programme for 15,000 properties with an initial scheme value of £100m.
3. Approves the commencement of a procurement process to select a delivery partner for this initial Birmingham Energy Savers Phase 3 Pathfinder Programme with an initial scheme value of £100m which includes the option to extend the scheme value up to £400m by 2020.
4. Approves the deployment of financial, legal, procurement and technical resources, including specialist external support and expertise to conduct the procurement with due diligence.
5. Notes that a further procurement exercise would be required to complete the full Birmingham Energy Savers Phase 3 Programme of 200,000 properties which will be subject of a future Cabinet report and Full Business Case.
Changes to the energy efficiency sector
2011 2012 2013
Economic Activity
Warm front
CERT
CESP
Green Deal & ECO
Warm zones
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Financing offer to house owner
£5-10,000Ownership
• Generation and export FIT
• Potential for RHI
Free electricity (£100-200) pa
25 year Green Deal service charge
• Help with hard to treat
• Help with fuel poor
£8,000
Lower cost energy bills
Renewables with roof
rental
Energy efficiency with Green Deal
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Local Authority Operating Model
SPV
Green Deal Payments
Installation companies
Install and manage
ContractMarketing
PV Meter/deemed
Benefits
Finance
Payments
Other
BanksNon-recourse finance
Green Deal + FIT payments
Energy Companies
Hard to treat subsidy
Delivery PartnerContract
LAs
Buffer capital
PWLB
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Initial Local Authority Eco-refurbishment SPV
£25m
£100m
ECO
30%
70%
Local Authorities
Banks
7%
5-6%
Illustrative
£75m
Cost per house - £6-7kNumber of houses = 15,000
6.5%
£25m
£50m
Energy Companie
s
Long term fixed low cost finance
Write-off
Low cost buffer/ junior debt
Non-recourse private sector
Hard to treat
7.5-8.5%
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Working with other local authorities
£25m
£100m
ECO
Local Authorities
Banks
7%
5-6%
Illustrative
£75m7.2%
£25m
£50m
Energy Companie
s
Long term fixed low cost finance
Write-off
Low cost buffer/ Junior debt
Non-recourse private sector
Hard to treat& fuel poor
LA1 LA2
• Shared funding of junior debt • Rebalance for housing take up by LA area at regular periods or end of roll out• Bad debt allocated by LA area?• Shared but independent governance
Cost per house - £6-7kNumber of houses = 15,000
7.5-8.5%
Green Deal LA consortium
Consortium
Delivery Partner
LA (2) LA (3)
LA (1)
Initial local authority set up consortium and commit to critical mass for delivery partner
£
LA (4)
£
LA (5)
£
LA (6)
Follow on local authorities join with their own pool of funds for their own housing on incremental cost basis
£
• Finance or underwrite start up costs
• Provide finance for critical mass required to deliver low costs and attract delivery partners
• Other local authorities act as “customer aggregator”
• Commitment to deliver volume• Penalty if not acheived
Local Authority Green Deal Warehouse
Green Deal Warehouse
ABS
BCC
NCC
?
?
£3-500m
Benefits
• Size of first tranche of capital may less than £75m
• Project finance from banks may not be required
• Size of equity layer can be as low as 5%
Issues
• Need commitments collectively to reach £300m(tbc)
• Penalties if not achieved
• Passed back to LAs
• Need consistency across programmes
Uniformity requirement
Bank finance
GIB
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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
• 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• Consistency across LA programmes will reduce debt requirements, costs and
refinancing risks
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Financing Eco-refurbishment
Christoph Harwood
Marksman Consulting LLP
