Navigating the funding jigsaw to drive net zero
Whenever I speak to social landlords and suppliers about net zero, there is one pain point that almost always comes up: funding.
Increasingly, there is a mismatch between the way decarbonisation programmes are financed and the way they operate.
Take the Energy Company Obligation (ECO4) scheme for example, which runs until 2026. This Government scheme requires energy companies to provide funding for retrofit suppliers to deliver energy efficient measures that achieve annual bill savings for domestic premises.
For a few years, feedback from social landlords and suppliers had been relatively positive. However, over the last 12 months, retrofit companies have struggled to deliver ECO4 funded solutions because of how ‘stop start’ the funding has become.
Delivery of ECO4 measures increased at such a pace that supply outstripped demand. Energy companies reached their targets, funding was restricted, contracts cancelled and rates for retrofit works fell.
There have also been market challenges around the Social Housing Decarbonisation Fund (SHDF) - now known as the Warm Homes: Social Housing Fund (WH:SHF).
In the last wave, many social landlords bid for funding based on upgrade cost per property. But with recent economic volatility, they found that in the six months between submitting bids and awarding contracts, funding no longer covered the cost of measures.
In Scotland there have also been problems. Last year the Chartered Institute of Building (CIOB) published a report calling for urgent revisions to Holyrood’s decarbonisation funding.
Issues include excessive application bureaucracy, reliance on cost-matching grants, compartmentalisation of funding and late-stage awards – all of which thwart long term retrofit planning.
One recommendation was to combine funding into a central pot, administered over five years. Funding would then be allocated based on need, without parameters on specific use of funds.
It was hoped the Social Housing Net Zero Heat Fund would address these recommendations, but housing associations, councils and contractors in Scotland say the situation is worse than ever. Progress on many applications has stalled and uncertainty is impacting investment.
There’s no doubt that funding hurdles are blocking retrofit progress. However, there are some key steps housing providers can take to cut through the complexity and build momentum:
Find expertise to source funding
Councils and housing associations don’t have the bandwidth to be continuously scanning for decarbonisation funding, digesting lengthy guidelines and applying within short timelines. This is where consultants can help. They are expert at tracking eco-funding pots and assisting with applications. Don’t try to do it all on your own.
Collaborate with suppliers on applications
Many suppliers are really on the ball with funding and have invested time and resource at the front end of the process to support housing providers with applications. Harness their expertise and technical knowledge.
Educate staff on retrofit standards
Any social landlord drawing on Energy Company Obligation (ECO) funding must comply with PAS 2035. This relatively new domestic retrofit standard sets out an updated spec for the design of low carbon measures and should be used in conjunction with PAS 2030. Because this whole framework is complex, housing providers must understand it fully to avoid unexpected problems when planning measures.
There are not-for-profit organisations such as The Energy Agency, The Wise Group, RISE and Changeworks that can provide independent information, steering social housing staff through these standards.
Communicate early with the market
Check capacity amongst retrofit suppliers before you begin procurement. Demand for green talent is mounting, and some retrofit firms and consultants have long waiting lists. That’s because it’s not just ECO-funded projects that have to meet PAS 2035. On mixed tenure schemes, where local authorities are upgrading private homes and council houses, the expectation is that all are improved to the same standard.
To tackle this, communicate early and often with suppliers. Hold meet-the-buyer workshops and speak to a wide range of market professionals and contractors who have good access to ECO funding and a proven track record of delivery, to get a feel for their capacity.
Do it in stages
When I speak to decarbonisation experts about upgrading social housing to tight timelines and budgets, many recommend chunking up work. Rather than delivering complex, expensive, comprehensive programmes, it’s better to make a plan, then deliver it in stages, reflecting after each, and applying for funds, phase by phase.
Keep your eyes open
Things can move fast with labour shortages, price inflation and demand, so stay plugged into the latest market news. Monthly figures from the Construction Materials Price Index (CMPI), are a good measure of market temperature.
Other sources of intelligence include raw materials indices such as the London Metal Exchange (LME) and market surveys from the Royal Institution of Chartered Surveyors (RICS). Construction News, Building and similar publications provide a holistic view of current trends.
Procurement for Housing (PfH) also publishes a Supply Chain Sentiment Report every six months, along with a review of building materials price changes.
The retrofit funding landscape is far from perfect and I’m hoping the new Government will tackle some of these challenges. In the meantime, social landlords must tap into the knowledge and experience of suppliers, consultants and social enterprises and complement this by staying on top of market conditions and availability. These steps will keep funding headaches to a minimum and net zero progress to a maximum.
Bev Hynds is Net Zero category manager at Procurement for Housing
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