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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. - PowerPoint PPT Presentation
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Financing Eco-refurbishment – a Scottish local authority solution
July 2012
Christoph HarwoodMarksman Consulting LLP
Local authority activity on Green Deal modelMultiple areas of dialogue
Business case Procurement
Newcastle (5+5)
Birmingham (1+22)
Option review
Developing regional support
London boroughs
Greater Manchester
West Sussex
Scottish Government
Leeds City Region
Black Country
Welsh Government
Worcestershire
Changes to the energy efficiency sector
2011 2012 2013
Economic Activity
Warm homes/Warm Front
CERT
CESP
Green Deal & ECO
Solar PV programmes
Potential ~200,000 house roll out programme in 15 years
0
2
4
6
8
10
12
14
16
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2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 2018-2019 2019-2020 2020-2021 2021-2022 2022-2023 2023-2024 2024-2025 2025-2026 2026-2027 2027-2028
Illustrative
Houses retrofitted
Phase 1
15,000-20,000(£75m)
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Local Authority Partnership Model
Installation companies
Install and manage
ContractMarketing
Finance
Payments
Other
Energy Companies
ECO
Management Company
Finance vehicle
LA
Finance (Prudential borrowing or reserves)
Green Deal Payments
PV Meter/deemed
Benefits
Green Deal + FIT payments
Social Housing Finance
National and local fuel poverty funds
Green Deal LA joint approach
Contract
Anchor
Anchor local authority• Set up and run
procurement process• Manage ongoing
programme
£
IPA
£
IPA
£
FoPA
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
Management Company
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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
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Green Deal early adopters
Source; Grand Designs; Great British Refurb Campaign
Nationally early adopters can account for up to 13% of the population – first target market
Early adopters
Early majority
Late majority
Laggards
0% 10% 20% 30% 40% 50% 60% 70% 80%
BCC target
North East Target
Gentoo
Stroud/SWEA
BCC
BG2
BG
B&Q
London searly adopters (low)
London solid solid wall early adopters (high)
Interest with interest rate at 6%
Early adopters (GBR)
London three year target (2014-2017)
Adoption rates and targets
Market research
PAYS pilots
Target set
£75m and 5% adoption is £1.5b target market
Financing requirements by hub area, measures required and house type
0.5
0.0
1.0£b
Achieving desired market size
2.0
1.5
1.0
0.5
8 LAs to commit 10 LAs to commit
Single programme for Scotland
£2.1b
16 local authorities
£1.5b
5% adoption target
Without flats and social housing
With flats and social housing
£3.7b
5 local authorities
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
Margin from providing finance
Market APR to consumer (~7.5%) set by TGDFC
Operating costs
Cost of capital
• GIB junior debt to TGDFC is 3.85% over Gilts• PWLB is 0.8% over Gilts
LA Margin
LA costs• Procurement• Officer time
LA broader outcomes• Jobs• Fuel poverty• Special areas
LA support to householders• Cost of measures• Incentives
Provisional
First loss layer (%)
Base case
Revenues available from taking a first loss position
Local Authority Green Deal Warehouse
Green Deal Warehouse
Bond
LA1
LA2
LA3
etc
£3-500m
Uniformity requirement
Bank finance
First loss risk retained
Role of LAs for TGDFC
TGDFC
Customer authorities Financing authorities
Uses capacity – no revenue Expands capacity – receives revenue
Lending to TGDFC Refinance using TGDFC
Using TGDFC operations platform from the start
Adoption risk
Start up costs
House by house implementations
Every house implementation covers its own costs and a share of start up costs
Set price to householder based on a target of installations
£1.5-2m
£75m
• Business case• Procurement• Operational set up post procurement
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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 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
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Financing Eco-refurbishment
Christoph Harwood
Marksman Consulting LLP