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Energy efficiency and low carbon funding – how to make sense of it all!

It’s clear that there has never been as much Government funding available for energy efficiency and low carbon measures.

We’re certainly not complaining, the industry has been asking for these levels of funding support for years!

However, with so many different funding pots and acronyms, it can be confusing to work out which scheme is best for you. Can anyone explain the differences between LAD, HUGS, SHDF, PSDF, RHI, AOR, GHG, CHG and SWC? 

This blog is designed to cut through the confusion.

Before we start, it’s important to understand why all this funding is being made available. It’s to do with the Government’s commitment for the UK to reach net zero by 2050. We’re the first major economy to have enshrined this in law, so there’s no going back – and a raft of funding support schemes have been launched to help fund the transition.

Here is the lowdown on what’s currently available.

A new wave of funds

The £2bn Green Homes Grant (GHC) was the start of the new wave of funds, and opened in Summer 2020. The fund was split into a £1.5bn Green Homes Grant voucher scheme and a £500m Local Authority Delivery Scheme (LAD).  It was cross-tenure, with a long list of eligible measures including external wall insulation and heat pumps. Grants were available between £5,000-£10,000.

The voucher scheme wasn’t a great success, and struggled with take up, administration and criteria issues. It closed earlier than planned in March 2021, but the Department for Business, Energy and Industrial Strategy (BEIS) is still processing applications up to the end of November 2021, so, for installers with applications in, there is still time! 

The LAD Scheme was more successful, with the £500m being broken up into three phases (and this is where it might be hard to keep up!). Phases 1a and 1b opened and closed last summer, having awarded around £200m in grants. Phase 2 launched in December 2020, but this time as an allocation scheme, so every local authority in England could access a share of the remaining £300m, in a process managed through the Regional Energy Hubs. This brings us almost up to date on LAD. All three phases (1a/1b and Phase 2) must be delivered by the end of December this year.

So, if you’re a local authority that was allocated LAD funds and you need help developing schemes, come and talk to us. And if you’re a local authority and this is all new to you, then come and talk to us as well, as you’re potentially missing out on millions of pounds in funding.

So, that covers two of the nine acronyms, what’s next? Let’s do three together: SWC, LAD and HUGS.

Private sector support

Eagle eyed readers will note that I’ve mentioned LAD already, and I did say that Phase 2 almost brought us up to date, but not quite, as the Sustainable Warmth Competition (SWC) was released in June 2021 with a seven-week window to enter, which ended in August. The SWC contained a further phase of LAD – called LAD3, and also a new fund called the Home Upgrade Grant Scheme (HUGS). Now HUGS was first mentioned in the Conservative manifesto a few years back and has been hiding in the background for a while. It could provide as much as £2.5bn in funding, but for now it’s £150m, alongside £200m of LAD3, to make up the £350m Sustainable Warmth Competition (SWC). 

I hope you’re keeping up!

The fund is split between on-gas and off-gas, is focused more on the private sector and has grants of £5,000-£25,000 depending on the tenure, existing heating set-up and EPC band. It’s too complex to go into in detail here, but it’s fair to say there are plenty of funding opportunities.

If you managed to get a bid in then great, come and talk to us about developing your schemes and including heat pumps. If you missed out, then don’t worry, there are plenty of other funds available.

I think I’ve ticked off four now, so I’ll do another three together – RHI, AOR and CHG. 

Offsetting upfront costs

The Renewable Heat Incentive (RHI) has been around since 2011, starting first with non-domestic properties and extending into domestic in 2014. It’s fair to say the scheme has been relatively successful, certainly for heat pumps. The scheme covers renewable technologies like heat pumps and solar thermal systems, and makes quarterly payments based on the renewable heat generated. For a typical three-bed house, this could mean RHI payments of around £8,000-£9,000 over seven years, covering 100% of the cost of the work in some cases.

The one criticism of this scheme was that households or housing clients had to find the upfront capital costs, then wait seven years to get these costs back. Ofgem recognised this and launched a scheme called Assignment of Right (AOR) in mid-2018, which allowed third party investors to provide the upfront capital costs and in return get the RHI payments ‘assigned’ over to them. Typically, this cost is offset by between 25%-40% of the total RHI payments, meaning that 60%-75% of the payments are retained by the client. This has been a popular scheme to date, and applications are still welcome to the RHI and AOR before the end of March 2022, when the RHI as we know it will end.

So, if you have housing stock that is reasonably-sized and can command good RHI payments, then contact us today and we can help you access these funds.

The key benefit of RHI is that you don’t have any of the eligibility criteria of LAD and HUGS, so it doesn’t matter what EPC band a property is, or the household income level. But if you want to access this funding, it’s time to act.

What’s next?

So, what is replacing the RHI? Number seven on the acronym list is the Clean Heat Grant (CHG). Expected to launch from April 2022, the CHG will ditch the seven-year payments in favour of an upfront grant. This was suggested to be around £4,000 in earlier consultation documents but is yet to be confirmed. It’s likely to be a flat rate, fixed for all technologies and property types and sizes, and will run for an initial two years. We’re expecting guidance in the Autumn, so watch this space.

That leaves two final schemes: the PSDF and the SHDF. The Public Sector Decarbonisation Fund (PSDF) launched in 2020, with a huge £1bn initial phase. It’s part of a wider £2.9bn scheme targeted – as the name suggests – at public sector buildings, including schools, town halls, NHS buildings and more. The initial phase was oversubscribed, but we’re expecting a further round to be released in Autumn this year, so if you’re a local authority, look out for this.

Lastly, we have the £3.8bn Social Housing Decarbonisation Fund (SHDF). We’ve already seen a demonstration round of £62m during 2020, and a further £160m was released on 23rd August. Targeting social housing providers, but with applications through Local Authorities, this scheme has a whole-house approach, so provides exciting opportunities to really tackle those homes that have proved difficult to upgrade in the past. As I write this, we’re still waiting for detailed guidance, but the bid window may be short, so don’t miss out.

Let’s talk

If you’ve managed to keep up, well done! If I’ve bored you to sleep, I can only apologise! And if you’re more confused than ever, then please come and talk to us, ideally over a strong coffee, so we can help you make sense of it.

What is clear, is that we’re in a period of huge growth in renewables – and heat pumps in particular. Supportive government policy and funding at levels never seen before mean we’ve got a real opportunity to make a difference, not just in lowering carbon emissions, but reducing energy bills, alleviating fuel poverty and creating new jobs. The supply chain will have to grow to meet all this new demand, so the opportunities for local installers and businesses are enormous.

I’ll write about that in another article, but for now, please digest what you’ve read and get in touch. We’d love to talk to you about your plans.

Nick Huston

Future Energy Business Manager (and acronym specialist)

Daikin UK

Tel: 07384 817 118

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