sustainable finance for sustainable change west midlands finance model for energy efficiency retrofit SHAP conference may 2018 Financing the Community picking up where we left off in 2010:
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sustainable finance for sustainable change
west midlands finance model for energy efficiency retrofit
SHAP conference may 2018
Financing the Community picking up where we left off in 2010:
1980 2000 2020 2040 2060 2080 2100
3°C to 4°C
2017
To move rapidly from current to 2°C pathways, requires Immediate & deep cuts in ENERGY DEMAND
A “romantic illusion”?
courtesy of Kevin Anderson, Tyndall Centre @kevinclimate
13% reductions per year, starting NOW!
75% reduction in CO₂ by 2025
fully decarbonised by 2035-2040
climate science says it’s not Business As Usual
• zero net CO₂ in 20 years!
• housing is responsible for 27% of our current emissions, it needs to play its part
• 80%-100% emissions reduction, not more than 17kg
CO₂/m²A emissions, 120kWh/m²A primary energy
• some houses may even get to net zero
assessment
we don’t need to knock down old & tired homes it’s more effective to retrofit, but whole house
perhaps pick the people to start with, not just the place
that means over 60,000 households!
with over 300,00 to follow soon afterwards
that’s enough to develop an industry for everyone else
able-to-pay pioneers offer chances to innovate
RP business models mean we need to work across tenures
community shares
usually ethical investment offer through a Community Benefit Society, rate offered but not guaranteed. Can be 1 member 1 vote or weighted by shareholding. Flexible repayment offers advantages.
No loans funded through community shares yet, but there is no reason why they couldn’t be. Community Shares Platforms offer marketing opportunities.
1 cheap patient capital
bonds An IOU, fixed term usually fixed return finance product sitting on the asset side of the balance sheet, regulated. Only available to large organisations due to large sums of money
Large housing associations raising substantial finance eg L&Q 40yr bonds 2.75% 2017. Councils increasingly investigating bond issues through UK Municipal Bonds Agency or directly. Birmingham issue £45m bond for new housing in 2017.
?
1 cheap patient capital
Public Works Loan Board
Source of funding for much of the council housing in the UK, less well used since PSBR issue, but rates and terms can be very favourable. Only available directly to councils but can be deployed more widely by them
Current rate Gilt market + 100 basis points for Standard Rate loans (April 2018 : 10 year loans 2.63%, 20yr 2.94%, 40yr 2.75%) Due to move to Treasury control, changes expected.
Publicly owned 'Green' Investment Bank
Used in Germany (KFW) allows better use of state funds where repayment is possible but not at commercial rates so funds can still be effectively recycled. Interest rates can be tailored to within reason to policy objectives.
UK Green Bank only renewables & business projects, KFW energy efficiency programme combines government grant provision and loans for energy efficiency
1 cheap patient capital
equity loan
funding retrofit measures against the future asset value. capital can be locked up for long periods if turnover is low, affecting cost, useful where asset rich, cash poor
Wigan Home Improvement Loan £30k 0% equity loan Equity release mortgages average 5.35% compounded, repayable on sale. (£50k for 25yrs at 5% = £174,064 to pay)
1 cheap patient capital
secured repayment loan
Interested RP’s, local authorities and even larger companies seeking to build their retrofit business might choose to provide the finance for strategic or policy purposes
Wolverhampton Home Improvement Service £10K 0% equity loan, Manchester HELP Loan £10k 10yrs 0% repayable,
repayment loan unsecured
Less attractive in terms of risk than secured lending, more attractive when trying to deliver policy objectives for those without adequate asset value. Less likely to be relevant to commercial or 3rd sector parties but various LA’s have home improvement loan products done this way
EDF Energy loans 2.9-20.9% 1-5yrs Bordeaux Metropole bank partnership made reduced rate loans available to low income households including upfront payments to allow the work to go ahead - problems with lack of funding/willingness to run fund. Brussels Green Loan 0-2% interest 30yr loans available to low income households (very few loans completed)
1 cheap patient capital
• over 30,000 new jobs for
1 million properties
• where are they going to
come from?
• the model collapses if
labour supply isn’t
addressed
2 trust in the outcome - workforce development
0
10,000
20,000
30,000
40,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
tradesmanagementrenewables & storage installersdesigners
2 trust in the outcome - but also:
Front doorBack doorKitchen doorDouble GlazingSingle glazed windowPatterned single glazingObscured Double glazingSuspended ground floorSolid kitchen floorFront wallSide wallRear wallMain roof
a) more reliable calculation methods
b) proper design not just in the construction details but in the overall look as well so that retrofit becomes aspirational
c) performance guaranteesd) monitoring pre and post
3 costs of retrofit are currently too high
supply & demand can push prices up if bottlenecks are not addressed early but…
‣ labour costs should reduce as methods become more efficient
‣ materials costs reduce through scale & innovation in components and junctions
‣ on-costs can reduce with joined-up IT methods
£0.00
£15,000.00
£30,000.00
£45,000.00
£60,000.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
labour costmaterials costsprelimsPVstorageOn-costs +VAT
paying for it - capitalca
pita
l cos
ts +
how
they
’re p
aid
for
£0
£10,000
£20,000
£30,000
£40,000
£50,000
£60,000
retrofi
t cos
t now
retrofi
t cos
t later
paying
for it
£2,400
£6,000
£6,300
£9,000
£4,800
£8,000
£9,600
£16,000
£9,600
£16,000
£2,500£2,500£27,700
loan re-allocated grantlabourmaterialsprelimsrenewableson-costs
?
4 revenue stacking
annu
al c
osts
com
pare
d to
sav
ings
& in
com
e
£0.00
£500.00
£1,000.00
£1,500.00
£2,000.00
£2,500.00
loan repayment now
loan repayment later
bills currently
savings/income
£1,243
£2,467 £583
£160
£600
£80£440
£488
£650
£117
£586
electricitygasrenewable generation used on siteDSR/red band avoidanceenergy salesemissions tradingstart-up subsidyloan repayment
?
energy services company
Direct sale of energy, or the generation of it usually through renewables. Provides income stream. Margins on resale small As yet untested proposal to provide ‘warmth’ so replace utility payments with debt payments for work done
research UK ESCO’s and models eg Brighton and Hove Energy Services Co-op Stuttgart “Care Free energy renovation package” requires no household debt but a contract with an ESCO
energy performance contracting
A contract for works to homes to provide a certain energy performance over a period rather than certain measures with individual warranties
Energiesprong Netherlands- arguably the energy performance guarantee is the most important part of this
energy trading Aggregating energy storage and/or renewable generation to enable sale to the National Grid or energy providers
a crucial component of our (hopefully soon to be approved) ERDF project - Upside Energy are the partners on this bit
energy savings trading
Aggregating payments from DNO’s for reduction in energy use at peak periods, or specific sale of “NegaWatts’
red band avoidance, tradable white certificates. Wigan NEDO -further research on commercial aggregators, see if there’s any data from NEDO available
emissions trading
While ECO has been a framework for the evaluation of carbon saved and a price to purchase. Could the carbon saved be traded directly?
further research needed current floor price of £15/tCO₂ is low
Table 1asset management strategy
Retrofit works carried as part of wider asset management so cost can be set against major repairs or with cost reduced by working with other interventions
further modelling need to see how this works on deeper retrofit than what has been tried to far
additional service charge
rented housing providers can fund debt repayment through a service charge. without legislation
Legal opinion shows that additional service charges can be made for retrofit works, but may be covered by overall rent cap
Green Deal the legislation is still in place and remains an option for all housing tenures subject to finding suitable finance
overall model is largely discredited the mechanism for getting repayment is still available and useful in rental property, further research needed
5 cost recovery1. service charges are
possible
2. the Green Deal repayment
mechanism still exists
Table 1Tax credits Government incentive to
encourage householders to improve their energy efficiency. Used in France
French model provides tax credit instead of grants + 0% loans
Differential Stamp Duty
As yet untested proposal to vary Stamp Duty on house sales depending on energy performance
may not be relevant, further research needed
Differential Council Tax
As yet untested proposal to vary Council Tax depending on energy performance
In US it is possible to attach repayments to equivalent of a council tax bill. Devolved powers may make this feasible - more research needed
a key new component is energy storage
annual renewable energy variations
daily energy supply variations
the new component is storage
1. demand shiftingTime of Day tariff costs 5p/kWh instead of
14p/kWhassume average UK bill at 3,800kWh then if
sufficient battery to provide whole day then annual saving > 3800 x (14-5)= £342
2. supply shiftingassume a 4kW PV installation generating
3,200kWh/A, additional saving = 3200 x 5= +£160
3. aggregated sales to grid Short Term Operating Reserve -
up to £350 or Frequency Response
up to £300
4. Demand Side Management (possibly) DUoS Red band avoidance £60
energy storage income is not subsidy,
it is the energy market
national grid district network operator
loan providers
investors
aggregator/enabler
finance providers
technical support
storage control
contractors framework
communications
renewable providers
storage providers
housing providers
smaller scale generators
smaller scale storage operators
householders community buildings
w: www.red.coop
red co-operative ltd is a limited company registered in england & wales reg.no. 09069834
electricity on demand to Grid Reserve Services
supply + demand smoothing
provide extra storage capacity
sell off peak power to charge batteries
shares
dividends in later years
retrofit retrofitsbill savings bill savings
£ £
payment for power used/available
storage & renewable installations
storage & renewable installations
long term/low interest loans
greater energy payments than otherwise
6 aggregation
• to take the individual batteries' energy & package it for sale
‣ to energy suppliers
‣ & to the grid
•purchase renewable energy for recharging during low demand
•negotiated PPA’s with renewable suppliers to build the market
£0
£3,000
repayments & how they can be covered
£0
£750
£1,500
£2,250
£3,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
gas bill demand reductionelectric bill demand reductionadditional bill saving from PV/storagepeak sales income, assume no rise above inflationcarbon sold?
£0
£3,000repayment cost
• various sources cover declining repayments as efficiencies and scale grow
• cost of finance is key
£0
£3,000
2.25% over 20 years
2.25% over 25 years
1.14% over 25 years
repayments & how they can be covered over time
-£1,600
-£1,200
-£800
-£400
£0
£400
£800
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
household balance
• it’s a basket case this year and for the next few until we develop the industry
• so we need to be creative in the opening years
slow start retrofit programme
• rehearse + perfect, disseminate
0
20,000
40,000
60,000
80,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
annual retrofits
slow start retrofit programme
• minimise exposure in the early years
-£7,500,000
£0
£7,500,000
£15,000,000
£22,500,000
£30,000,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
annual deficit/surplus in householder costs
it’s a lot of money to find each year
-£2,000,000,000
-£1,500,000,000
-£1,000,000,000
-£500,000,000
£0
£500,000,000
£1,000,000,000
£1,500,000,000
£2,000,000,000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49
surplus / deficit
finance is just a part of making this happen
red cooperative ltd 3 corkland rdmanchester m21 8up
t: 07976 793 795e: [email protected] w: www.red.coop
1. assessment + calculation
2. monitoring + data
3. specification + detailing
4. IT + software
5. capacity
6. contracting + guarantees
7. workforce development
8. renewable energy + storage
9. aggregation
10.financial vehicles
put another way, it could be done in this order:
1. find a service provider, set up an aggregator
2. add storage to existing PV installations to generate revenue
3. set up a revolving loan fund
4. training - multi-skill, able to read drawings
5. develop retrofit industry capacity - competitions & collaborations
6. design: proper detailing, even try and make it look nice
7. work with IoT community to develop low cost monitoring for ALL retrofits,
8. develop software to work across the silos
9. start using developing assessment methods fit for purpose
10.new forms of contract /management - performance guarantees
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