sustainable finance for sustainable change picking up where we left off in 2010: Financing the Community

Transcription

1 sustainable finance for sustainable change west midlands finance model for energy efficiency retrofit SHAP conference may 2018 picking up where we left off in 2010: Financing the Community

2 13% reductions per year, starting NOW! A romantic illusion? 75% reduction in CO₂ by 2025 fully decarbonised by To move rapidly from current to 2 C pathways, requires Immediate & deep cuts in ENERGY DEMAND 3 C to 4 C courtesy of Kevin Anderson, Tyndall

3 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

4 assessment we don t need to knock down old & tired homes it s more effective to retrofit, but whole house

5 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

6 able-to-pay pioneers offer chances to innovate RP business models mean we need to work across tenures

7 1 cheap patient capital 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.

8 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% Councils increasingly investigating bond issues through UK Municipal Bonds Agency or directly. Birmingham issue 45m bond for new housing in 2017.?

9 1 cheap patient capital Public Works Loan Board Publicly owned 'Green' Investment Bank 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 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. Current rate Gilt market 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. UK Green Bank only renewables & business projects, KFW energy efficiency programme combines government grant provision and loans for energy efficiency

10 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)

11 1 cheap patient capital secured repayment loan repayment loan unsecured 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 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 Wolverhampton Home Improvement Service 10K 0% equity loan, Manchester HELP Loan 10k 10yrs 0% repayable, EDF Energy loans % 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)

12 2 trust in the outcome - workforce development 40,000 30,000 20,000 10,000 designers renewables & storage installers management trades 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

13 2 trust in the outcome - but also: 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 guarantees d) monitoring pre and post Front door Back door Kitchen door Double Glazing Single glazed window Patterned single glazing Obscured Double glazing Suspended ground floor Solid kitchen floor Front wall Side wall Rear wall Main roof

14 3 costs of retrofit are currently too high supply & demand can push prices up if bottlenecks are not addressed early but 60, , 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 30, , On-costs +VAT storage PV prelims materials costs labour cost

15 paying for it - capital 60,000 50,000 6,000 9,000 on-costs renewables prelims materials labour grant re-allocated loan capital costs + how they re paid for 40,000 30,000 20,000 8,000 16,000 2,400 6,300 4,800 9,600? 2,500 2,500 27,700 16,000 10,000 9,600 0 retrofit cost now retrofit cost later paying for it

16 4 revenue stacking annual costs compared to savings & income 2, , , , ,467 loan repayment 583 start-up subsidy? emissions trading energy sales DSR/red band avoidance renewable generation used on site gas 160 electricity 1, loan repayment now loan repayment later bills currently 117 savings/income

17 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

18 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 emissions trading Aggregating payments from DNO s for reduction in energy use at peak periods, or specific sale of NegaWatts While ECO has been a framework for the evaluation of carbon saved and a price to purchase. Could the carbon saved be traded directly? red band avoidance, tradable white certificates. Wigan NEDO -further research on commercial aggregators, see if there s any data from NEDO available further research needed current floor price of 15/tCO₂ is low

19 5 cost recovery 1. service charges are possible 2. the Green Deal repayment mechanism still exists asset management strategy additional service charge Table 1 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 rented housing providers can fund debt repayment through a service charge. without legislation further modelling need to see how this works on deeper retrofit than what has been tried to far 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

20 Tax credits Differential Stamp Duty Differential Council Tax Table 1 Government incentive to encourage householders to improve their energy efficiency. Used in France As yet untested proposal to vary Stamp Duty on house sales depending on energy performance As yet untested proposal to vary Council Tax depending on energy performance French model provides tax credit instead of grants + 0% loans may not be relevant, further research needed In US it is possible to attach repayments to equivalent of a council tax bill. Devolved powers may make this feasible - more research needed

21 a key new component is energy storage annual renewable energy variations daily energy supply variations

22 the new component is storage 1. demand shifting Time of Day tariff costs 5p/kWh instead of 14p/kWh assume average UK bill at 3,800kWh then if sufficient battery to provide whole day then annual saving > 3800 x (14-5)= 342 energy storage income is not subsidy, it is the energy market 2. supply shifting assume a 4kW PV installation generating 3,200kWh/A, additional saving = 3200 x 5= aggregated sales to grid Short Term Operating Reserve - up to 350 or Frequency Response up to Demand Side Management (possibly) DUoS Red band avoidance 60

23 6 aggregation to take the individual batteries' energy & package it for sale national grid district network operator to energy suppliers loan providers & to the grid electricity on demand to Grid Reserve Services supply + demand smoothing long term/low interest loans finance providers dividends in later years investors technical support shares storage control contractors framework communications aggregator/enabler sell off peak power to charge batteries greater energy payments than otherwise renewable providers provide extra storage capacity storage providers housing providers payment for power used/available smaller scale generators purchase renewable energy for recharging during low demand storage & renewable installations retrofit bill savings storage & renewable installations retrofits bill savings smaller scale storage operators negotiated PPA s with renewable suppliers to build the market householders community buildings e: charlie@red.coop w: red co-operative ltd is a limited company registered in england & wales reg.no

24 repayments & how they can be covered various sources cover declining repayments as efficiencies and scale grow cost of finance is key 3,000 repayment cost carbon sold? peak sales income, assume no rise above inflation additional bill saving from PV/storage electric bill demand reduction gas bill demand reduction 2, % over 20 years 1, % over 25 years 1.14% over 25 years

25 repayments & how they can be covered over time it s a basket case this year and for the next few until we develop the industry 800 so we need to be creative in the opening years ,200 household balance - 1,

26 slow start retrofit programme 80,000 rehearse + perfect, disseminate annual retrofits 60,000 40,000 20,

27 slow start retrofit programme minimise exposure in the early years 30,000,000 22,500,000 15,000,000 7,500,000 0 annual deficit/surplus in householder costs - 7,500,

28 it s a lot of money to find each year 2,000,000,000 surplus / deficit 1,500,000,000 1,000,000, ,000, ,000,000-1,000,000,000-1,500,000,000-2,000,000,

29 finance is just a part of making this happen 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 red cooperative ltd 3 corkland rd manchester m21 8up t: e: charlie@red.coop w:

30 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