Title of report: Leeds City Region Energy Saving Scheme
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1 Name of meeting: CABINET Date: 9 APRIL 2013 Title of report: Leeds City Region Energy Saving Scheme Providing Energy Efficiency Green Deal Loans and Energy Company Obligation Grants for Private Sector Housing to support the local economy, reduce carbon and help alleviate fuel poverty. Is it likely to result in spending or saving 250k or more, or to have a significant effect on two or more electoral wards? Is it in the Council s Forward Plan? Yes 86K for scheme set up costs (revenue) It is estimated that over 3 years this will secure: Energy Company Obligation Grants - 3M Loan finance - 3M Yes Is it eligible for call in by Scrutiny? Yes Date signed off by Director & name Is it signed off by the Director of Resources? Is it signed off by the Acting Assistant Director - Legal & Governance? Cabinet member portfolio Jacqui Gedman David Smith Vanessa Redfern Cllr Mehboob Khan Cllr Peter Mcbride Electoral wards affected: Potentially all wards Ward councillors consulted: None Public or private: Public 1. Purpose of report 1.1 To seek authority for Kirklees Council to be part of the Leeds City Region (LCR) collaborative approach to procure a Green Deal and Energy Company Obligation funding and delivery partner. 1.2 To seek authority to contribute 86K of Kirklees Council revenue funds for set up costs (legal and procurement)
2 2. Key points 2.1 Kirklees Council aims to green its economy in order to secure high quality jobs, protect itself against rising energy and fuel costs and help its most vulnerable residents pay their energy bills. 2.2 Over the last 10 years the Council has attracted circa 38m of external funding which has provided subsidies for energy improvements to homes. 2.3 In the past the Council has also contributed capital match funding to deliver energy improvements. 2.4 The recently launched National Green Deal Loan framework and new utility funding stream (ECO- Energy Company Obligation) has fundamentally changed the way energy efficiency measures are funded. Appendix 1 provides an overview of the Green Deal and ECO funding Schemes. 2.5 In February 2012, Leeds City Region Leaders took the decision to develop a business case to assess the economic, social and environmental benefits of developing a large scale LCR Energy efficiency housing retrofit programme which would secure Green Deal finance and ECO funding. Appendix 2 outlines the key points of the LCR business case. 2.6 The business case for a collaborative procurement process across the LCR to secure a Green Deal/ECO funding and delivery partner is persuasive. Leeds City Council s Executive Board has agreed to be the Anchor/ Lead Authority for the scheme. 2.7 LCR Local Authorities now have significant experience of delivering large scale energy efficiency projects. This experience will be applied to this programme. 2.8 The LCR costs are ~ 600K of unrecoverable revenue investment for scheme establishment (procurement and legal). The business case for the Leeds City Region identified the potential to attract funding of at least 22M of Utility ECO funding and 80M Green Deal Finance over 3 years. 2.9 Kirklees would be required to contribute to the LCR costs associated with procuring a Green Deal/ECO funding partner. These would be 86K The scheme will secure private sector funds to finance the Green Deal Loan fund via the Green Deal Finance Company. See Appendix 3 for more detail In Kirklees it is estimated, based on previous energy saving schemes, that at least 500 homes will be retrofitted per year from April This will be funded via ECO utility funding and/ or Green Deal loans. Please see Appendix 3 for an overview of Kirklees Housing stock and opportunities. 3. Benefits for Kirklees 3.1 Due to rapidly increasing energy costs, reduced household incomes and the forthcoming welfare reforms it is predicted that fuel poverty will increase in Kirklees over the next few years, in line with national projections.
3 3.2 Currently Kirklees Climate Local (adopted by Cabinet in Dec 2012) is focussed on the core fuel poverty issues below: Supporting the most health vulnerable residents working with health professionals and social services to ensure those most at risk of physical and mental ill-health, because of cold and damp housing have a home they can afford to heat Addressing financial inclusion particularly supporting residents to get the best energy tariff and save money through reduced energy consumption and paying the best price Improving the energy efficiency of all homes particularly hard to treat homes and the poorest households. 3.3 This project will help Kirklees meet objective 3 (above) and will also meet objectives in the Integrated Investment Strategy (IIS), Tackling Poverty Strategy and Partnership Charter Protecting the Environment and Reducing CO It will also contribute to meeting Council Priorities of Jobs and Business Growth and Healthy and Active Older People. The project will do this by: Securing investment into Kirklees via Utility funding- (ECO) and private sector finance ~ 6m over 3 years ( 3M ECO and 3M Green Deal Finance) Creating jobs and supporting the local economy- see Appendix 2 for details. Improving homes across the district at minimal cost to the Council. Providing warmer, more comfortable, energy efficient homes that are cheaper to run - which can improve the health and well being of the occupants, especially the more vulnerable and older people. Reducing district carbon emissions and helping us work towards our carbon reduction target of 40% by 2020 from a 2005 baseline. Strengthen cross regional working and reducing the resource implication for Kirklees by joint working with Leeds City Region Local Authorities. 3.5 Also, the Leeds City Region Mini Stern Review, undertaken in 2011/12 by the Centre for Local Carbon Futures, highlighted that currently 10% of city scale GDP is currently leaving the economy through payment of the energy bill. This is forecast to increase by 15% by This programme will help stop this leakage. 4. Implications for the Council 4.1 A large scale Local Authority branded energy saving scheme will be developed, building on work on Warmzone and Re-charge projects. 4.2 Homes across the district will be improved at minimal capital cost to the Council and investment will be secured into Kirklees from Utility companies- Energy Company funding (ECO) and Private Sector Finance. 4.3 ECO funding is targeted to help vulnerable households, meaning those most at risk of fuel poverty will be assisted.
4 5. Consultees and their opinions The Green Investment Board has considered the paper and recognises the inward investment opportunities. 6. Next steps If approved by Cabinet a memorandum of understanding will be signed by all participating Leeds City Region Local authorities and the procurement process will commence. 7. Officer recommendations and reasons 7.1 Members to support the proposed scheme, as this will improve homes in the Kirklees district, attract investment into the area and bring additional benefits to residents in terms of health and well being and job creation. 7.2 There is no current budget provision to fund the revenue set-up costs, so funding will need to be identified through a future bid to secure 12/13 rollover; otherwise it will be a corporate pressure in 13/ Cabinet portfolio holder recommendation Cllr Khan and Cllr Mcbride are supportive of the proposals as it will secure investment into Kirklees through Utility Funding (ECO) and the Green Deal Finance company. The scheme will create jobs and support the local economy by savings made on energy bills. It will also help tackle fuel poverty which is an ever growing problem for the residents of Kirklees as fuel costs continue to rise. Cllr Khan agrees and supports officer recommendations above regarding a roll over bid from 12/ Contact officer and relevant papers Helena Tinker Environment Unit Manager Investment and Regeneration Service Tel (internal) , (external) helena.tinker@kirklees.gov.uk Kay Beagley Environment Programme Manager Investment and Regeneration Service Tel: (External) (internal) kay.beagley@kirklees.gov.uk Cabinet Paper - Climate Local Commitment: Tackling climate change, stimulating a green economy and providing affordable warmth in homes. Summary of Leeds City Region Mini Stern Review - Centre for low Carbon Futures 9. Assistant director responsible Paul Kemp Acting AD of Investment and Regeneration,
5 Appendix 1 Background to the Green Deal and Energy Company Obligation Funding Energy Company Obligation Funding The Energy Company Obligation falls on suppliers of gas and electricity to the domestic market with more than 250,000 customer accounts. It will be introduced in 2012 and will be in place for at least 10 years. It is proposed that by 2015 the ECO delivers: Savings of 0.52 million tonnes of CO2 per year 3.4 billion reduction in lifetime costs of heating for low income and vulnerable households. It is expected that the Energy Company Obligation funding is available from Jan 2013; it replaces the previous CERT 1 and CESP 2 funding and has three strands to it: 1. Affordable warmth obligation ECO ~ 325m closely targeted at low income vulnerable households in private tenures, delivering central heating and cavity wall insulation ( 100% funded measures) 2. Carbon Saving Obligation ECO ~ 780m, designed to work alongside the green deal loan to deliver measures to hard to treat properties with a particular focus on solid wall insulation ( internal and external) and insulating properties which do not have standard cavity walls e.g. narrow cavities. 3. Carbon Saving Communities ECO ~ 195m targeted at low income areas (must be in top 15% IMD), designed to deliver loft and cavity insulation as well as wider insulation measures, 15% of this funding is ring fenced for rural communities in top 15% IMD. Measures will be 100% funded. It is recognised by central Government that local Authorities have a role to play in supporting the Green deal and ECO funded schemes, and enabling the utilities to focus their work in areas that can benefit to support the most vulnerable households across the areas. The Green Deal The Energy Act 2011 includes provisions for the 'Green Deal', which intends to reduce carbon emissions cost effectively by revolutionising the energy efficiency of British properties. The new innovative Green Deal financial mechanism eliminates the need to pay upfront for energy efficiency measures and instead provides reassurances that the cost of the measures should be covered by savings on the energy bill. The payment of the measures will be via a green deal finance loan which is attached to the property and possible contribution from the new ECO funding (see above) via the utility companies. 1 CERT - Carbon Emissions Reduction Target this fund helped deliver the Kirklees Warm Zone scheme 2 CESP- Community Energy Saving Programme- this funding helped deliver the Big Energy Upgrade programme in Kirklees.
6 The Green Deal loan repayment has a golden rule that all the estimated savings on energy bills should always be equal to or exceed the cost of the energy saving measures/investment, and the maximum repayment period is 25 years. The loan is assigned to the property and not the person. A property owner would apply to a Green Deal Provider to assess the suitability of their property for the required measures, an independent Green Deal Assessment is carried out and the measures are identified, the technical suitability of the property confirmed. If a property is rented the landlord has to give permission for the works to be carried out, and vice versa- if the land lord wants to have the measures installed they must get the permission from the tenant. The property owner would repay the loan is through the electricity bill, over the calculated loan term. If a person moves home the debt/loan stays with the property and the new occupier/owner takes on the loan. The diagram illustrates the payment options a mix of Green Deal Loan, and ECO grant. For those property owners who are on low income and in receipt of benefit, may get the measures paid for wholly by the ECO grant. A list of energy saving measure that can be installed under the Green Deal Scheme are listed below. Condensing boilers, Heating controls, Under-floor heating, Heat recovery systems, Mechanical ventilation (non-dom), Flue gas recovery devices, Cavity wall insulation, Loft insulation, Flat roof insulation, Internal wall insulation, External wall insulation, Draught proofing, Floor insulation, Heating system insulation (cylinder, pipes), Lighting fittings, Lighting controls, Innovative hot water systems, Water efficient taps and showers, Ground and air source heat pumps, Solar thermal, Solar PV, Biomass boilers, Micro-CHP, Energy Efficient Glazing and Doors.
7 Appendix 2- Key Points of the Leeds City Region Business Case 1. The LCR Green Deal/ ECO business case considered the different models of how a local authority or group of local authorities can work with a Green Deal/ ECO Provider to achieve sufficient ECO subsidy from the energy suppliers to fund a coordinated approach to alleviating fuel poverty and tackling the most energy inefficient homes. 1.3 The LCR Green Deal business case covered: An assessment of the current position in Leeds and the wider LCR; Demand and housing stock analysis; Review of operational models most suited to the local situation; Review and recommendations for legal, financial and procurement approaches; Involvement of other LCR authorities; Quantification of outcomes (jobs, GVA, carbon savings); Presentation and refinement of recommended model. The full business case is available as a background document and the key elements are summarised below in the remainder of this section a. A critical element of the business case is to demonstrate that there is sufficient technical need for and likely customer demand for the Green Deal and ECO across the LCR. b. An analysis of the housing stock in the Leeds City Region filtering out unlikely/ difficult properties such as listed buildings has identified an accessible market of 420,000 homes out of 1.25m homes. c. The diagram below shows the resulting accessible market for the LCR: 1,251, , ,023 78,601 14, ,351 36,943 39, , ,994 1,400,000 1,200,000 1,000, , , , ,000 -
8 d. Procurement advice and the consultants Marksman s soft-market testing indicate that a pathfinder programme of c12,000 properties over a 3 year period (representing c 80m of total investment) is required to attract strong interest from delivery partners. This represents just 2.8% of the homes within the accessible market. e. A target of only 4,000 properties per annum from the total LCR stock of over 1.25m homes is still well short of the ambitious targets that LCR authorities have set for carbon reduction and fuel poverty alleviation. This target should therefore be seen as the minimum initial target in order to establish a scheme capable of delivering upwards of 20,000 properties per annum from year 4 onwards. f. The Delivery Partner will have overall responsibility to set up and manage a programme that delivers improvements to 12,000 homes, including driving householder demand through a marketing campaign. This will include ensuring that installations are good value, bring maximum ECO contributions, include key subcontractors (such as social housing providers sub-contractors) within the contract and create local jobs wherever possible. g. The business case is reliant on the creation of a sufficiently large local loans fund to kick-start the Green Deal in Leeds City Region. To treat 12,000 homes as proposed above will require c 59m of debt finance (via the Green Deal Finance Company) spread over three years, supported by c 22m of utilities ECO funding. 2. Project Outcomes in the LCR The LCR Green Deal programme is designed to deliver carbon reductions, tackle fuel poverty, increase GVA and create jobs locally. The Energy Saving Trust was commissioned by LCR to model these three factors and their work indicated that the initial three year programme will: Reduce carbon dioxide emissions by over 19,000 tonnes pa; Directly increase GVA by 21.7m and indirectly by 17.1m pa; Sustain or create 314 direct jobs and 324 indirect jobs. Further analysis indicates that each job can be created at a cost of around 5,000, compared to an average cost of 33,000 for each Regional Growth Fund job created (NAO research). Continuation to the planned 20,000 home pa programme will result in approximately double these outcomes each year.
9 3. Risks The programme does have a number of risks, the most significant of which are outlined in the table below, together with mitigating actions: RISKS Unable to sign up 12,000 households Mistakes made by installers in initial deliveries leading to Local Authority reputation damage Changing government policy MITIGATION Pay delivery partner on house delivered basis Target early adopters who are positive about Green Deal Include public sector housing and non-housing assets in the first phases Focus on LSOA to attract ECO funding Carry out research during tender process to identify early adopters Use existing research to help mainstream demand Anticipate mistakes and ensure Delivery Partner has appropriate processes in place to address these Apply learning from previous schemes Continue to liaise closely with government and other local authorities development similar Green Deal/ECO Schemes 4. Conclusions Without this programme, it is highly likely that energy companies with significant amounts of ECO funding to invest will look for other authorities with more ambitious programmes to partner with. This would potentially have a very significant negative impact on the carbon reduction, fuel poverty alleviation and job creation aspirations within the City Region. Also, the local authority brand for energy efficiency schemes is proven to increase take up of measures Additionally, prolonged delays in establishing the LCR programme will mean that other authorities will be in a better place to secure the best contribution rates from authorities and the most proactive delivery partners.
10 Appendix 3 Housing Stock in Kirklees 1. Housing Stock Analysis in Kirklees 1.1 Kirklees has a large and varied housing stock that is representative of the wider area and its industrial past. In relation to energy efficiency and fuel poverty, key features that differ from the national average are considered to be: Higher proportions of pre-1919 dwellings than the national average (31.2% Kirklees vs. 24.6% national) Higher proportions of small terraced houses (16.4% to 9.5%) of these approximately 25% are back-to-back dwellings. Higher proportion of bungalows (15.2% to 9.2%) (Source: Kirklees House Condition Survey 2010 & English Housing Condition Survey 2007) 1.2 The Warm Zone (WZ) Scheme ( ) installed some energy efficiency measures across the district s domestic housing stock on a free-to-all basis primarily through providing loft and cavity wall insulation via CERT funding and Council funds. 1.3 Whilst there are challenges in adjusting to the new funding arrangements, it is considered that the Green Deal and ECO will offer increased potential for a more holistic whole house range of measures approach, in contrast to the more restricted loft/cavity wall-only measures of the past. 1.4 As a result of the Warm Zone (WZ) and related programmes, Kirklees Council holds data on approximately 133 thousand domestic properties (out of approximately 165 thousand active households in total) and includes assessment data (relating to build type, existing condition and measures) and records of what insulation measures were installed. 1.5 Through Warm Zone, 51,155 households received measures. Since the WZ scheme finished, council scheme have installed various measures in approximately 1200 further households. 1.6 The Council has mapped opportunities and highlighted areas where there is increased potential for further energy efficiency interventions based upon the work completed through Warmzone. 1.7 Those households that remain are considered more likely to be eligible for the Carbon saving ECO subsidy (e.g. those that are hard-to-treat solid-walled properties). In addition, households that received measures via WZ may also be eligible for further measures via the different ECO strands (dependent on their circumstances) 1.8 Also, the LSOAs in central, north-east and south-west Huddersfield and to a lesser extent in the older urban areas of Batley and Dewsbury all display eligibility for all elements of the ECO. This is in line with the higher levels of deprivation and relatively old housing stock in these areas.
11 1.9 In the case of Kirklees, a significant proportion of the conventional loft and cavity walls have already been insulated via the Warm Zone Scheme but there is significant potential for other energy efficiency measures (see list in appendix 1) to be installed funded via ECO or Green Deal Loans. Also, as demonstrated by the Kirklees Warmzone scheme, the local authority trusted brand for energy saving schemes significantly increases householder take up and doing nothing would be a significant lost opportunity in terms of job creation, providing warmer homes and healthier people and reducing carbon.
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