Showcasing our expertise: the key role of grant funding in public sector decarbonisation
This piece was originally published in Energy Manager Magazine, July/August issue, 2024
Author: Nadim El Bakri, senior energy and carbon analyst
How a strategic approach is important to meeting our net zero goals
Climate change is happening now and is happening fast; it is paramount to reach net zero in a timely manner to tackle this climate emergency. The message is clear and, according to the United Nations, more than 140 countries have pledged their commitment to this cause. Specifically, in Scotland, the Climate Change Act (2019) sets to reach this target by 2045.
Setting an objective is the stepping stone to define goals but there are many challenges along the way. One of these is undoubtedly the financial aspect.
The UK government estimates the cost of decarbonising UK public sector buildings to be between £25 and £30 billion. Despite this figure being indicative and based on current market prices, and despite Scotland accounting for only a portion of this, this value gives a clear indication of the financial effort required over the next 11 to 16 years.
The Scottish Government has demonstrated a strong commitment to decarbonising the public sector as part of its climate change goals. For example, since the year 2007/2008, the Government, alongside ourselves and public sector partners, has delivered more than 1,100 energy efficiency projects through the investment of over £82m thus contributing to the removal of more than 750,000 tonnes of CO2 over the lifetime of the projects.
We understand that this is not sufficient to achieve the set target. Energy efficiency and fabric improvements are extremely important when it comes to increasing the buildings energy performance and reducing heat losses. However, these cannot fully displace the buildings heating demand. At the same time, they play a pivotal role in enabling the installation of those technologies such as heat pumps which can meet the full heating demand of the building by relying on the use of electricity rather than on fossil fuel sources such as gas, oil or, coal.
In 2021, the Heat in Buildings strategy was published, outlining an investment of £1.8 billion towards energy efficiency and zero carbon heating for buildings in Scotland. This includes a significant allocation of £200 million over five years specifically for enhancing energy efficiency and decarbonisation of public sector buildings. The Scotland’s Public Sector Heat Decarbonisation Fund falls within this pot of funding and aims at supporting local authorities, universities and arm’s-length organisations in order to decarbonise their buildings with the main focus of replacing outdated fossil fuel heating system with heat pumps and other technologies.
The scheme, launched in July 2023, supporting 12 projects valued at over £17m enabling the removal of nearly 53,000 tonnes of CO2 over the next 22 years, which is the average lifetime of the technologies included in the scope of the funded projects. These range from fabric improvements such as cavity and wall insulation or glazing to energy efficiency measures such as BMS and solar PV, and low carbon heating systems such as air source and water source heat pumps.
Whilst a preliminary comparison of the carbon savings between loan and grant funded projects does not highlight major differences, the key distinctions reside in the projects’ scope and their philosophy. Where projects funded through loans greatly contributed to the reduction of carbon emissions, 10 of the 12 projects supported by Scotland’s Public Sector Heat Decarbonisation Fund are fully cutting their fossil fuel dependency of the selected buildings.
There are two major aspects showcasing the impossibility of comparing these two financial tools:
- the many financial limitations imposed on public sector bodies in Scotland. Whether as the result of individual financial circumstances or because subject to policies and regulations, many public sector bodies face restrictions on borrowing money. Whilst this affects, to a certain extent, applications to grant funding, it is to a lesser degree than for loan borrowings.
- the payback period of the technologies required to achieve decarbonisation. When combining the already high equipment costs with the associated distribution and infrastructure costs, the return on investments can be extremely long, indicating that such measures should be funded through a grant mechanism.
While the push from public sector bodies to focus on heat decarbonisation plans is increasing, there are significant financial holdbacks that can jeopardise their implementation.
Firstly, the initial investment required for low-carbon heating technologies, such as heat pumps, biomass boilers, and district heating systems, can be substantial. This can be a significant barrier for public sector bodies with limited budgets. Secondly, accessing adequate and consistent funding can be challenging. While there are grants and subsidies available, there may be too much competition to consistently secure funding which may also be limited in scope. Finally, the long-term financial benefits of heat decarbonisation may not be immediately apparent, making it difficult to justify the upfront expenditure, especially in the face of other pressing financial needs.
In conclusion, loans are and will always be a fundamental financial tool to support public sector bodies for a constant and gradual improvement of their buildings energy performances. However, full decarbonisation can only be achieved through a continuous release of grant funding since it is subject to less binding criteria which can potentially prevent the involvement of public sector organisations. As the world races against the clock to combat climate change, the strategic allocation of grant funding will play a pivotal role in determining the success in reaching net zero emissions.
References:
Net Zero Coalition | United Nations
Reducing greenhouse gas emissions - Climate change - gov.scot (www.gov.scot)
Net Zero by 2050 – Analysis - IEA
Recipe for a Liveable Planet: Achieving Net Zero Emissions in the Agrifood System (worldbank.org)
Climate change: Decarbonising UK public buildings to cost £25-30bn (bbc.com)
The rise of energy-efficient heat networks in the UK's public sector (aecom.com)
Heat Decarbonisation | Pembroke college (ox.ac.uk)
Figures from Salix Internal reporting
