Funding for Net Zero

28-05-24

The following is an expanded version of an article by Arun Poobalasingam, THFC’s Funding and Marketing Director, that originally appeared in Social Housing magazine.

Whilst politicians still pontificate on how important the decarbonisation challenge is, net zero is becoming increasingly present in the minds of housing association leaders. Everyone (well, nearly everyone) recognises this is a problem that needs a solution, but there is debate on what that solution will involve.

Cognisant of the multitude of challenges the sector has faced recently, I believe the time is now to give more prominence to the retrofit problem and the power of innovation as a means to achieving it.

Since the start of the year, I’ve been speaking to as many audiences as possible on this subject across the social housing sector.

In the past few months, I have spoken alongside Tariq Kazi, group treasurer at Peabody, at The Housing Innovation Show in Birmingham on the topic of ‘innovation in housing finance’ and on a panel alongside the UK Investment Bank (UKIB) at the National Housing Federation’s Social Housing Finance Conference & Exhibition in Liverpool.

It became clear that while debt had a role to play in improving Energy Performance Certificate (EPC) rates for the sector, a key innovation must be looking beyond this and thinking differently.

How should we be going about retrofit?

As anyone who has spent a significant amount of time in the retrofit space will know, there are a million ways to go about it.

Traditionally, a “fabric first” method – which prioritises the fitting of the external envelope of a home with various insulation measures to maximise its thermal efficiency – was widely viewed as the most efficient retrofit methodology for social housing. The thinking behind this is that a well-insulated house minimises energy demand, lowering energy bills for residents and reducing carbon emissions.

The issue with “fabric first” is that, while it reduces energy demands and is workable to achieve EPC “C”, it does not go far enough in terms of total decarbonisation. To achieve net zero by 2050, a range of other technologies like air and ground source heat pumps, solar panels and battery storage, and smart energy meters will be needed to future-proof social housing for a zero-carbon world.

I was particularly excited and enthused by the Disruptive Innovators Network (DIN) Spring Network Meeting at Amazon’s HQ in London recently. Amongst others, Octopus Energy gave a fascinating presentation on energy, retrofit, and prioritising social equality at the heart of the energy transition.

Nigel Banks, Octopus’ Technical Director, discussed the “Fabric Fifth” concept, which prioritises the installation of air source heat pumps, smart energy meters, and solar power and battery storage before undertaking major fabric measures. This method, Octopus argues, is (for most homes) the most efficient way to go about retrofit. You can read more about this here.

Nigel also presented on Octopus’ intriguing Zero Bills Homes project, which sees Octopus working with housing providers to install air source heat pumps (ASHP), solar PV, and domestic batteries on homes to create effectively self-powered houses. Once accredited with the Zero Bills Homes label by Octopus, these homes are then guaranteed to be bill-free for five years. It’s a captivating idea and represents the type of out-of-the-box thinking needed for retrofit to be scaled more widely.

Another fascinating presentation at the DIN event was that of Sero, who are also undertaking groundbreaking work in the retrofit space. James Williams, Sero’s CEO, opened his presentation with the thought-provoking statement: “If you are not thinking about being your own power station, you should be…”

James also discussed Sero’s Penderi case study, in which the energy company worked alongside Pobl to retrofit 644 homes in Swansea with solar panels and energy storage batteries. The scheme is unique in its community-sharing nature and is the largest retrofit project of its kind in the UK.

Two of the key messages that have been reaffirmed time and time again over the past few months are:

1. Innovation is absolutely key to solving the retrofit challenge.
2. We should never underestimate the power of collaboration.

Funding: The key to unlocking retrofit

Whilst virtually everyone in the sector acknowledges the importance of retrofit and decarbonisation, the level of priority placed on getting it done – and quickly – varies widely. With such a hefty price tag and a range of other activities to prioritise, it’s understandable that housing associations are hesitant to pull the budgetary trigger on retrofitting their housing stock at scale.

Traditional models like grant funding are beneficial, but they come with too many strings attached and timelines that are too short-term in nature to make lasting progress for the long-term. Newer structures such as green labelled funding options (e.g. green bonds and loans) currently don’t offer pricing benefits greater than a few basis points, and with so much paperwork and reporting required, it becomes difficult to justify the time and effort for such marginal savings.

The key, in my opinion, is to create a viable revenue stream from retrofit. So, how can we evolve our thinking around retrofit from a massive cost burden with no returns into a socially impactful investment opportunity with cash flows attached to it?

The question of who benefits from these cash flows – housing associations, tenants, or both – is a debate for another day. For now, let’s identify a cashflow opportunity and kickstart the retrofit revolution.

In conclusion

With so much work to be done, it’s natural to feel overwhelmed. But we cannot afford for the sheer size of the problems to lead to a stasis.

Given the significant percentage of the UK’s emissions that are consumed by housing, the nation will not achieve its net zero targets without our action.

For our sector in particular, net zero will ease the burden of fuel poverty for millions of social housing tenants, as well as achieve the net zero future that tomorrow’s generations will rely on.

Although it may not always seem like it, the reality is that, between all of us, we have all the metaphorical puzzle pieces. It is simply a case of working together to put them together.

With a bit of innovation and creativity, I am confident that the social housing sector can achieve this.