Energy UK response to the Warm Homes Fund Call for Evidence

Executive summary

The Warm Homes Fund (WHF) could be a critical element of the Warm Homes Plan’s success. If it is to make a meaningful difference to achieving the plan’s ambitions, it must focus on complementing existing support provided by the Warm Homes Plan capital investments. There are limited applications of the Warm Homes Fund that both meet the technical requirements of the Financial Transactions funding model and provide material support to end customers. The WHF should therefore target heat networks financing schemes and support for non-domestic decarbonisation, as well as support for social housing decarbonisation. There are fewer options to support domestic low-income households in the private rented and owner occupier sectors using the WHF, as consumer loan products are less suitable to support these households. They should therefore be adequately supported within the Capital Delivery (CDel) allocation for low-income households.

The Warm Homes Plan (WHP) sets out an ambitious strategy for the deployment of heat networks. However, it included insufficient policy and regulatory support to realise this growth. Heat network developers struggle to access affordable capital due to high levels of equity investment in the sector, relatively high-risk profiles due to a lack of demand assurance, and extended time periods between construction and the network achieving a mature revenue stream where a large volume of customers are connected.

The WHF should therefore be used to invest in reducing the cost of capital for heat network developers, and providing funding structures that align with development timelines, to enable more networks to be built out. Without this, large public sector buildings, non-domestic buildings, and multi-occupancy high-rise buildings in densely-populated town and city centres have fewer available pathways to decarbonise and options to access more stable energy bills. The consultation proposes to develop Property-Linked Finance, deploy equity investment in large-scale infrastructure projects such as ‘Strategic Heat Mains’, and create the Heat Network Catalytic Fund, and these should all be priorities for the WHF.

The WHF should also be used to provide support to small to medium-sized businesses (SMEs) to decarbonise and transition away from gas. There is currently very little support available to these businesses in the WHP or broader policy landscape, and they face significant barriers in accessing technical support and finance to adopt low-carbon technologies.

Support could be provided through aggregating SME decarbonisation investment across a portfolio to help reduce overall risks and crowd in a wider range of lower cost private and institutional finance. Monitoring, and replicating where appropriate, the interventions of the European Investment Bank to advance energy efficiency projects by SMEs would be suitable applications of the WHF.

The NWF has partnered with a range of commercial lenders to help lower the cost of finance to social housing providers through the provision of guarantees. This has the objective of crowding in more private investment into the decarbonisation and future-proofing of social housing. This model has proved to be successful, and could form the blueprint for financing heat decarbonisation strategies across the social rented sector. This could include support for upgrading existing heat networks to improve reliability, efficiency and customer experience in line with the forthcoming Heat Networks Technical Assurance Scheme (HNTAS). The Heat Network Efficiency Scheme provides capital support to the sector, but the cost of meeting these upgrades is expected to exceed the funding available.