The GFI has today published a report outlining 21 financial ‘demonstrator’ projects that will be developed to finance the retrofitting of the UK’s existing housing stock, in order to meet the UK Government’s 2035 target of ensuring that as many homes as possible achieve an Energy Performance Certificate (EPC) rating of C.
The GFI set up the Coalition for the Energy Efficiency of Buildings (CEEB) in December 2019, which consists of 52 organisations and 85 individuals and has spent the last five months exploring financial barriers to retrofitting across owner-occupied, private-rented and social-rented homes in the UK.
The resulting report suggests that investments totalling £65bn would be required to meet the Government’s 2035 targets, but that a portfolio of financial solutions can catalyse a green retrofitting transformation that also assists with a green recovery from the economic downturn caused by the coronavirus pandemic.
Dr Rhian-Mari Thomas OBE, chief executive, GFI and chair, CEEB, says: “Citizens, communities and economies are facing the two greatest challenges of our times: climate change and the Covid-19 pandemic. The response to both these crises is rooted in science and innovation, as we seek solutions to monitor, mitigate and adapt to the impacts of coronavirus and our changing climate. The role of our financial system is also increasingly recognised as essential in facilitating those solutions, while also helping to create a more inclusive and sustainable global economy.
“In line with the Green Finance Institute’s theory of change – which focuses on creating opportunities for the financial sector to profitably support the transition towards an environmentally sustainable economy – the Coalition for the Energy Efficiency of Buildings is developing the market for financing net-zero and resilient homes through the co-design and launch of viable and impactful financial ‘demonstrators’ that provide the catalysts for further financial innovation and scale.”
Financial barriers
The report found that different home-ownership models created different barriers to being able to afford and install sustainable housing solutions. Owner-occupiers, for example, usually experience longer paybacks which have limited impacts on property valuations, while in the private-rented sector, landlords have to pay the upfront costs in order for tenants to accrue benefits through reduced energy bills. In the social-rented sector, short-term granting timelines prevent access to some retrofit projects, the report notes.
In response, 21 ‘demonstrator’ solutions were co-designed by the Coalition and include financial, data and standards-based solutions to overcome barriers to scaling up finance. The Coalition also explored policy levers that could accelerate commercial and scalable solutions.
The demonstrators fall into six groups: lending products – including Property Assessed Clean Energy (PACE) loans, equity release mortgages; savings and investment products – including community municipal bonds and ISAs; guarantee mechanisms – backed by the Government or by insurance companies; tenancy agreements; energy service products; and data and enabling frameworks – including building renovation passports and standardised energy saving methodologies.
“The work carried out by the Coalition for the Energy Efficiency of Buildings represents a positive step towards achieving our Green Finance Strategy ambition to build the market for green home finance. The proposed demonstrators aim to support the development of innovative products to finance energy efficiency and build a vibrant market for energy retrofit. This will support the UK in delivering its commitment to move towards net-zero whilst growing our economy,” Kwasi Kwarteng MP, Minister of State for Business, Energy and Clean Growth said.
VAT cuts
The housing stock is a challenging area for the UK’s wider net-zero commitment for 2050. Around 80% of the UK’s building stock in 2050 is already built.
In a separate report also released today, the Green Alliance’s Tech Taskforce has called for the Government to cut VAT on renovating existing buildings to accelerate decarbonisation in the sector and spur new job growth that will support the Covid-19 response.
New buildings benefit from zero-rate VAT, while 20% VAT is levied on repair and renovation work. The thinktank argues that the VAT on renovation should be removed to incentivise more construction work on existing buildings.
The group highlights that upgrading and repurposing old buildings would create new jobs in construction, while also helping to meet housing demand.
Specifically, the Taskforce calls for the Government to support the uptake of digital solutions in the construction industry, noting that productivity in the sector has not improved for more than 25 years. Digital ‘material passports’ should also be used to track and reuse building materials, while £300m should be issued on a new retrofitting programme.
Green Alliance’s senior policy analyst Caterina Brandmayr said: “As the UK looks to build back better post-COVID, businesses should be investing in those smart low carbon supply chains that will be in high demand in the future and shield the sector from further disruptions down the line.
“To make this a reality, the government should start by removing the tax disincentives that are stopping the renovation and repair of existing buildings, and scale up deep retrofit solutions that will create high skilled jobs across the country.”
Future opportunities
The Energy Efficiency Infrastructure Group (EEIG) has previously stated that investments in this area would support more than 150,000 skilled and semi-skilled jobs across the construction sector supply chain to 2030.
The report was published in the same week that UK engineering consultants called for the Government’s Future Homes Standard (FHS) to be pushed forward to assist with a national green recovery.
The new Future Homes Standard (FHS) is set to be introduced in 2025 to create “world-leading energy efficiency standards”. Interim regulations for the Future Homes Standard will be introduced from 2020. The consultation will shape building regulations that will come into by the end of 2020.
The Government has proposed that every new home should “typically have triple glazing and standards for walls, floors and roofs that significantly limit any heat loss”. Additional carbon-saving methods could also be delivered through heat pumps, heat networks and direct electric heating.
The FHS form the policy proposals for Part L and Part F of Building Regulations and include measures that would result in emissions reductions of between 20 and 31% for new build homes, but the Government prefers the more ambitious of the two targets.
Matt Mace