Green Finance Institute releases report on zero carbon heating – an opportunity to invest in a green recovery

Green Finance Institute releases report on zero carbon heating – an opportunity to invest in a green recovery

The Coalition for the Energy Efficiency of Buildings (CEEB) – a cross-sectoral collaboration of over 200 individuals, established by the Green Finance Institute with support from E3G in 2019 – today releases Financing zero carbon heat: turning up the dial on investment, a piece of an analysis of the investment barriers to widescale decarbonisation of the UK’s domestic heating and details of a portfolio of 12 financial solutions and policy, regulatory and data enablers to overcome them, turning the challenges into an opportunity for the finance sector and a green economic recovery.

In the UK, heating the built environment is one of the largest contributors to emissions and accounts for 21% of the national total1. Housing alone is responsible for two-thirds of these emissions, and a near complete decarbonisation of heat is essential to achieve the government’s net-zero target by 20502. The Prime Minister’s ten point plan for a green industrial revolution set an ambitious vision for 600,000 heat pump installations per year by 20283, and a widescale programme for zero carbon heating could also support the UK’s green economic recovery.

In Autumn 2020, the CEEB assembled the action-focussed Zero Carbon Heating Taskforce, an expert group of over 50 member organisations from the finance, energy and construction sectors, as well as local and national government. The Taskforce collaboratively designed a portfolio of financial mechanisms and enabling policies, informed by in-depth analysis of the challenges that individual, social and institutional residential owners experience on their heat decarbonisation journey. In the next phase, the CEEB and its members will bring these scalable solutions to market.

Dr Rhian-Mari Thomas, Chief Executive of the Green Finance Institute, said, “The finance sector has a critical role to play in enabling the decarbonisation of our heating: it must offer products that make the decision affordable. The Zero Carbon Heating Taskforce’s solutions are practical, scalable, and focussed on presenting homeowners, landlords and institutional investors with attractive ways to access funding and new savings options. They’re also backed by recommendations for the fiscal and policy incentives required to support their roll-out.”

The report assesses the investment barriers to zero carbon heating across the UK housing market – including on and off gas grid homes, new builds and district heating networks – and presents a portfolio of 12 ‘demonstration projects’ that were collaboratively designed by the Taskforce members to directly address the challenges identified.  The portfolio includes financial mechanisms for consumers and institutional investors, energy service products and capacity building tools, supported by fiscal and policy incentives to bolster the commerciality and scalability. The demonstration projects include:

  • Green Home Salary Sacrifice Scheme  – A tax-efficient mechanism for employees to pay for a heat pump via a loan from their employer, similar to the ‘Cycle to Work’ scheme.
  • Green REITs – Embeds environmental criteria into a popular asset class and provides a scalable mechanism to attract significant volumes of institutional investment into zero carbon heating systems.
  • National District Heating Fund – A specialist investment fund focussed on investing in district heating networks across the country, that could sit independently or as part of a new National Infrastructure Bank.

The Green Finance Institute and its supporters will bring to market the portfolio of demonstration projects in 2021 and beyond.

Ends

1 BEIS (2018a) Clean Growth – Transforming Heating, overview of Current Evidence.
2 CCC (2016a) Next steps for UK heat policy.
3 BEIS (2020a) The Ten Point Plan for a Green Industrial Revolution.

Quotes from ZCHT members:

 “Decarbonising the UK’s heating will require us to be bold in our approach, and to consider solutions that are scalable, investable and in line with net zero. Our success or failure in decarbonising heating by 2050 will depend on the actions we take in the next five to ten years. Therefore, we welcome the report published today by the Green Finance Institute, which provides much needed examples of how we can make low carbon heat solutions an attractive, low risk option for investors. We look forward to working with the Coalition for the Energy Efficiency of Buildings further in 2021 to make these demonstration projects a success.” Caroline Bragg, Head of Policy, The Association for Decentralised Energy

“Baringa welcomes the opportunity to work closely with the Green Finance Institute on the Zero Carbon Taskforce. With Government’s recently announced ambition that 600k heat pumps are installed each year by 2028, we need to break down barriers and unlock market potential. Working with an extensive breadth of companies  on the Taskforce, we feel that we are one step further to achieving this and look forward to continuing to work with the GFI on bringing these key initiatives to life.” Rebecca Teasdale, Heat Decarbonisation Lead, Baringa Partners

“The availability of private finance from trusted providers, in combination with quality products and installers, has a vital role to play in the transformation of the UK’s heating systems. There are a number of technical solutions, with electrification of heating key amongst these, and our industry is ready to work with the Green Finance Institute’s members to deliver affordable, reliable and low to zero carbon heating systems for UK households.” Dr Howard Porter, CEO, BEAMA

“I am pleased to see these 12 demonstration projects moving to the next stage of development. Many of these initiatives will make a major difference to the UK achieving its carbon reduction ambitions. We are happy to continue our support of these ideas.” Stephen Huller, Director of Home Improvement, BNP Paribas Personal Finance

“Heating our buildings represents 21% of the UK’s greenhouse gas emissions, and the current sluggish rate of decarbonisation puts the UK at the bottom of the league table of low carbon heat. Our new target set out in the Prime Minister’s 10 Point Plan to install 600,000 heat pumps per year by 2028 will require a step-change from the current low levels of action, as well as huge sums of public and private capital – with even more needed to put the UK on track to meet its net zero commitment.

The Zero Carbon Heating Taskforce is an exciting and much-needed initiative to scale up investment, innovation and action. E3G is pleased to be helping catalyse a race to the top in zero carbon heating systems and the financial solutions needed to underpin them.” Nick Mabey, Chief Executive and Co-founding Director, E3G

“Achieving reductions in carbon emissions consistent with the Paris Agreement and the UK’s ambitions to be net zero by 2050 requires concerted action across the economy, including the necessity to make buildings and homes greener. ENGIE’s involvement in the Zero Carbon Taskforce has enabled us to work directly with our peers and partners to collaboratively design new ways of encouraging the action needed to decarbonise heat in our homes. District heating networks across the country have an important role to play in the decarbonisation journey alongside heat pumps and green gas. The Taskforce proposals for a new specialist national investment fund focussed directly on district heating, would we believe stimulate the market helping to unlock major growth in the sector.

We look forward to continuing to support the work of the Green Finance Institute, CEEB and the Taskforce as they look to bring these scalable solutions to market.”  Dr Andy Davey, Director of Strategy and Policy for Urban Energy, ENGIE UK

“The Heat Pump Federation and Ground Source Heat Pump Association have been delighted to contribute to the work of the GFI in coordination the Zero Carbon Heating Taskforce report. The funding of the decarbonisation of the built environment in the UK in pursuit of Net Zero 2050 will require bold and imaginative solutions. The challenge is so great that no one organisation can possibly solve the problem alone, so collaboration, the fruits of which will be seen in this report, is crucial to success. Congratulations to the GFI and to all involved. “ Bean Beanland, Chairman, Heat Pump Federation and Ground Source Heat Pump Association

“The Kensa Group welcomed the opportunity to contribute to the Zero Carbon Heating taskforce and recognise the important part that finance will play in the decarbonisation of heating. We are already seeing ground source heat pumps and 5th generation district heating being treated as an infrastructure investment. The economies of scale achieved with mass deployment in concentrated areas unlocks new finance mechanisms that allow larger investors and “slow money” to accelerate the decarbonisation of heating.” Matthew Trewhella, Managing Director, The Kensa Group

“Reducing emissions across the built environment is critical to achieving climate targets for the UK and globally. There are already many solutions and technologies that can be deployed in the next decade which, in the process of scaling up and rolling out, will create skilled jobs, support our communities and grow our economy. Legal & General is investing in low-carbon homes and climate-committed cities and provides a wide range of financial services for people across the UK. We welcome this report and will be working hard to deliver zero carbon heating across the UK.” John Bromley, Head of Clean Energy, Legal & General Capital

Clementine Cowton, Director for External Affairs at Octopus
“By the end of this decade almost all homes in this country will be heated with green electricity and to achieve this we need to make sure that replacing a gas boiler with a heat pump is the easiest, cheapest and most comfortable choice for customers. Mobilising Britain’s financial sector is an important part of this puzzle, and I’m pleased to have been able to contribute as part of the Zero Carbon Heating Taskforce.” Clementine Cowton, Director for External Affairs at Octopus

“The reality for most households today is that gas boilers remain a cheaper option for heat, despite their huge carbon footprint.

“We’ve committed to helping all of our members eliminate their household emissions by 2030. However, the mass uptake of the green, electric heating systems of the future will only be possible if they are the most appealing and affordable option for consumers.

“The work of the Green Finance Institute in unlocking the investment that will help make this happen is a critical piece to reaching net zero, and we’re delighted to be working together.” Adrian Letts, CEO, OVO Retail

“The Zero Carbon Heating Taskforce brought together experts from across industries, enabling us to challenge each other, share thinking and collaboratively explore ideas. We look forward to continue working together as a team to develop new initiatives that can make a real difference.” Mick Taylor, Group Marketing Manager, Santander

“Private sector finance is ready to dive in to decarbonise our buildings – improving energy efficiency, decarbonising heat and providing better service and outcomes for customers.  The barriers are not insurmountable, it’s about achieving scale and replicable models through simple, clear and effective policies.  Vattenfall was therefore delighted to contribute to the Zero Carbon Heating Taskforce convened by the Green Finance Institute.  This bringing-together of the best minds in the market doesn’t happen enough and some of the proposals on the table we hope will stimulate the imaginations of deep thinkers in government.” Mike Reynolds, Managing Director, Vattenfall Heat UK Ltd

Contact: Rosie Cade, rosie.cade@gfi.green +44 (0) 7838 368194

Members of the Zero Carbon Heating Taskforce

Abundance Investment
The Association for Decentralised Energy (ADE)
Association for Renewable Energy & Clean Technology (REA)
Arup
Baringa
BEAMA
BEIS Heat Networks Delivery Unit
BNP Paribas
Bristol City Council
British Property Federation (BPF)
Building Societies Association (BSA)
Centrica
Centre for Research into Energy Demand Solutions (CREDS)
Cheshire East Council
Clarion Housing
Confederation of British Industry (CBI)
Department for Business, Energy & Industrial Strategy
E3G
Ecuity
Energyharmonics
EnergyPro
Energy Saving Trust
Energy Systems Catapult
Enfield Council
Engie
E.On
Grantham Research Institute on Climate Change and the Environment
Greater London Authority (GLA)
Greater Manchester Combined Authority (GMCA)
Ground Source Heat Pump Association
Heat Pump Federation
Homes England
ilke Homes
Islington Council
The Kensa Group
Leeds City Council
Legal & General
Liverpool City Council
Lloyds Banking Group
Lux Nova Partners
Metropolitan
National Centre for Decarbonisation of Heat (NCDH)
Octopus Energy
Orkney Islands Council
OVO Energy
ReFLEX Orkney
Resourceful Futures
Santander
Scottish Government
Sero
Solo Energy
SSE
Travers Smith
UK Finance
Vattenfall
Vital Energi
Welsh Government / Llywodraeth Cymru
Worcester Bosch

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