Report finds ‘aggregator approach’ is best model to fund retrofit in Scotland

Toby Tucker, associate director at the SFT, who led on this report, said: “Based on our analysis, the most likely model to succeed is the ‘aggregator approach’.

“This offers the opportunity to use public sector capital to lever in more private sector investment at a lower overall cost of finance, and ultimately provides an enhanced ‘one-stop shop’ support for both project development and financing of net zero installations.”

The report said that financial aggregator models could involve the establishment of a new special purpose vehicle (SPV), part-funded by Scottish government capital and part-funded by private loans.

The SPV would make loans available to landlords at a blended rate of interest.

“The SPV would require significant additional resources, skills and set-up costs and one possible approach would be the creation of an enhanced multidisciplinary support resource which could act as a one-stop shop,” the report said.

“It is possible that this additional support resource could grow or be derived from a more general enhanced SHNZHF support offering, and this might provide a step towards establishing a super-aggregator type model.”

The report recommended that the government works with the sector to further explore and implement “the prioritised blended financial models and possible use of financial guarantees.”

“There is also the opportunity for social landlords to participate (rather than lead) in area-based opportunities as they arise,” the report said.

“There is substantial enthusiasm in the sector for the development and implementation of solutions, but the sector needs clarity on its net zero requirements/responsibilities and how it should address these alongside other priorities.”

The report said that, in a loan guarantee scheme, the Scottish government or National Wealth Fund would act as a guarantor, guaranteeing loans made by private finance providers to social landlords to fund net zero works. This approach may complement the development of aggregator models, the report said.

Elsewhere, the report also made recommendations on clean heat and energy efficiency data collection.

It said that the government should centrally gather and share data on installation and materials costs, as well as information on the performance and net savings realised for energy efficiency and clean heat deployment.

The report said that accessibility to this data for all social landlords would be “key to helping inform, develop, evaluate and deliver net zero retrofit projects”. Increased data clarity and reliability would also “give confidence” to potential private investors, the SFT said.

Mr Tucker said: “Delivering energy-efficient housing with clean heating systems will not only reduce carbon emissions, but can also deliver socio-economic benefits, where warmer, more comfortable homes can significantly improve health.

“In preparing this report, we engaged with many stakeholders who identified a keen interest in strengthening and developing the current support that is available via the Social Housing Net Zero Heat Fund (SHNZHF).

“The enhanced support recommended in this report aims to provide immediate support to all social landlords, and importantly provides an initial step for further working with the sector to catalyse the development of future financial models.”

Sally Thomas, chief executive of the Scottish Federation of Housing Associations (SFHA), said: “Reducing carbon emissions and integrating clean sources of heat into our social homes is arguably the biggest challenge facing housing associations today, which is why this report makes for essential reading.

“SFHA fully supports the recommendation to strengthen the Social Housing Net Zero Heat Fund because our transition to net zero must be fair, it must be just: tenants cannot foot the bill through higher rents, which would be the only way not-for-profit housing associations can fund it if additional money can’t be found.

“So, our housing associations require funding solutions which allow them to significantly accelerate their retrofit projects at scale while not affecting rents and we look forward to discussing this and the rest of the report’s findings in our continued engagement with the Scottish government.”