SHDF director: election timing will not impact Wave 3, but there ‘will be changes’ to scheme rules

Mr Brown said: “Outline business case is the thing that I need in order to be able to go out to you with the guidance and ask for the bids. When we get the bids back, we then get into the final business case, which we would approve around September. 

 

“So please don’t worry, if you read it in The Times that there’s going to be a May election, it’s not going to affect what we’re doing. I’ve been very clear, with my colleagues, with the permanent secretary, that we need a six-month run-up to April 2025, in order to give you the assurance to expand the team, to do Wave 3 alongside Wave Two – 2.1 and 2.2 – and to get out and do your procurement, so that in April 2025 you’re ready to roll. 

 

He added: “If you don’t do that in September, we’ll be six months late, and we will underspend. You can see in the budget allocation, there’s £620m scored for that first year, 2025-26. So if we don’t do it in September, we’ll underspend by probably half of that.”

 

Wave 3 is set to be the largest to date under the total £3.8bn fund, after the government announced in December that £1.25bn would be made available to “support up to 140,000 social homes to be insulated or retrofitted, improving energy performance and lowering bills”. 

 

Mr Brown said that the £1.25bn of funding would cover the period from 2025 to 2028. But he indicated that, compared with earlier waves, changes would need to be made around the parameters for what is funded.

 

“[We’re] going to have to do some things differently. We will be doing the bidding as usual. But we’re also going to have to have foci on clean heat. Where we got to on Wave 1, we did all of the homes, or [rather] 104 per cent of the homes. We did it for 95 per cent of the funding. But we lost more than 80 per cent of the clean heat [aims]. And we must find a way to make sure that we are tackling the clean heat as well as the fabric. 

 

“I know that’s challenging. But we’ve got to do that, so there will be changes around that. So a slice, a dedication, a separate cap.” 

 

He added: “We’ll need to work together and work through what the details are. But we need to up our performance on clean heat in the programme.”

 

The day after Mr Brown spoke, the government separately announced that the implementation of another scheme intended to boost heat pump delivery and installation in the wider market had been “scrapped until 2025”. The Clean Heat Market Mechanism is a market incentive aimed at introducing more heat pumps by requiring boiler and heating manufacturers to deliver a set proportion of their output as heat pumps. But energy security secretary Claire Coutinho said on Thursday (14 March) that the scheme had now been delayed.

The ‘gap’ beyond EPC C

 

Speaking in Liverpool on Wednesday, Mr Brown also referred to what he called the “gap of the funding”, concerning improvements that will ultimately be required on the 70 per cent of homes that are already at Energy Performance Certificate (EPC) Band C. “The current manifesto commitment is getting those homes that are below that, the 30 per cent, up to EPC C.

 

“So my programme – the £3.8bn, of which we’ve given out £1bn, and have made a commitment to the £1.25bn, that’s £2.25bn. We’re going to have to have a conversation in the next parliament about what’s the answer to that 70 per cent [of homes at EPC-C or above]”. 

 

Registered providers hold “part of the answer”, because they have “got to currently invest in heat replacement, Mr Brown said. “And the government and I have got part of the answer, because I need the carbon,” he added. “And I need that heat replacement to be decarbonised – clean heat replacement, not fossil fuel replacement.”

 

‘In-flight’ wave extensions

 

The SHDF, which was first promised in the Conservative 2019 manifesto as a £3.8bn fund over a 10-year period, has to date received bids for two full ‘waves’ of funding to the sector and an additional ‘top-up’ competition to the second wave. It also initially launched with a ‘demonstrator’ fund, which awarded £62m in 2020-21.

 

The first full round, SHDF Wave 1, was aimed at delivering energy performance improvements in up to 20,000 social housing properties, with projects needing to be led by a local authority. It announced around £179m of grant funding to 69 projects in February 2022. 

 

Wave 2.1, which was open to RPs in their own right, as well as local authorities and ALMOs, saw £778m of an available £800m of government funding awarded in March 2023 to make energy performance improvements to around 90,000 homes, across 107 projects. 

 

Wave 2.2 then launched as a ‘top-up’ competition to allocate up to £80m of grant funding from April. This closed to applications on 31 January, and Mr Brown indicated that successful recipients would soon be notified. 

 

The DESNZ director said that the current wave, 2.1, has £300m of annualised budget for this year and that this has now spent £290m. 

 

“So [that is] only a £10m underspend, and even that I’m trying not to give back to the Treasury. So we’re in a decent position, we’ve got a very good programme, lots of good collaboration, [and] we will be coming out once the OBCs are approved, to set out the guidance and the rules around Wave 3.

 

Referring to Wave 2.2, Mr Brown said that £75m of bid had now been received against the pot of £80m, and that announcements were expected to be imminent, with this likely to take the form of a rescoped, combined Wave 2.

 

“The last two years of 2.1 overlap with 2.2. and we will extend the contracts and the support for 2.2 and effectively rescope 2.1 as a Wave 2 overall.”

 

Mr Brown also indicated that there could be further extensions to future waves, to avoid returning hard-fought funding to the Treasury.

 

“Now we have shown that we can make an assessment in the run-up to mid-financial year and run an ‘in-flight’ competition to extend the scope of an in-flight wave, I would expect that this time next year, we’ll be having the same conversation about extending Wave 3.”

 

However Mr Brown cautioned that the Treasury assessment of the scheme’s value for money could be impacted by the level of match funding now being received against the grant. He said that, with £139m pledged from the sector against the £75m of grant bids in Wave 2.2, this places the split of grant to investment “close now to 1:2” . 

 

Mr Brown said: “That sort of affects value for money. In a way, you’re being too generous, I’m being too successful in attracting money, because the whole pot has to go on the Green Book Treasury assessment for ‘is this value for money?’. So I’m working through that with the private secretary and the Treasury at the moment.”

 

Hear how registered providers and funders are targeting a holistic approach to investing in decarbonisation, quality and safety at the Social Housing Finance Conference, on 8 May in London. And attend our dedicated sustainable investing stream to take a deeper dive into topics such as how to shore up ESG data in a changing regulatory landscape. Click here for more information.