The Green Investment Bank - Environmental Audit Committee Contents

Written evidence submitted by Places for People


1.1  Places for People is one of the largest property management, development and regeneration companies in the UK. We own and manage more than 62,000 homes and have assets of £3.1 billion.

1.2  Our vision is to create and manage places where people want to live and our approach looks at all aspects of communities rather than focusing solely on the bricks and mortar provision of homes. Places for People's innovative approach to place management and placemaking allows us to regenerate existing places, create new ones and focus on long-term management.

1.3  Places for People has contributed extensively to research and policy development around the creation of the green economy, specifically around housing. We have been working with other stakeholders to develop the finance mechanisms and business models that will make possible the creation of a multi-billion-pound market for the retrofitting of the UK's housing stock. This has the potential to deliver thousands of new jobs and big reductions in carbon emissions, as well as cost reductions for householders and the UK economy. It will also make a significant contribution to energy diversity and security.

1.4  We welcome the Environmental Audit Committee's inquiry into the Government's plans for a Green Investment Bank, which in our view could play a key role in supporting the development of the UK's green economy.

1.5  In this response, we set out some background notes and our general views before responding in more detail to the issues raised in the inquiry.


2.1  In our response to the Environmental Audit Committee's inquiry, we set out the following views:

We strongly support the creation of a Green Investment Bank, as without it the development of a new economy of retrofitting homes would be significantly hampered. We see strong benefits not only in terms of carbon reduction, but also in terms of lower energy bills for householders and the creation of a new green supply chain which would have a positive impact on the wider economy.

Financial modelling has demonstrated that investors' cost of capital has a dramatic effect on the cost-effectiveness of extensive retrofit measures. Pay As You Save (PAYS and now adopted as the basis of the Green Deal) and Feed-in Tariff (FIT) schemes will deliver significant results if finance were to be available at 3%, which underlines the need for a Green Investment Bank.

We see the key investment priority for the new Green Investment Bank as providing the low-cost finance and long-term returns necessary to attract investors into the retrofitting economy. Rising energy prices reinforce the business case for this investment.

In our view, it could do this by providing a pool of capital from which low-rate loans could be made for installation of carbon saving measures. This finance could be provided as a sole source or "blended" with other sources of finance to reduce the overall cost and increase the total amount of finance available.


3.1  The UK Government has set a target of reducing emissions from the home by 29% by 2020. It believes that the social housing sector has the potential to make a big contribution to achieving this target, both through reducing carbon emissions from the sector's homes and in developing the supply chain necessary to deliver domestic emissions reductions more widely.

3.2  Achieving these goals will require a significant increase in the speed, scale and scope of retrofit activity. Most activity to date has focused on basic, cost-effective measures such as energy efficient light bulbs and loft and cavity wall insulation.

3.3  Places for People has so far invested over £5 million in the implementation of most of the basic measures to improve energy efficiency in its homes. We have pioneered the use of innovative technologies including heat pumps, solar thermal, solar photovoltaic and wind. Our long-term commitment to the green economy is evidenced by our investment in a start-up solar manufacturer in 2007, which has now become one of the most successful providers in the UK.

3.4  However, this is not enough to achieve the Government's 29% reduction target by 2020 and we want to retrofit more extensively thousands of homes to make them energy efficient and affordable in the long term. We are also keen to maximise the opportunities that may be created by the changing landscape of increasing energy costs and the Green Deal.

3.5  We feel that the most crucial carbon reduction measures to install across our housing stock in order to make our homes sustainable in the longer term are: solar thermal; solar photovoltaic; heat pumps; extensive insulation (solid wall); and mechanical ventilation and heat recovery.

3.6  Places for People's work on housing and the green economy has been based on clear and focused research. We have also worked extensively with Government departments, including the Department for Energy and Climate Change (DECC) and Communities and Local Government (CLG), as well as agencies such as the Energy Efficiency Partnership for Homes. We have been keen to develop both the finance "engine" for this new market, ie establishing how is it going to be paid for, as well as the delivery "vehicle", ie the regulatory, financial and legal framework that will support the creation of an almost entirely new market.

3.7  In all of this work we have felt that there is substantial role for a Green Investment Bank. In our view, large-scale retrofit (the Green Deal) is possible if low-cost, long-term finance is made available, and if we radically use existing sources of funding such as the supplier obligation.


4.1  The key issues in the green economy debate are cost and finance. Retrofitting existing homes is expensive - in fact we believe the figure quoted in the Conservative Green Deal of £6,500 per home is too low. In our experience, £12,500 is more realistic and in many cases costs can rise to £30,000. Places for People recently completed two retrofit projects funded by the Technology Strategy Board and spent £150,000 on extensive environmental retrofitting in each of the two homes.

4.2  Given the significant costs involved in implementing measures which will have a real impact on carbon reduction in the long term, the most important question is one of finance. The Government has acknowledged that retrofitting homes can either be funded through energy bills (with the energy costs saved being used to fund the measures in a Pay As You Save arrangement) or through the sale of energy to customers (with the Feed-in Tariff paying a premium for the production of renewable energy).

4.3  In general, investors' cost of capital has a dramatic effect on the cost-effectiveness of extensive retrofit measures. Commercial finance rates of 7% would be prohibitive. A lower rate of 4.5% makes the PAYS and FIT schemes just about viable and a rate of 3% would deliver real results.

4.4  The financial modelling we commissioned (as Chair of one of the Energy Efficiency Partnership for Homes sector groups and Chair of the Social Housing and Finance Task Group) to assess the viability of these funding mechanisms has shown straightforward commercial financing would not make the schemes cost-effective and would therefore prohibit real carbon savings being made in the UK's existing homes (further details of this modelling can be found in Appendix 1). In our view, this is the most important argument for the creation of a Green Investment Bank. Failure to establish a vehicle which can deliver finance at viable rates would seriously jeopardise the delivery of the Government's carbon reduction targets both in the short and long term, and we therefore feel that not creating a Green Investment Bank in the short term would represent a significant risk.

4.5  Places for People was also Chair of the Technology Group of the DECC Microgeneration Strategy Consultation, which is due to report to Ministers in the coming weeks. Our view, supported by our Board membership of Viridian Solar, is that there is a need for investment in research and product development as well as commercialisation (and much less in "new" or innovative technologies themselves). The role of the Carbon Trust has been useful, but more needs to be done. The recent lack of credit from banks has made this situation even more critical. Again, we feel that the Green Investment Bank could play a strategic role in providing lower-cost and long-term finance in order for the UK to create its own manufacturing base for renewable energy.


5.1  Pending clarification of the role of energy companies in terms of supporting the reduction of CO2 emissions, the Green Investment Bank should aim to deliver both the low-cost finance and the long-term (20 years plus) returns required for investors to undertake large-scale investment in energy saving measures in housing. It could do this by providing a pool of capital from which low-rate loans could be made for installation of carbon saving measures. In our view, there a number of options:

Energy company-managed funds.

White Certificates that buy and sell carbon savings.

National fund(s) created out of existing public funding, combined with contributions from energy companies and other private sector sources.

5.2  Whichever option was chosen, contributions would have to be optional for suppliers, in order to avoid HM Treasury tax and spend concerns. The funds would be established on the basis that the energy supplier contribution would be fixed for an agreed period of time, potentially up to 2020, rather than being revised on an ad-hoc basis. With either option, the supplier can claim the carbon credits.

5.3  The first option is simply a revised version of the existing supplier obligation, but with new regulation of the fund management and the carbon reduction outputs. Any organisation then "bids" into the fund using the new funding mechanisms such as PAYS-type funding schemes plus any other funding (for example some of their asset management investment).

5.4  The second option would allow providers such as local authorities, commercial companies and community groups to contract with energy suppliers to deliver carbon savings in return for funding.

5.5  The third option is more ambitious and sets up a single or range of national funds that then allows existing or planned public funding to also go in to the fund, including Warm Front and potentially Winter Fuel Payments. Furthermore, funding from other sources, such as Allowable Solutions,[9] could also contribute to the fund. Again anyone could bid into it using whatever funding they want to bring.

5.6  Whatever mechanism is developed, it is clear that the supplier obligation must play a central role in the green economy. Combined with the Green Investment Bank, this could kick start the investment needed in manufacturing, retrofitting and innovation.

5.7  We feel that any organisation (for example supermarkets, social housing providers, community groups, charities, etc) should be able to bid competitively to the Green Investment Bank in order to install carbon saving measures in homes. These organisations could then use mechanisms such as PAYS-type finance schemes, green mortgages and community investment funds at lower interest rates due to Green Investment Bank capital which would drag down the overall rate and moreover de-risk the funds they raise themselves.


6.1  As argued above, providing the finance and long-term returns to enable large-scale investment to take place in retrofitting, enabled through either PAYS or FIT-type schemes, should be the Green Investment Bank's core priority. There are huge benefits to be achieved from this, including significant carbon reductions, lower energy bills for householders and the creation of a green supply chain which will create thousands of highly skilled, long term jobs which would boost the wider economy.

6.2  Considerable investment is needed in the UK's energy infrastructure over the next few years in order to ensure secure and sustainable energy supplies, bringing with it increased energy prices. This bolsters the financial business case for taking action on low carbon retrofit, making energy efficiency measures and renewable energy technologies more cost-effective.


7.1  In broad terms, Places for People will not comment on the funding and governance structure for the Green Investment Bank. Our view is that much of this will be determined by the need to address public spending constraints and Treasury "tax and spend" concerns. However, the Bank does need to balance the need to be open, transparent and accountable with the need to take a long-term view on strategy and investment.


8.1  The case for a Green Investment Bank is abundantly clear when looking at financial modelling, which shows how commercial finance rates would prevent investors from entering into the retrofit market. Creating this new market and new economy would have a positive impact not only in terms of carbon savings, but also in terms of consumer energy bills and the creation of a green supply chain, which would benefit the economy as a whole.

8.2  The Green Investment Bank can play a pivotal role in creating an almost entirely new market by stimulating demand for the Green Deal and micro generation and at the same time delivering the supply chain by investing in research and development and UK manufacturing in retrofit and microgeneration.

8.3  The fact that energy prices are set to increase further strengthens the business case for investment in this new market. We therefore feel that providing the low-cost finance and long-term returns necessary to attract investors into this market should be the Green Investment Bank's key priority.

8.4  It could do this by providing a pool of capital from which low-rate loans could be made for installation of carbon saving measures, either through energy company-managed funds or through national fund(s) created out of existing public funding, combined with private sector sources.

8.5  We feel that any organisation (for example supermarkets, social housing providers, community groups, charities, etc) should be able to bid competitively to the Green investment Bank in order to install carbon saving measures in homes.



Recent modelling showed undertaken with Energy Efficiency Partnership for Homes shows great potential for financially viable investments in low carbon refurbishment. Across UK housing stock, at 6% cost of capital it could be financially viable to deliver emission reductions of 30% by 2020, 50% by 2030 and 80% by 2050 against a 2013 baseline, with 10% of the value passed to the resident. This assumes that grid decarbonisation will take place according to DECC's projections, and that there is no limit to the number of projects that can be supported by the Feed-in Tariff and the Renewable Heat Incentive.

Opportunities would be enhanced by a lower cost of capital or higher energy price inflation, which would allow a proportion of the benefits to be passed on to the home occupier through lower energy bills. For example, at 3% cost of capital it would be possible for around 20% of the value to pass to the resident. The modelling has shown that long contract lengths are important (typically 25 years) in order for the investor to generate maximum return on their investment.

A medium refurbishment package of measures includes more expensive measures with longer payback periods. With a marginal increase in the cost of capital, from zero to 3%, the amount of carbon saved is reduced by more than 20%, as certain projects are no longer cost effective. The limited range of more expensive measures applied in the medium package means that increasing the cost of capital to 6% only causes a small reduction in the number of projects that are viable.

A high refurbishment package includes expensive advanced energy efficiency measures, various forms of low carbon heat and also microgeneration technologies such as PV and wind energy on suitable homes. There is a great dependence on a low cost of capital to help deliver carbon savings in the high refurbishment package. A 3% cost of capital lowers the potential carbon saved by more than 80%, as many refurbishment measures are no longer cost effective. The wide range of measures with high capital costs means that an increase in the cost of capital to 6% reduces the amount of potential carbon saved by a further 15%. This clearly shows how a low cost of capital is vital for securing carbon savings through extensive refurbishment packages.

14 October 2010

9   Part of the 2016 zero carbon homes standard, Allowable Solutions is an "offset" payment made for dealing with any remaining carbon emissions from a development off-site. Back

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