The Green Deal
How can London Boroughs benefit from the Green Deal?
March 2012
Agenda 1.
Introduction
2. The Opportunity 3. The Challenges 4. The Finance
5. The Delivery Model
The Green Deal PwC
March 2012 2
The Opportunity The Green Deal is the next step in the evolution of Green legislation. How London Boroughs approach this opportunity will impact on their ability to deliver again the following objectives: • Fuel poverty • Reduction in energy costs / energy security • Job creation • Economic Development and wealth creation
• Carbon reduction
The Green Deal PwC
March 2012 3
The Challenges • Adoption Risk • Development of the supply chain • Underlying cost profile and ability to meet Golden Rule including: • Capital costs of works
• Installation costs • Provision of low cost finance to create a viable case for the interventions that meet the Green Deal. This is difficult to secure due to • Lack of track record
• Demand uncertainty • High set up and mobilisation costs There are a number of models being development in the market in terms of regional and national aggregators. The Green Deal PwC
March 2012 4
The Finance The success of the Green Deal (GD) requires the underlying cost of finance to be as low as possible. On average, for every 1% increase in the cost of finance, energy efficiency measures will have to reduce fuel bills by 7% to meet the Golden Rule. Low cost finance will : • maximise the number of energy efficient measures included within the Golden Rule, and • minimise the level of Energy Company Obligation (ECO) subsidy required.
The Green Deal PwC
March 2012 5
The Financing Options There are a limited number of finance options at a suitable to enable implementation of Green Deal measures in accordance with the Golden Rule, these include: 1. Corporate Finance – initial indications are that entities are either unable or unwilling to finance GD implementation on balance sheet. This approach is therefore likely to be limited to a small number of initial investments. 2. Public Works Loan Board – a small number of local authorities are seeking to utilised their loan capacity to invest in GD project. There are a number of key risks associated with investment, including stranded assets, refinancing risk, pricing risk and state aid. 3. National Aggregator – The leading national aggregator in the market is The Green Deal Finance Company, however there is still uncertainty regarding the Government’s commitment to funding the seed capital required for the aggregator to proceed. The Green Deal PwC
March 2012 5
The Aggregator The Green Deal Finance Company (TGDFC) Not for profit
Success is dependent on: 1. Securing GIB capital 2. Securing GIB development funds 3. State Aid approval
Reduced risk to government
Minimises admin costs
TGDFC Provides certainty to GDP
Quick and regular aggregation
Offer finance to all The Green Deal PwC
March 2012 6
How would the national aggregator work? TGDFC assumes it will be financed by loss absorbing GIB debt, private sector warehousing and long term capital market issuance.
The Green Deal PwC
March 2012 7
What are the benefits to Local Authorities of national aggregation? Access to low cost finance for all Green Deals
Conduit for Green Deal loans administration and treasury management
Avoids stranded asset risk
Avoids loss on sale
Pools Green Deal credit risk at national level
Centrally negotiated state aid approval
Access to capital markets faster and at low cost of finance
Accurate pricing and ability to rectify pricing over time
The Green Deal PwC
March 2012 8
The Delivery How can you get involved and how could this evolve over time? How does this relate to previous discussions: 1. Community involvement 2. Resource requirements 3. Organisational support 4. Development of confidence in the process and supporting evidence Green Deal Friendly Leave it to the market
The Green Deal PwC
Brand investment
Inclusion of housing stock and/or public sector assets
Investor / Green Deal provider
March 2012 9
The Benefits Why should you get involved? • Creating economic development and safeguarding existing jobs: • Addressing fuel poverty
• Meeting carbon reduction targets • Addressing your own housing stock and / or non-domestic public assets
The Green Deal PwC
March 2012 10
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