4.1 Forms of equity
Reserves are the most commonly cited form of equity for councils, together with capital assets. Grant funding can also be considered as a source of equity for some projects.
Grant funding has some of the characteristics of green debt, especially in relation to the measurement and verification of outcomes. In pure finance terms it may not require security over the project assets or other financial recourse in the event of project failure and no interest payments are due. Grants often have a ‘clawback’ clause which recovers grant funding in the event that the project or scheme is discontinued or deviates from its original purpose to the extent that it would be unable to deliver the benefits originally envisaged. The clawback is similar to the financial recourse provisions of debt funding but applied in more specific circumstances. The interaction between any recourse and clawback provisions on a project need to be carefully thought through.
4.2 Equity and associated sources of funds
Definition and application
Equity represents ownership in a project and the level of ownership adopted by a local authority will be determined by a number of factors including the investment choices available. Conventionally, equity may be offered to raise funds but if the local authority holds the role of project originator, it would not need to share equity solely for those purposes given its ability to access capital. It may, however, wish to share equity as part of managing risk e.g. the local authority may seek a development partner with expertise and experience that it cannot source internally. Furthermore, it may need to share equity with partners by virtue of circumstance in order for the project to proceed e.g. for a renewable energy project the local authority may not own the land on which the project is sited or hold the grid connection offer. Our separate guidance (Renewable Energy Good Practice guidance for the LGA) discusses these issues in more detail.
Potential sources of equity
Local authority reserves are the main source of local authority equity for projects, although some authorities have also developed Section 106 planning policy (s106) which has allowed them to collect funds from developers for green projects and this is a further potential source of equity funding. Funds generated from this source will require spending within five years of collecting and must be used in compliance with the s106 policy.
It is possible that any future changes to the planning regime may impact the ability of councils to collect and direct s106 funding.
Other forms of equity contribution might include use of resources without recharge, or the contribution of land or other assets to a project. Where land assets are involved there will be a need to demonstrate that the project provides best value.
When grant funding is available this can supplement or replace a direct equity contribution.
4.3 Sources of grant funding
Post European Union (EU) Exit the Government is likely to be the source of most grant funding available to UK councils. The Government typically offers grant funding in one of the following situations:
- There is a need to prove concept and build investor confidence. This may be for research work or project pilots etc.
- There is a need to stimulate a particular section of the market, especially where there is market failure or market change is desirable, but not happening quickly enough.
- To provide economic stimulus through the direct procurement of goods or services, but where the Government is unable to procure them directly.
Where grants are provided this is generally for a specific period and they are then closed or withdrawn. Examples of green grants currently available are set out in the sections below. These are not exhaustive, and it is important that a local authority looks for current grant funding when developing a scheme. There have also been further funding announcements in the Ten Point Plan for a Green Industrial Revolution and whilst the specifics of how these funds can be accessed is not yet clear the following additional funding was identified:
- £200 million to create two carbon capture clusters.
- £500 million for hydrogen projects.
- £525 million for new large and smaller-scale nuclear plants.
- £1.3 billion for electric vehicle charging infrastructure.
- £582 million support for the purchase of ultra-low emission vehicles.
Heat networks
The Government is committed to achieving net-zero greenhouse gas emissions by 2050. Meeting this legal commitment will require virtually all heat in buildings to be decarbonised, and heat in industry to be reduced to close to zero carbon emissions. Presently, heat is responsible for a third of the UK’s greenhouse gas emissions. As such, heat networks are a crucial aspect of the path towards decarbonising heat. In the right circumstances, heat networks can reduce bills, support local regeneration and can be a cost-effective way of reducing carbon emissions from heating.
There is already a growing heat network market in the UK which is supported by Government commitment. This is through the Heat Network Investment Project (HNIP) of up to £320m and the work of the Heat Network Delivery Unit (HNDU), supporting councils and project developers in the early phases of scheme development.
Heat Networks Delivery Unit
The Heat Networks Delivery Unit (HNDU) was established as part of the Government’s decarbonisation strategy. The Unit provides funding and specialist guidance to councils who are developing heat network projects, supporting them through a number of project development stages. All councils in England and Wales can apply for support. Since its inception in 2013, HNDU has awarded support to over 250 schemes across over 150 councils in England and Wales, including £23m of grant funding.
HNDU grant funding can provide up to 67 per cent of the estimated eligible external costs of heat network development studies (where ‘eligible external costs’ means the money paid by the local authority to third parties to deliver the heat network development stages). The local authority will need to demonstrate in their application that it has secured at least 33 per cent in match funding. HNDU grant funding can also provide up to 100 per cent of the cost of estimated externally procured project management support.
Since its inception, HNDU has run 11 funding rounds. Round 11 closed on 31 December 2021. More information can be found on the HNDU guidance page on the .gov website.
Heat Networks Investment Project (HNIP)
In tandem with HNDU, the Government is investing up to £320m through HNIP to support the commercialisation and construction of heat networks across England and Wales. This provision is through capital grants and loans.
To date, HNIP has funded over £150m for over 30 projects across England. The HNIP delivery partner (Triple Point Heat Networks Investment) has a dedicated investor relations team that engages with the investor community and broadens the reach of heat networks investment by raising third party finance for projects applying to HNIP. For more information visit the HNIP overview and application page.
Green Heat Network Fund (GHNF) transition scheme
To capitalise on the progress made by HNIP, and to support the development of low and zero carbon heat networks the GHNF has been created. It is a capital grant open to public, private, and third sector applicants in England. The GHNF was launched in March 2022, with funding rounds taking place on a quarterly basis with award notifications anticipated two months after application. The timing of funding rounds and further information can be found in the Green Heat Network Fund guidance.
One Public Estate (OPE) – ninth round (now closed)
The OPE programme is an established national programme delivered in partnership between the Office of Government Property in the Cabinet Office, the LGA and the Department for Levelling Up, Housing and Communities (DLUHC). Their joint aim is to bring public sector bodies together, to create better places by using public assets more efficiently, creating service and financial benefits for partners and releasing land for housing and development.
The ninth round of funding placed particular emphasis on the Government’s commitment to level up. For more information and to keep on eye on future funding from OPE please visit One Public Estate and Land Release Fund prospectus.
Governments £1bn Public Sector Decarbonisation Scheme (PSDS)
BEIS launched the PSDS on 30 September 2020 delivered by Salix Finance. There have since been two further rounds of funding, totalling £3.175bn over the period to 2024/25. The scheme allocates grant funding for capital energy efficiency and heat decarbonisation projects within public sector non-domestic buildings including Government departments and arm’s length bodies in England with the aim of delivering the following objectives:
- deliver stimulus to the energy efficiency and heat decarbonisation sectors, supporting jobs
- deliver significant carbon savings within the public sector.
The purpose of the grant scheme is to help make eligible buildings more energy efficient and install low carbon heating measures, for example, insulation, glazing, heating controls, and heat pumps (eligible technologies are split into 4 different categories). The cost to save a tonne of carbon (CO2e) over the lifetime of the project must be no more than £500, which is automatically calculated by the support tool in the grant application form.
The scheme allows public sector bodies to apply for a grant to finance up to 100 per cent of the costs of capital energy-saving projects that meet the scheme criteria. For more information about the scheme and to monitor the potential for future phases please visit the Salix Finance website.
Local Partnerships and the Greater London Authority own and run the Re:fit 4 Framework which is a procurement initiative for public bodies wishing to implement energy efficiency measures and local energy generation projects on their assets (see section 4.8.2). Current Re:fit Framework users can use the opportunity to review existing project briefs and develop projects eligible for BEIS grant funding, particularly projects that were previously discounted (such as insulation and glazing) because of long pay back periods (25 years plus). Local Partnerships can also support councils’ preparation for grant applications in this respect.
These grants and the Green Homes Grants have been offered as part of a COVID-19 economic stimulus package. The 2019 Conservative Party manifesto committed to a larger sum of public funding for energy efficiency in buildings than has currently been announced (£9bn as opposed to the £4 billion announced to date). It is possible that further iterations of this funding may become available in future years.
Public Sector Low Carbon Skills Fund (now closed)
The Public Sector Low Carbon Skills Fund was available alongside the Public Sector Decarbonisation Scheme. It provided grants to help all eligible public sector bodies to source specialist and expert advice to identify and develop energy efficiency and low carbon heat upgrade projects for non-domestic buildings, before preparing robust and effective applications to the Public Sector Decarbonisation Scheme. Two rounds of funding have closed. If there are future rounds of the Public Sector Decarbonisation Scheme there may be future rounds of this fund which it is anticipated would be detailed on the Salix website.
Energy Company Obligation Flexible Eligibility (ECO FLEX) grants
Energy Company Obligation (ECO) is a Government energy efficiency scheme to help reduce carbon emissions and tackle fuel poverty. ECO 4 is a £1bn programme and is available from April 2022 to April 2023. The aim of the scheme is to install energy efficiency measures in properties that are currently energy inefficient which in turn reduce households’ fuel bills. ECO provides qualifying residents the opportunity for potential improvements such as a new central heating system, upgrades to the existing heating system and/or insulation measures.
The ECO scheme is only available through energy providers, it is not available to councils to deliver home energy efficiency improvements. However, under the ECO FLEX, councils are permitted to identify and designate households as eligible under the Affordable Warmth Scheme. £500m of the total budget for ECO 4 will be assigned to ECO FLEX.
To participate in the ECO FLEX scheme councils must publish a Fleixble Eligibility Statement of Intent which identifies an income threshold, cost or vulnerability criteria at a local level, ensuring that funding reaches those communities that are often least engaged with the energy market. Once households are identified, the declaration confirms the eligibility against the statement of intent’s criteria.
Further details of how to apply are available of the OFGEM website, and councils are encouraged to follow the guidance on the BEIS website
The Green Homes Grant – Local Authority Delivery (LAD)
The LAD scheme was launched in August 2020 and aims to raise the energy efficiency of low income and low energy performance homes with a focus on energy performance certificate ratings of E,F or G. It was delivered in phases, with phase 1A and 1B aiming for delivery of projects to be concluded by March 2022.
Phase 2 of the funding saw £300m funding allocated between the five Local Energy Hubs, to then be distributed to councils to deliver energy efficiency upgrades in low-income homes across England by the end of March 2022.
Local Partnerships was commissioned by BEIS via the five regional Energy Hubs to produce this Local Authority Housing Retrofit Handbook to provide practical advice to councils in England. It brings existing resources together in one place, and to find out what’s going on in your area, please visit your local net zero hub at the links below:
Tree planting
Current grants for tree planting include the Local Authority Treescapes Fund and the Urban Tree Challenge Fund, the Local Authority Treescapes Fund and the Urban Tree Challenge Fund.
Over £9 million will be allocated to successful applicants across these funds.
Local Authority Treescapes Fund
Now in its second round, successful applicants to the Local Authority Treescapes Fund will be allocated a share of £5.4 million for the planting of up to 650,000 trees in 2022/23. Projects will support councils to establish trees in different ways, from natural regeneration (where trees are left to naturally develop) to traditional planting. Community engagement is encouraged, and councils can bring together local residents, schools and environmental groups to restore trees in areas outside woodlands. These include riverbanks, parks, beside roads and footpaths, and within vacant community spaces – areas where treescapes are often highly degraded due to neglect or disease.
Urban Tree Challenge Fund
Trees make our towns and cities healthier and more pleasant places to be, helping to moderate temperatures, reduce pollution, decrease flood risk and improve people’s quality of life. If successful, applicants to the fourth round of the Urban Tree Challenge Fund will be awarded a share of more than £3.8 million – enough to fund the planting of over 28,000 large trees in both urban areas, and where rural and urban areas meet. This funding aims to grow the number of trees in and around deprived urban areas to bring people from all socio-economic backgrounds closer to nature.
There are several key differences between the Local Authority Treescapes Fund and the Urban Tree Challenge Fund. You can read a Forestry Commission blog outlining these differences and offering guidance on how to apply for both funds.
Applications for both funds are now open until 11:59pm on Tuesday 31 May 2022.
For more information and to apply, go to Local Authority Treescapes Fund and the Urban Tree Challenge Fund pages on the gov.uk website.
Tree Production Capital Grant
The Forestry Commission will open a new Tree Production Capital Grant this spring. The Tree Production Capital Grant will provide funding to increase the domestic production of tree seed and saplings, supporting investments in expansion, automation and mechanisation of facilities and equipment. This will help improve not only the quantity but also the quality, diversity and biosecurity of supply.
Applicants will be able to apply for up to 50 per cent of the costs for capital projects and equipment such as: intelligent transplanting systems; polytunnel infrastructure and equipment; irrigation systems and infrastructure; seed trays; grading machines; biosecurity investments such as water treatment and refrigeration equipment.
The grant will enable suppliers to bolster production at pace and has been designed to complement the innovation outputs of the Tree Production Innovation Fund, which provides support for research projects that will enhance UK tree production methods.
To be eligible for funding, applicants must be UK-based and will need to demonstrate how the grant will be used to increase English tree seed or sapling supply.
To receive the latest news on the grant, sign up to the Forestry Commission’s e-alert. For more information, please contact [email protected] or read the Forestry Commission’s latest blog on the Tree Production Capital Grant.
Woodland creation funding and grants
There are various sources of funding available for woodland creation in the UK, which are summarised below. Further information can also be found in the leaflet on responding to the climate emergency with new trees and woodlands.
Woodland Creation Planning Grant (WCPG)
The WCPG provides funding to help cover the costs of producing a UK Forestry Standard compliant woodland creation design plan, which can support applications to other funding sources for woodland creation, such as the Woodland Carbon Fund (see below).
This grant contributes to the costs of gathering and analysing information needed to make sure that any proposal for productive multi-purpose woodland (over 10 hectares) considers impacts on biodiversity, landscape, water, the historic environment and local stakeholders. The grant scheme operates in two stages, which in total will provide £150 per hectare, up to £30,000 per project.
Woodland Carbon Code (WCC)
The WCC is the national standard for verifying and validating carbon savings from afforestation projects in the UK. Accredited schemes have the opportunity to sell ‘carbon credits’ which represent CO2 savings generated by the new woodland. This can provide an additional source of revenue if, for example, a project is not cost-effective with Woodland Carbon Funding WCF funding.
Woodland Carbon Guarantee
In November 2019 the Government announced a new £50 million scheme, the Woodland Carbon Guarantee, aimed at promoting afforestation, whereby the Government would agree to purchase WCC carbon credits from a participant at an agreed price set by auction. Instead of a grant or loan towards the cost of woodland creation or maintenance, this scheme offers WCC participants a guaranteed income over a 35-year period, although they may choose instead to sell carbon credits on the open market.
The next WCG auction will take place in 2022. The date will be published on the WCG webpage. In order to apply you must first register your project with the Woodland Carbon Code.
England Woodland Creation Offer
The England Woodland Creation Offer (EWCO) provides landowners, land managers and public bodies the opportunity for support to create new woodland, with possibility of receiving over £10,000 per hectare. For more information view the Woodland Creation's leaflet.
Green vehicle related funding
The Government offers grants to support the wider use of electric and hybrid vehicles via the Office of Zero Emission Vehicles (OZEV). The total funding committed to support the transition to zero emission vehicles is £3.5 billion. £620m has been targeted for electric vehicle grants and infrastructure, with a focus on local on-street residential charge points.
The Government’s new UK Electric vehicle infrastructure strategy was published in March 2022, confirming £1.6 billion of public funding for charging points. £450m of this will be used to create a Local Electric Vehicle Infrastructure Fund (LEVI), under which councils will be able access funding to install charging hubs and on-street charging points. A £10m pilot scheme has been launched for the fund and is anticipated to fund between three and eight projects. Councils and partnerships in England can apply for funding under the pilot scheme. To apply you must send an expression of interest email to Energy Saving Trust with the email subject LEVI expression of interest and the completed application must be submitted by 11:55pm, 17 June 2022.
For more information on the LEVI, its eligibility criteria, and details on how to apply visit the LEVI guidance page.
The pilot fund is complementary to the existing On-Street Residential Chargepoint Scheme (ORCS). whereby councils can apply for funding to help with the costs of procurement and installation of on-street charging points for residential use. Councils are able to receive a grant to part fund (75 per cent) of the capital costs. OZEV will provide up to £6,500 per chargepoint installation, and each project should not exceed more than £100,000 in OZEV funding. More information can be found here.
The Workplace Charging Scheme is a voucher-based scheme that provides support towards the up-front costs of the purchase and installation of electric vehicle charge-points, for eligible businesses, charities and public sector organisations. You can apply by completing the Workplace Charging Scheme application form.
The Department for Environment Food and Rural Affairs (DEFRA) Air Quality Grant Programme provides funding to eligible councils to help improve air quality. It is focused on air quality issues (such as NOx and particulates) and supports a wide range of initiatives such as establishing low emissions zones, retrofitting fleets with low emission technologies and traffic measures. It has also funded electric vehicle chargepoint infrastructure.
Active travel and cycles lanes
In July 2021 a £338 million package to boost cycling and walking across the country was announced. The package includes funding to build hundreds of miles of high-quality cycle lanes and is part of the government’s commitment to build back greener from the pandemic.
Local transport authorities outside of London were given funding through the Capability Fund.
Additional sources of green funding, which flow from the Government’s 2018 Clean Air Strategy, are as follows:
- The Bus Services Act 2017, which includes a range of measures to improve bus services through franchising and better partnership working. Councils and bus operators are encouraged to agree a package of improvements to introduce bus priority measures to reduce idling and journey times, or to introduce Ultra Low Emission Vehicles along key routes.
- In March 2021 up to £120m was made available through the Zero Emissions Buses Regional Area scheme to help local transport authorities, outside of London, introduce zero-emission buses. Applications are no longer being accepted, but a further £150m was made available in the October 2021 spending review, to support the scheme, taking the total funding to £270m in the financial year 2021 to 2022.
- The National bus strategy, “Bus back better” was published in March 2021, guidance to councils and bus operators can be found here.
- The Cycling and Walking Investment Strategy published in 2017 identifies £1.2bn of funding to be invested in cycling and walking from 2016 to 2021. This has already included £101m made available through the Cycle City Ambition programme to improve cycling infrastructure in eight cities, and £80m to support local projects to improve safety and encourage cycling.
Shared Prosperity Fund
The Government has announced a UK Shared Prosperity Fund (UKSPF) in the 2021 Spending Review the fund is worth £2.6 billion over the period to 2024-25. Further details can be found on the UKSPF website.
The national planning system and greenspace mapping are examples of further programmes which benefit cycling and walking infrastructure and will directly result in increases to cycling and walking activity. The Healthy New Towns programme, supported by NHS England and Public Health England, was launched on 1 July 2015.
The Community Infrastructure Levy and s106 contributions allow councils in England and Wales to raise funds from developers undertaking new building protects in their area in order to help provide vital infrastructure, based on local priorities. These funds can be used to for a wide range of infrastructure, including transport, parks and green spaces, cultural and sports facilities, provided the scheme has sufficient resources and the local authority has compliant policy in place to enable funds to be collected for the purpose.
The Cycle to Work Scheme is a tax-efficient, salary-sacrifice employee benefit, introduced in the 1999 Finance Act, which provides a way of encouraging more adults to take up cycling. Employers are able to loan cycles and safety equipment to employees up to the value of £1,000. At the end of the loan, an employer can offer the cycle for sale to the employee, but at the full market value. Electric vehicle salary sacrifice schemes also exist which enable an employee pay for an electric car each month using their gross salary. It’s the same as other salary sacrifice schemes, such as childcare, cycle to work schemes or pension contributions.
Flood defence
Lead local flood authorities (unitary authorities or county councils) have the lead operational role in managing the risk of flooding from surface water and groundwater. In areas with no district council, they also have the lead role in managing flood risk from ‘ordinary watercourses’, for example any watercourse that isn’t a main river.
A flood risk management authority can apply for grant-in-aid (GiA) to fund Flood and Coastal Erosion Risk Management (FCERM) projects. A highway authority or water authority can only apply for a GiA for projects to reduce flood risk which are outside its normal area of responsibility. More information can be found tn the FCERM guidance. Further details on funding arrangements can be found on the LGA’s flooding funding arrangements webpage.
Peat/habitats improvements
The UK Peatland Strategy identifies a target for two million hectares of peatland to be in good condition, under restoration, or sustainably managed by 2040. In the March 2020 budget, the Government announced a £640m Nature for Climate Fund to plant more than 40 million trees and restore 35,000 hectares of peatland in England.
The fund is to be used to dramatically increase the rates of tree-planting in England along with funding more research into the most appropriate species to plant across the country, a scaling up of the nursery sector to grow saplings, establishing new partnerships with landowners, and increased planting rates on sites. As part of the budget the Government also announced a Nature Recovery Network Fund of £25m to support habitats and species action in nature recovery areas.
4.4 Other significant government funding sources
Whilst not specifically ‘green funding’ it is anticipated that successful bids to national schemes such as the Shared Prosperity Fund and the Levelling Up Fund will need to demonstrate their green credentials.