greater manchesterhhousing retrofitubusiness ... - clasp

Greater Manchester Housing Retrofit Business

February 2012

Report: Stage 1 (Options Definition Support) and Stage 2 (Options Appraisal Support) DRAFT

Low Carbon Housing RetrofitGreater Manchester

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Manchester Housing Retrofit Business Case Support1 (Options Definition Support) and Stage 2

Low Carbon Housing Retrofit

Private and confidentialMichael O’DohertyHead of Climate Change: Buildings and Energy,Environmental Strategy ServiceManchester City CouncilTown Hall Manchester M60 2LA

Dear Michael

Report: Stage 1 (Options Definition Support) and Stage 2 (OptionsAppraisal Support)In accordance with our engagement letter dated 12 January 2012, we have

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In accordance with our engagement letter dated 12 January 2012, we haveprepared this summary report to support the delivery of the Greater ManchesterHousing Retrofit Business Case.

Purpose of our report and restrictions on its useThis report was prepared on your specific instructions to assist in the developmentof a Business Case for the role of the public sector to maximise housing retrofitopportunities in Greater Manchester via the Green Deal. In carrying out our workand preparing this summary report, we have worked solely on your instructions.

Our report may not have considered issues relevant to any third parties. Any usesuch third parties may choose to make of our report is entirely at their own risk andwe shall have no responsibility whatsoever in relation to any such use. This reportshould not be provided to any third parties without our prior approval and withoutthem recognising in writing that we assume no responsibility or liability whatsoeverto them in respect of the contents of our deliverables.

Heat networks initiatives in Greater Manchester

Ernst & Young LLP1 More London PlaceLondon SE1 2AF

Tel: 020 7951 2000Fax: 020 7951 1345www.ey.com/uk

[X] February 2012

This information is supplied on the condition that Ernst & Young, and any partner oremployee of Ernst & Young, are not liable for any error or inaccuracy containedherein, whether negligently caused or otherwise, or for loss or damage suffered byany person due to such error, omission or inaccuracy as a result of such supply.

1

Yours sincerely

James Close

PartnerErnst & Young LLP

Heat networks initiatives in Greater Manchester

http://www.ey.com/uk

Section 1 Project overviewSection 2 Overview: Stage 1 and Stage 2 Section 3 Stage 1: Core models selectedSection 4 Stage 2: Options appraisalSection 5 Next steps

AppendicesAppendix A Two rejected models

Contents

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Appendix B Green Deal Finance Company BackgroundAppendix C Core Model Selection workshop 18 January 2012 – Slide PackAppendix D Core Model Selection workshop 18 January 2012 – Attendees

Greater Manchester Housing Retrofit Business Case Support

Page38102437

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Slide Pack 50Attendees [XX]

2Greater Manchester Housing Retrofit Business Case Support

Section 1

Project overview

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Project overview

Project Aim: Business Case for the role of the public sector in maximise housing retrofit opportunities in Greater Manchester via the Green DealAims► To support the delivery of the Low Carbon Retrofit Strategy,

which aims to:► Achieve the national carbon reduction commitments under the

Climate Change Act 2008► Contribute to Greater Manchester’s commitment to 48%

reduction in carbon output by 2020► Obtain ‘First Mover’ economic advantages in the retrofit market► Improve neighbourhoods and tackle fuel poverty► Stimulate take up of Green Deal and maximise subsidies e.g.,

FIT, RHI, ECO

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FIT, RHI, ECO


Business Case for the role of the public sector in housing retrofit opportunities in Greater Manchester via the

Scope of work1. Stage 1: Option Definition support, where a shortlist of options is

created, and the high level financial and delivery implications considered

2. Stage 2: Options Appraisal support, where the shortlist of options is subject to a high level evaluation in order to select two preferred options to take forward into a Business Case

3. Stage 3: Initial Business Case development support, where the two preferred options are subject to further financial and investment analysis in order to select a single preferred option to be taken forward into the Final Business Case

4. Stage 4: Final Business Case development support, where the


4. Stage 4: Final Business Case development support, where the preferred option is further developed and presented for formal approval by AGMA prior to the commencement the procurement (if applicable) and implementation phases

The methodology enables broad engagement and a detailed review and decision making process

Deselection of least

favourable model

10 AGMA bodies plus

social housing

providers

Multiple models down to

three

Ref: 11250255 Greater Manchester Housing Retrofit Business Case Support

Initial Business Case development – two most favourable models

model

Final Business Case development –final favoured model

The methodology enables broad engagement and a detailed review

The challenge is to achieve engagement across a range of functions in 10 Local Authorities and multiple RSLs while delivering a highly focused action-orientated business cases for the agreed models.Process is in three phases:► Narrow down options (Stage 1 and Stage 2)► Align Local Authorities with preferred model based on required

outputs and agreed inputs (Stage 3)► Support delivery of Greater Manchester business case for

preferred option (Stage 4)


Stage breakdown – there are four stages and the project is at the end of the second stage

: Option Definition support

► Develop the key high level options for appraisal

► Agree core models for Stage 2

► Develop up to two preferred options to support your selection of a single preferred option

► Consider financial and

► Develop an options appraisal evaluation framework and methodology

► Facilitate options appraisal

Options Appraisal support

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► Consider financial and investment options via modelling

► Consider AGMA data:

portfolio, profiled by year 1 to 5-programme, including measures, costs, efficiency savings, and FIT/RHI income (if applicable)

► High level ‘critical friend’ review of AGMA data


► Facilitate options appraisal workshop

► Agree two core models for Stage 3

there are four stages and the project is at the end

Initial Business Case development support

Final Business Case development support

Develop up to two preferred options to support your selection of a single preferred option Consider financial and

► Further iteration of the financial and investment model

► Develop role of the public sector in the projectConsider financial and

investment options via modellingConsider AGMA data:- baseline property portfolio, profiled by year 1 to 5- baseline retrofit programme, including measures, costs, efficiency savings, and FIT/RHI income (if applicable)High level ‘critical friend’ review of AGMA data

sector in the project► Consider financing options

for financing► Evaluation of minimum

AGMA investment required► Risk Management

workshop► Estimation of cost to set up

the preferred model and assess options to recover costs

► Support development of action plan to deliver procurement phase and/or implementation phase


This report is intended for use by Greater Manchester officers in sustainability/energy efficiency related divisions► The aim of this document is to brief the audience on the

process by which two core models were selected for the chosen purpose of Stage 3: Initial Business Case development support. The final selection was made by delegates from the AGMA Local Authorities, supplemented by local RSLs and other relevant public sector bodies who attended the Core Model Selection workshop on 18 January 2012.

► This report documents Stage 1 and Stage 2 of the work commissioned by the AGMA and as such, this report should be viewed as an interim document as part of this work. Further deliverables are as follows:

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► Stage 3: Financial and investment model for each option, to be used by AGMA to inform the selection of a single preferred option to be fully developed in the Final Business Case

► Stage 4: Financial and Investment Sections of the Final Business Case

► Stage 4: Financial and Investment Model for the preferred option


This report is intended for use by Greater Manchester officers in sustainability/energy efficiency related divisions


Section 2

Overview: Stage 1 and Stage 2

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Overview: Stage 1 and Stage 2Overview: Stage 1 and Stage 2Overview: Stage 1 and Stage 2

The Stage1 and Stage 2 process builds on the EST review of models with further research and a workshop to agree which models to take forward► At Stage 1 a number of potential implementation models were

reviewed based on the Energy Saving Trust report ‘Local Authority Large Scale Retrofit – A Review of Finance Models’.

► Through discussions with the AGMA project team, a number of models were discounted. The rationale for the rejection of these models is provided on slide 10, and Appendix A describes the models that were rejected at Stage 1 in more detail.

► As a result, three models that would be able to deliver large scale programmes across a range of desired outcomes were taken forwards for appraisal at the Core Model Selection workshop held on 18 January 2012. These models are described in more detail in Section 3.

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in Section 3.► The aim of the Core Model Selection workshop was to deselect

the least favourable of the three models, with the remaining two models to be taken forward to Stage 3 (Initial Business Case development).

► Marksman Consulting and Ernst & Young carried out additional research to validate the models.

► A workshop (Core Model Selection workshop) was held on 18 January 2012 at which the AGMA Local Authorities were represented. This had the following aims:► To select two local authority housing retrofit models to take

forward to initial business case development► To drive the options appraisal of Housing Retrofit models

leading to business case for a preferred model► To inform and obtain buy-in from stakeholders


The Stage1 and Stage 2 process builds on the EST review of models with further research and a workshop to agree which models to take

Conclusions► Two core models have been selected and the Initial Business

Case for these will be developed during Stage 3 of this project. The two models are as follows:► AGMA as marketer/facilitator for a panel of Green Deal

providers► AGMA as a large scale Green Deal provider

► The following slides provide more detail on the two selected models and the deselected model (being ‘Local Authority as general promoter of Green Deal market’)

► The next phase (Stage 3) will help AGMA to identify its preferred ► The next phase (Stage 3) will help AGMA to identify its preferred Model to be fully developed in the Final Business Case


Section 3

Stage 1: Core Models selected

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Stage 1: Core Models selectedStage 1: Core Models selectedStage 1: Core Models selected

Spectrum of possible models – by ambition to deal with carbon and desire to work with the private sector

High

LA as Green Deal Provider

LA as marketer/facilitator

£ Public/Private£ Public

Ambition to dealwith carbon

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Low

Low High

Retrofit Guarantee Fund

EST model

LA small scale Green Deal Provider LA General Promoter


Outsourced (“Rent a roof”)

Additional modelKey:

Market Led/Market Dependent (Do Nothing)

by ambition to deal with carbon and desire to work with the private sector

► The Energy Saving Trust (EST) identified five models for delivery of the Green Deal based on a local authority’s ambition to deal with carbon and its desire to work with the private sector

► These are detailed in a report commissioned by DECC (Local authority large scale retrofit: A review of finance models 1) and involved the EST working with Anthony Collins Solicitors LLP who conducted the due diligence for Birmingham Energy Savers phase III.

► One of the EST models, the Outsourced (“Rent a roof”) model, was rejected on the basis that the model focuses on the micro-generation of electricity, and as such is not directly applicable to the aims and objectives of the project.

► In addition to the models identified by EST we have also identified two further models –LA as General Promoter and LA as small scale Green Deal Provider).

► The diagram to the left shows the spectrum of core models selected.

1 Report available at the following address:

http://www.energysavingtrust.org.uk/england/Publications2/Local-authorities-and-housing-associations/Funding-and-finance/Local-authority-large-scale-retrofit-A-review-of-finance-models

Desire to work with private sector


Outsourced (“Rent a roof”)

Market Led/Market Dependent (Do Nothing)

http://www.energysavingtrust.org.uk/england/Publicati

The sources of finance and the effort that a local authority now wishes to put into a programme are also important:

Local authority models – effort and sources of finance

Financedby LA

Small ScaleProvider

Source of finance

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General promotion to market

Third partyfinance

(e.g., TGDFCo)

MediumLow

Retrofit Guarantee Fund


Market Led/Market Dependent (Do

Nothing)

The sources of finance and the effort that a local authority now wishes to put into a programme are also important:

effort and sources of finance

Green Deal Provider (PWLB)

Marketing development Co

Medium High

Green Deal Provider

Panel of Green Deal Providers

Effort


This creates six potential roles for LAs based on appetite for input and output requirements

Outputs/Outcomes *

LA as marketer/ facilitator

LA as large scale GDP

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Four models took low input/output positions and the other two which require more input are designed to deliver larger outcomes.

Inputs (Resource/Risk) *LA as small scale GDP Retrofit

Guarantee Fund

General promotion


facilitator

Do Nothing

roles for LAs based on appetite for input and

LA as large scale GDP

* Examples of Inputs and Outputs/Outcomes are

considered on slides 25 and 26

low input/output positions and the other two which require more input are designed to deliver larger outcomes.

Inputs (Resource/Risk) *


Stage 1 (Option Definition support ) selected further review in Stage 2 (Options Appraisal support)Models selected for further review

Outcomes

The models selected for review at Stage 2 were as follows:1. Local authority as general promoter of Green Deal market.2. Local authority as marketer/facilitator.3. Local authority as large scale Green Deal provider.

These models are described in more detail on the following slides.

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LA asmarketer/ facilitator

LA as largescale GDP

LA as general

promoter

Resource/Risk


Stage 1 (Option Definition support ) selected three as core models for further review in Stage 2 (Options Appraisal support)

The following models were rejected by the project team at Stage 1:► Do nothing – there was insufficient

confidence in the market to deliver in line with the aspirations of the GM Housing Retrofit Strategy without public sector intervention

► AGMA as a small-scale Green Deal provider – this model would not be capable of achieving the key project objective of large scale delivery. It was recognised that large scale delivery. It was recognised that some LAs may apply this model individually.

► AGMA participation in a retrofit guarantee fund was rejected on the basis that the guarantee fund will require funding. This was something that the project team concluded would not be attractive to AGMA. It was also noted that retail banks may be reluctant to provide long term fixed rate loans.

Appendix A describes the models that were rejected at Stage 1 in more detail.


Core Model 1: Local Authority as general promoter of Green Deal market – schematic

Finance vehicle(s)

GDP 1 GDP 2 GDP 3 GDP

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Broad marketing

Local authorityFramework of approved GD providers which could be run by anchor authority or AGMA for all LAs

The Local Authority provides broad marketing support to a panel of approved Green Deal providers. Under the variant of this model where LAs choose a preferred Green Deal provider for their respective area, the marketing/brand support is provided by the Local Authority to the individual (or multiple) Green Deal Provider(s).


Model 1: Local Authority as general promoter of Green Deal

Variant on model► For this model there can either be a

framework of approved GDPs for Local Authorities to choose from, as shown in the diagram on the left, or there can be one-to-one relationships between Local Authorities and individual or multiple GDPs for their respective areas.

GDP 4, etc.,

TGDFC

Framework of approved GD providers which could be run by anchor authority or AGMA for

The Local Authority provides broad marketing support to a panel of approved Green Deal providers. Under the variant of this model where LAs choose a preferred Green Deal provider for their respective area, the marketing/brand support is provided by the Local Authority to the individual (or multiple) Green Deal Provider(s).


Operating model:► LA provides broad marketing support (e.g., leafleting, events, advertisements etc), using a framework of GDPs for delivery.► Framework of approved GDPs could be run by anchor authority or AGMA for all LAs.► Multiple GDPs can operate in each LA.► A variant on this model would be for individual LAs to choose just one GDP for their respective area from the available panel of GDPs, as

opposed to having a number of GDPs in operation. This variant would enable individual LAs to tailor a preferred approach by to maximise any benefit of existing arrangements, but would also need to be cognisant of the model’s commercial principles anagreements, such as payment terms.

Financing the marketing programmes:► LA costs limited to procurement and general marketing expenses.

Local Authority as general promoter of Green Deal market model and approach to financing


LA provides broad marketing support (e.g., leafleting, events, advertisements etc), using a framework of GDPs for delivery.Framework of approved GDPs could be run by anchor authority or AGMA for all LAs.

LAs to choose just one GDP for their respective area from the available panel of GDPs, as opposed to having a number of GDPs in operation. This variant would enable individual LAs to tailor a preferred approach by locality and to maximise any benefit of existing arrangements, but would also need to be cognisant of the model’s commercial principles and

Local Authority as general promoter of Green Deal market - operating


Strengths, weaknesses and dependencies of local authority as general promoter modelStrengths Weaknesses► No long term financial exposure.

► Costs limited to costs of procurement and general marketing.

► Limited ability to drive broad outcomes on jobs, fuel poverty and low carbon economy.

► No guarantee that programme will be delivered.

► Limited use of strong local authority positioning to attract ECO.

► Ability to attract ECO based on capability of Green Deal providers.

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This model minimises LA long term exposure but may also limit their capabilities to deliver desired outcomes.


Strengths, weaknesses and dependencies of local authority as

DependenciesLimited ability to drive broad outcomes on jobs, fuel poverty and low carbon economy.

No guarantee that programme will be

Limited use of strong local authority positioning to attract ECO.

Ability to attract ECO based on capability of Green Deal providers.

► Creation of financing vehicles such as TGDFC.

► Availability of strong Green Deal provider market from which to choose the panel.

LA long term exposure but may also limit their capabilities to deliver desired outcomes.


Core Model 2: LA as a marketer/facilitator Finance vehicle(s)

GDP 1 GDP 2 GDP 3 GDP

Marketing and Surveying Referral fee

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The second model suggests that the local authority takes on adoption risk by investing in a marketing programme, but spreads delivery risk, and does not take on finance risks.

Marketing and Surveying OrganisationReferral fee


TGDFC

2: LA as a marketer/facilitator – schematic

GDP 4, etc.,Marketing for a panel of GDPs – potentially procured through a framework contract

LA investment into own programme or third party

The second model suggests that the local authority takes on adoption risk by investing in a marketing programme, but spreads

programme or third party vehicle


Operating model:► Provides marketing support and potentially Green Deal assessments.► Receives referrals fees from Green Deal providers on the panel.► Can operate for a number of local authorities using their individual brand.► Not for profit or for-profit model.

Relationship with Green Deal providers:► Gives householders choice and spreads risk by engaging with a number of Green Deal providers.► Local authorities will have to take some responsibility for quality control as its brand and reputation will be at risk.► Opportunity for local authorities to drive job creation through the use of the Green Deal provider panel

procured framework contract.

LA as marketer/facilitator – operating model, relationship with Green Deal Providers and approach to financing and returns

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procured framework contract.

Financing the marketing programmes:► Local authority provides development finance.► Can look for support from the Green Deal providers.► Recovered through referral fees.


Provides marketing support and potentially Green Deal assessments.

Can operate for a number of local authorities using their individual brand.

Gives householders choice and spreads risk by engaging with a number of Green Deal providers.Local authorities will have to take some responsibility for quality control as its brand and reputation will be at risk.Opportunity for local authorities to drive job creation through the use of the Green Deal provider panel – potentially delivered through a

operating model, relationship with Green Deal Providers and approach to financing and returns


Strengths, weaknesses and dependencies of local authority as marketer/facilitator modelStrengths Weaknesses► Capital investment limited to start up costs

for marketing programme.

► Can focus marketing on target areas based on fuel poverty targets and other desired outcomes.

► Relatively straight forward tender for panel.

► Suitable for joint working by multiple local authorities.

► No long term balance sheet exposure.

► LA takes adoption risk.

► Ability to attract ECO driven by choice of Green Deal providers.

► Need to procure and agree marketing fee.

► Exposure to brand damage from Green Deal providers poor delivery.

► Potential for Green Deal providers to avoid difficult deliveries.

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For this model to work there needs to be a strong Green Deal provider sector and for the LA to be prepared to take some adoption risk.


Strengths, weaknesses and dependencies of local authority as

DependenciesLA takes adoption risk.

Ability to attract ECO driven by choice of Green Deal providers.

Need to procure and agree marketing fee.

Exposure to brand damage from Green Deal providers poor delivery.

Potential for Green Deal providers to avoid

► Creation of financing vehicles such as TGDFC.

► Availability of strong Green Deal provider market from which to choose the panel.

► Need to clarify marketing responsibilities with Green Deal providers and manage potential conflicts.

For this model to work there needs to be a strong Green Deal provider sector and for the LA to be prepared to take some


Core Model 3: LA as large scale Green Deal provider

Anchor LA +partner LAs

Delivery partner

Finance vehicle

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The third model has a local authority procuring a single delivery partner and providing finance. Finance could be sourced through Public Works Loans Board or the Green Deal Finance Company (TGDFC).

Marketing

Delivery (via panel of installers)


LA as large scale Green Deal provider – schematic

Finance vehicle

TGDFC

Refinance once track record in place

Bank finance

The third model has a local authority procuring a single delivery partner and providing finance. Finance could be sourced through Public Works Loans Board or the Green Deal Finance Company (TGDFC).

Delivery (via panel of installers)


Operating model:► LA procures a single delivery partner and provides finance (including set up costs).► Finance could be sourced through Public Works Loans Board or TGDFC► Once scale achieved, and a track record is in place, refinancing can occur such that private sector takes long term financial► Ability for one local authority to lead as anchor and others to join on an incremental basis.► Opportunity for local authorities to drive job creation and create a low carbon sector, in particular localities if desired.

The model is already being developed by Birmingham City Council and Newcastle City Council

Birmingham► Cabinet decision in April 2011.

► Initial programme of 15,000 private and social houses valued at

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► Initial programme of 15,000 private and social houses valued at £100m.

► Option to extend to 60,000 houses and £400m.

► OJEU and PQQ issued in Sep 2011.

► 22 out of 33 partners named on contract are West Midland Local authorities

► Now covers non-domestic stock (value to all contracting authorities estimated at £60.91m for pathfinder programme and £118.33m for extension phase, compared to £215.66m and £456.44m respectively for domestic stock)

► 11 other public sector organisations, including housing associations and police/fire, are named on the OJEU with their own finance to access the delivery partner services.

► Valued at £275m with option to extend to £1.5b.


LA procures a single delivery partner and provides finance (including set up costs).Finance could be sourced through Public Works Loans Board or TGDFC.Once scale achieved, and a track record is in place, refinancing can occur such that private sector takes long term financial risks.Ability for one local authority to lead as anchor and others to join on an incremental basis.Opportunity for local authorities to drive job creation and create a low carbon sector, in particular localities if desired.

The model is already being developed by Birmingham City Council

Newcastle► Cabinet decision in July 2011.

► Recognised need to work with neighbouring authorities to ► Recognised need to work with neighbouring authorities to achieve scale.

► Opened up to North East councils.

► Cabinet voted to proceed with procurement in January 2012.

► Strong support from North East councils.

► Five out of 12 local authorities committed in total.

► Financial and legal advisors procured.

► Project governance and procurement programme being established.


Strengths, weakness and dependencies of the local authority as a Green Deal Provider modelStrengths Weaknesses► Delivery partner is responsible for delivery

programmes according to agreed scale and to contract.

► Guarantees presence of delivery capability with strength to access ECO support.

► Long term financial risks taken by private sector.

► Ability to create local jobs and low carbon sector.

Other LAs can join on an incremental basis

► Local authority takes short term and first loss risk.

► Set up costs at risk.

► Ability to attract ECO driven by choice of Green Deal provider.

► Bank fees, if bank finance used needs to be recovered through price to householder.

► Scale required to achieve critical mass to allow refinancing.

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► Other LAs can join on an incremental basis once work is underway by the lead LA.

► Ability to drive delivery into particular locality.

► Governance model needs to be agreed for co-operating authorities

► Risk of project failure should the single delivery partner fail

LAs that find this model attractive will be happy to take on some risk and make a sizeable investment commitment in order to achieve some certainty around a large scale programme.


Strengths, weakness and dependencies of the local authority as a

DependenciesLocal authority takes short term and first

Ability to attract ECO driven by choice of Green Deal provider.

Bank fees, if bank finance used needs to be recovered through price to householder.

Scale required to achieve critical mass to

► Successful delivery of the Birmingham City Council procurement programme to prove model and provide IP.

► Requires one anchor LA to work with other partner LAs.

► Confirmation that State Aid legislation is complied with.

Governance model needs to be agreed for operating authorities.

Risk of project failure should the single

LAs that find this model attractive will be happy to take on some risk and make a sizeable investment commitment in order to


Section 4

Stage 2: Options Appraisal

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Stage 2: Options AppraisalStage 2: Options AppraisalStage 2: Options Appraisal

Stage 2 developed the evaluation methodology and facilitated a Greater Manchester workshop to agree which models to take forward► A workshop (Core Model Selection workshop) was held on 18

January 2012 at which the AGMA Local Authorities, local social housing providers, and other relevant local public sector bodies were represented. A full list of attendees is provided at Appendix D.

► The workshop had the following aims:► To select two local authority housing retrofit models to take

forward to initial business case development► To drive the options appraisal of Housing Retrofit models

leading to business case for a preferred model► To inform and obtain buy-in from stakeholders


Stage 2 developed the evaluation methodology and facilitated a Greater Manchester workshop to agree which models to take forward

Workshop Structure ► Overview: Greater Manchester and the Green Deal► Briefing on the three Local Authority Models► Consideration of Inputs and Outputs► Break-out 1 – Groups considered:► Inputs: What they would be prepared to put into the project ► Outputs: What they want to get out of the project

► Break-out 2 – Groups discussed each model in detail and listed strengths, weaknesses and dependencies

► Deselection of one model► Deselection of one model► Overview of next steps


Overview, Briefing on Local Authority Models and Consideration of Inputs and Outputs

► An overview of Greater Manchester and the Green Deal was presented, following which the three Local Authority Models were presented and discussed. The presentation is provided at Appendix C for information

► There was also an initial discussion in respect of the desired outputs from the Project and the level of input that Local Authorities (e.g., start up funding, ongoing investment, staff and expertise, project leadership) would be prepared to put in.

► Examples of inputs and outcomes were provided as follows:

► Outputs/Outcomes: What does my LA want out of the Project?►

►

►

►

►

►


►

►

►

►

►

►

►

►

►

►

Overview, Briefing on Local Authority Models and Consideration of

Outputs/Outcomes: What does my LA want out of the Project?► Add real value versus the market ► Provide first mover economic advantage► Accelerate take up of retrofit measures ► Maximises the level of ECO etc tackle Hard to Treat properties /

Fuel Poverty► Creation of a sustainable market ► Model applicable to all housing tenures


► Flexible if not all sector involved► Encourages spatial approach► Flexible to meet the potentially differing needs of LAs► Adaptable to public building stock and commercial buildings► Return on investment for any GM investment / borrowing► Recovery of GM costs over defined period ► Running within 12 months of the GD launch ► Inclusive of the most deprived communities► Builds behaviour change► Attracts external finance – funding and /or re-financing

Overview, Briefing on Local Authority Models and Consideration of Inputs and Outputs (cont.)

►Inputs: What is my LA prepared to put into the Project?► Investment – Set Up Costs► Investment – Ongoing delivery costs► Public sector resource input– Set Up► Public sector resource input– Delivery► Use of brand to sign up householders ► Adoption risk► Exposed to risk

- Brand exposure

► Inputs and Outputs were further discussed in the first breakgroup, the outputs of which are summarised on the following slides.

Ref: 11250255

- Brand exposure- Investment- Bad debts


Overview, Briefing on Local Authority Models and Consideration of

Inputs and Outputs were further discussed in the first break-out group, the outputs of which are summarised on the following slides.


Break-out 1: Consideration of Inputs and Outputs

► Delegates were allocated to one of four break-out groups. The groups were arranged such that each contained a crossLAs, supplemented by local social housing providers and other public sector representation in attendance. Each group was askidentify inputs and desired outputs/outcomes on a chart similar to that shown below, in order to understand the models that aaligned to LAs.

► This indicated where LAs, according to the distribution of inputs and outputs, might be on the chart. Examples of activity ouLAs are shown on the following slides.

LA as largescale GDP


LA asmarketer/ facilitator

scale GDP

LA as general

promoter

Resource/Risk

out 1: Consideration of Inputs and Outputs

out groups. The groups were arranged such that each contained a cross-section of LAs, supplemented by local social housing providers and other public sector representation in attendance. Each group was asked to identify inputs and desired outputs/outcomes on a chart similar to that shown below, in order to understand the models that are best

This indicated where LAs, according to the distribution of inputs and outputs, might be on the chart. Examples of activity output from


Resource/Risk

Break-out 1: Consideration of Inputs and Outputs (cont.) Table 2 activity outputs


out 1: Consideration of Inputs and Outputs (cont.) – Table 1 and


Break-out 1: Consideration of Inputs and Outputs (cont.) Table 4 activity outputs


out 1: Consideration of Inputs and Outputs (cont.) – Table 3 and


Break-out 1: Consideration of Inputs and Outputs (cont.) considerationsIn addition to the production of the charts, the following key issues

were raised by each group:Table 1Additional points raised by the group were as follows:► There is insufficient confidence in the market to deliver against

Greater Manchester’s low carbon aspirations without meaningful intervention by AGMA.

► Control over selection of the delivery supply chain is important, considering both who and how it is employed, and how quality of delivery is managed.

► Social housing stock is key to providing guaranteed number of

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► Social housing stock is key to providing guaranteed number of units in order to meet minimum number required to make models sustainable and to attract the private sector.

► Delivery skills and expertise may already exist with AGMA, e.g., marketing and property assessment. This needs to be considered when defining the final delivery model.


out 1: Consideration of Inputs and Outputs (cont.) – additional

Table 2 Participants on Table 2 included minimal representation from LAs,

and therefore the responses to the ‘Input / Output exercise’ took a different approach to the other groups. Considerations included:

► Key requirement is to generate a vibrant local market for suppliers and installers. It was crucial that new entrants could be part of this market. This would generate local employment and encourage community participation in the Green Deal.

► A particularly challenging output was ensuring that the delivery model could deal with whole house measures, i.e., do more than Green Deal. There was concern that if initial delivery of retrofit


Green Deal. There was concern that if initial delivery of retrofit was restricted to Green Deal only, then ultimately AGMA might not meet the challenging CO2 reduction targets.

► The delivery partner would need to be flexible enough to deal with more than residential properties, e.g., own estate.

► Ability of organisations represented on the table to provide inputs was limited as unlike a Local Authority they were not likely to access significant resources in terms of project management support and / or prudential borrowing. However, social housing providers did recognise their ability to de-risk the project by providing social housing stock, e.g., voids, in a phased approach.

► It was felt that it was important that AGMA and its partners could be involved in the assessment of properties in the early years of delivery.

Break-out 1: Consideration of Inputs and Outputs (cont.) considerations (cont.)

Table 3Additional points raised by the group were as follows:► There is a need to understand what the models will deliver

beyond Green Deal and how they will help achieve the broad ambitions of the low carbon economy.

► There are differences in appetites and ambitions between the local authorities and these need to be accommodated.

► There was a feeling that there are still too many unknowns on the legislation and that as a result it is difficult to adopt a position. It was recognised that this may be because LAs do not know the

Ref: 11250255

was recognised that this may be because LAs do not know the detail rather than that enough detail has not been published. As such, there may therefore be a requirement for Greater Manchester to further develop its understanding of the Green Deal.


out 1: Consideration of Inputs and Outputs (cont.) – additional

Table 4


Break-out 2 – Groups discussed each model in detail and listed strengths, weaknesses and dependenciesThe following themes emerged within the four break-out groups:Model 1 - Local Authority as general promoter of Green Deal

marketAdvantages:► Cheapest optionDisadvantages/Risks:► Very limited LA control means that outcomes are very hard to

direct► Risk of Green Deal Providers cherry picking properties and

avoiding those with the greatest needAssumes active/strong Green Deal Providers – lack of confidence

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► Assumes active/strong Green Deal Providers – lack of confidence that this is the case

► Local Authorities are not specialist marketers


discussed each model in detail and listed strengths, weaknesses and dependencies

Model 2 - LA as a marketer/facilitatorAdvantages:► Assessments could include wider home energy efficiency

assessments i.e., should not just be limited to Green Deal► Panel of GDPs is more attractive than a single GDP – manages

the risk of delivery failure and exclusion of market conditions/competition.

► May support desire to maximise the local delivery marketDisadvantages/Risks:

Requires a referral fee that is acceptable to the private sector in


► Requires a referral fee that is acceptable to the private sector in order to recover costs

► Need to assess whether advice is truly independent. Recognition that there is a risk that AGMA may lose credibility if not.

► Need to ensure that there a joined up approach to delivery (i.e., marketing organisation, assessing and surveying, sign up of properties, delivery) and determine the optimal structure to do so

Break-out 2 – Groups discussed each model in detail and listed strengths, weaknesses and dependencies (cont.)► Model 3 – Local Authority as large scale Green Deal providerAdvantages:► Provides the most control over (i.e., certainty of) outputs ► Offers the opportunity to undertake improvement works wider than

just those linked to the Green Deal.► Model is adaptable for other similar projects, including public

sector buildings, commercial buildings and possibly heat networksDisadvantages/Risks:► This model exposes the public sector to the greatest financial risk.

However, this exposure would be incremental in line with the build programme

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programme► Any public sector investment will need to be fully appraised and

approved. Uncertainty in respect of the appetite Local Government PWLB borrowing.

► Further consideration is required to explore the balance between political drive and the need for financial returns on investment

► Risk that Green Deal provider will have taken over the local market by the time Greater Manchester procures a partner

► Nervousness if single Green Deal provider► Will this remove competition and result in a worse deal /

less choice for consumers?► Risk of project failure should the single delivery partner fail

► Are we able to achieve the desired scale of no less than 15,000 units? General view is that this is achievable.


discussed each model in detail and listed strengths, weaknesses and dependencies (cont.)

Other themes / considerations► Importance of providing a delivery structure that can:

► Deliver other similar projects (i.e., reduction in timeframe to procure, cost to establish, consistency of governance arrangements)

► Be readily expandable to deliver a potentially significantly larger programme

► Be adaptable, e.g., transferable to public sector and private sector commercial retrofit


Break-out 2: Summary ConclusionsSummary conclusions – Break-out Session 2► Model 1 (Local Authority as general promoter of Green Deal market)

break-out groups.► The rationale for the general promoter model being the least preferable model included:► this was seen as the base / do nothing equivalent option, and therefore should not be considered as the preferred delivery mo► LAs may undertake a general promotion role anyway either as an interim measure or in addition to the preferred model► the model provides insufficient control and certainty over delivery

► Model 2 (LA as a marketer/facilitator) and Model 3 (LA as large scale Green Deal provider) were identified as the most attracdelegates in all break-out groups


out 2: Summary Conclusions

Local Authority as general promoter of Green Deal market) was identified as the least preferable model by delegates in all

The rationale for the general promoter model being the least preferable model included:this was seen as the base / do nothing equivalent option, and therefore should not be considered as the preferred delivery modelLAs may undertake a general promotion role anyway either as an interim measure or in addition to the preferred modelthe model provides insufficient control and certainty over delivery

Model 2 (LA as a marketer/facilitator) and Model 3 (LA as large scale Green Deal provider) were identified as the most attractive by


Workshop Summary ConclusionsSummary conclusions► Deselected Model: Model 1 (Local Authority as general promoter of Green Deal market), but recognition that this could be

fallback position if Model 2 and Model 3 do not work► Models to be taken forward to Stage 3 (Initial Business Case development): ► Model 2 (LA as a marketer/facilitator) ► Model 3 (LA as large scale Green Deal provider)

► Key considerations for ongoing development of Model 2 and Model 3:► Senior level engagement – The project team will need to engage with senior officials across AGMA to ensure they are bought into

Project. Ideally these will have some influence over decision making.► An adaptable model structure is required to enable similar projects to be delivered under a single consistent framework / del

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► An adaptable model structure is required to enable similar projects to be delivered under a single consistent framework / delmodel

► Consideration is required in respect of the number of delivery partners. The core ‘assumes a single delivery partner, but there may be a requirement to consider a greater number of delivery partners. It is nthis may increase procurement costs and timescales, and may mean that scale has to be increased in order to remain attractivemarket.


Local Authority as general promoter of Green Deal market), but recognition that this could be used as a

Models to be taken forward to Stage 3 (Initial Business Case development):

Key considerations for ongoing development of Model 2 and Model 3:The project team will need to engage with senior officials across AGMA to ensure they are bought into the

Project. Ideally these will have some influence over decision making.An adaptable model structure is required to enable similar projects to be delivered under a single consistent framework / delivery An adaptable model structure is required to enable similar projects to be delivered under a single consistent framework / delivery

Consideration is required in respect of the number of delivery partners. The core ‘LA as large scale Green Deal provider’ currently assumes a single delivery partner, but there may be a requirement to consider a greater number of delivery partners. It is noted that this may increase procurement costs and timescales, and may mean that scale has to be increased in order to remain attractive to the


Section 4

Next steps

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Next steps

Stage 3 summary:► Develop two preferred options through the consideration of the financial and investment options to support Greater Manchester

of a single preferred option. This will be achieved via modelling to consider the financial and investment options associateoption. Our review will consider AGMA data in respect of:► the baseline property portfolio, profiled by year► baseline retrofit programme, including measures, costs, efficiency savings, and FIT/RHI income (if applicable)

► We will undertake a high level ‘critical friend’ review of AGMA data prior to undertaking modelling.

The next steps of the project will be:

Stage 1: Option Definition support

Stage 2 Options Appraisal support

Ref: 11250255

► Shortlist of high level options for appraisal at Stage 2

► Develop options to support selection of single option

► Consider financial and investment options via modelling

► Consider AGMA data, including high level ‘critical friend’ review of AGMA data

► Financial and investment model for each option


ü

► Core Model Selection workshop18 January 2012

► Presentation of findings in summary report

ü

Develop two preferred options through the consideration of the financial and investment options to support Greater Manchester’s selection of a single preferred option. This will be achieved via modelling to consider the financial and investment options associated with each

baseline retrofit programme, including measures, costs, efficiency savings, and FIT/RHI income (if applicable)We will undertake a high level ‘critical friend’ review of AGMA data prior to undertaking modelling.

The next steps of the project will be:

Stage 3Initial Business Case development support

Stage 4Final Business Case development supportdevelopment support development support

Develop options to support selection of single option Consider financial and investment options via modellingConsider AGMA data, including high level ‘critical friend’ review of AGMA data Financial and investment model for each option

► Further iteration of the financial and investment model

► Consideration of- Role of the public sector- Financing options - AGMA investment- Set up costs and recovery

► Risk Management workshop

► Support development of action plan for procurement and/or implementation phase


The key remaining project milestones Milestone Approval for selection of two models to be taken forwards Report circulated: Stage 1 and Stage 2

Initial Business Case development in respect of the two preferred models Selection and approval of the final preferred model

Final Business Case development in respect of final preferred model

Submission of Final Business Case for approvalDelivery of project plan to implement approved housing retrofit model


milestones are as followsDateJanuary 2012w/c 6 January 2012

Business Case development in respect of the two preferred models February 2012End of February 2012

March 2012

March/April 2012April 2012


Key engagement with stakeholders and decision makers follows

Engagement Activity with Stakeholders & Decision Makers

Paper to WLT

Workshop at Social Housing Low Carbon Group meeting

Presentation to LCEA Board Sub Group for WP1

Stakeholder Workshop (2)

Paper to COG

Local Authority specific briefings on project to senior managers

Stage 3 - Initial Business Case development

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Local Authority specific briefings on project to senior managers


Engagement Activity with Stakeholders & Decision MakersSummary of Stage 3 circulated to highlight final preferred model

Presentation to COG

Paper WLT

Paper to Environment Commission

LCEA Board sub Group for WP1

Stage 4 - Final Business Case development

Key engagement with stakeholders and decision makers ois as

Date

w/c 13th Feb

w/c 20th Feb

28th Feb

28th Feb

7th March

Tameside: w/c 27th Feb Tameside: w/c 27th Feb Salford: w/c 5th March


Datew/c 5th March

7th March (TBC)

w/c 12th March

21st March

2nd April

Appendix A

Two rejected models

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Two rejected models

LA as small scale Green Deal Provider

Delivery vehicle

Finance

Marketing

Local authority

Ref: 11250255

In house or private sector procured


LA as small scale Green Deal Provider – Schematic

Finance

Financed either through prudential borrowing (most

likely due to smaller scale), bank finance

or TGDFC

In house or private sector procured


On-the-ground examples of small scale programmesHaringey► Pilot GD/retrofit scheme.

► £500k provided and underwritten by council.

► Subsidised loan provided to residents to implement measures at 2.5% interest rate.

► Not ring-fenced. Sits within council’s budget.

► Launched Saturday 3 Dec.

► No installers identified yet.


ground examples of small scale programmesMerton (in development)► Domestic Repair and Improvement Loan.

► £100k in revolving loan fund. Max £5k loans with tenure of up to 5 years.

► Interest at Bank of England + 1%, fixed at commencement of loan.

► For small repairs-type works, solid wall insulation, renewable energy installations.

► Available to:

► Owner/occupiers on low income but not in receipt of benefit.

► Private landlords with tenants in receipt of benefits.► Private landlords with tenants in receipt of benefits.


Strengths Weaknesses► Low cost recoverable finance available

through local authority balance sheets and prudential borrowing.

► Relatively quick to implement.

► Simple and can be limited to a single LA programme.

► Does not provide the ability to deliver programmes at scale.

► LA has to retain finance on balance sheet until repaid.

► Delivery vehicles likely to be unrated meaning refinance not possible or requires local authority underwriting.

► LA takes on majority of risks.

► Start up and fixed costs have to be financed by local authority.

Review of small scale programmes

Ref: 11250255

financed by local authority.

Whilst this is relatively easy to implement within one LA it is not something that is scalable.


DependenciesDoes not provide the ability to deliver programmes at scale.

LA has to retain finance on balance sheet

Delivery vehicles likely to be unrated meaning refinance not possible or requires local authority underwriting.

LA takes on majority of risks.

Start up and fixed costs have to be financed by local authority.

► Availability of funds in revenue accounts for start up and fixed costs.

financed by local authority.

Whilst this is relatively easy to implement within one LA it is not something that is scalable.


Retrofit Guarantee Fund – Schematic

Local authority

Retailbank Finance

Guarantee Fund

Guaranteecontract

► Takes first loss risk away from retail

Finance

Ref: 11250255

Installers► Takes first loss risk away from retail

banks.► Financing of 5► Ideally non-profit making with zero cost

finance.


Schematic

Central Government/Grant/

Other Funding

Contract

Takes first loss risk away from retail

Finance

Finance

Takes first loss risk away from retail

Financing of 5-10% of total costs.profit making with zero cost


Model developed for the World Bank► In operation in East Europe, Russia, China, and Mexico.► Hungary ~10 years of operation. Delivered 100,000 energy efficiency installations without further public subsidy.

Development in the UKCommunity Housing Cymru and 7 Welsh housing associations► Aims to develop a sustainable programme of solar PV and low carbon initiatives.► Welsh Government has funded the project set-up costs.► Each HA committing 100 PV installations and contributing money to establish fund.

Radian Housing Association

On-the-ground examples/development of Retrofit Guarantee Fund

Ref: 11250255

Radian Housing Association► Launched Retrofit South East project in October 2009 with GESB.► 18 month project aiming to develop model for low carbon retrofit of social housing.

Severn Wye Energy Agency► Looking to roll out model in South West of England and Wales.► Pilot of 300-500 homes focusing on owner occupiers, to complement social housing providers.

This model has been successfully implemented in Eastern/Central Europe and is being reviewed by some housing associations in the UK, although there is little evidence of bank appetite.► No retail bank publicly supporting.► Retail banks not set up for long term fixed rate finance.► No obvious source of funds for guarantee fund.


Hungary ~10 years of operation. Delivered 100,000 energy efficiency installations without further public subsidy.

Community Housing Cymru and 7 Welsh housing associationsAims to develop a sustainable programme of solar PV and low carbon initiatives.

Each HA committing 100 PV installations and contributing money to establish fund.

ground examples/development of Retrofit Guarantee Fund

18 month project aiming to develop model for low carbon retrofit of social housing.

500 homes focusing on owner occupiers, to complement social housing providers.

This model has been successfully implemented in Eastern/Central Europe and is being reviewed by some housing associations


Review of retrofit guarantee fundStrengths Weaknesses► Low demand for public sector finance so

limiting balance sheet exposure.

► No need to deal with private sector finance for initial finance or refinance programmes.

► Ability to scale up once initial model proves satisfactory.

► Relies on banks switching position on appetite for long term fixed rate finance.

► Requires banks to create supporting systems and processes.

► Guarantee fund requires funding.

► Guarantee fund will have to make a return if zero cost finance not available.

► No UK or Western Europe precedent.

► Limited role for local authorities in

Ref: 11250255

► Limited role for local authorities in marketing and in attracting ECO.

► Unclear who will be driving takeother models.

The guarantee fund reduces the amount of public sector funds required but there is no evidence of retail bank appetite at themoment.


DependenciesRelies on banks switching position on appetite for long term fixed rate finance.

Requires banks to create supporting systems and processes.

Guarantee fund requires funding.

Guarantee fund will have to make a return if zero cost finance not available.

No UK or Western Europe precedent.

Limited role for local authorities in

► Appetite from retail banks to take on adoption risk and provide long term finance.

► Creation and funding of guarantee fund.

Limited role for local authorities in marketing and in attracting ECO.

Unclear who will be driving take-up vs.

The guarantee fund reduces the amount of public sector funds required but there is no evidence of retail bank appetite at the


Appendix B

Green Deal Finance Company

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Green Deal Finance Company BackgroundGreen Deal Finance Company Green Deal Finance Company

The Green Deal Finance Company (TGDFC)

Banks

£? Refinance programme► PWC► Banks► Energy

Companies► Building

firms

GIB

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Green Deal provider

1. Measures delivered to property

2. Fund pays GDP3. Property pays back fund over up to 25 years (or less)

TGDFC (www.thegreendealfinancecompany.com) has been formed to provide finance to Green Deal providers. This is currently under development and awaits confirmation of finance (both for set up and during delivery).


The Green Deal Finance Company (TGDFC)Key issuesFinance► Will it be at scale?► Will GIB finance?► Will banks provide?► What will be the cost of capital?

Green Deal providers► What restrictions from banks?► Access to ECO?► What obligations to local jobs?

Refinance programme

► What obligations to local jobs?► What obligation to long term service?

Householders► What credit risk restrictions?► Restrictions on solar PV or RH?

Operations► Who will pay for set up?

► Who will operate?

State Aid► How much will be obtained?

pays back fund over up to 25 years (or less)

TGDFC (www.thegreendealfinancecompany.com) has been formed to provide finance to Green Deal providers. This is currently under development and awaits confirmation of finance (both for set up and during delivery).


http://www.thegreendealfinancecompany.com)

http://www.thegreendealfinancecompany.com)

Appendix C

Core Model Selection workshop

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Core Model Selection workshop18 January 2012 – Slide PackCore Model Selection workshopCore Model Selection workshop

Slide Pack

Appendix D

Core Model Selection workshop

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Core Model Selection workshop18 January 2012 – AttendeesCore Model Selection workshopCore Model Selection workshop

Attendees

Core Model Selection workshop 18 Attendee Organisation AttendeeAbdul Jabbar Rochdale MBC Jonny SadlerAdam Hackett Oldham MBC; Lance SaxbyAlison Lloyd-Walsh Tameside MBC Linda Comstive CoarAndrew Mee Ernst and Young Lisa HoylandAndy Hunt Trafford MBC Mark AthertonAnne Parkes GM housing retrofit team Matt RobertsAshley Crumbley Wigan and Leigh Housing Matt StockwellBrian Ollerenshaw Bury MBC, Michael BerringtonCarl hallworth Manchester CC, Michael O'dohertyCharlie Baker Urbed Paul LiddyChristoph Harwood Marksman Consulting Paul Longshaw

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Christoph Harwood Marksman Consulting Paul LongshawDavid Kemp Procure + Paul MurphyFreda Reiss Bury MBC, Peter MaynardGary Mongan Tameside MBC, Peter Smith

Gema Thompson Manchester CC - Finance Tim Barwood

Ian Taylor GMCVO Tina GandhiJames Noakes Wigan MBC, Todd HoldenJohn Eley Oldham College, Venetia KnightJonathan Atkinson Manchester Carbon Coop Will Swan


workshop 18 January 2012 – AttendeesAttendee OrganisationJonny Sadler MCC Env StrategyLance Saxby ESTLinda Comstive Coar Manchester CC - LegalLisa Hoyland AGMA Mark Atherton AGMA Matt Roberts Salix HomesMatt Stockwell Wigan MBCMichael Berrington Ernst and YoungMichael O'doherty GM Housing RetrofitPaul Liddy Stockport MBCPaul Longshaw Salford CCPaul Longshaw Salford CCPaul Murphy Manchester CC - ProcurementPeter Maynard Rochdale MBCPeter Smith St Vincents HA,

Tim Barwood ESTac and GM Housing retrofit team prog manager

Tina Gandhi Bolton MBC, Todd Holden GM ChamberVenetia Knight GroundworkWill Swan Salford University


greater manchesterhhousing retrofitubusiness ... - clasp

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