On 2 October 2024, the Department of Energy Security and Net Zero (DESNZ) opened applications for Wave 3 of the newly rebranded Warm Homes: Social Housing Fund (WH:SHF), previously known as the Social Housing Decarbonisation Fund (SHDF). The fund aims to help social landlords undertake energy efficiency and low carbon heating works across their existing housing stock.
The previous Conservative Government pledged up to £1.25 billion in WH:SHF's previous incarnation as SHDF Wave 3, but the amount of funding the current government will allocate to WH:SHF is still to be determined. DESNZ has stated that the full amount dedicated towards WH:SHF will be confirmed during the Chancellor's Spending Review which takes place later this Autumn. While many of the key principles of earlier SHDF waves remain (eg landlords expected to co-fund 50% of the grant amounts and properties required to meet EPC band C), there are also significant changes associated with WH:SHF.
As applications are being prepared, we have set out the key issues that social landlords should be considering.
Which application route will you take?
DESNZ have announced two different application routes for Wave 3: the Challenge Fund and the Strategic Partnership. These have different requirements in terms of application process and delivery.
The Challenge Fund does not involve a competitive process, and the majority of landlords are expected to apply for funding through this route. All applications that meet the minimum eligibility criteria will be guaranteed funding (but the funding amounts may be varied by DESNZ). To give landlords further certainty in the delivery of the works (eg onboarding contractors, obtaining tenant consents, completing retrofit assessments etc) and to increase the chances of successful delivery, funding can be drawn down on a phased basis. Landlords will only be required to provide DESNZ with detailed information of the properties and works at the point when they are ready to commence each phase.
The Strategic Partnership is open to a smaller pool of landlords, it is aimed at the larger landlords with a proven track record of delivering large scale retrofit projects who are looking to retrofit thousands of homes under WH:SHF and who have the capability to deliver retrofit at scale and meet the "strategic priorities" outlined by DESNZ. This is a competitive process and therefore funding is not guaranteed. That said, landlords who are unsuccessful in their applications can elect to have their application considered through the Challenge Fund route.
Which properties will you retrofit?
- EPC: As with previous waves, social housing of all archetypes below EPC band C will be eligible for funding. There are limited circumstances where homes with a rating of EPC band C or higher can be included: (i) on an infill basis or (ii) if the homes are eligible for low carbon heating measures. A maximum cap of 10% of all homes in a bid is allowed to be at EPC band C or above.
- Non-social homes: Private homes including leasehold and shared ownership homes may also qualify for funding on an infill basis but there is a cap of 30% of all homes in a bid allowed to be non-social homes. While there is no obligation under the funding documents for the owners of the non-social homes to contribute to the costs of the works, social landlords may look to recover a proportion of their co-funding costs via the service charge mechanism under the lease. In order to do this, landlords will need to run s.20 consultations prior to commencing the works and also consider 'Florrie's Law' in respect of the capped amounts they can recover from leaseholders for grant funded works.
- Previous waves: WH:SHF applications can include homes that were retrofitted under the SHDF Demonstrator or Wave 1 but these homes are only eligible for low carbon heating measures. Homes retrofitted under Wave 2 of SHDF are not eligible under WH:SHF.
What measures will you undertake?
- Low Carbon Heating: DESNZ is encouraging low carbon heating installations and will offer £20,000 per home to install low carbon heating measures and other associated energy efficiency measures (including solar PV panels and increased insulation to help mitigate any increased energy costs from the low carbon heating measures). This applies to homes that are on the gas grid and is only available for up to 10% of all homes in each application. No match funding is required from landlords for this. For homes that are off the gas grid, there is a separate cost cap of £7,500 per home per application for Low Carbon Heating measures (this is in addition to the existing £7,500 cost cap available to all homes for energy efficiency measures).
- The role of fabric – While the "fabric first" approach is no longer an explicit requirement, landlords are still expected to focus on measures that lower household energy bills including wall, loft and underfloor insulation. The continued requirement to comply with PAS2035 requirements and the criteria for properties to meet a minimum of EPC band C, ensures that improving the fabric of properties remains an essential requirement. WH:SHF provides for a single £7,500 cost cap of grant funding per home per application. This is separate from the cost caps for low carbon heating measures.
What are the next steps?
Following the launch of WH:SHF, and during the application process, social landlords should be identifying their applicable housing stock, considering whether s.20 consultations need to be run for any leasehold properties, deciding on the procurement strategy for the works, considering any consortium arrangements and starting the tenant engagement process. WH:SHF offers a clear opportunity for landlords to secure a significant amount of funding to supplement their energy efficiency retrofit programmes alongside a longer delivery window for the works (ie up to September 2028). It's an opportunity not to be missed.
The window for applications will remain open until midday on 25 November 2024.
