In May this year, the Department of Energy Security and Net Zero (DESNZ) announced Wave 3 of the Social Housing Decarbonisation Fund (SHDF) - with available funding of up to £1.25 billion to help social landlords undertake retrofit energy efficiency works.
The official launch is expected imminently and should include the publication of the final guidance documents, timelines and draft contracts.
DESNZ published their initial guidance documentation in May and while many of the key principles of earlier SHDF waves remain (e.g. landlords expected to co-fund 50% of the grant amounts and properties required to meet EPC C), there are also significant changes associated with Wave 3. While we await the final details from DESNZ, what should social landlords 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 (e.g. 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. DESNZ is also encouraging applications from landlords with less than one thousand homes, and, to demonstrate its commitment, DESNZ have set aside £30 million of funding from the Challenge Fund for smaller landlords.
The Strategic Partnership is open to a smaller pool of landlords, it is aimed at the larger landlords with a proven track record of past SHDF delivery (under the SHDF Demonstrator and previous waves) who are looking to retrofit thousands of homes under Wave 3 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 re-apply through the Challenge Fund route.
Which properties will you retrofit?
- EPC: As with previous waves, social housing of all archetypes below EPC C will be eligible for funding. There are limited circumstances where homes with a rating of EPC 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 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: Wave 3 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 Wave 3.
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 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 requirement for properties to meet a minimum of EPC C, ensures that improving the fabric of properties remains an essential requirement of SHDF. Wave 3 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?
While the official Wave 3 application launch is awaited, there are still a number of ways that landlords can be preparing. This includes understanding your stock, considering whether s.20 consultations need to be run for any leasehold properties, deciding on your procurement strategy for the works, considering any consortium arrangements and starting the tenant engagement process. Wave 3 offers a significant opportunity for landlords in terms of the largest amount of funding available to date alongside a longer delivery window for the works and will be a welcome step forward in the sector's decarbonisation journey.
