Update on Wave 2.1 of the Social Housing Decarbonisation Fund
The government’s Social Housing Decarbonisation Fund (the SHDF) is intended to provide £3.8 billion of funding in England over a ten year period to help landlords with the costs of decarbonising their affordable housing stock. While £240 million of the fund has already been released via an earlier SHDF demonstrator and Wave 1 of the funding, the government is now scaling up and has committed £800 million for Wave 2.
In our summer issue "The Second Wave: Government funding for Net Zero retrofit" we discussed what was expected in respect of applications for Wave 2.1 of the SHDF. The Competition Guidance and the draft template Grant Agreement for Wave 2.1 of the SHDF has now been published – have these met the expectations?
Minimum property numbers and timescales
As expected, there will now be a minimum bid size of 100 socially rented homes per project. This minimum bid size has been introduced by BEIS in order to drive larger scale retrofit projects and to deliver economies of scale. Landlords who cannot meet the minimum bid number will be able to form a consortia with other landlords. In terms of timescales, the retrofit works are required to be completed by 30 June 2025 (with all grants drawn down and expended by 31 March 2025). This gives landlords two years to deliver the work. This is double the time granted for previous waves, however more properties will need to be retrofitted within this timescale. In order to meet this deadline, applicants should had surveyed and identified eligible properties and considered both procurement requirements and delivery contract options (including the allocation of any PAS 2035 roles) well in advance of any funding award.
Our previous article discussed a wider range of applicants being permitted and this has been confirmed by BEIS. Registered providers and registered charities that own social housing will now (alongside local and combined authorities) be permitted to bid directly for SHDF grant rather than being restricted to bidding through a local authority as was the case with previous waves. These entities may use the grant directly or pass it to other providers of social housing (e.g. ALMOs) within a consortium structure. BEIS requires applicants who are leading a consortium to enter into a legal agreement with the other members to manage governance and delivery across the consortium. This will also allow the lead partner to back off their liability under the Grant Agreement, otherwise a breach by a consortium member could potentially expose the lead partner to clawback of the entirety of the grant.
As anticipated, a "Fabric First" approach (where insulation and heat loss prevention measures are prioritised) remains the focus of Wave 2.1. However, if landlords can evidence that properties are already appropriately insulated, and that the low carbon heating will not result in increased bills for tenants, then funding may be used for other energy efficiency measures (e.g. low carbon heating with an emphasis on heat pump installation). Properties that have received funding from earlier SHDF waves are not eligible for Wave 2.1 funding, this is presumably because those properties should now have reached EPC C so would no longer be prioritised for funding.
We discussed the introduction of a new emphasis on "digitalisation". The Competition Guidance indicates that the "digitalisation" of retrofit is encouraged by BEIS, and there is optional funding available to support this. This includes the use of technology to improve bid delivery in areas such as data collection, energy usage optimisation and design modelling. Bidders are expected to already have an existing digitalisation strategy in place and may be required to share additional data with BEIS if they are awarded this additional funding. The funding awarded will be up to 2% of the capital spend of the bid or a maximum of £600 thousand per bid, whichever is lower.
Other important issues that applicants should be aware of include:
- Co-funding: Applicants must co-fund at least 50% (rather than the previous 30%) of the costs of retrofit from their own resources or other third-party funding. Any third-party funding must be approved by BEIS in advance.
- Subsidy Control rules: Specialist Subsidy Control advice should be sought, particularly by non-local authority applicants (either directly or as part of a consortium) as the current Grant Agreement is not clear on what basis the funding will be provided or the position on exemptions that such providers can benefit from.
- Data Sharing: Bidders will also be required to enter into a separate Data Sharing agreement to receive SHDF funding which may require applicants to update their own privacy notices and data protection procedures. In the case of bidders who are lead partners of a consortium, they will also need to ensure adequate mechanisms are in place to enable timely collection and sharing of data from all consortium members.
- Procurement: All contracting authorities must procure SHDF-related works and services using a Public Contracts Regulations 2015-compliant process. Given the current skills' shortage in the market and the tight timescales mentioned above, applicants should identify a procurement strategy well in advance of being awarded the SDHF grant and consider collaborative / joint approaches where appropriate.
The competition opened last month, September 2022. We encourage landlords wishing to submit a bid to consider their proposed procurement strategy and funding / delivery structure as soon as possible in order to minimise legal risks and to put landlords in a strong starting position at competition launch.