Low Carbon Hub funding model
- Meeting of Finance Panel (Panel of the Scrutiny Committee), Thursday 7 April 2016 5.30 pm (Item 5.)
- View the background to item 5.
The Panel considered the Low Carbon Hub funding model in October 2015. Steve Drummond talked the panel through the model used by the hub and some of the limitations e.g. this type of model cannot be used for property development. The panel went on to discuss similar or related models and possibilities. Concerns were expressed about uncertainties and risks around housing.
Why is it on the agenda?
For the Panel to receive an update on how the Low Carbon Hub are adapting their funding model.
Who has been invited to comment?
Steve Drummond, Low Carbon Hub
Nigel Kennedy, Head of Financial Services
Steve Drummond, Non-Executive Director (Investment) of the Low Carbon Hub (the Hub), said that the Hub aimed to reduce energy usage and create renewable energy by working through communities. He explained the Hub’s funding model relied on raising money in the community and had a multiplier effect. The model did not rely on tax breaks or incentives and it offered investors a return that was 3% above RPI inflation.
Steve Drummond said that Feed-in Tariffs (FITs) on solar electricity systems had balanced European Union (EU) import tariffs but changes to FITs announced in October had made new solar projects unviable and seriously damaged the industry. This situation was expected to be resolved within two years, either through successful lobbying or Brexit (British exit from the EU). There had been a rush prior to the FITs changes that would keep the Hub busy with projects for the next 12-18 months.
The Hub would be issuing a call for capital in the coming weeks and aimed to raise £3m. Together with £2m from the Charity Bank this would fund £2m of solar electricity systems on schools and a £3m hydro project at Sandford which was expected to be the largest such project on the river Thames. These projects would generate some £170k in direct benefits to the local community and pay for the Hub’s core staff.
In terms of energy efficiency, the Hub was looking to retrofit homes in a postcode area holistically in two areas; one within the City with a high proportion of private rented housing and one rural area focused on helping the rural poor. The Panel observed that the Council may be able to assist in identifying a suitable urban area for this pilot project.
In response to a question, the Panel heard that the Hub had considered looking at projects further afield but did not want to lose its community ethos which was focused on the local area.
The Panel asked about support from the City Council and heard that its loan to the Hub had been essential and was still revolving. Steve Drummond also said that the Hub was bidding for money that would enable it to proceed with fitting solar electricity systems on social housing in the City.
The Panel asked whether the Council could consider investing in the Hub as this may generate higher returns that some of the Council’s existing investments. The Management Accountancy Manager advised that the Council’s Treasury Management Strategy did allow for this but while the option remained on the table, the Council was not looking to make longer term investments at the current time due to uncertainties around the impacts of recent national policy changes on the Council’s Housing Revenue Account.
The Panel questioned whether a similar funding model could be used by the Council to fund things like new build affordable housing with solar electricity systems and heard that this was possible, although there were challenges around the economic viability of solar power at the current time.
The Panel AGREED to make the following recommendations to the City Executive Board:
1. That the Council promotes the Low Carbon Hub’s call for capital.
2. That the Council considers making an investment in the Low Carbon Hub.
3. That the Council lobbies Government to make installations of solar energy systems viable again following recent changes to feed-in tariffs, perhaps by the Leader of the Council writing to the appropriate government minister.
4. That Council continues to support Low Carbon Hub projects where appropriate, including potentially by assisting with a bid to fund the installation of solar electricity systems on Council housing, and identifying a suitable location for an energy efficiency project in the City.