A group of local authorities in the South West are collaborating to create a £100m fund to invest in energy projects.
The South West Low Carbon Fund aims to improve energy efficiency of local building stock, but also invest in distributed generation, storage, demand-side response and EV infrastructure.
As well as cutting carbon emissions, the aim is to create jobs and enable local authorities to earn a return from the savings enabled by funding investments – savings that in most cases will be guaranteed via energy performance contracts (EPCs).
By packaging up viable projects across the South West, they hope to also attract private debt funding, which usually requires aggregated, bankable projects to deploy capital at scale.
Plymouth City Council has led the development of the South West Low Carbon Fund through a EU-funded project, FINERPOL.
It will work with Bristol, Devon and Exeter City Councils and Local Energy Partnerships (LEPs) in the South West to create the South West Energy Hub and a pull-through mechanism for viable projects across the region.
A crucial part of that work will be led by Bristol, which has ELENA funding to create a project development unit (PDU). That unit will develop projects from feasibility to investment-ready stage, at which point the fund can invest in them.
The idea is that the returns from projects will ultimately fund the project development unit and an independent fund manager once the three-year ELENA funding expires.
But the councils are approaching the stage where they have to test the modelling in practice, says Alex Midlen, Low Carbon City Officer, Plymouth City Council.
“We are working out how to set up a kernel of a fund – not necessarily the full £100m, maybe half or a third of that – to kick start projects and to understand the relationships between delivery and finance,” he says.
Delivering real projects and returns also gives the fund a better chance of attracting investment from both public and private sectors.
“Part of our rationale is to develop a case for local authorities to invest into the fund themselves, but there are some big questions about why they would do that,” says Midlen.
“The obvious one is that they are local authorities with their own energy efficiency projects that need their money. They could use their own reserves or the Public Works Board without going to a fund,” he accepts.
“But there are some interesting benefits in local authorities getting together and supporting the development of a fund by direct investment and getting access to finance for their own projects.”
One benefit is leverage, says Midlen.
“If we are successful and can draw in private investment, that is more money for local projects – not just council projects – which means better progress towards [broader] policy goals.”
Another is the commercial returns that can be made by councils from investing in the fund. However, Midlen admits that case must be proven. He says there is also “a fundamental problem in the energy efficiency market, which is that there are better returns to be had in other sectors”.
As such, those working on the South West Low Carbon Fund must establish a compelling case for local authorities to invest. “But when we have that [case] it will work for the private sector as well,” says Midlen.
The ELENA funding provides three years to make the case stack up. For now, there is an identified project pipeline worth around £50m that Bristol’s project development unit can start to work through.
It will be interesting to see the level of appetite local authorities and the private sector have for those projects – which will likely decide the success or failure of the fund.