Comment by Matt Caville – Senior Advisor for the Decarbonisation of Complex Sites at Energy Systems Catapult.

The Spending Review reduced funding for public sector decarbonisation by announcing that no additional support would be provided through the Public Sector Decarbonisation Scheme (PSDS). Since its creation, £3.5 billion has been distributed by the Department for Energy Security and Net Zero (DESNZ) to support public sector organisations to deliver heat decarbonisation projects, cost reduction and contribute to emissions reduction.

The public sector estate makes up approximately 2% of the UK’s emissions and had been a trail blazer in demonstrating how heat decarbonisation could be delivered, the grant funding provided by the PSDS were pivotal in enabling the sector to lead the way. Launched as a response to the economic shocks of the COVID-19 pandemic, the first phase of the PSDS enabled significant direct emissions reductions, and promised to support 30,000 jobs across the supply chain. Five years and four phases later, this number will be significantly larger.

From schools and libraries to hospitals and council offices, public buildings are expected to cut fossil fuel emissions by 50% by 2032 and 75% by 2037, compared to a 2017 baseline in advance of the wider built estate. These targets aren’t just aspirational, they’re essential to meeting the UK’s legally binding Sixth Carbon Budget.

This demonstrates the scale of the funding challenge that was never going to be met by public sector grants alone. So with or without the funding additional funding sources were going to be required.

Net Zero by Numbers

It’s the age-old question: do we actually understand how much is this really going to cost and perhaps just as importantly, where will the funding come from?

Having worked in the world of public sector retrofit funding for over a decade, it’s a question I’ve heard time and time again. In the early days, investment trickled in. Modest energy efficiency loan schemes offered a few million here, a few million there, mainly funding upgrades to lighting systems, building energy management systems (BEMS), and building fabric upgrades. Important groundwork supporting technologies that were mature and able to pay for themselves with a reasonable payback but far from the scale needed and more importantly not addressing some of the more expensive but more impactful technologies like heat pumps or flexibility and storage.

It wasn’t until the COVID-19 pandemic that we saw a real shift. As part of the government’s grow back greener economic response, the PSDS was launched, injecting £1 billion into decarbonisation projects, with a particular focus on replacing fossil fuel systems for heating and hot water and supporting 30,000 jobs across the supply chain. It was a clear statement in public sector decarbonisation recognising that the funding made available was less than 10% required.

At Energy Systems Catapult we have been involved at looking how to speed up, scale, fund, and encourage efficient spending of the public purse. Through projects such as our DESNZ-funded Public Sector Decarbonisation Guidance programme and InSite we have gathered significant knowledge around projects, and we have applied that knowledge to develop simplified tools. Building on that information our latest analysis shows the total investment required to fully decarbonise the UK’s public estate is closer to a central figure of £57 billion – something that far exceeds current allocations or previous estimations.

We recognise that uncertainty remains a major barrier at all levels when estimating the cost of decarbonising the public sector estate, largely due to inconsistent and incomplete data.

Accurate cost projections depend on reliable information about building floor area and detailed insight into how buildings consume energy and provide heat. It also reflects the high cost of technologies such as heat pumps which when adopted widely are likely to go reduce in cost, as we saw with PV installations under Feed-In Tariffs (FITS) and the advent of LED lighting.

To address this, the Catapult is investing in data-led innovation, including the development of InSite – a national programme designed to unlock and interpret large-scale smart energy data. This initiative is enabling a deeper understanding of real-world building performance and identifying practical, scalable pathways to reduce emissions.  The Catapult is also proud to be the lead partner for the Smart Energy Data Service (SENSE) that will transform our understanding of the UK’s energy system by improving access to high-quality datasets for research, innovation and policy development.

Backing the transition

Recognising that footing a £57 billion investment bill to decarbonise the UK’s public sector estate can’t fall to government alone is important. And meeting our Net Zero targets will require more than public funding, it demands a shift in how we think about finance, risk, and return.

One thing is clear: private investment must step up to help bridge the gap.

The good news? The capital is out there. But attracting it to the kinds of projects that will deliver real decarbonisation at scale means speaking the language of investors. These projects offer more than environmental benefits; they can deliver reduced energy costs, long-term operational savings, and social value. The challenge is packaging those benefits in ways that resonate with the private sector: clear returns, manageable risks, and scalable impact.

This isn’t just theory, it’s already happening. I’ve seen real progress in the development of dynamic funding models through the devolution deals granted to combined authorities. One standout example is the West of England Mayoral Combined Authority’s Green Growth Impact Fund. Speaking recently at the APSE’s Big Energy Summit in Birmingham, they shared how they’ve successfully brought private investor funding to the table for investment in energy efficiency and renewable energy projects by speaking their language – framing projects in terms of risk, return, and scalability, and by offering blended finance solutions that meet both public sector needs and investor expectations. The result? A compelling, investable proposition that’s unlocking real capital for Net Zero delivery.

Public funding still has a vital role to play, particularly in unlocking early-stage projects. Grant funding helps to de-risk capital investment, especially where benefits might take time to materialise. What’s needed is a more dynamic, blended model where public and private capital come together through flexible financial products. Think of it like combining a loan, grant, or tax relief: the right mix, tailored to different building types and technology combinations, from insulation upgrades to electrification of heat.

We’re at a crucial juncture. While interest from institutional and impact investors continues to grow, converting that interest into concrete investment requires the right tools and evidence. This means clearer demonstration through data and modelling of how buildings can be decarbonised, alongside robust financial models that provide investors with the information they need. By showing how a portfolio of investments can deliver the social and economic outcomes they’re targeting, we can build the confidence necessary to unlock funding at scale.

We also need to recognise that not all of the public sector is currently able to access private sector funding and whilst central government funding has now paused, only part of our public sector will be able to secure private sector funding and continue to the charge to Net Zero.

Partnering for progress

The Catapult remains committed to leading change through data driven innovation. We will continue to support the public sector by developing improved guidance, sharing best practices, and enabling access to high quality datasets.

We are particularly interested in hearing from organisations currently navigating their journey to Net Zero. Whether you are trying to understand costs, identify viable decarbonisation pathways, or just beginning to map out your next steps.

We are also keen to collaborate with those already further along. If your organisation has developed heat decarbonisation plans, captured cost data from recent projects, or gathered insights you would be willing to share, we would welcome the opportunity to include your experience in our wider knowledge sharing efforts and to help improve our own understanding of the total costs to decarbonise faced by the public sector.

Get in touch with our team. We would be glad to continue the conversation.