Ditch sporadic funding and unleash financial muscle for local energy transition

Published: 9 June 2021
  • New report calls for local decarbonisation strategies to be made a statutory obligation and net zero powers devolved to local authorities to meet the world’s most ambitious climate change target.
  • Systematic public funding should be leveraged, with the help of the UK Infrastructure Bank (UKIB), to attract private sector investment, and unlock economic potential.
  • Report to provide evidence for UKIB approach to local authority and investor support.

Sporadic funding is stifling net zero ambitions at the local level and should be replaced with a systematic approach to planning, funding, and powers, according to a new report by Energy Systems Catapult.



 

‘Enabling Smart Local Energy Systems: Finance and Investment’ 

Builds on extensive research with local government and UK investors to set out recommendations for government, local authorities, energy and financial sectors, and the emerging UK Infrastructure Bank.


The report Enabling Smart Local Energy Systems: Finance and Investment’  proposes moving away from one-off energy, transport and heat projects towards a systematic approach that delivers joined-up local energy communities to attract investment, drive clean economic growth and fund net zero.

Philip New, Chief Executive of Energy Systems Catapult, said it was vital that a standardised and transparent approach to net zero was developed to deliver low carbon projects that were both tailored to local needs and aggregated across the UK to provide a credible investment pipeline – with the co-benefits of job creation, skills development, and air quality improvements.

Philip New, said: “Local authorities have a pivotal role to play in the net zero transition, leveraging public funding to attract the private finance needed to deliver the clean technologies and infrastructure required by local communities.

“Yet there is a risk that the potential value and co-benefits that integrated local systems can offer will be missed if investors focus only on siloed technologies and separate asset classes.”

Putting the challenge into stark relief, the report cites that low carbon investment must scale up to £50 billion each year from 2030 – 2050 to deliver net zero. Despite world-beating climate change targets and over three-quarters of local authorities declaring a climate crisis, there is still no up-and-running mechanism to mobilise the scale of investment needed.

A fundamental starting point, the report states, is support and resources to help local authorities establish smart local energy systems (SLES).

Eric Brown, Chief Technology Officer at Energy Systems Catapult, is leading the organisation’s work on SLES. Eric Brown said: “Smart local energy systems integrate heating, transport and power systems to help local authorities unlock new markets, revenue streams and business model opportunities. This ultimately leads to reduced emissions, improved energy services and more affordable bills, but also many co-benefits, including new jobs, skills and better air quality.

“However what works in Liverpool might not be suitable for Glasgow. Which is why smart systems ensure projects are tailored to fit the characteristics of a local area while allowing innovative approaches to be replicated elsewhere. 

“This requires a standardised approach to planning, collaboration and funding so that local net zero projects can be aggregated to provide a transparent and accessible pipeline of credible local energy projects to investors.

“The nature of smart local energy systems is both bespoke and big picture. It requires coordination across a wide range of actors. It means funding that facilitates long-term thinking and proactive planning, not sporadic one-off projects in response to short-lead and competitive funding calls. Public and private finance must work together to deliver an integrated portfolio resulting in a cost-effective energy transition.”

The research and findings have been supported by Innovate UK and UKRI’s Prospering from the Energy Revolution programme (PFER). Rob Saunders, Challenge Director of PFER, said that the recommendations come at a critical time for the UK’s climate change approaches.

Rob Saunders said: “Unlocking finance in a sustainable way is vital for the development of smart local energy systems, which have the potential to make a major contribution to delivering net zero.

“The Energy Systems Catapult’s work in our programme is delivering unique insights in a crucial year for net zero planning and financing.  The timely publication of this report powerfully highlights this critical issue and lays out key findings on financing for net zero.”

The report will provide a catalyst for the investment community’s involvement in local energy, in which desire for demonstrable social and environmental impact is growing. Welcoming the recommendations, John Bromley, Head of Clean Energy at Legal and General, said the community is keen to find ways to unlock private investment in local authorities able to underpin value for investors and communities.

John Bromley said: “Investors and local authorities have a major role to play to decarbonise our economy and provide a healthier environment for communities throughout the UK.

“Our shared ambitions are to take action on climate change and to do this in a way that creates new jobs, sustainable homes and resilient communities. This report explores opportunities to unlock private investment in such programmes and scale up the future pipeline.”

Report proposals include practical support to help increase the skills and expertise needed to deliver systematic and financially sustainable energy programmes – often cited as a major barrier by local authorities.

The author of the report – the ESC’s Energy Revolution Integration Service (ERIS) – is set to launch a toolkit that will consolidate sector resources and support local learning, upskilling and good practice.

Mareike Schmidt is Innovation Lead at Innovate UK, the government innovation agency funding the work on the toolkit. Mareike Schmidt said: “In our sector, even the help on offer can be challenging. The toolkit will be a go-to Swiss Army Knife helping local authorities turn their net zero ambitions into actionable plans.

“It is crucial that we develop local delivery frameworks to enable and attract private sector investment so local solutions to net zero become replicable and scalable.”

The report also identifies the effects of competing priorities and stretched resources that have resulted in an uneven landscape for local authorities when it comes to delivery on climate goals. It suggests that, for the UK’s ambitious climate change target to be achieved, now is the time to enshrine net zero in law at local level.

Philip New added: “It’s true that a small number of local authorities are ahead in delivering on their climate emergency targets and energy strategies. However, the majority are not.

“To ensure all local authorities benefit, the argument is growing for the formulation and delivery of local decarbonisation strategies to be made a statutory obligation. Without this, stretched local authorities will not have the resources needed to prioritise and deliver local transition to net zero.”

About ‘Enabling Smart Local Energy Systems: Finance and Investment’ 


A report by the ESC’s Energy Revolution Integration Service (ERIS)

Key recommendations include:

  1. Working with local authorities and the sector to cultivate awareness of smart local energy systems, their value and the opportunities they present for people, place and planet
  2. Legislation of net zero at local level, giving local authorities the power and capability to develop local energy communities
  3. A planning framework to provide guidance and confidence to local authorities to develop these integrated energy solutions
  4. Collaboration with investors, policymakers, and national and local government to develop innovative finance mechanisms to combine public funds and private investment
  5. Creating demonstrable, visible pipelines of credible local energy projects to investors
  6. Developing flexible standard procurement frameworks suitable for smart local energy systems