Warming up the green homes finance market with the UK Infrastructure Bank

Clean Heat is an infrastructure challenge for the UK and there are numerous examples of 'shovel-ready' projects that the new UK Infrastructure Bank could support

By Juliet Phillips

Senior Policy Adviser at E3G and Head of Policy, Electrify Heat

Heat pumps are part of the long-term solution to reduce our reliance on volatile international gas markets, playing an essential role in supporting the UK economy transition to clean energy. The government’s Heat & Buildings Strategy has recently set out regulations to support this switch, but there are still big questions over how to pay for this nationwide infrastructure opportunity.

There’s no silver bullet solution, and the answer will likely to be a mix of public, private and blended finance solutions. But one exciting new institution – the UK Infrastructure Bank (UKIB) – could play a market-making role.

The UKIB is the new, government-owned policy bank, focused on increasing infrastructure investment across the country. It is providing £22bn of infrastructure finance to tackle climate change and support regional and local economic growth, partnering with the private sector and local government to finance a green industrial revolution and drive growth across the country.

As E3G set out in a recent briefing, the Bank could be mission-critical for making progress – supporting local authorities, businesses and financial institutions to unlock healthier homes, lower energy bills, green jobs and significant carbon reductions.

There are numerous examples of ‘shovel-ready’ clean heat projects the Bank could support across the country. Look at Kensa Group’s Glasgow Green Street: a utility-style infrastructure concept to support an area-based approach to clean heat, piloted with Glasgow’s. This model could underpin the mass adoption of ground source heat pump technology through a street-by-street and split ownership approach. Or heat-as-a-service business models, which support the construction or refurbishment of homes to high energy performance standards, delivering significant energy bill savings that outweigh the upfront costs of retrofit.

But as well as off-the-shelf solutions, the Bank can also play a longer-term strategic role. Over time, the UKIB can play a deeper role than just delivering finance, helping tackle some of the structural challenges associated with financing place-based transitions. In particular, the Bank can support capacity building and helping local authorities to develop investable propositions for green homes and neighbourhoods. This can support the levelling up agenda and end the postcode lottery that favours certain areas over others – spurring local leadership across the country.

Supporting an affordable electric heat roll-out means supporting attractive green finance options. The UKIB could be an exciting part of this financial architecture, bringing together public and private actors in a dynamic way to create new markets.