Developing the financial model
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Finance from a range of sources could be used for community-scale retrofit – starting with peer to peer lending, bank debt finance and prudential borrowing before moving onto institutional investors and Building Societies. In all cases projects will need to be setup in a way that maximises the benefits of any initial funding and addresses the perceived risks of potential finance providers.
If the model is set up correctly it should be possible to attract large-scale ‘second tier’ institutional investors such as pension funds looking to invest £100-£300m or more in large, well co-ordinated projects. This scale can be achieved by aggregating community-scale projects into investment opportunities – starting at around 15,000 to 30,000 homes.
A detailed financial model has been developed for a Community Green Deal programme using an example area of 3,000 properties to test the assumptions. The model suggests that a programme could be financed over a 25 year term at an interest rate of 5.25%.
The model is predicated on early investment in Feed-in-Tariff (FIT) and Renewable Heat Incentive (RHI) generating technologies which would then cross-subsidise and underwrite whole home improvements. Utility obligations would be used as working capital for programmes. The model indicates that a carbon price of between £14 to £19 per tonne of CO2 could be offered by programmes.