Public sector bodies abandoned one in six decarbonisation projects awarded funding through a £553m scheme, after “changes in the wider economic climate” took their toll.
Public sector bodies that received funds from phase 3a of the Public Sector Decarbonisation Scheme (PSDS) were forced to abandon 17 per cent of their projects, the latest report into public decarbonisation reveals.
A Department for Energy Security and Net Zero report said these schemes were “abandoned subsequent to receiving a PSDS grant offer letter”.
Phase 3a launched in October 2021, and in the following year it allocated funding to 231 projects run by 170 public bodies over the financial years 2022/23 to 2024/25.
The “majority” of the projects that received funds from the PSDS struggled with delays and cost inflation, according to the report.
Public sector bodies can get grants from the PSDS to fund heat decarbonisation and energy efficiency programmes across the UK. The government pledged £1bn to the scheme in its Autumn Budget last year.
The latest report reveals that, despite the struggles, most of the grant-funded projects were installed on time – by the deadline of 31 March 2023.
But clients on the scheme blamed “challenges in the wider economic climate” for their difficulties, as well as new carbon regulation rules.
The department gathered the data from five workshops and 100 qualitative and semi-structured interviews, it said.
Some contractors and clients called for greater flexibility around cost increases linked to inflation.
The construction sector has been battling inflation for years, especially since the Covid-19 pandemic sent costs soaring. The war in Ukraine also contributed to costs rising, while construction bodies warned last week that US-imposed tariffs on steel and aluminium would further raise prices in the UK.
The carbon cost threshold also came in for criticism. The measure – which imposes a maximum grant that projects may receive for every tonne of carbon saved on a project – faced scrutiny after its value was lowered in previous phases of the procurement.
The department faced “significant pressure” to increase the maximum grant back to £500 per tonne, after it was decreased to £325 per tonne in phase two.
According to the report, it chose to tighten the grant “due to the detrimental effect that any increase would have on policy cost effectiveness” – and kept it at £325 for phase 3a.
But contractors have since warned that the lower grants had forced some firms away from decarbonisation measures like insulation, due to the higher costs.
“It was felt that the need to achieve the £325 threshold was not always consistent with delivering the optimal technical solution,” some of the respondents said. They added that the reduced grants had had “significant effects” on project design.
Contractors on the decarbonisation scheme did, however, point to the “benefits” of early procurement and detailed surveys to identity and mitigate on-project risks.
But they warned that applicant organisations would have to pay for this without funding, and that “many are unwilling or cannot afford to do so”.
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Joshua Stein