The Green Heat Finance Taskforce published the first of two reports in November 2023, covering financing options for individual properties1. The Taskforce was established in February 2022 following a commitment in the Heat in Buildings Strategy, and its final report will focus on mechanisms affecting multiple properties1. The report sits alongside the Scottish Government's consultation on a Heat in Buildings Bill, published on 28 November 2023, which states that more detail on the finance work can be found in the Taskforce report published that month2.
The Taskforce frames the scale of the problem in cost terms. The Scottish Government is investing £1.8 billion of capital funding for heat and energy efficiency measures in the current parliamentary term, but the 2021 Heat in Buildings Strategy estimated the total cost to transition heating to net zero by 2045 is likely to be in excess of £33 billion, a figure the Taskforce says cannot be funded by the public purse alone1. Scotland has around 2.5 million homes, of which over 63% are owner occupied, approximately 14% are in the private rented sector and 23% are socially rented; approximately 80% of homes are connected to mains gas1.
The report examines a range of products, including green mortgages, equity release, green leases, fiscal incentives and Property Linked Finance, which it says can support homeowners to fund up to 100% of the upfront costs of energy efficiency improvements, with the finance linked to the property rather than the owner1. It cites Germany's Energy Efficient Construction and Rehabilitation Programme, launched in 2006, which combines limited grants from the national budget with repayable concessional loans, refinanced at concessional rates by KfW, Germany's state owned development bank, and estimated to deliver up to a 1:10 leverage ratio of public subsidy to loans and private investment1. On the UK's closed Green Deal, the report notes that only 1% of forecast demand for UK Green Deal financing was actually provided to consumers1.
The report identifies barriers on the demand side, including the payback period to recover installation costs through savings from more efficient energy use being too long compared to typical tenancy duration of around 1-2 years, and split incentives between landlords and tenants1. It also notes that over 70% of annual house purchases in Scotland involve owners taking out a mortgage, and that 80% of mortgages taken out in the UK are sold through mortgage brokers1. On property values, it cites an average of almost £56,000 more for homes that have improved from an EPC rating of F to a C, sometimes referred to as the "EPC Premium"1.
"This is the first of two reports from the Taskforce, with this report focusing on financing options for individual properties"
Why it matters for households
The upfront cost of a heat pump or insulation work is the point at which many household decisions stall, and this report is about who carries that cost and over what period. The Scottish Government's own figures put the transition at over £33 billion, against £1.8 billion of public capital in this parliamentary term, so the report's premise is that private lending will have to cover most of the rest1. For a household, that shapes what finance is likely to be on offer: secured lending against the home, products tied to the property rather than the person, or grants mixed with loans. The report's own evidence on payback periods and tenancy length points to why take-up of such products has been limited where the person paying does not stay long enough to benefit1.
The finance question is tied to regulation. The Heat in Buildings Bill consultation proposes a minimum energy efficiency standard for owner occupiers by the end of 2033 and for private landlords by the end of 2028, and a prohibition on polluting heating for all building owners by the end of 20452. It also proposes that those purchasing a property end their use of polluting heating within a fixed period after completion of the sale, with the consultation saying between two and five years is likely to be appropriate3. Existing support includes zero interest loans through the Home Energy Scotland and Business Energy Scotland schemes, and the Warmer Homes Scotland scheme, under which energy efficiency measures and a heat pump can be installed fully funded by the Scottish Government3. The consultation also raises the possibility of a ceiling or cap on the cost of meeting the standard, setting out options for a flat cap or a size-based cap per square metre3.
What happens next
The Taskforce's second report, covering mechanisms impacting multiple properties, had not been published at the time of the first1. The Heat in Buildings Bill consultation closed on 8 March 2024, and the Scottish Government stated its intention to pass the Bill by the end of the parliamentary term in May 20263.
Sources3 cited
- green-heat-finance-taskforce-part-1-report.pdf, gov.scot
- 1. Executive Summary - Delivering net zero for Scotland's buildings - Heat in Buildings Bill: consultation - gov.scot, gov.scot
- Delivering Net Zero for Scotland’s Buildings - A Consultation on proposals for a Heat in Buildings Bill, gov.scot