MD2495 Reallocation of Cleaner Heat Cashback funds

Type of decision: 
Mayoral decision
Code: 
MD2495
Date signed: 
15 August 2019
Decision by: 
Sadiq Khan, Mayor of London

Executive summary

The Mayor has set a target for London to be a zero-carbon city by 2050 and to dramatically reduce the number of Londoners whose lives are blighted by poor air quality.

The Mayor’s Cleaner Heat Cashback (CHC) scheme aims to reduce emissions from Small and Medium sized Enterprises (SMEs) by providing cashback when businesses replace older polluting boilers with new, efficient heating systems. The CHC is funded through the Government Growth Deal 3 and administered by the London Economic Action Partnership (LEAP).

The CHC scheme has seen lower than expected uptake and despite the implementation of corrective measures, there is significant capital underspend as a result. On 12 June, following a discussion at the London Economic Action Partnership Investment Committee, the LEAP Board endorsed proposals to continue delivering the CHC with a reduced capital budget of £500,000 to meet existing commitments and enable further installations, and to reallocate the remaining £8.95 million to other programmes.

This Mayoral Decision Form seeks approval to reallocate £8.95 million from the CHC scheme to the following schemes: £2 million to a new round of the Business Low Emissions Neighbourhoods (BLEN) Air Quality Scheme, £4 million to Good Growth Fund (GGF) air quality projects and £2.95 million for GGF general use.

Decision

That the Mayor approves:

1) continuation of a scaled back CHC scheme with a capital budget of £500,000;
2) repurposing of £2 million to the BLEN Air Quality Scheme (for between seven and ten neighbourhoods), with £450,000 of this as revenue and £1,550,000 as capital;
3) repurposing of £2.95 million capital funding for general projects in GGF Round 3, and £4 million capital funding for air quality-focused projects within GGF Round 3; and
4) delegation to the GLA’s Executive Director of Development, Enterprise and Environment to approve detailed BLEN funding allocations, and to extend the delegation for GGF given in MD 2163, in consultation with LEAP.

Part 1: Non-confidential facts and advice

Introduction and background

HM Government awarded a total of £141.3 million to the GLA working through the London Economic Action Partnership (LEAP) for Growth Deal 3 in January 2017. As part of the announcement, Government highlighted that the funding would support delivery of an ‘Air Quality Programme’ to improve London’s air quality through a commercial boiler scrappage scheme and further grant support to businesses, organisations and Business Improvement Districts to implement measures to reduce pollution from their operations.

Although Government’s public announcement of the Growth Deal did not allocate a specific amount to the scrappage scheme, £10 million of funding was earmarked through LEAP to support it.

The Cleaner Heat Cashback (CHC) scheme was therefore developed to tackle emissions from existing buildings in the commercial sector. Air pollution is one of the most pressing environmental and public health challenges facing London today. Air pollution in London has significant economic costs, including to business, of up to £3.7 billion a year. While actions to improve air quality within the transport sector deliver improvements, these efforts alone will not necessarily deliver compliance with legal or safe limits on air pollution. Therefore, action is needed to significantly reduce emissions from non-transport sources, in particular NOx emissions from buildings . Furthermore, environmental and air quality considerations are rising on Londoners’ agendas. This impacts on individual and business decisions on the desirability of London as a place to live and work.

In addition to the air quality challenge, London also needs to decarbonise its non-domestic buildings, as the commercial and industrial sector are responsible for 37 per cent of the city’s carbon emissions. A major scaling up of energy efficiency activity is required to deliver the Mayor’s ambition to make London a zero-carbon city by 2050.

The purpose of the CHC scheme is therefore to boost non-domestic energy efficiency retrofit activity and the level of NOx and carbon savings. Reducing pollution exposure of people shopping, visiting and working in town centres, and retail and commercial areas that are situated in pollution hotspots will help to increase their appeal for customers and workers, thereby supporting business and enterprise. Many businesses are also concerned about the impacts of air pollution on their workforces, including reduced productivity.

Under the cover of Mayoral Decision 2172, the Energy Saving Trust (EST) were appointed to design, develop and deliver the scheme following an OJEU compliant procurement exercise. The CHC was launched on 31 July 2018 aiming to provide Small and Medium Sized businesses (SMEs), with 30-40 per cent cashback on the replacement of a working low efficiency boiler, with a new, low emissions boiler or renewable heating generation. To date, take-up of the scheme has been very low, despite significant and varied marketing and engagement effort.

To address poor take-up, work has been undertaken to understand and address the barriers to participation and increase feedback on the scheme. This includes a stakeholder roundtable and focus groups with SMEs, improving the application process through greater support, and targeting SMEs directly with scheme information through digital and print advertising as well as direct mail-outs. There has also been increased stakeholder partnerships and joint working with Business Improvement Districts (BIDs), property owners, estates and sector-based support organisations such as the Institute for Hospitality.

Barriers to scheme take up that have been identified include a lack of drivers to action (i.e. the lack of regulation which is present for other sectors, like vehicle scrappage schemes), and businesses not prioritising energy efficiency measures in a challenging and uncertain economic climate, even though they would save money in the long run. SMEs have limited capacity to arrange the work and therefore wait until the boiler is broken (although boilers must still be working to meet CHC eligibility criteria to ensure carbon saving additionality). Decision making timeframes are long, particularly as SMEs rarely own the freehold, exacerbating the landlord/tenant split incentive (the potential conflict between the party paying for the works and the party benefit from resulting reduced energy costs). There is also a mistrust of the rate of return from a new boiler which may be longer than the length of tenancy and recent experience demonstrates that voluntary approaches are far more challenging than regulated obligations .

In addition, feedback from installers and manufacturers has been that over 60 per cent of their commercial installations are boilers that are smaller than CHC’s minimum 70 kilowatt size-rating requirement, and this threshold excludes many businesses that the scheme could otherwise support. There was considerable support from stakeholders for the inclusion of this threshold during scheme development. On 6 March 2019, with support from the LEAP Programme Board, the threshold was removed, following consultation and agreement by the Deputy Mayor for Environment and Energy in April 2019.

Despite continued targeted marketing and widened eligibility criteria through the removal of the 70kW threshold, take up has not increased in significant numbers and therefore the full budget would not be committed/spent before 31 March 2020.

These issues, and options for addressing them, were presented to the LEAP Investment Committee on 21 May 2019, which includes independent, expert representatives from the fields of entrepreneurship, enterprise and social impact. There was broad support for repurposing the majority of capital funds to other programmes/schemes which can also deliver air quality and carbon reduction benefits, as well as broader LEAP outcomes, through the existing Low Emissions Neighbourhoods programme and Good Growth Fund. This proposal was further endorsed by the LEAP Board on 12 June 2019 where members were supportive of officer efforts to address low take up and the quick action taken to repurpose funds.

Therefore, this Mayoral Decision, seeks approval to:

• Reduce the existing £9 million capital budget for the CHC scheme to £0.5 million to deliver against existing CHC commitments and allow for a smaller number of new businesses to benefit between now and end of March 2020;
• Reallocate £8.95 million of funds from the CHC scheme (£8.5 million capital funding and £0.45 million revenue funding) to other air quality and environmental Good Growth Fund (GGF) projects. Of that £8.95 million:

- Repurpose £2 million funding to the Business Low Emissions Neighbourhood (BLEN) Air Quality Scheme (for between 7 and 10 neighbourhoods), with £450,000 of this as revenue and £1,550,000 as capital;
- Repurpose £2.95 million capital funding for general projects in GGF Round 3, and £4 million capital funding for air quality-focused projects within GGF Round 3.

The existing delegation to the GLA’s Executive Director of Development, Enterprise and Environment for GGF given in MD 2163, will be extended to approve detailed GGF funding allocations, in consultation with LEAP. The Executive Director will also be granted delegated authority to approve detailed allocations for BLENs, in consultation with LEAP.

Objectives and expected outcomes

Cleaner Heat Cashback (CHC)

The revised CHC scheme will:

• Improve air quality by reducing NOx emissions (savings of around 1,377 kg; exact NOx savings will depend on uptake as well as the size and efficiency of existing boilers, and replacement systems). In addition, reducing human exposure to air pollution, leading to improved public health;
• Save carbon (of around 263 tonnes; exact CO2 savings will depend on uptake as well as the size and efficiency of existing boilers, and replacement systems);
• Deliver non-domestic retrofits by replacing between 40 and 50 commercial boilers across London;
• Save on business’ fuel bills which will significantly help reduce overheads for SMEs;
• Reduce the risk of carbon monoxide poisoning;
• Potentially spur on additional energy efficiency improvements (e.g. heating controls and insulation); and
• Invest in low emissions and renewable heating systems, helping to sustain work and support jobs for the low carbon and heating sectors (installers and manufacturers) across the capital, in particular the many SMEs which deliver installations.

The CHC outcomes will be delivered by:

• Continuing the implementation of a new marketing and communications plan, targeting sectors with high energy usage and long tenancies such as hotels and hospitality, or those sectors who have already signed up for the scheme, including sports and leisure facilities;
• Continuing to engage with sector-based organisations such as the Hospitality Professionals Association (HoSPA) and Institute of Hospitality, speaking at member events and meetings to promote the CHC;
• Building on partnerships with stakeholders who have strong relationships with small businesses including Business Improvement Districts, landlords, installers and utilities companies such as Thames Water; and
• Working with other business support organisations with similar schemes to co-promote, including the Camden Climate Change Alliance through the Camden Climate Fund which can be used as match-funding, and Carbon Smart through their Green Business Fund and SME energy audits.

Business Low Emission Neighbourhoods (BLENs)

In order to deliver environmental, economic and health benefits, and build on the successful Low Emission Neighbourhood programme, on 12 June 2019 the LEAP Board endorsed a recommendation that £2 million (£1,550k capital, £450k revenue) is allocated to fund between 7 and 10 Business Low Emission Neighbourhoods (BLENs). Due to the limited time available we will use applications received as part of the last round of the Mayor’s Air Quality Fund for Low Emission Neighbourhoods (LENs). This application process was heavily oversubscribed, and a number of good quality applications were unsuccessful. There are 13 fully scoped and match funded projects that can be updated to increase their focus on supporting business/business areas and be turned into BLENs applications from which the final 7 to 10 BLENs will be chosen.

Revenue funding of up to £1 million, funded by a capital/revenue swap, was previously agreed for the CHC project under MD 2172. Of this, the remaining £450,000 will be used to support the delivery of the BLENs and the air quality themed round of the GGF. This funding will be used in the following ways:

• Up to £200,000 will be used to fund staff resource to help deliver the BLENs and GGF AQ projects. Because of the extremely tight timeframes for delivery, this could take the form of consultancy support (up to approximately six days per week); and
• Up to £250,000 to be provided to the successful BLENs, alongside capital funding. This is to support holistic projects that tackle air pollution in hotspots through a range of capital and revenue interventions.

The BLEN scheme will:

• Result in demonstratable reductions in air pollution emissions, concentrations and exposure;
• Encourage and support organisations, including businesses, to reduce emissions from their own operations, thereby reducing energy and fuel costs, and enhancing reputations and public relations opportunities for SMEs;
• Enhance public realm for walking and cycling in town centres, and business and retail areas, thereby enhancing their attractiveness for visitors and staff; and
• Provide support and a stepping stone for these areas to become demonstrator locations for cleaner vehicles, and/or zero emission zones.

The expected outcomes of the BLENs are:

• 7-10 new Business Low Emission Neighbourhoods;
• Between 15-40 new air quality projects funded through the air quality themed GGF;
• Reduced pollution emissions and exposure;
• Increase in walking and cycling; and
• Increase in take up of electric vehicles.

The aim of BLENs and projects funded through the GGF is ultimately to see measurable improvements in air quality. There is no one size fits all approach to monitoring and each bid will be assessed on an individual/ site by site basis. Impacts seen in previously delivered Low Emission Neighbourhoods provide an indication of the type of expected impacts:

• A 16 per cent reduction in older diesel cars parking in the Marylebone LEN (with no discernible displacement of these vehicles to nearby areas);
• A decrease in nitrogen dioxide concentrations at most monitoring stations within the Barbican LEN, as a result of interventions such as the installation of 30 EV charge points, 19 air quality gardens, a pocket park and 200 secure cycle spaces; and
• A shift in commuting and freight behaviour as a result of the Hackney, Islington and Tower Hamlets Zero Emission Neighbourhood, with 788 more people walking and 2,333 more cycling to work. Fourteen fossil fuelled vehicles have been replaced by cargo bikes, and six by electric vehicles.

Bidders will need to consider the scale of the overall project and the expected air quality outcomes when choosing the appropriate evaluation equipment and methodology. It is expected that the cost of monitoring should be in reasonable proportion to the overall project cost. Where possible, it is expected that projects will include appropriate on-street air quality monitoring alongside a range of proxy metrics such as percentage increases in walking and cycling; percentage of business uptake of electric / ultra low emission vehicles; number of businesses engaged in a freight consolidation programme; shift in business and resident attitudes (measures through surveys). Emissions and concentration models could also be used in the evaluation stage.

Good Growth Fund

The LEAP Board also endorsed a recommendation that £4 million is allocated to an air quality themed round of the GGF, in order to open up additional opportunities to a range of stakeholders to deliver air quality improvements through this established Regeneration scheme.

The Good Growth Fund (GGF) as approved under MD 2163 is an overarching regeneration programme delivered through the London Economic Action Partnership (LEAP). It will provide over £70 million in funding, expert regeneration advice, design support and knowledge sharing opportunities to a broad range of public, private and third-sector organisations to support their projects to deliver against three key policy areas: empowering people; making better places; and growing prosperity.

The GGF has been structured to be able to incorporate additional funding as and when it becomes available. In this case £4 million of the CHC funding will target air quality at the same time as reducing carbon emissions and this will be outlined in the GGF Round 3 prospectus. A further £2.95m will deliver against wider GGF objectives as agreed under MD 2163.

GGF is run on a two-stage competitive basis, with clear criteria set out in the programme prospectus. Appraisal and moderation are based on the published criteria but also draw on policy expert input from across the GLA to ensure proposals maximise delivery on the full range of Mayoral priorities.

Round 3 is due to launch on 02 September 2019. The GGF Round 3 prospectus has been updated to include a specific Air Quality Action and metrics, while also seeking to reduce carbon emissions where possible (approval process for the prospectus currently underway). Including the air quality funding within the GGF will open competition and opportunity to boroughs and stakeholders that did not (or were not eligible to) apply for Low Emission Neighbourhoods under the Mayor’s Air Quality Fund Round 3.

Approvals

Approval of detailed allocations for both BLENs is delegated to the GLA’s Executive Director of Development, Enterprise and Environment in consultation with LEAP. This is consistent with the delegation already provided to the Executive Director for allocations to GGF projects established through MD2163. Established GLA performance management processes will be used to track delivery and impact.

Equality comments

The GLA has recently published an analysis on exposure to air pollution undertaken by Aether which shows that not only are there huge health impacts of pollution but the way these fall on the most vulnerable means that improving air quality is fundamentally about tackling social injustice.

The updated report considers pollution exposure in London in 2013 and considers how exposure varies by age, indicators of relative deprivation and ethnic groups in London. It also looks at total exposure (broken down by borough) and exposure at schools. Through the research described in this report, City Hall is seeking to understand inequalities in access to clean air in London and to consider how this will be improved by planned air pollution controls.

The research shows on average that the most deprived tenth of the population are exposed to concentrations of NO2 which are 25 per cent higher than the least deprived tenth of the population. It is important to note that hidden within this there are also pockets of wealth with very high levels of exposure, e.g. those living in Westminster or in the Royal Borough of Kensington and Chelsea.

In terms of ethnicity, whereas there is a normal distribution of exposure for white people, the pattern shows increasing exposure in areas that have higher percentage of non-white ethnic groups, with a particularly skewed distribution for the Black/African/Caribbean/Black British population. A greater proportion of mixed, black and other ethnic groups are exposed to levels of pollution that exceed the NO2 limit value than their proportion of the total population.

The design of the policies set out in this MD will benefit all Londoners but given the unequal impacts of pollution on the most vulnerable Londoners, there is likely to be a positive effect in tackling social and health inequality of this programme of activity.

Other considerations

While existing LEN proposals could spend around £4 million, we are recommending the allocation of £2 million to ensure we have robust delivery plans in place that can deliver to the timeframe.

 

​​​​​​​We are proposing to reallocate £4 million to fund GGF projects addressing air quality issues. Allocating funding via the GGF ensures a fair and competitive assessment process. Stakeholders from the BLEN and GGF programmes will have an opportunity to bring forward new or adapted proposals that address air quality issues alongside other Mayoral priorities.

 

​​​​​​​There is precedent for this approach, with GGF Round 1 drawing in £824,000 (of a total possible £1 million) from the National Park City budget. This allowed for targeted environmental interventions within seven fully funded GGF projects, with two projects given development funding to further develop their ideas. All projects are in grant agreement and are currently in delivery.

 

​​​​​​​Working with the GGF allows funding to be managed within the existing GGF architecture and resources, thereby ensuring deliverability and alignment with a planned Round 3 launching in September 2019. The Air Quality Team will work with the Regeneration team to develop an air quality action within the Round 3 funding prospectus, assist with the promotion of the scheme, and take part in the scoring, selection and management of successful projects.

 

​​​​​​​GGF Rounds 1 and 2 have allocated £2.57 million of development funding to 46 projects. This means there is a strong pipeline of delivery-ready projects for GGF Round 3, some of which will deliver air quality related improvements and initiatives. Through further engagement with existing development funded projects, as well as signposting via the GGF Prospectus and the planned series of engagement events, we will be able to increase the number of projects looking to deliver air quality related improvements, as well as improve the quality of proposals coming forward.  

 

​​​​​​​The GGF is open to a wide range of applicant types, including local authorities, Business Improvement Districts (BIDs), charities, social enterprises, and local community groups. This is an opportunity to broaden the range of funding beneficiaries, and to support new initiates that may previously not have been eligible for funding via LENs or BLENs. 

 

​​​​​​​Substantially reducing the level of funding to the CHC scheme and reallocating the remainder to other air quality related schemes and objectives (as above), is likely to be a lower reputational risk than closing the scheme entirely (as it would leave the GLA with no energy efficiency offer for SMEs).

 

​​​​​​​In the recent Spring Statement, the Department for Business, Energy and Industrial Strategy (BEIS) set out their plans to support SMEs in improving their energy efficiency, which underpins a government target for businesses to achieve at least a 20 per cent improvement in energy efficiency by 2030. It’s considered important that the GLA maintains a supporting role in this area.

 

​​​​​​​Lessons learned will be taken forward into future energy efficiency schemes and other business and SME focused schemes through an evaluation, internal review and an internal 'lessons learned' document.

 

The GLA’s Gifts and Hospitality Policy and Procedure (June 2019) has been reviewed in relation to this Mayoral Decision and there are no conflicts of interest to declare.

 

Risk

Probability

(out of 4)

Impact

(out of 4)

Mitigation

Continued lack of CHC take-up results in additional underspend

2

2

GLA will undertake a revised and sector specific marketing campaign, working in partnership with business support organisations, trade representative bodies and landlords. In addition, the GLA will work jointly with BEIS on joint marketing of our SME schemes and with the Camden Climate Change Alliance who are shortly launching SME grant funding which could match the GLA cashback. These relationships have already been developed and joint events scheduled.

 

Increased CHC marketing and scheme changes result in demand which cannot be met within reduced budget

 

2

2

Levels of take-up to date suggest that despite these changes, take-up will remain low because of a lack of drivers to action for SMEs, such as regulation. However, close budget monitoring will continue to be undertaken and the scheme will be closed to new applications should budgetary limits be reached. 

CHC scheme is misused and fraudulent claims are made

1

4

The GLA will expressly state that all boiler replacements made as part of the scheme need to be undertaken by a certified engineer in accordance with the law. Due diligence checks will ensure that only commercial systems are supported.

 

Risk of Business LENs not being delivered in time

1

2

This will be mitigated through: selection of suitable deliverable measures based on our experience with the existing LENs and BLENs; close project management (consultancy or other support will be sought to enable this); and clear communication of timelines and restrictions to project partners.

 

 

Business LENs don’t focus on business needs/areas with high existing or potential retail/ commerce opportunities

 

1

1

This will be mitigated thorough: selection of only the suitable shortlisted applications and close communication with boroughs to select the key business-enhancing measures; and clear project scopes outlined in funding agreements.

GGF Round 3 fails to attract interest

1

3

This will be mitigated by comprehensive communication and outreach with both regeneration and environment networks.

 

Financial comments

Approval is being sought to reallocate £8.95 million of funding from the CHC scheme as follows:

• £2 million to the BLEN Air Quality Scheme, with £450,000 of this as revenue and £1,550,000 as capital; and
• £2.95 million capital funding for general projects in GGF Round 3 and £4 million capital funding for air quality-focused projects within GGF Round 3.

Mayoral Decision 2172, which approved the original scheme permitted up to ten per cent (£1 million) of the £10 million capital funding to be converted into revenue funding. £550,000 has already been committed on revenue costs and the Executive Director of Resources has indicated approval for the remaining £450,000 to be converted to revenue funding through a capital/revenue swap. There are no additional costs arising from this repurpose proposal which is administered by LEAP.

Activity table

Activity

Timeline

Announcement of GGF and BLEN funding

September 2019

Recruitment of staff resources / procurement of part-time consultancy support to oversee development of the BLENS and to develop a marketing and communications plan to promote the activity

October 2019

GGF Stage 1 application deadline

14 October 2019

BLEN application deadline for boroughs/BIDs based on existing LEN applications

October 2019

GGF Stage 1 successful project announcement

December 2019

Finalise BLEN selection and the scope of each project, signing of grant agreements and announcement of successful projects.

January 2020

Roll-out of communications package to promote BLEN and GGF activities

January 2020 -April 2022

GGF Stage 2 application deadline

February 2020

GGF Stage 20 successful project announcement

March 2020

Delivery Start Date

BLENs: January 2020

AQ-GGF: April 2020

Final evaluation start and finish (self/external)

Summer/Autumn 2021

AQ GGF and BLENs: GLA spend complete

April 2021

AQ GGF and BLENs: Project complete and delivered

April 2022

Delivery End Date

CHC project: 31 March 2020

BLENs and AQ GGF: April 2022


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