Green Heat Finance Taskforce minutes: 29 November 2023

Attendees and apologies

 

• Patrick Harvie MSP – Minister for Zero Carbon Buildings, (Meeting Chair) 
• Emma Harvey-Smith – Programme Director, GFI (virtually)  
• Dr Ian Cochran – Edinburgh Uni. Business School / Institute for Climate Economics (virtually)  
• Kirsty Hamilton – Independent 
• Helen Melone – Senior Policy Manager Scottish Renewables 
• Simon McWhirter – Deputy CEO, UKGBC Scotland  (virtually, until 11am)  
• Rufus Grantham – Independent  (virtually)  
• Andy Kerr – Director, Climate KIC  (virtually)  
• Dr Gemma Bone Dodds – Director – Insights and Policy, Scottish National Investment Bank (SNIB) (representing Eddie McAvinchey, Executive Director Sustainable Investment, SNIB)   
• Alastair Wilcox – Energy Policy Manager, Consumer Scotland (representing Lewis Shand Smith of Energy Consumers’ Commission)  

• Catherine Williams – SG, Deputy Director for Heat in Buildings Delivery 
• Gareth Fenney – SG, Head of Head of Heat in Buildings Future Delivery Unit 
• Neal Rafferty – SG, Head of Heat Strategy and Consumer Policy Unit  (virtually)  

Secretariat: 

• Karl Reilly – SG, Heat in Buildings Future Finance Team Leader  
• Toby Tucker – SFT / GHFT Secretariat 
• Michelle Rayneard – SG, Heat in Buildings Future Finance Team 
• Rajiv Naik – SG, Heat in Buildings Future Finance Team 
• Peter Irving – SG, Heat in Buildings Division Future Finance Team 
• Sarah Buchanan – SG, Private Secretary to Mr. Harvie 

Items and actions

Summary and action points 

Item 1. welcome, apologies, minutes of previous meeting, including member notification of any conflicts of interest  

The Chair welcomed members to the 12th meeting of the Green Heat Finance Taskforce (GHFT).  Apologies had been received from: Sara Thiam (Prosper and Co-Chair); Eddie McAvinchey (SNIB); Ben Rose (SFE); and Lewis Shand Smith (Energy Consumers’ Commission).  

All members confirmed that they were content with the Minute of, and Actions from 1 November 2023 meeting.  No conflicts of interest were raised. 

Item 2. secretariat update – Scottish Government (SG)

The Minister recorded his thanks to Members, Secretariat and wider SG teams for the successful publication of the GHFT’s Part 1 Report and suite of Heat in Buildings (HiBs) documents published the previous day. He advised that he had written to all Ministerial colleagues and the Net Zero Committee to inform them of the Report.  

Karl Reilly noted that media coverage of the Taskforce Report had been good, highlighting that it had reflected the independent nature of the report.  He encouraged members to continue to help publicise the report through their networks, including identifying engagement opportunities like roundtables they could help coordinate. Members were asked to share feedback they received around the report. 

The Minister then provided an overview of the HiBs Bill Consultation informing Members of content and asking how they might engage and respond individually and through their respective networks. 

Neal Rafferty expanded on details and post-publication engagement plans, as well as advising of initial public / media reaction. He also provided an overview of the accompanying suite of HiBs publications

Gareth Fenney advised that a Public Engagement Strategy (PES) would be published over the next few weeks and that this would provide the framework through which SG could engage and work with partners to make that the case for clean heat and how to transition towards it. 

Action 1

Secretariat to circulate links to suite of recent SG heat publications. 

Item 3. the role of Government  

Presentation 1: ‘what role of Government’: Scottish Government, UK Government and wider public sector?’, by Dr Ian Cochran  

Ian’s presentation covered the potential roles for the public sector in financing and funding the transition to clean heat, compared to areas the private sector was best placed to serve. This included mapping the Taskforce Part 1 recommendations against different roles for the public sector and highlighting relevant outputs from the Net Zero Investor Panel Report for the Taskforce to reflect on for its Part 2 report. 

Key challenges highlighted included demand for finance, with high capital cost requirements and hidden costs like supply chain availability, as well as the supply of finance across the financial value chain, with perceptions of risk being a constraint. The pros and cons of different models based around individual or collective approaches was also noted.

The three objectives of public intervention were highlighted as: 

1. stable regulatory policy: to support the economic viability and greater clarity on project returns
2. fill gaps in market development: help project developers overcome barriers and build confidence to create strong markets
3. improve risk perception of financial actors: by “shifting” risk perception of counterparties, assets and projects including through public estate ‘anchors’.

Four main roles for government in addressing the above objectives were set out as being a financial provider; being a coordinator or facilitator; being a market investor; and being a risk taker. Additionally, government needs to ensure a stable regulatory and planning environment. It was noted that Taskforce Part 1 Report recommendations clustered around the coordination role for government and that the Taskforce may wish to consider drawing out more recommendations related to other government roles within its part 2 report.

Conclusions from the Net Zero Investor Panel’s report which were relevant to the Taskforce included that providers of infrastructure capital are conservative, have long term horizons and a defined risk appetite; that scale matters for reasons of return and costs of transaction; and that there is limited appetite among major investors for overly complex or piecemeal transactions. 

In the group discussion around the role for government points raised included:

• public procurement can play an important role across all the roles for government and is a key lever government can use to build get a market moving. Building momentum early is key, rather than focusing on the overall cost or potential scale for the market (as it will not reach that potential without the initial momentum)
• Government can play different roles concurrently, although through to the governance arrangements for this is required. Related to this is the reality that government does not have unlimited funding and may therefore need to play non-financial roles and seek to crowd in private investment at all stages
• local authorities are interested in area-based models but lack the capacity and technical know-how to progress their development so there is a case for providing ring-fenced funding to support them in building that expertise
• while attracting private investment is essential, it is also necessary to carefully consider where long term value is placed to ensure that some benefits are recycled into local communities and mistakes like those with water privatization are not made. For example, how are contracts structured to prevent asset owners earning super profits by continuing to levy a service charge once they have repaid the capital investment costs
• there are many different types of investors, each with different motivations. Some might currently be interested in investing if some public funding and coordination of wider actors could be facilitated
• Government should have a role in understanding and connecting parts of the system in the round to support a clear investment pipeline. There should be lessons from the renewable era which can be drawn on around engaging in a structured and coordinated way.

Item 4. Aggregation  

Presentation 2: ‘net zero places: creating and aggregating an investible pipeline’, by Dr Gemma Bone Dodds  

The presentation explored:

• how aggregation can enable delivery of net zero transition
• how aggregation can lower risk and cost of capital  
• current barriers to aggregation and how to go about tackling these

A number of opportunities to foster greater aggregation were outlined:

• Hubs Model of Procurement which develop longer-term partnerships with private sector
• Testing the 3Ci Net Zero Neighbourhood delivery model
• Utilising Local Heat and Energy Efficiency Strategies (LHEES) which each Local Authority is to deliver by Spring 2024, to develop an investable pipeline at scale which draws together projects sharing common features

In the group discussion around aggregation points raised included:

• there will be no one answer so need to embrace innovation and learn from trying different approaches, although it will be important to have a mechanism providing strong feedback loops to keep initiatives focused around common objectives
• financial institutions look for simplicity so when a mix of assets are being aggregated it is important to have clear synergies between them
• there are lessons to learn from elsewhere in leveraging private finance to help deliver at scale, for example, around offshore wind or the Power Networks Distribution Centre
• there is an appetite amongst some private sector employers for secondments into the public sector to help build capacity

In conclusion themes for recommendations on aggregation were noted:   

• Finance Pathfinders: review existing resources to support experimentation in place-based models to produce investible business cases
• develop systematic pipeline development: work to create a hub and spoke model to develop an investible pipeline, welcoming private sector resource
• focus finance community on aggregation models: pave the way for future delivery by working with finance providers to develop structures capable of deploying at scale

Item 4: next meeting and any other business 

It was noted that the next Taskforce meeting would be held in Saint Andrew’s House on 31 January 2024.  It was proposed that this meeting be centered upon a deep dive into questions around financing the transition to clean heat within social housing.    

Lastly, the Minister invited any initial views around the key messages and potential recommendations which the Taskforce wish to see reflected in its Part 2 Report. This included what it might wish to say around prioritising activity. 

The Minister thanked members and closed the meeting. 

Action 2

Members to share initial views with secretariat on the key messages and potential recommendations for Taskforce part 2 report