These Young MindsHarnessing the Opportunitiesof the Government’s Green Deal8 February 2011                                ...
Harnessing the Opportunities of the Government’s Green DealAgenda                                                         ...
Public sector landscape for the green agendaSustainability and the wider green agenda continues to be a focus for governme...
Measurement                                                  Assurance                           Readiness                ...
Driver – Policy, Carbon Reduction TargetsThe UK Low Carbon Transition Plan: projected emission reduction across sector    ...
Driver - Regulatory requirement Power generation                  Large industry                    Small industry/       ...
Driver - the impact of increasing energy rates and a shrinking budget               Energy Rates / Spend                  ...
Strategy                                                       Carbon                          Readiness                  ...
Implementation and improvement                                                                                           W...
Financing Solutions – Need to “Spend to Save”•        Grants – new Energy Efficiency Fund?•        Capital Funding?•      ...
Green Deal Operating Model           Energy                     Green Deal           Supplier                    Provider ...
Green Deal Fundamentals and Finance     Unlocking                               Finance at                        Accredit...
Precedent - Funding of Waste Infrastructure                                                   High Risk                   ...
Precedent - Funding of Waste Infrastructure•        Waste infrastructure is an interesting precedent because, akin to new ...
Precedent - Funding of Waste Infrastructure•        The return paid on the infrastructure investment is based on a service...
This document is confidential and prepared solely for    Deloitte LLP is a limited liability partnershipyour information. ...
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Harnessing opportunities of the Green Deal

  1. 1. These Young MindsHarnessing the Opportunitiesof the Government’s Green Deal8 February 2011 © 2011 Deloitte LLP Private and confidential
  2. 2. Harnessing the Opportunities of the Government’s Green DealAgenda Mark Williams – mawilliams@deloitte.co.uk • Mark leads a dedicated team of managers who specialise in theThe Public Sector landscape for the Green Agenda financial implications (accounting, budgeting and classification) for Central Government, Local Government and NHS Bodies of complex projects. Over the last 10 years he has worked on moreMeasurement and Drivers than 300 Public Sector projects, including many Public Private Partnership (PPP) arrangements. • Given Mark’s experience around financial reporting, budgetingStrategy, Implementation and Improvement and project structuring he is increasingly involved in advising clients with respect to the CRC energy efficiency scheme, sustainability reporting requirements and the broader GreenFinancing Solutions – “spend to save” Agenda in the Public Sector. He has already worked on a number of green infrastructure projects and sees direct parallels with the PPP arrangements used for the development of socialGreen Deal Operating Model infrastructure.Green Deal Fundamentals and Financing Caroline McGill - camcgill@deloitte.co.uk • Caroline was formerly corporate finance adviser to thePrecedent – Funding of Waste Infrastructure Department for Business, Innovation & Skills advising Lord Mandelson, and more recently Vince Cable. She was responsible for close collaboration with HM Treasury and Cabinet Office colleagues in the provision of advice to Ministers on the financial markets and the financial services industry, with a particular focus on availability of finance for UK corporates. • She has several years experience in fund structuring, working with banks, institutional and private investors on multi-target, multi- jurisdiction investments and debt security structures.2 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.
  3. 3. Public sector landscape for the green agendaSustainability and the wider green agenda continues to be a focus for governmentdepartments and other public bodies in transitioning the UK to a low carbon economy.The government have:• Implemented policies to which public sector bodies must adhere: Sustainability reporting (FReM) regulation CRC Energy Efficiency Scheme introduced in April 2010 Committed to10% cut in emissions for central governments in FY11 Carbon neutral ICT by 2015/2020 Life time costing• Pledged to support green initiatives Green investment bank (to address market failures and investment barriers for financing of low carbon infrastructure) Green deal finance (to address retrofit of low carbon measures in property) New sources of funding for climate change adaption and mitigation• Highlighted sustainability as a necessity in order to meet the needs of the public sector on a tightened budget. The Green Agenda should, if considered strategically lead to cost reduction. The counterfactual may not true.3 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.
  4. 4. Measurement Assurance Readiness workshop Annual Reporting reporting and Carbon disclosure management requirements Systems implementation Source: Deloitte CRC flyer4 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.
  5. 5. Driver – Policy, Carbon Reduction TargetsThe UK Low Carbon Transition Plan: projected emission reduction across sector Source: Department of Energy and Climate Change Carbon budget 1 (2008-12) Carbon budget 2 (2013-17) Carbon budget 3 (2018-2022) 5 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.
  6. 6. Driver - Regulatory requirement Power generation Large industry Small industry/ Residential Transport and grids commercial UK ETS CRC Energy Efficiency Scheme SD relief on zero (ended 2006) (from 2010) carbon homes EU ETS R&D Tax credits R&D Tax credits Excise duties and scaleRenewables Obligation Excise duties charges Climate Change Levy/ Climate Change Agreements Lower rate of VAT Renewable Transport Fuel Obligation (from Building standards 2008) Contaminated land Contaminated land relief Carbon Emissions Reduction Targets (CERTS) relief Grid loss incentive Environmental Transformation Fund Warm Front Grant (Apr 08) Scheme Reduced duty for biofuels (abolished) CHP target Micro-generation strategy Carbon Trust Energy Savings Trust Carbon Trust Climate Change Project Office Air passenger duty Enhanced Capital Allowances Enhanced Capital Allowances IM carbon trading exemption Landfill Tax/Aggregates Levy Climate Change Act 2008 6 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.
  7. 7. Driver - the impact of increasing energy rates and a shrinking budget Energy Rates / Spend 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Years Energy rates* Budgeted energy spend *** CRC and Fines** Cost reduction required 7 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.
  8. 8. Strategy Carbon Readiness Systems Reporting Assurance managementDo minimum Registration Continue as is Current systems CRC deadlines Internal process Reporting Evidence assurance Allowances maintenance Audit certificated(minimise Governance Accounting (required)risk)Proactive Opportunity Proactive strategy Adapt systems Align reporting External assessment Wider than CRC Consider with other assurance pre- - Early action boundary (e.g. alternatives requirements EA(maximise - Trading transport) Forecasting Clear andopportunity) - Reputation consistent - Wider impacts comms - Energy reductions approach 8 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.
  9. 9. Implementation and improvement Whole economy – i.e. the Carbon Public Sector setting policy Green energy management People Property behaviour investment Public Sector business Improvement i.e. PS bodies strategy, investment and Implementation ICT Procurement investment management 9 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.
  10. 10. Financing Solutions – Need to “Spend to Save”• Grants – new Energy Efficiency Fund?• Capital Funding?• Prudential Borrowing?• Green Investment Bank• Green Deal Finance• Feed in tariffs• ESCOs• Partnership with Local Authorities• Local Asset Backed Vehicles (LABVs)• Local Enterprise Partnerships• Public Private partnership• Access tax benefits 10 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.
  11. 11. Green Deal Operating Model Energy Green Deal Supplier Provider Green Deal Energy Supplier Provider Property Installer Debt collector? Data Manager? Owner-occupier Property Installer Landlord Tenant11 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.
  12. 12. Green Deal Fundamentals and Finance Unlocking Finance at Accredited Accredited Customer No Up Repayment Moving On Assessment Installation Demand Front Cost Changing Reliable No Delivery of Structured customer Portfolio prediction application income credit and effect of income fees? flows hierarchy property flows? profile12 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.
  13. 13. Precedent - Funding of Waste Infrastructure High Risk High LiquidityMoney In Govt Private Govt Private Grants Financ Grants Finance e Potentially Potentially Underwriting/ Guarantees?Entity Corporate/SPV Public Sector (Private Sector)Money Out Waste Infrastructure Waste Infrastructure De-risk De-risk PPP PPP MerchantReturn from Service Commercial Charge Income Guarantees Secondary Market? Portfolio recycling? Stream 13 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.
  14. 14. Precedent - Funding of Waste Infrastructure• Waste infrastructure is an interesting precedent because, akin to new green technologies, there is significant construction and technology risk. Also, many waste infrastructure deals have encountered issues with respect to planning control.• With waste infrastructure projects once the construction has been successfully completed and the technology has been proved, because the demand and available risks are more certain, the overall risk is significantly reduced.• The diagram shows the money in, nature of the entity, money out and where the return is gained from.• Split between high risk waste infrastructure projects (i.e. unproven construction and/or technology) and high liquidity waste infrastructure projects where significant amounts of private finance are required.• The money in for high risk projects is principally government grants, whereas for high liquidity projects is private finance.• For the high risk projects there is a significantly great need for government underwriting and/or guarantees or to provide finance through a public sector entity. However, for the high liquidity projects it is private sector entities, both corporate and SPVs.• The money out is spent on waste infrastructure investment under a PPP structure. 14 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.
  15. 15. Precedent - Funding of Waste Infrastructure• The return paid on the infrastructure investment is based on a service concession guarantee. This service concession guarantee means a fee will be paid by a public sector body provided that the infrastructure is available, performing and subject to certain volume adjustments.• We have also seen the development of merchant schemes where there is no guaranteed fee paid by a public sector body, the return paid on the infrastructure investment is based purely on volume related payments.• As with other PPP investments we have seen the development of a secondary market, where investors are able to recycle their finance in the manner described above as projects are de-risked.• We believe that the funding of waste infrastructure over the last decade through different forms of PPP and Merchant structures provides a direct parallel with the funding of new green technologies.• Circa £2billion of PFI credits has been awarded to local government waste projects at various stages of maturity to date. The level of PFI credits generally aligns to the capital value, hence the models described in the diagram have leveraged at least £2billion of private finance into this sector. 15 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.
  16. 16. This document is confidential and prepared solely for Deloitte LLP is a limited liability partnershipyour information. Therefore you should not, without registered in England and Wales with registeredour prior written consent, refer to or use our name or number OC303675 and its registered office at 2 Newthis document for any other purpose, disclose them Street Square, London EC4A 3BZ, United Kingdom.or refer to them in any prospectus or other Deloitte LLP is the United Kingdom member firm ofdocument, or make them available or communicate Deloitte Touche Tohmatsu (DTT), a Swiss Verein,them to any other party. No other party is entitled to whose member firms are legally separate andrely on our document for any purpose whatsoever independent entities. Please seeand thus we accept no liability to any other party www.deloitte.co.ukabout for a detailed description ofwho is shown or gains access to this document. the legal structure of DTT and its member firms. ©2011 Deloitte LLP. All rights reserved.
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