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Infrastructure blog

How to finance net zero delivery at a local authority level

01 February 2023

UK100’s policy and research officer, Zoe Roberts, examines financing net zero through the UK Infrastructure Bank and Local Climate Bonds.

How to finance net zero delivery at a local authority level
Bristol is one of the cities innovating to provide its residents clean energy. Image credit: Shutterstock

Local authorities are essential to decarbonising the way we travel, heat our homes, and power our economy.

UK government figures in the Net Zero Strategy estimate that of all UK emissions, 82% are within the scope of influence of local authorities.

Access to finance is a key cross-cutting issue for local authorities in delivering net zero across all sectors.

Local authorities have seen deep cuts to their budgets over the past 12 years, which have been equivalent to essentially a 20% cut in real terms.

Thus, it’s crucial that local authorities can access private finance and advisory support through the UK Infrastructure Bank, private-public partnerships, and local climate bonds in order to deliver their net zero ambitions.

UK100 is a network of local leaders who have pledged to lead a rapid transition to net zero with clean air in their communities.

We’re taking action against air pollution to protect people’s health and tackle the climate emergency, ahead of the government’s legal target.

The role of the UK Infrastructure Bank (UKIB)

UK100 posed the following question at the ICE panel debate on Financing Net Zero:

“What do you consider the role of the UK Infrastructure Bank to be in financing net zero and bringing together public and private finance?”

UK100 called for the establishment of a Net Zero Development Bank in 2020. We welcomed the UK government’s announcement of the UKIB in May 2021, with a dual policy focus to tackle climate change and support regional and local economic growth.

UK100’s report on Accelerating the Rate of Investment in Local Energy Projects (2020) identified the potential to unlock over £100 billion of investment in local energy systems by 2030 through public-private partnership.

This would require initial development funding of around £5 billion from the UKIB and additional funding for local authorities to increase capacity to manage such large capital projects.

Taking a phased approach

In its first Strategic Plan, released in June 2022, the UKIB confirmed that its local authority function will lend up to £4 billion for high value and strategic projects of at least £5 million.

The UKIB will take a phased approach to building its advisory function, with the first phase concentrating on running a number of targeted pilot projects in partnership with local authorities to test where and how it can add best value.

UK100 has convened workshops between its members and UKIB staff to ensure that the potential of the UKIB’s lending and advisory support for local authorities is maximised.

The chief executive of UKIB, John Flint, penned a blog for UK100 on how infrastructure finance can help local leaders unlock the transition to net zero.

Local leaders are seeking to deliver multiple interventions, simultaneously and at unprecedented pace.

In doing so they need to overcome well-known barriers to taking projects to investable stage – appropriate risk allocation, dealing with demand risk for new technologies, and of course longstanding capacity constraints and pressures in local government.

Access to appropriately structured finance can be part of, though never the entirety of, the solution.

John Flint, chief executive of UKIB

Barriers and opportunities

The UKIB has an important role in offering finance and support to local authorities to develop ideas into investable projects which could attract private investment and commercial revenue.

UK100’s report An Opportunity for the UK Infrastructure Bank to Accelerate the Pace of Net Zero Investment in our Cities (2021) examines barriers to local net zero investment, what support local government wants from the UKIB, and opportunities for UKIB support in three case studies - Leeds, Nottingham and Bristol.

UK100 made the following three recommendations to the UKIB in our Local Net Zero Delivery report on Finance:

  • Develop financing aggregation (financial instruments or enterprises that combine multiple investments, participants,projects, or sectors) approaches for local authorities that would help to reduce costs.
  • Ensure that the pilot projects invested in during the first phase of advisory support are from a diverse group of local authorities, as investment in rural infrastructure projects will be as important as that in cities.
  • Feed insights back to national government in order to inform policy change that will reduce project and programme costs.

Going forward, we hope to see the UKIB working with local and regional authorities to develop investable proposals for place-based net zero projects and programmes, providing development capital to help leverage additional private investment.

However, the UKIB has stated that it will only lend to high value and strategic projects of at least £5 million.

Other types of finance are needed for projects which are smaller or need to get off the ground faster, such as local climate bonds.

Local Climate Bonds

Local Climate Bonds can be issued by local authorities to raise money directly from the public. Anybody, whether a local resident or from further afield, can invest £5 or more via a crowdfunding platform.

These bonds offer a lower cost of funding than that offered by the main source of funding from central government and the Public Works Loan Board. 

Plus, investors can choose to donate their interest payments back into additional local climate projects.

These bonds have been shown to increase engagement of residents in local climate action and are a way of linking net zero projects to the communities which benefit from them.

The first Local Climate Bond was launched by UK100 member West Berkshire Council in July 2020 to help achieve the council’s district-wide net zero target of 2030, and raise £1 million to fund local projects that reduce emissions.

Schemes successfully implemented from these funds include:

  • a £520,000 solar PV project;
  • habitat restoration;
  • afforestation for flood alleviation projects; and
  • active travel infrastructure improvements.

Since then, five more local authorities have launched climate bonds in the UK, four of whom are UK100 members: Camden Council, Islington Council, Cotswold District Council, and Telford and Wrekin Council.

Councils innovating for the benefit of residents

The UKIB and Local Climate Bonds are two important ways of funding local climate action, as well as public-private partnerships pioneered by innovative councils.

Project LEO in Oxfordshire is exploring how growth in local renewables, electric vehicles, battery storage and vehicle-to-grid technology can be supported by a local, flexible and responsive electricity grid to ensure value for consumers and communities.

It’s a collaborative project involving local authorities, business, academia and social enterprises.

And Bristol City LEAP, which is a partnership between Bristol City Council and Ameresco Ltd, a renewable energy asset developer, owner and operator, to deliver more than £1 billion of investment towards Bristol becoming a zero-carbon, smart energy city by 2030.

The ICE wants to hear views from across the sector when it comes to financing and funding net zero.

Using the ICE Infrastructure Blog as the platform for debate, we are keen to hear opinions and thoughts on the main issues policymakers should be considering and addressing.

If you're interested in writing for the Infrastructure Blog, please email [email protected].

  • Zoe Roberts, freelancer, previously at UK100