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Social Housing Decarbonisation Fund Wave 3

On 13th May 2024, the Department for Energy Security and Net Zero (DESNZ) confirmed the details of its competition guidance for Wave 3 of the Social Housing Decarbonisation Fund. The funding has a total value of around £1.25 billion.

The announcement marks an important step in the UK’s journey towards decarbonisation so we have dedicated this section to providing an overview of the official guidance on SHDF Wave 3. As a specialist in this field, we always welcome the opportunity to discuss how we can support registered social housing providers with their application(s).

As we explain below, there are two new routes through which applications can be made: the Strategic Partnership and Challenge Fund routes. An early understanding of SHDF Wave 3 and how best to plan an application via the two routes will be important in maximising the opportunity for applicants.

The final documents will be published when applications open – i.e. the guidance, application form, and FAQs – together with the draft Grant Funding Agreement and Data Sharing Agreement.

Key Dates

Delivery Window
1st April 2025 to 30th September 2028
Applications Open
Summer 2024
Applications Close
Late Summer 2024
Successful Projects Notified
Late Summer / Early Autumn 2024

Grant Expenditure Profile

FY 2025/2026
40%
FY 2026/2027
40%
FY 2027/2028
20%

Application Limits by Property Type

Minimum property numbers:
100 per application *
Non-social homes within a bid
30%
Non-social homes within a block/terrace
70%
Homes at or above EPC band C within a bid
10%

* (Eligible social housing properties. EPC band D-G.)

Two Application Routes

SHDF Wave 3 funding will be made available via two separate funding routes: the Challenge Fund and the Strategic Partnership. As an experienced service provider, we can help clients with applications via either route.

Challenge Fund Route

The Challenge Fund has been designed for most applicants to access. Funding will be available in principle for bids that have met the minimum standard, and it will facilitate a phased approach to delivery.

Minimum property numbers per application: 100 eligible social housing properties (EPC band D-G). The following section explains more about eligibility, minimum property numbers, bid requirements, bid assessment criteria and more.

Strategic Partnership Route

Strategic Partnership will be led by organisations that can deliver retrofit on a large scale (circa 4,000 properties) and at lower cost due to their experience, expertise and well-established networks.

SHDF Wave 3 Guidance

Funding Aims

DESNZ had previously stated that the fundamental aims and policies of previous Waves would remain unchanged. In summary:

  • The focus will remain on bringing homes up to an EPC rating of band C or better, by 2035 where feasible.
  • There will continue to be a 50% match-funding requirement.
  • Supported works must aim to reduce CO2 emissions from social housing, and support progress towards Net Zero 2050.
  • Proposals must seek to tackle fuel poverty by improving the energy efficiency rating of social homes rated below EPC band C, thereby reducing energy bills. (Tenant energy bills must not increase as a result of the retrofit works, relative to what they would otherwise have been.)
  • Works should improve the comfort, health and wellbeing of social housing tenants by delivering warmer and more energy-efficient homes.

More generally, SHDF Wave 3 seeks to deliver a boost to the green economy, to build skills and capacity in the sector, and to create thousands more jobs. It aims to extend the capabilities of the retrofit supply chain, to boost productivity and to incentivise innovation across the construction industry.

New Criteria and Policies

DESNZ has updated certain eligibility and funding criteria so as to remove barriers to delivery and to shape the future development of the sector.

In Wave 3, a new and additional emphasis is given to helping households to make the transition to low carbon heating. This is seen as an essential step towards achieving Net Zero. (See SHDF Wave 3 Draft Scheme Guidance 10 for more details about the role of low-carbon heating.)

Notable elements of the new policies for Wave 3 include:

  • The introduction of a single cost-cap (This is set at £7,500 per home. With match-funding, this sets the total grant available per property at £15,000. However, additional client capital investment can be used to increase spend per property.)
  • An additional low carbon heating* cost cap of £7,500 for off-gas grid homes. (Total additional funding of £15,000.)
  • An incentive offer for on-grid low carbon heating*. (A maximum grant of £20,000 for on-gas homes, which may account for up to 10% of homes in the bid. No match funding is required).
  • The option to average out costs-per-house across a whole project.
  • A cost-cap exemption for raising hard-to-heat homes to a C+ rating.
  • More flexibility on eligible measures. (Note, however, that the usual PAS 2030/2035 and MCS requirements remain.)

* Note: Eligible measures include air source heat pumps, ground source heat pumps, shared ground loops and heat networks.

For SHDF Wave 3, social housing providers should be aware that there are funding uplifts for specific measures, property types and circumstances. These can enhance the total funding available, giving project designers scope to introduce a wider range of energy efficiency and low carbon heating measures.

Principles, Eligibility and Exclusions

Homes previously treated under SHDF Wave 2 are not eligible for Wave 3 funding. However, those treated under the SHDF Demonstrator or Wave 1 may be included if they meet the Wave 3 eligibility requirements. In such cases, funding would only be applied to the installation of low carbon heating measures.

However, fabric-first principles will continue to apply, and so too will the focus on delivering best value for money. DESNZ notes that it expects the most efficient and robust technologies to be prioritised. Applicants should seek to minimise the risk that measures will need to be replaced in the future. As before, applicants should seek to take a whole-house, area-based approach so as to maximise efficiencies and economies of scale.

Other retained Wave 2 policies will include:

  • The option to include up to 10% of homes rated EPC C+ within applications where low carbon heating measures are being installed.
  • The option to apply the inclusion parameters for EPC C+ properties to infill properties, so as to encourage the adoption of an area-based approach.

Eligibility to Apply

Individual and consortium applications will be permitted through both funding routes. Bids should be submitted via the online application portal. (Please note that a separate application will be required for each route).

Applications can be submitted by local authorities, combined authorities, registered providers of social housing and registered charities that own social housing. They can apply directly or as part of a consortium.

Applications by arms-length management organisations (ALMOs) that are not registered providers can only be made as part of a consortium bid. Such consortia must be led by an eligible organisation.

For advice about forming or leading a consortium, prospective applicants are encouraged to engage with ‘RISE’ – the Retrofit Information, Support and Expertise service. Alternatively, they should engage with contractors and supply chain partners with experience of delivering successfully and at scale.

SHDF Wave 3 Application Support

As one of the UK’s most experienced, tier 1 decarbonisation contractors, we can offer expert support with bid preparation for both the Strategic Partnership and the Challenge Fund routes. We have a long and successful record of supporting large clients and consortia at the strategic level, and we are successfully delivering twenty SHDF-funded retrofit schemes, valued variously between £2.5 million and £25 million.

Offering end-to-end retrofit project support, we can:

  • Provide retrofit consultancy and SHDF application support
  • Help to analyse your existing housing stock
  • Identify properties for specific retrofit approaches in order to maximise funding
  • Review existing property energy / carbon data
  • Evidence property energy / carbon outcomes
  • Produce budget costs and programmes
  • Provide access to fully developed regional and national supply chains and SHDF partners
  • Undertake mixed-tenure (owner-occupier/private landlord) property acquisitions
  • Provide Smart Home Technology solutions
  • Provide innovative private finance solutions to encourage infill / private property uptake

In addition to our own experience and expertise, our clients can also take advantage of the skills and resources of our sister companies:

  • Sustainable Building Services – retrofit decarbonisation turnkey solutions provider (tier 1 contractor)
  • Sustainable Energy Services – retrofit service consultancy, consumer funding and fintech provider
  • Sustainable Smart Technologies – residential smart technology solutions
  • PermaRock Products – decarbonisation products supplier

Together, we can help you meet, exceed, and evidence all the key priorities and assessment criteria for the Strategic Partnership and the Challenge Fund routes. That includes developing strategic fit, delivery forecast, commercial / delivery assurance, building capacity in retrofit delivery at scale, delivery of low carbon heating, and innovation.

Innovation

Much of our recent innovation has aligned with these priorities and criteria. In early 2024, for example, our point-of-sale finance solution for home retrofits was awarded nearly £1.8 million in government funding. Known as “POST-FREE”, it seeks to make residential retrofit decarbonisation projects more affordable for homeowners and landlords. This helps us to promote a true area-based approach and ensures that in our work to decarbonise whole communities, no home needs to be left behind.

Smart Technology

Similarly, we have developed a new smart-social-housing platform that integrates sensor data, occupancy records, AI, analytics and client insights to support improvements in productivity, emission-reductions and tenants’ quality-of-life. It shows the impacts of Net Zero interventions, and helps clients to gain the maximum possible value from government grant programmes and to meet all relevant regulatory requirements.

Capacity Building

We are also addressing requirements to build skills and capacity in the sector. We have active collaborations with organisations such as CITB, Think Construction and The Retrofit Academy, through which we’re developing specialised courses and aligning our workforce with evolving industry-standards.

Work with us and we can help you to meet these and other essential assessment criteria. For support in preparing an application of your own, please contact us.

Why Choose SBS

We have a long and successful record of supporting large clients and consortia at the strategic level, and we are currently managing and delivering SHDF schemes between £1 million and £25+ million.

Offering end-to-end retrofit project support, we can provide:

  • Retrofit consultancy and SHDF application support
  • Analysis of your existing housing stock/property energy data
  • Specific retrofit approaches in order to maximise funding
  • Evidence of property energy/carbon outcomes
  • Budget costs and programmes
  • Access to fully developed regional and national supply chains
  • A mixed-tenure (owner-occupier/private landlord), area-based approach
  • Smart home / monitoring technology solutions
  • Innovative finance solutions for private property uptake
  • Providing expertise in blending public funding/private finance

We can help you evidence all the key priorities and assessment criteria for either route, this includes developing strategic fit, delivery forecast, commercial/delivery assurance, delivery at scale, delivery of low carbon heating, and innovation.

Consortium-Building

Given the new emphasis on scale and capability, consortium-building is likely to play an increasingly important role in bids for Wave 3 funding.

SBS can help clients to form consortia and to prepare collaborative bids, even when partners are geographically spread and their housing stock features a variety of archetypes. We have a proven record of delivering for social housing consortia.

For example, we are currently delivering the second phase of a £26 million SHDF-funded programme for Matrix Housing Partnership. It comprises seven UK social housing providers, which are widely spread across the South West, Southern/Central England and the West Midlands corridor. We are managing and delivering parallel workstreams on multiple sites.

Find Out More

For more details, please download our SHDF Wave 3 Guide or call us on 01695 553 920. Alternatively, if you’d like to talk to us in person, please visit us at stand D49 at the Housing 24 Exhibition, 25 – 27 June at Manchester Central.