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Phases 1, 2 and 3 of the Public Sector Decarbonisation Scheme: Accounting officer assessment 2022 (HTML)

Updated 12 June 2023

Accounting Officer Assessment for Phases 1, 2 and 3 of the Public Sector Decarbonisation Scheme

Introduction

It is normal practice for Accounting Officers to scrutinise significant policy proposals or plans to start or vary major projects, and then assess whether they measure up to the standards set out in Managing Public Money. From April 2017, the Government has committed to make a summary of the key points from these assessments available to Parliament when an accounting officer has agreed an assessment of projects within the government’s Major Projects Portfolio.

This Accounting Officer Assessment considers Phases 1, 2 and 3 of the Public Sector Decarbonisation Scheme, following the approval of their Full Business Cases. I have made the assessment as the Accounting Officer for the Department for Business Energy and Industrial Strategy (BEIS).

Background

The Public Sector Decarbonisation Scheme provides grants for public sector bodies to fund heat decarbonisation and energy efficiency measures. It aims to reduce direct emissions from buildings, directly contributing to carbon budgets and to the ambition in the Net Zero Strategy and the Heat and Buildings Strategy to reduce emissions from the public sector by 50% by 2032 and by 75% by 2037 on the path to net zero by 2050.

Phase 1 of the Public Sector Decarbonisation Scheme provided £1 billion in grants over the financial years 2020/2021 and 2021/2022 as part of the Chancellor’s Plan for Jobs 2020 commitment to support the UK’s economic recovery from COVID-19. It aimed to support up to 30,000 jobs in the low carbon and energy efficiency sectors and reduce carbon emissions from the public sector.

Phase 2 of the Public Sector Decarbonisation Scheme provided £75 million of grant funding for the financial year 2021/2022. It had a stronger focus on heat decarbonisation than Phase 1 in order to deliver greater carbon emission reductions. It supported the public sector in taking a ‘whole building’ approach when decarbonising their estates.

Phase 3 of the Public Sector Decarbonisation Scheme was awarded £1.425 billion of grant funding over the financial years 2022/2023 to 2024/2025 through Spending Review 2021. This funding will be allocated through multiple application windows. The first Phase 3 application window, Phase 3a, closed to new applications in November 2021. The guidance notes and the application form for the next application window, Phase 3b, were published in August 2022 and the Phase 3b application window is planned to open in Autumn 2022.

The Public Sector Low Carbon Skills Fund forms part of the Public Sector Decarbonisation programme and provides grants for public sector bodies to put in place a heat decarbonisation plan, providing them with information they need to develop future applications to the Public Sector Decarbonisation Scheme.

Both the Public Sector Decarbonisation Scheme and the Public Sector Low Carbon Skills Fund are open to public sector bodies in England and areas of reserved public services across the UK. They are managed by Salix Finance, a BEIS Non-Departmental Public Body.

Assessment against the Accounting Officer standards

Regularity

The Public Sector Decarbonisation Scheme is within the Department’s legal powers. The provision of financial support by BEIS to public sector organisations is carried out primarily under powers within section 98 of the Natural Environment and Rural Communities Act 2006. Under Phase 1 of the Public Sector Decarbonisation Scheme, grants to local authorities were also issued under Section 31 of the Local Government Act 2003. I have assessed the programme in view of relevant public law and procurement regulation and found it be compliant. The programme is supported by scrutiny from BEIS legal advisers to ensure best practice has been applied across the programme development.

Overall assessment: My assessment is that the regularity test is satisfied.

Propriety

Phases 1, 2 and 3 of the Public Sector Decarbonisation Scheme have been approved at Full Business Case stage by the BEIS Project Investment Committee and by HM Treasury. As a result, they have my approval to proceed.

Overall assessment: My assessment is that the propriety test is satisfied.

Value for money

The strategic aim of the Public Sector Decarbonisation Scheme is to keep the public sector on the most cost-effective route to deliver its share of Carbon Budgets 4, 5 and 6, including meeting the ambition published in the Clean Growth Strategy to halve public sector emissions by 2032 against a 2017 baseline.

There are well understood market failures impacting fossil fuel use (e.g. the health and climate change impacts of fossil fuel use are not reflected in their market prices) and there are additional challenges specific to decarbonising public sector buildings. Prior to the introduction of the Public Sector Decarbonisation Scheme, there was almost no public sector investment in the decarbonisation of heating.

A range of options was appraised to combat this market failure and achieve the strategic aim of the Public Sector Decarbonisation Scheme. These included a ‘do minimum’ option in which funding from the pre-existing Public Sector Energy Efficiency Loans Scheme was recycled, an option in which the Public Sector Decarbonisation Scheme was delivered through loans, and an option in which the Public Sector Decarbonisation Scheme was delivered through grants. Options were appraised using a value for money appraisal, a local impacts appraisal, a qualitative benefits appraisal, a wider/sustainability appraisal and a risk appraisal. The option in which the Public Sector Decarbonisation Scheme was delivered through grants performed the best in most of these assessments – in particular, this option was by far the most effective in terms of achieving direct lifetime carbon savings, in line with the strategic aim of the programme.

The benefits of this programme accrue largely from reduced direct carbon emissions. Other expected benefits include supporting jobs, generating energy savings for public sector buildings and improving air quality. The costs of the programme fall to BEIS and to public sector organisations. Key costs include operating and capital costs of measures. Energy costs and savings are also accounted for where measures change energy use or result in fuel switching. There is also an assumed level of optimism bias for measure capital costs.

Using established economic appraisal techniques consistent with HM Treasury’s Green Book, the programme has been assessed to represent the best value for money to meet the Public Sector Decarbonisation Scheme’s strategic objective, with a modelled benefit:cost ratio of 1.21 and net present value of £550m. It shows therefore a sound use of public funds.

Overall assessment: My assessment is that the value for money test is satisfied.

Feasibility

As a Government Major Project, the Public Sector Decarbonisation Scheme undergoes regular Infrastructure and Projects Authority-led Gate Reviews, which provide ongoing assurance on the scheme’s ability to deliver the intended benefits and outcomes.

In light of the approvals and recommendations received, I have assessed that programme delivery is feasible. The scheme’s delivery partner, Salix Finance, has the necessary capacity and capability to deliver the scheme. In flight monitoring of the scheme is in place, with clear channels for addressing emerging risks and issues.

Overall assessment: My assessment is that the feasibility test is satisfied.

Conclusion

As the BEIS Accounting Officer I have considered this assessment of Phases 1, 2 and 3 of the Public Sector Decarbonisation Scheme and approved it on 05 September 2022.

I have prepared this summary to set out the key points which informed my decision. If any of these factors change materially during the lifetime of this project, I undertake to prepare a revised summary, setting out my assessment of them.

This summary will be published on the government’s website (GOV.UK). Copies will be deposited in the Libraries of the House and sent to the Comptroller and Auditor General and Treasury Officer of Accounts.

Sarah Munby
Permanent Under-Secretary of State
5 September 2022

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