Social Housing Net Zero Heat Fund - call for funding applications - 2022

The lead organisation will be responsible for all aspects of the management and delivery of the project accepting responsibility on for any funding and any associated conditions of funding.

Who can apply

Applications are welcome from zero emission heating projects within social housing projects that will be delivered in Scotland, with a project location, proof of technology concept and tenants identified and secured at time of submitting an application.

Only applications from Registered Social Landlords, Local Authorities and ESCOs will be considered.

Eligible projects must fall under the key themes within the call document.

Theme 1 - Zero Emissions Heating Systems for Social Housing across Scotland

Zero emission heat projects submitted under Theme 1 will be required to complete installation and commissioning by 30 March 2024 however we are willing to discuss projects with a commissioning deadline passed this. 

Theme 2 – “Fabric First” Energy Efficiency only projects

Theme 2 projects will not be able to match fund with loan funding and must be completed by 30 March 2024.

Mandatory criteria

The Social Housing Net Zero Heat (SHNZHF) fund is an outcomes and results-driven infrastructure investment programme, as such projects are required to meet the following mandatory criteria:

• the ability to meet at least one of the funding invitation priority themes
• the potential to deliver a significant reduction of greenhouse gas emissions (MtCO₂e) and energy consumption
• the ability to secure other sources of funding/finance that make a minimum of 50% contribution towards the cost of final delivery costs of the project
• the potential to have a positive and significant social impact on Scotland
• the ability to deliver zero emissions heating systems and energy efficiency measures that can provide savings for social housing tenants
• the provision of a clearly set out case for the requirement of and value added from grant support

Project stages

 Funding is only available for capital ready projects. Projects seeking funding for development support should apply to the Social Housing Net Zero Heat Development Fund. 

Financial model

We would expect financial modelling to include:

• robust financial modelling
• sensitivity analysis on the key project risks

Please ensure your financial model:

• ties in to the figures set out in the application
• covers the construction and commissioning period on a monthly basis and the operating period on a quarterly basis
• shows all expected capital expenditure, showing a monthly profile of the construction and commissioning phase
• shows all finance cashflows (debt/equity/grants/etc.), including a monthly drawdown profile of the construction and commissioning phase, interest payments, dividend and repayments
• includes all expected costs of the project with each line item shown separately
• is dynamic (i.e. calculations do not contain hardcoded figures) and allows for sensitivity testing of key assumptions (including inflation)
• includes a databook and assumptions

Anticipated CAPEX

CAPEX is an abbreviation for "capital expenditure". In relation to low carbon projects this is the overall build cost, which is intended to be the anticipated spend to acquire, upgrade or maintain depreciable and tangible long-term physical assets over the construction period of the project. If this figure is unknown, please provide your best estimate (this could be a value or a range).

What type of financial support is available to projects

SHNZHF support will be provided on a co-funded basis. This approach encourages the growth of co-funding and allows for risk-sharing between SHNZHF and zero emission projects. A shared approach to project investment also accelerates the delivery of projects and enhances the quality and delivery of the objectives. Please note that historic/previous project spend cannot be considered as part of co-funding arrangements.

The financial support represents a funding contribution of up to a maximum of 50% of total CAPEX costs up to £10 million. The project must be able to demonstrate through legally executed agreements it has secured a minimum of 50% match capital for the project before any SHNZHF offer of funding could be drawn down.

Type of Funds: Grant Support

A pre-grant condition, for all projects seeking grant funding through SHNZHF, requires projects to have secured all match funding before a final grant offer letter is presented to projects. Evidence of the match funding, through legally binding agreements, must be in place and will be requested as of the application process. Following confirmation of the match funding from the projects, the final grant offer letter will be signed by both parties at an agreed date, time and venue.

Enabling Support: projects may be considered for enabling support up to as contribution towards consultancy costs and project management costs, enabling costs will be established as part of the application process.

Eligible capital costs include:

• financial costs incurred for the purchase of physical assets;
• costs of project build, installation and construction;
• costs of project deployment and commissioning;
• non reclaimable VAT for eligible capital costs;

Ineligible project costs include (but are not limited to):

• costs incurred prior to the agreed project start date;
• costs for work undertaken after the contractual end of the project;
• costs and fees for feasibility, development and design for the project;
• staff costs where staff members are not contracted to work 100% on activities funded by SHNZHF capital support;
• notional costs and in-kind contributions;
• any VAT reclaimable by the grantee for eligible capital costs;
• any non- essential subsistence costs, meal allowances are not permitted;
• interest and service charges arising from hire purchase, leasing or credit arrangements
• advertising, marketing and entertaining;
• profit earned by a subsidiary or related enterprise or person(s) in providing materials, subcontracting, consultancy or trials/testing;
• Directors’ dividends;
• certification fees;
• inflation and contingency allowances;
• costs of printing operating, service and maintenance manuals;
• costs of licensing in background intellectual property when the intellectual property is being licensed from a subsidiary or related enterprise or person(s);
• training costs related to sales or distribution of the developed product, process or service;
• the purchase of land and buildings;
• the cost of preparing SHNZHF application;
• recruitment and relocation costs;
• other expenses beyond those outlined in the eligible cost section above;
• costs associated with purchase fees for necessary licenses or other consultancy fees;
• statutory activities including Grants In Aid (GIAs), consents and planning activities.

Please seek clarification from the SHNZHF programme team if you are unsure of the eligibility of project costs.

Subsidy control

All financial support provided under the Social Housing Net Zero Fund will be in compliance with Subsidy Control obligations. If the Grant (or any part or condition thereof) does not comply with applicable Subsidy Control obligations, Scottish Ministers may require immediate repayment of the Grant or any part of it together with interest at such rate and on such basis as may be determined from time to time in accordance with law.

Any queries regarding Subsidy Control obligations should be emailed to netzerosocialhousing@gov.scot  who will engage with Subsidy Control colleagues.

Business cases and feasibility work

We would normally expect applications for funding to be accompanied by some feasibility work and/or business case unless which demonstrates the suitability of the technology identified for the project.

Applicants should be able to identify the expected benefits that a project will deliver. These should be expressed in measurable terms against the situation prior to the project being delivered. Capital ready projects should show, where possible, quantitative benefits. These should be estimated e.g., CO2 reduction, quantum of energy supply and/or energy demand reduction in kw/h, and economic benefits in £ and jobs created.

Business cases provided with SHNZHF support should include the benefits that would be achieved by the project’s successful outcome, whilst also defining how the measurement of the improvement can be made.

Project plan

The project plan is used to forecast, track and monitor the progress and delivery of the project and resulting outcomes. This should include:

• timescales and sequences
• key dates for approvals and deliverables
• inter-dependency relationships

At capital stage this will include significant detail, breaking tasks down into sub tasks and highlighting interdependencies.

The project plan should also include details of the individual with responsibility for taking forward and completion of a particular task or project milestone e.g. the Project Manager or another names individual. This is to ensure clear lines of responsibility and provide SHNZHF with reassurance that the governance structure and processes in place to monitor project progress is adequate.

Consents and supply agreement

The type of consents and nature of issues will vary from project to project. Where more detailed information is available, we ask projects to provide in the application a fuller understanding of the consenting position to inform our assessment of project viability.

Consider the following and provide additional information where available:

• What consents/ licences/ third party authorisations are required for this project?
• Who is the consenting authority?
• Will the applicant for your capital call be the party applying for and controlling the consent/ licence application process, or will consents be obtained by third parties?

• If consents have yet to be obtained, at what stage are you in the application process? Is an inquiry a requirement of the application process? Is a planning obligation or other legal agreement with third parties a requirement of the application process?
• If consent has already been obtained, what is the timescale for implementation? Are there any outstanding conditions or obligation to be discharged prior to implementation? If, so please provide details. In whose favour have consents been granted? If to a party other than the applicant, what is the assignation process?
• Is your development consent limited in duration (e.g. 25 years, shorter period – may strike at assessment of longevity of asset).
• Have all land rights been secured for implementation of relevant consents?

Please provide any other relevant information about the consenting and/ or licencing requirements for this project which may be relevant to consideration of your application.

Please also provide details of any supply agreements in place with end users and/or network operators. If the terms of agreements are yet to be finalised, please provide signed heads of terms, a signed memorandum of understanding or similar.

Project risks, risk management and mitigation

The purpose of this section is to understand the risks associated with the project and understand how SHNZHF support can help manage and mitigate these risks. The applicant should highlight key risks associated with the project. Cover technical risks and commercial risks (e.g. significant cost overruns/project delays), but do not necessarily limit your analysis to these topics.

Please provide a copy of the project risk register. The items the risk register should include as a minimum are:

•  a unique reference
•  a description of the risk
•  probability of the risk occurring
•  impact on the project should the risk materialise
•  overall score (which will incorporate probability and risk)
•  an indication of how these will be managed and mitigated
•  score post mitigation
•  risk actioner
•  risk owner
•  current status of the risk

Estimating the carbon impact of a project

The application should contain robust evidence of the potential of the project to contribute to the reduction of greenhouse gas emissions in Scotland. This generally means an estimate of reduction in carbon dioxide equivalent for the project.

Carbon dioxide equivalent

The use of fuels causes emissions of carbon dioxide (CO2) and small quantities of other greenhouse gases– including methane (CH4) and nitrous oxide (N2O). For a given quantity of a gas, the equivalent quantity of CO2 that would be needed to give the same greenhouse effect can be calculated using its ‘global warming potential’. This quantity is quoted in units of kilograms carbon dioxide equivalent (kgCO2e) and factors are published by the Department for Business Energy and Industrial Strategy (BEIS). Greenhouse Gas Conversion Factor Repository -

The energy conversion factors are quoted as total direct per unit of fuel.

These factors are used to calculate the carbon footprint of the Business as Usual (BaU) case or conventional fuel source/s and the Low Carbon project proposal. The applications should clearly show the potential savings or carbon footprint reduction.

This can be calculated using the method below:

• business as usual energy use (kWh) x energy conversion factor for fuel source = Business as Usual kgCO2e emissions
• low Carbon Project energy use (kWh) x energy conversion factor for fuel source = Low Carbon Project kgCO2e emissions
• business as usual kgCO2e emissions - Low Carbon Project kgCO2e emissions = Savings in kgCO2e emissions resulting from Low Carbon Project.

Example: energy conversion factors 

Fuel Source	Energy conversion factor
Burning Oil	0.24677
Grid Electricity	0.21233
Biomass (Pellets)	0.01513

A district heating scheme is proposed for an area serving a mixture of social housing and public buildings that are off gas grid and currently heated by oil fired boilers. The annual heat consumption for the properties is 18,000MWh and the proposal is to serve these properties via a district heating network fed by a combination of a biomass boiler and a water source heat pump. 

Carbon benefit estimate:

Fuel Source	Conventional –	Energy	Conventional –	Proposed	Proposed
	Current/existing	conversion	Current/existing	kWh	kgCO2e
	kWh	factor	kgCO2e
			(A)		(B)
Burning Oil	18,000,000	0.24677	4,441,860
Grid Electricity		0.21233		4,400,000	942,745.2
Biomass		0.01513		7,000,000	105,910
(Pellets)
Total	18,000,000		4,441,860	11,400,000	1,048,655.2
Saving (A-B)					3,393,204.8

Project lifetime savings

SHNZHF will estimate lifetime CO2 savings based on appropriate persistence factors (PFs) to the annual savings.

What do we mean by additionality

You should use this section to describe the impact that SHNZHF support will have on progressing your project, this can be in terms of timescale, aggregation, size, use of technology, provision of expertise that could not be provided from existing resources. Would the project be able to go ahead without SHNZHF support?

Demonstrating the social impact of projects

The application should provide details of social impact associated with the project.  SHNZHF wishes to maximise the social impact from projects – positive benefits felt by the wider community of an area.

Such impacts may include local regeneration, culture and heritage, social care, social inclusion, poverty mitigation, local services, and recreation. Identify any non-financial benefits which may be realised through the project and how these may improve quality of life or encourage behaviour change etc. For example, this may cover the number of beneficiaries, volunteers, learners, trainees, participants, or the impact upon local services or amenities. Consider any further qualitative benefits and list these as appropriate.

Fuel poverty

Higher fuel costs, lack of access to the mains gas grid, premiums on energy, a challenging housing stock and difficulty getting companies delivering energy efficiency measures to operate in some areas are a few of the difficulties faced by rural communities across Scotland and in particular the Highlands and Islands.

With so much of the grid network in Scotland ‘constrained’ – i.e. operating at full capacity or unable to take any more generation, grid reinforcement (to increase capacity) or network innovation (to allow more connection and network use without destabilizing the system) is central.

Communities across the Highlands and Islands and rural parts of wider Scotland face grid constraints which prevent them from maximising the benefits from their local renewable energy resources. As a result, communities have been investigating alternative models for using energy locally to derive both social and economic benefits for the region.

Within your application you should provide detail on the area where your project will be located and what the current level of fuel poverty is in that area – detailing what is the main source of fuel used and how your project will help to alleviate fuel poverty and how this could be replicated more widely across Scotland. Include information on the wider economic, social and community benefits your project will have from the alleviation of fuel poverty.

Fuel bills

Projects will be required to demonstrate a reduction or no increase in energy bills for their tenants.

Demonstrating effective tenant engagement

SHNZHF looks for applicants to demonstrate that tenant engagement is being undertaken. The degree of community engagement should be appropriate to the particular stage of the project is at the time of making an application.

Ideally, engagement should start as early as possible and should continue throughout the development phase of the project.

When planning initial consultation, it may be helpful to consider:

• what should be the geographical area to engage?
• within that area, who should be the appropriate contacts and communities of interest for consultation?

For more information on identifying stakeholders, see Scottish Government Good Practice for Community Benefits available at www.localenergyscotland.org/goodpractice

Match funding

For projects that successfully complete the application process, the SHNZHF will aim to offer maximum grant allowable of up to 50% of eligible project costs.

Projects will be required to provide 50% match funding, of which 30% of project costs can be DHLF and a minimum of 20% must be from their own capital reserves or agreed private financing. The use of DHLF will be optional as projects may decide to provide their own match funding from their capital reserves or from existing credit agreements.

Theme 2 projects “Fabric First” will not be able to match fund with loan funding and must be completed by 31st January 2022.

SHNZHF programme rules

The following rules form part of the agreement between your business and the Social Housing Net Zero Heat Fund, therefore, please ensure that you fully understand and accept the following:

• the lead organisation must ensure that proper and early warning is provided to the SHNZHF Team of any problems that may be developing with the organisation/project;
• the lead organisation must agree with the SHNZHF Team the nature and frequency of returns needed to keep it adequately informed of the project's situation;
• the lead organisation will retain ownership of the Intellectual Property Rights of any feasibility study that receives procured support through SHNZHF but agree to license, where necessary, use of the information and findings from the study to the SHNZHF with the exception of any material that would be deemed commercially sensitive;

Information to help you apply

To apply for support from the SHNZHF Programme you should follow these steps:

• ensure you have read and understood the privacy policy
• ensure a senior member of the lead organisation such as the Chief Executive or Director als supports the application.  The need to sign the applications and provide their name and position in the form on page 12
• use the checklist to ensure you have provided the required documentation
• submit the application to netzerosocialhousing@gov.scot

Help to identify the right support for your project

The SHNZHF programme is a working with Zero Waste Scotland and sector specialists. It is expected that information about supported projects will be shared as required on a confidential basis between the partners without affecting applicants’ commercial sensitivity.

How will my application be assessed

Your completed application will be assessed by the programme team who will agree whether your application satisfies the requirements for project support under the funding invitation.  A panel will sign this off.

Changes in circumstance

Any changes in circumstances, which would affect your project’s eligibility to apply to be supported through the SHNZHF fund must be reported to the SHNZHF programme team immediately. Failure to do so may lead to the application being rendered invalid and support to be withdrawn.